Author Topic: Should you choose the U.S. military's "blended retirement system"? (Read 12058 times)

Nords

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As you may have heard, the 2016 National Defense Authorization Act has passed the laws for the U.S. military's blended retirement system. It takes effect in January 2018.

Servicemembers (and those who join before 2018) are grandfathered under the current retirement system. Servicemembers who joined after 2005 (and before 2018) will have the option to convert to the blended retirement system.

It's early days. The Department of Defense still has to implement the law, and then the Defense Finance and Accounting Service has to modify their computers. The TSP has a lot of work to do, although many provisions of the military blended retirement system are similar to the software of the civil-service TSP contribution system. I'm skeptical that everyone will be lined up at parade rest waiting to open the doors on 1 January 2018, but I'd like to be pleasantly surprised.

Here's a one-page summary of the blended retirement system. I haven't seen it yet on a public DoD server but it's been spotted on my daughter's ship and on a USCG server. It has a DoD logo on it so it must be legit, right? Right.
http://the-military-guide.com/wp-content/uploads/2015/12/Blended-military-retirement-graphic-color.pdf
It's also attached at the bottom of this post.

Here's the highlights:
Don't join the military to get rich.
Only 17% of servicemembers earn a pension.
The blended retirement system was requested by the other 83% who feel that 20-year cliff vesting is unfair. (Career counselors see cliff vesting as a "retention incentive".)
DoD is saving billions of dollars by offloading at least 20% of their pension fund accrual contributions in exchange for cash-basis matching TSP contributions, the "continuation pay" obligation, and any suckers retirees who take the lump-sum option with their pension.
Mandatory Thrift Savings Plan enrollment. (Currently less than half of servicemembers even have a TSP account, let alone contribute to it).
Default contributions of 3% (not enough for a full DoD match), hopefully to the TSP's L2050 fund.

Recommendation:
If you think youre staying on active duty for at least 20 years, then stick with the current High Three retirement. "Think" means "still feeling challenged & fulfilled after 14+ years".
If youre pretty sure that youre leaving active duty before 20 years then take the blended retirement system.
If you fail to maximize your TSP and IRA contributions, and fail to invest the continuation pay, and fail to invest even more in taxable accounts, then it really doesn't matter which retirement plan you choose because you're still going to be working a bridge career... and it might be a very long bridge career.

Here's the blog post:
http://the-military-guide.com/2015/12/17/should-you-choose-the-military-blended-retirement-system/
It includes the advice I gave to my daughter. She's in the middle of her third Groundhog Day deployment so her morale is a little spotty right now...

If you're seeking a calculator project then I'd be happy to help beta-test it. (If you're developing a smartphone app then I recommend you contact Marine vet Matt Pagan at PopSmoke.net.) Part of the coding challenge is that whatever you program now may change over the next couple years and could change again even after the system starts. Your calculator would also have to allow users to set their TSP contributions to various levels and asset allocations, and perhaps to choose various projected rates of return. For example, DoD's REDUX calculator suckered a lot of servicemembers by assuming that the Career Status Bonus was invested at an 8% APY... even though we know most of them went toward paying down consumer debt-- or buying pickup trucks.

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RFAAOATB

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #1 on: December 20, 2015, 02:54:49 PM »
It looks like the Reserve component has this choice to make as well. I'ld have to see the before and after points calculations for them to see how much a difference it will make on their retirement. They may be better off holding to the old retirement as long as they can.

The most important calculation is how much DOD match money would it take to make up for the reduction in pension? Wouldn't it be 5 times your annual pay over the course of a career? (4% withdrawal at 25x.2?) Is that a realistic outcome?

Travis

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #2 on: December 20, 2015, 06:57:19 PM »
I came on active duty in 2003. I'm a Major now and up for LTC in 2019. If I'm picked up I'll be in until 2023. If I'm passed over I'll be out in 2020 (promotion rates are getting really tight so I'm not counting on it). What concerns me at the moment is TERA is only authorized through 2018. If TERA isn't renewed I don't think I'll have a pension or a severance except for what I have in TSP in its current form. Or am I wrong?
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #3 on: December 21, 2015, 08:43:27 PM »
It looks like the Reserve component has this choice to make as well. I'ld have to see the before and after points calculations for them to see how much a difference it will make on their retirement. They may be better off holding to the old retirement as long as they can.
It's an interesting question, but the smaller pension starts later and has fewer years of COLA to make an impact.

