Making the Most of the Blended Retirement System

On Jan 1, 2018, the long-standing traditional military retirement was officially replaced by the new Blended Retirement System (BRS). Unlike the old plan, which required no active decision making by service members, taking maximum advantage of the new plan will require making prudent financial decisions at several key career junctures.

The first and most critical of these decisions is whether – and to what extent – you should participate in the Thrift Savings Plan (TSP). You may be surprised to learn that less than half of all service members currently contribute to their retirement savings plan. But you should be aware of two powerful new incentives to do so. First, the Department of Defense is now offering matching contributions to those who do contribute – a dollar-for-dollar match for the first 3 percent and 50 cents on the dollar up to the next 2 percent. Second, the lifelong pension that can be earned by serving for 20 years or more is still around, but it has been reduced by 20 percent in the BRS. The best way to make up for that reduction is to invest at least enough in the TSP to earn the full match. 

Another important decision you’ll need to make is where to invest your money in the TSP. There are a number of options ranging from conservative to aggressive on the risk spectrum. The most common mistake made by service members is investing too conservatively. More money flows into the fixed-income G Fund than any other TSP investment option. Why is this a mistake? Because the object of investing for a retirement that is likely decades away should not be to avoid losing money, but to grow your money at a rate substantially greater than the rate of inflation. And the only way to accomplish this is by being willing to assume a reasonable amount of risk.

Here’s one more TSP-related tip: in addition to allocating a healthy percentage of every paycheck to the plan, set aside a portion of every small windfall that comes your way. This includes things like re-enlistment bonuses, combat pay and the mid-career continuation pay bonus that will be provided to BRS participants. By supplementing your regular contributions with these periodic lump sums, you can substantially boost the amount you accumulate over your career.

So how much should you invest in the TSP and how should you allocate your investments among the various options available? That depends almost entirely on your particular circumstances, goals and tolerance for risk. A knowledgeable financial advisor can assess your circumstances, help you set specific goals that are aligned with your values and even diagnose your risk tolerance. Then, armed with that information, they can work with you to build a comprehensive financial plan that incorporates the TSP and your other military benefits.

At First Command, we believe that the development of a financial plan should be the beginning of an Advisor’s relationship with a client – not the end. Our Advisors are well equipped to serve as personal financial coaches who will help you:

• Stay the course when the market gets choppy
• Adjust your plan when your circumstances or goals change
• Make the smart, informed financial decisions that are essential to long-term financial security

The Blended Retirement System is symbolic of a new era of military retirement that will reward those who actively engage in understanding their benefits and making informed decisions about how to best capitalize on them. And that’s exactly what a Financial Advisor who is well versed in military benefits can help you do.