The biggest impact on a Reservist's net worth would come from maximizing the DoD match and investing it aggressively in a long-dated L fund or in the I & S funds. It would also be easier to roll over to a Roth IRA to tap before the Reserve pension starts around age 60.

The most important calculation is how much DOD match money would it take to make up for the reduction in pension? Wouldn't it be 5 times your annual pay over the course of a career? (4% withdrawal at 25x.2?) Is that a realistic outcome?
I think it's worse than that.

DoD is assuming that 20% less money goes into the pension fund. Some of that money (but not all of it) will be given to servicemembers as a TSP match, to be invested by them in the most aggressive L fund. Instead of compounding the pension dollars in special-purpose Treasuries at interest rates below 2% APY, they'll consider that it's invested at 8% APY. The higher compounding means that DoD can give them a lot less less of the 20% that they've saved. DoD is sharing the savings, but I think they're keeping the bigger share of the savings.

DoD could be assuming that they'll only match enough to equal 1.5x-2.5x annual pay.

The problem is that servicemembers won't contribute enough to their TSPs for the match, and then they won't invest exclusively in an aggressive L fund, and then they'll earn less than 8% APY. Some of them will even spend the continuation pay on a pickup truck (as suggested by the graphic). Call it a "stupid tax".

I came on active duty in 2003. I'm a Major now and up for LTC in 2019. If I'm picked up I'll be in until 2023. If I'm passed over I'll be out in 2020 (promotion rates are getting really tight so I'm not counting on it). What concerns me at the moment is TERA is only authorized through 2018. If TERA isn't renewed I don't think I'll have a pension or a severance except for what I have in TSP in its current form. Or am I wrong?
We went through this in the mid-1990s. TERA was widely regarded as an ineffective downsizing tool. When it expires in 2018 I doubt that DoD would want to renew it, and even if Congress does renew it then the services might ignore it.

After a second failure to select to O-5, an O-4 would be at about 16-17 years. That's close to the 18-year point at which (guaranteed by federal law) servicemembers are eligible to remain until 20.

Federal law also gives the services the option to continue O-4s to 20, and most of them convene a performance board (just a record review) to recommend continuing or separating. The issue is that continuation makes the O-4 group a little bigger (although most of them are no longer competitive for promotion to O-5) which means there are fewer O-3s getting promoted to O-4.

A mitigating issue is that (due to their field grade) most of those O-4s are good candidates for staff jobs or training commands. If they're willing to take the crappy billets then frequently the services are willing to hold them against end strength.

By the time I failed my second O-5 promotion board, the submarine force had already cut too deep. Ironically I wasn't released to transfer to another community, but I wasn't considered "career material" to go to sea on a battlegroup staff. So I was continued to 20 and served until then at a training command. I was filling a billet that nobody else wanted and that the assignment officers would not fill, which made my CO/XO happy.

However a few years ago (2011?) the Air Force quickly separated about 140 O-4s who did not promote to O-5, so I can't predict the personnel cuts for the services.

The "good news" is that if you fail to promote twice and you're forced out before 18 years without TERA, you'll receive a lump sum of involuntary separation pay. That's roughly 10% of your annual (not monthly but annual) base pay x years served.
http://themilitarywallet.com/involuntary-separation-pay/
You'll also be eligible to affiliate with the Reserves or National Guard. Admittedly they may hesitate to take you in because you weren't considered promotable, but if you're willing to fill a crappy billet then you could reboot your career for a Reserve/Guard retirement.
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Travis

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #4 on: December 21, 2015, 11:43:51 PM »
This is my first draw down so this is all very confusing. I did the math and I'll be at 17 and change when the results of my second look will be published. With the draw down, changes in retirement, and worldwide turmoil there is no way to predict how things will look in four years so it's starting to make me a little nervous. I could easily FIRE just on an O-5 at 20 retirement, and probably FIRE based on an O-4 TERA retirement at 17 combined with the rest of my portfolio. The separation pay you and Militarywallet describe would be nice since it would come out to almost two years base pay, but I'll have to wait a few more years to see what the overall environment looks like.
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #5 on: December 22, 2015, 10:04:40 AM »
This is my first draw down so this is all very confusing. I did the math and I'll be at 17 and change when the results of my second look will be published. With the draw down, changes in retirement, and worldwide turmoil there is no way to predict how things will look in four years so it's starting to make me a little nervous.
You're absolutely right. It's impossible to predict the drawdown's political risk. All you can do is the best that you know how to do while avoiding blatant errors.

By 2020 I suspect all of the services will discover that they've "cut too deep for mission creep". I think both the Navy and the Air Force will be moving toward more automation (and more outsourcing) but that doesn't work so well for the Army and Marines. Even if you're not out there in an infantry battalion, there'll still be plenty of need for staff officers who can free up the "future generals" for them to be out there in their infantry battalions.

I'm pretty confident that a 17-year officer will be continued to 20, although some of that time may be served in Korea or Djibouti. Last year when the Army was flailing about in the Officer Separation Board cesspool, HRC eventually came to their senses (with a little help from some of the O-3s, me, the NYT, and Congressional inquiries) and made sure that officers who were close to the retirement line had a chance to serve to retirement. It was painful to watch the Army grope blindly toward doing the right thing, but they eventually did the right thing with extensions and waivers for most of the officers who'd earned it.

It'd be great to get to 20 and it'd certainly launch you over your financial finish line. However there's also the option of going to the Reserves for a few years or a civil-service bridge career or working a few years part-time in a civilian job. Even just the involuntary separation pay could get you close enough to take your time finding a bridge career or starting your own business.

You're almost financially independent, and you'll get there one way or another. You're up by two touchdowns with five minutes left in the fourth quarter. You can't take your eye off the ball, but if you stick to your game plan then you should be able to hold on to your lead.

Of course you also can't rip any gaping holes in your record for a continuation board to trip over. Don't get a DUI. Don't fail physical-fitness tests. Don't get fat. Don't yell at your CO or the general in public. Don't have sex with your troops or their spouses, even if they want you to. Don't get an Article 15. Pretty basic guidance that you already know. You got this far without doing those things (right?), and the habits you've formed over all those years will get you to 20.

It'd be great to make the U.S. military so small that the State Department would actually have to do their own work without calling in airstrikes from DoD. It'd be great to preserve the personnel programs and the veterans' benefits even if we can't buy the latest shiny ordnance. However I suspect that the military feels that it's cut as deep as it can, Congress might agree with them (especially in military-heavy districts) and from now on the career servicemembers will be zealously protected. There'll still be political football and a lot of uncertainty, but you'll probably be dealing with the headaches of battalion command screening before you have to worry about the other possibilities.

And if your chain of command can't see the value of continuing you until 20 then screw 'em. You've saved/invested enough money to reach financial independence on your own terms.
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GrayGhost

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #6 on: December 26, 2015, 07:42:42 PM »
Junior military O here. I am in that sweet spot where I can choose which system to opt for, and I am leaning heavily toward the blended system, largely because I think the odds of me doing my 20 are very low. I love wearing the uniform, but there are other things out there, and it's a pretty personal decision that I don't think is relevant to this thread.

Anyway, I made an Excel worksheet which shows that the traditional system is better if you do 20 and then get out. However, if you do 20 and then get out in the blended retirement system, you have a significantly larger nest egg, which is great if you want to do a cash purchase of a house or something like that. Furthermore, I don't know of very many Os who do 20 and then do nothing, so I imagine that even a low paying bridging career, or rewarding part time work will more than fill any monetary gaps you might have, as the difference between the blended retirement and traditional system only amounts to a few hundred a month... you still have more than enough to live on.
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libertarian4321

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #7 on: December 27, 2015, 03:36:15 AM »
Good to see there is finally something for the vast majority of us who aren't careerists.

The old system meant 17% got a fantastic retirement, and everyone else, basically got "don't let the door hit you in the ass on the way out."

This might encourage more "citizen soldiers" who serve for a few years, then go back to the civilian sector. Which is what the founders originally expected our military to be.

RFAAOATB

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #8 on: December 28, 2015, 02:12:09 PM »
Good to see there is finally something for the vast majority of us who aren't careerists.

The old system meant 17% got a fantastic retirement, and everyone else, basically got "don't let the door hit you in the ass on the way out."

This might encourage more "citizen soldiers" who serve for a few years, then go back to the civilian sector. Which is what the founders originally expected our military to be.

You still had the TSP to fund your own retirement. The lack of a match was the only thing missing. This is basically another kick in Defined Benefit plans, and in many cases Defined Contribution is better, but don't go around saying the blended system is finally something for those who get out early.

To illustrate my own ignorance when I first enlisted, my poorly worded TSP brief stated that a single $3,000 deposit was enough to fund a retirement. Since my bonus was 20,000 I think I put half of it in. Only later did I realize that it was in the G fund and I would have to move it to the target fund.

These changes will bring about a new round of TSP briefs. I have a feeling I will be giving one in the near future. What are the best and worst TSP briefs y'all have gotten?

Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #9 on: December 28, 2015, 02:46:23 PM »
... but don't go around saying the blended system is finally something for those who get out early.
Unfortunately I think that's exactly how tens of thousands of veterans are going to see it, and that includes the retirees who decide that they'd like to have the lump sum under their control as well.

These changes will bring about a new round of TSP briefs. I have a feeling I will be giving one in the near future. What are the best and worst TSP briefs y'all have gotten?
The "best" TSP brief is exactly that. I find that 3-4 slides and 20 minutes is enough to plant a seed before you lose the audience. (Talking to them for longer is not going to suddenly inspire them to sign up.) At minute 21 you let people know that they're free to hang out or to go to a computer to tweak their TSP allocations while you answer questions (with backup slides) for an hour. Of course for a few audience members that'll be "sign up for the TSP" and "go on liberty". But at least you planted a seed.

Here's a few resources that you're welcome to copy and use to design your own presentation.
https://bogleheads.org/wiki/Thrift_Savings_Plan
https://bogleheads.org/wiki/Military_finances
http://the-military-guide.com/2013/06/27/mixed-plate-tricare-back-pay-issues-early-reserve-guard-retirement/ The link to the PowerPoint slides is at the bottom of this post. Pull the slides you care about and use the rest for backups.
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Travis

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #10 on: December 28, 2015, 02:51:56 PM »
What are the best and worst TSP briefs y'all have gotten?

A predeployment financial class where the briefer spoke of 12% returns as his basis for comparison to CDs or cash (without specifying boring things like fund name or type). The briefer barely touched on the various funds in the TSP and his entire thesis was based around retiring at age 65-70. Now that I think about it, most of the professional TSP briefs looked like this.
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Sailor Sam

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #11 on: December 28, 2015, 03:22:45 PM »
Wait, sorry, super confused.

Right now the military has a 20 year cliff vest, with no TSP matching
- At year 15 we can chose CBS/REDUX for cash on hand, but that (greatly!) reduces the multiplier on the annuity
- or we choose High 36 instead, and the annuity multiplier is 2.5%.

Under the proposed system we'd get
- An automatic 1% base pay contribution to TPS starting in 2018
- An additional 5% match in TSP starting in 2018
- A cash payment at 12 years, which locks the service member in for an additional 4 years (but only if you hit 12 years after 2018?)
- At 20 years, an annuity with a multiplier of 2%

I know this should be easy, but for some reason I'm struggling to follow along. In 2018 I'll have 13 years of service. Sounds like a bum deal for me personally.

The best TSP briefing I got was from my Training Officer during OCS. In her immortal words 'put 8% in the box and sign on the line, or I will make your life unbearable."


act0fgod

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #12 on: December 28, 2015, 07:45:08 PM »
I know this should be easy, but for some reason I'm struggling to follow along. In 2018 I'll have 13 years of service. Sounds like a bum deal for me personally.

Which is why the government has said you are not even eligible to make a change. You are stuck with the current system. There may be some individuals who would prefer the new system but entered before 2006 (think physicians with years of training followed by years of commitment that go beyond 2018 but still plan to get out as soon as that commitment is up).

Individuals who joined after 2006 have an option to enter the new system. Individuals who enter after 2018 are stuck with the new system.

I'm not sure what date they are using for this "joined the military". I technically entered military service in 2002, commissioned in 2006, had a break in service (reserve time) and now back on active duty.

As far as the best briefing. We had an afternoon during my residency where a retired Col presented his investment philosophy. He did well relating facts to a number of young dentist, including a good overview of the TSP. He also used his personal information to give advice on what to do. He showed his investment portfolio with exponential growth after retirement and he indicated he was living entirely off his pension. I asked if his only son knew he was going to be getting a large inheritance.

Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #13 on: December 29, 2015, 08:12:16 AM »
Wait, sorry, super confused.
The blended retirement system will keep military bloggers, journalists, and financial advisors busy for years.

I know this should be easy, but for some reason I'm struggling to follow along. In 2018 I'll have 13 years of service. Sounds like a bum deal for me personally.
As you said, you'd want to stick with the existing High Three pension system. (There's a reason "REDUX" rhymes with "sucks".) Under the blended retirement system you would only get a few more years of TSP matching before reaching 20 years of service, and that's not much compounding time to overcome the lower 2% pension multiplier. You're better off sticking with High Three's 2.5% multiplier.

But this is why I'm eagerly awaiting a calculator-- so that we can put numbers on our estimates.

The best TSP briefing I got was from my Training Officer during OCS. In her immortal words 'put 8% in the box and sign on the line, or I will make your life unbearable."
We're going to call this system by its new name: "mandatory enrollment".

This time, though, the misery will come from attempting to disenroll from the TSP. The rumor is that the servicemember will have to go through extensive "informational counseling" before being able to get the chain of command's approval on their request to DFAS. The good news is that this tactic in the federal civil service system has led to a 98% TSP participation rate (not just signed up for an account but actually contributing to it) among employees who were hired within the last two years.

I just hope that DoD also includes a high-enough default contribution to obtain the full match, and makes the default investment the longest-dated L fund.

I know this should be easy, but for some reason I'm struggling to follow along. In 2018 I'll have 13 years of service. Sounds like a bum deal for me personally.

Which is why the government has said you are not even eligible to make a change. You are stuck with the current system. There may be some individuals who would prefer the new system but entered before 2006 (think physicians with years of training followed by years of commitment that go beyond 2018 but still plan to get out as soon as that commitment is up).

Individuals who joined after 2006 have an option to enter the new system. Individuals who enter after 2018 are stuck with the new system.

I'm not sure what date they are using for this "joined the military". I technically entered military service in 2002, commissioned in 2006, had a break in service (reserve time) and now back on active duty.
Nobody has seen the implementation of the legislation yet, but the "joined the military" date will probably be the Date of Initial Entry into Military service. It's considered the day you took the oath, got an ID card, and started duty. However service academy cadets/mids have a DIEMS date of the day they start at the academy while ROTC students don't get a DIEMS date until they're commissioned. Delayed Entry Program enlistees have a DIEMS date of the day they leave the entry processing site for recruit training, even if they signed the contract months before. I don't know enough about the military medical school system to speculate, but ideally you'd be able to find your DIEMS buried in your service record. Your Active Duty Service Date and your Pay Entry Base Date might coincidentally be the same calendar date as your DIEMS, but they're all separate concepts.

DIEMS was a big deal when the High Three retirement set a cutoff date of 8 September 1980. I was at USNA in 1978 and commissioned in 1982, but the 1990s conversion to a joint personnel/pay system gave all of our year group a DIEMS date of 1982. The Navy had to spend several years getting the records corrected and then getting the word out to retirees.

By the way if you're not already reading White Coat Investor, it's worth your time to consult with Jim Dahle on the financial aspects of leaving active duty. (He also posts occasionally at Bogleheads as EmergDoc.) I think he left after his active-duty obligation, too, but of course he's earning far more as a civilian trauma doc. I guess for dentists it would depend on the specialty and what the customers are willing to pay for their skills.

As far as the best briefing. We had an afternoon during my residency where a retired Col presented his investment philosophy. He did well relating facts to a number of young dentist, including a good overview of the TSP. He also used his personal information to give advice on what to do. He showed his investment portfolio with exponential growth after retirement and he indicated he was living entirely off his pension. I asked if his only son knew he was going to be getting a large inheritance.
Yeah. Of course doctors, lawyers, and university professors have no compelling reason to stop doing what they love. (My dentist must be in his 70s.) But then the challenge becomes spending the money fast enough, or finding a fulfilling way to donate it.

I know a few financially-independent people who are still working (because they're still challenged & fulfilled, and senior enough to expect autonomy) and they're donating their entire salaries to charity.
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Justin1911

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #14 on: January 05, 2016, 02:31:13 PM »
See attachment for a nice visual representation of the new retirement system.

Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #15 on: January 05, 2016, 06:42:53 PM »
See attachment for a nice visual representation of the new retirement system.
Justin, I'm hoping that v1.0 has been superseded by this v2.0:
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Guide2003

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #16 on: January 25, 2017, 07:48:39 AM »
An update on BRS just came out yesterday for the Coast Guard. Eligability is indeed based on the DIEMS:

"REF (A) states that all Service members with a Date of Initial Entry into Military Service (DIEMS) on or before 31 DEC 2017 are automatically grandfathered under the current retirement system. However, Service members in the following categories may be eligible to opt-in to the BRS:
(a) Active component members who entered military service on or before 31 DEC 2017 and have less than 12 years of service as of 31 DEC 2017, based on their Pay Base Date.
(b) Reserve Component (RC) members in a pay status who entered military service on or before 31 DEC 2017 and have accumulated fewer than 4,320 retirement points as of 31 DEC 2017.
(c) United States Coast Guard Academy cadets, who served as a cadet during the election period, 1 JAN 2018 to 31 DEC 2018, and who, once appointed as a commissioned officer or otherwise, began to receive basic pay.
(d) Delayed Entry Program members whose DIEMS is on or before 31 DEC 2017.
(e) Members of the RC in a non-pay status whose DIEMS date is on or before 31 DEC 2017 may be eligible
once they return to a paid status."

There is an "Opt-in course" that is mandatory for everyone, and a BRS Leadership course that is mandatory for E6-O10 and optional for everyone else. I've attached the "pocket card" that has talking points and different graphics on it.
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #17 on: January 25, 2017, 08:41:21 AM »
An update on BRS just came out yesterday for the Coast Guard. Eligability is indeed based on the DIEMS:

There is an "Opt-in course" that is mandatory for everyone, and a BRS Leadership course that is mandatory for E6-O10 and optional for everyone else. I've attached the "pocket card" that has talking points and different graphics on it.
Thanks. It's hard to believe that we've been discussing this for over a year. Good to see that it's all coming together.

Last week I had a question from a reader who'll be stationed in a designated combat zone for tax-exempt pay for two years, including 2018. She's planning on maximizing their TSP contributions (up to $54K) but in 2018 she'd have to consider the amount of the match against the $54K total. Good "problems" to have.
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davisgang90

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #18 on: January 25, 2017, 10:42:04 AM »
Nords,

Navy just posted about a new app for Sailors about the blended system. http://navy.mil/submit/display.asp?story_id=98535

App is called Navy Financial Literacy in the app store.

I downloaded the app and it appears legit.
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neverrun

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #19 on: January 25, 2017, 02:05:32 PM »
I'm civilian not military. We didn't really get formal briefs on TSP. Best advice I got, shove as much money as you can as soon as you can into this this thing called TSP and don't keep it all in the G fund.

ETA: The new systems looks to be very in line with the Special Retirement of Federal Civilians the military will get a 2% annuity per year vs the Feds 1.7%. Dan Jamison, a retired FBI guy who runs FERS.guide, would be a good resource for those on the younger end of the new system.
« Last Edit: January 25, 2017, 02:19:04 PM by neverrun »

Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #20 on: January 28, 2017, 09:55:07 AM »
Nords,

Navy just posted about a new app for Sailors about the blended system. http://navy.mil/submit/display.asp?story_id=98535

App is called Navy Financial Literacy in the app store.

I downloaded the app and it appears legit.
Thanks, Rich!

This is weird. My App Store can't find it. I've seen screenshots from other people who've downloaded it, but it's still not in my iPad's App Store directory.

I wonder if it takes a few days to propagate or whether Apple or the developer had to pull it for some reason.
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Guide2003

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #21 on: January 31, 2017, 02:04:55 PM »
My App Store can't find it. I've seen screenshots from other people who've downloaded it, but it's still not in my iPad's App Store directory.

I wonder if it takes a few days to propagate or whether Apple or the developer had to pull it for some reason.
I think they pulled it for a last minute fix. It's back in the store and if you had it already they just updated the version.
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #22 on: January 31, 2017, 02:53:31 PM »
My App Store can't find it. I've seen screenshots from other people who've downloaded it, but it's still not in my iPad's App Store directory.

I wonder if it takes a few days to propagate or whether Apple or the developer had to pull it for some reason.
I think they pulled it for a last minute fix. It's back in the store and if you had it already they just updated the version.
Ah, there it is! Thanks.

Finally.

Gotta start somewhere. This is way better than having GMT or FirstCommand doing the presentation.
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spendthriftsailor

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #23 on: February 03, 2017, 11:07:55 AM »
I don't know if anyone is still reading this post, but since the official calculator does not come out until March or April, I whipped up an excel spreadsheet which gives you a basic outlook of how much of difference there is between the old retirement system and the new blended retirement system. I hope you like and is good enough for now. Also suggestions are always appreciated! The spreadsheet is at spendthriftsailor.com.

mgnhrvth

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #24 on: March 10, 2017, 08:09:03 PM »
RE the BRS: I'm in the donut hole group of folks who can choose to opt-in and, at this point, I'm leaning towards opting in. Tried to game out the BRS vice current retirement system out - see attached. This is the old system minus the new system (so negative numbers mean you will end up with an NPV higher if you choose the new system and contribute the entire 5%). It’s still a tough call without a clear decision and subject to a number of assumptions (discount rate, annual govt raise, promotion O5/beyond being the main ones).

It seems to be a wash either way, especially when you consider this will get taxed. If there is a chance a service member may get out before 20yrs, I think I would take the new option. I'm hoping to make 20yrs on Active Duty; 10yr mark (mid-2018) lines up with my PCS window. Have a couple assignment possibilities (OCONUS etc) that would enhance my professional skill-sets and keep me engaged in areas I am passionate about. 'Worst' case would be transitioning to Reserve duty to hit the 20yr mark.

There’s a cost to being forced to save 5% in TSP but I don’t believe a major cost if you can live well within your means and have other pockets of money for big expenses. Any feedback RE this spreadsheet? Feel free to poke holes if I missed something (likely!)

A couple of notes - I'll be at 9.5yrs active duty service in DEC 2017; meaning I'd have 10.5yrs in the new system if I opt-in. I'll have approx $130,000 in my TSP account on 31 Dec, 2017. Other investments include Roth IRA @ approx $65,000 and Index funds $16,000 both with Vanguard.
« Last Edit: March 12, 2017, 04:38:44 PM by mgnhrvth »

Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #25 on: March 11, 2017, 05:58:11 PM »
That's an excellent spreadsheet! Even for just one promotion of one rank, the math of the 5% match gets complicated... and speculative.

I think the system is designed to be largely a wash, which is what you've independently concluded. Meanwhile DoD makes their money from putting aside less for the BRS than for the High Three retirement, and (frankly) from taking advantage of servicemembers who do not contribute enough for the match.

If there is a chance a service member may get out before 20yrs, I think I would take the new option. I'm hoping to make 20yrs on Active Duty; 10yr mark (mid-2018) lines up with my PCS window. Have a couple assignment possibilities (OCONUS etc) that would enhance my professional skillets and keep me engaged in areas I am passionate about. "Worse' case would be transitioning to Reserve duty to hit the 20yr mark.
No calculator needed for this issue.


A couple of notes - I'll be at 9.5yrs active duty service in DEC 2017; meaning I'd have 11.5yrs in the new system if I opt-in.
You're in the middle of the window for the continuation pay bonus. If you're feeling challenged & fulfilled and would stick around for at least another three years anyway, you'd be able to sign up for whatever bonus your service offers. The numbers are going to vary by specialty and by retention issues, but if you're going to stay around anyway then that continuation pay makes it a lot easier to maximize a TSP contribution.

The DoD BRS branch says that the continuation pay obligation can be served concurrently with other obligations (and other bonus programs) as long as those other programs permit concurrent obligations.
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Guide2003

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #26 on: March 12, 2017, 06:08:16 PM »
'Worst' case would be transitioning to Reserve duty to hit the 20yr mark.
Anyone know the implications of switching to the reserves WRT the BRS? It seems like your 5% match would be much smaller at that point than AD contributions, so if you plan on sticking it out til 20 you are best staying with the old system. Apologies for not having fleshed out the numbers yet, it just feels like the guaranteed pension would be better if you have the choice and plan on staying. I'm looking at leaving before 20 for personal reasons, so even one year of matched contributions would be better than the high three for me, but if I end up coming back to earn a reserve retirement, not sure if I would regret opting into the BRS at that point.
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #27 on: March 12, 2017, 06:43:11 PM »
'Worst' case would be transitioning to Reserve duty to hit the 20yr mark.
Anyone know the implications of switching to the reserves WRT the BRS? It seems like your 5% match would be much smaller at that point than AD contributions, so if you plan on sticking it out til 20 you are best staying with the old system.
Daniel Kopp of MilitaryLifePlanning.com is one of the beta testers for the DoD BRS calculator. This issue got some comments and is being looked at by the developers, although by now they've frozen the requirements and are trying to finish the bug hunt in the next couple weeks. I hope we're beating on that calculator by April.

In the meantime you can do a rough cut on the USAA Military Retirement Comparison Tool:
https://usaa.com/inet/wc/advice_retirement_blended_retirement_system?wa_ref_growing_retirement_brs
That's a public link; no USAA membership or login is required.

You're right that the 5% match is a smaller amount of money than active duty, yet you'd also potentially have 1-2 decades of compounding during "retired awaiting pay" between filing for retirement and starting the pension. The BRS would give you a portable sum that you could leave in the TSP or roll over to an IRA. In an aggressive high-equity asset allocation, the TSP (or your IRA) could compound that sum faster than the pay tables and longevity pay raises of the High Three or the BRS pensions.

One niche issue pointed out to me by a senior member of the Guard is that having to contribute to a TSP for the BRS match may actually force some highly-paid Reserve/Guard members to pay more in taxes. The scenario is that today they have a high salary in a civilian job, but they can deduct $18K/year from their civilian income by maximizing their 401(k) contributions. Next year if they opt for the BRS, they'd have to divert some of those 401(k) contributions to the TSP to achieve the full 5% DoD match. The result would be that they're contributing the same total amount ($18K) between the 401(k) and the TSP, yet the 401(k) contribution was reducing their taxes in the 28% income-tax bracket while the TSP contribution was reducing their taxes in "only" the 15% bracket. The net result is a higher civilian salary (in the 28% income-tax bracket) and paying more income tax. Admittedly this is very much a first-world problem, but it's very much an unintended consequence of the system. It's also an obstacle to retaining smart Guard/Reserve members who could potentially have a high-paying civilian career.

A bill has been submitted to Congress to allow people in this situation (especially dual-status technicians) to contribute $18K to their civilian 401(k) and another $18K to the TSP. I'm not holding my breath on its passage, but people are tracking it and they'll report its progress.

Once we can start hammering away at the math of the Reserve/Guard BRS with the calculator, we may find out that the analysis is a wash with not much sensitivity. Either way the servicemember who leaves active duty for the Guard/Reserve gets the camaraderie and other good things of the Reserve/Guard without as many hassles & frustrations of being on active duty.
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Guide2003

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #28 on: June 25, 2017, 03:17:09 PM »
Well, the official calculator has been out fora little while now: http://militarypay.defense.gov/calculators/BRS/

I'm not sure if anyone's identified break-even points with specific investment assumptions, but if they exist, you would need more than the 12 years of matching contributions that I'd get to make up for the 2.0% multiplier and not being able to touch the TSP until 60.

Also, I posted my first case study and the main question revolves around whether I should stick it out for 20 or take the BRS and jump to the civilian side. I'd be happy for any of your comments from the military perspective: https://forum.adm-karpinsk.ru/case-studies/career-switch-or-no-plus-taxinvestmentlandlord-stuff/
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Nords

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Re: Should you choose the U.S. military's "blended retirement system"?
« Reply #29 on: June 26, 2017, 06:34:19 AM »



I'm not sure if anyone's identified break-even points with specific investment assumptions, but if they exist, you would need more than the 12 years of matching contributions that I'd get to make up for the 2.0% multiplier and not being able to touch the TSP until 60.
I realize we've had this discussion before, but for the sake of those who find this thread on search: it's not only about the pension but also about the 85% who leave the military short of the cliff-vesting at 20.

Here's another lottery ticket: the continuation pay. DoD is leaving that up to the individual services, but they're all working on retention programs for those at the 8-12-year point. Some specific ranks & skills would get a bonus in exchange for a service obligation of "not less than an additional three years". That time could be served concurrent with other programs as long as the other programs allow it. The details are in paragraph 8 of the Implementation Policy at this PDF:
http://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/FINAL_BRSImplementationGuidance.pdf?ver=2017-02-27-084532-740
The services are still putting together their instructions and notices, so it's difficult to project the amount of the bonus. I sure hope they're out before the end of 2017 in order for people to make an analytical decision.

You know you can touch the TSP before age 59.5, right? Not only free of penalties but maybe even free of taxes?
http://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/

Also, I posted my first case study and the main question revolves around whether I should stick it out for 20 or take the BRS and jump to the civilian side. I'd be happy for any of your comments from the military perspective: https://forum.adm-karpinsk.ru/case-studies/career-switch-or-no-plus-taxinvestmentlandlord-stuff/
I'll write up a response and post over there.

I sure hope DoD keeps upgrading their calculator. They beta-tested it with a bunch of us milbloggers back in January, and they got a long list of suggested improvements.
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