The military’s new Blended Retirement System (BRS) has several bonuses that people don’t seem to understand completely. As one of the older pioneers of the BRS (I was at 10 years’ time in service when I switched), I have gotten to pave the way through some of these benefits.
Do you like how I said that like it’s a good thing?
It hasn’t been. Haha.
Take the continuation pay, for example. It took me three weeks of talking to my S-1, IPAC (admin center), and Pay and Disbursing, as well as emailing the headquarters Marine Corps manpower branch to confirm how I was supposed to elect to receive this benefit and ensure it was processed correctly. Part of this is because people don’t seem to be familiar with the new process yet, and part of this is just because COVID-19 currently has a lot of offices closed.
Having to ask these questions via email and wander around aimlessly trying to figure out who could sign my paperwork to receive this benefit was just as frustrating as you can imagine any military paperwork process is.
That being said, I’m glad that it was me who had to learn about these bonuses the hard way. Now I have the opportunity to produce content about it so that you will have a much smoother process!
To continue with our above example about electing to receive your continuation pay, it is actually a fairly simple process, which I will get into in a moment.
5% matching contribution
The one thing that everybody seems to understand the new Blended Retirement System is that you can receive up to a 5% matching contribution from the government. I’m glad that people understand at least this part of the BRS because the 5% match is a huge advantage for several reasons:
- It is an automatic 5% pay raise, assuming you contribute at least 5% of your paycheck to the TSP.
- If you only contribute 5% of your paycheck, it is an instant and guaranteed a 100% return on your investment.
- You get to keep the balance in your TSP, even if you exit the military after your first term.
This 5% matching contribution doesn’t seem like much to an E-1 in their first year of service who is only receiving $86.65/month, but at the other end of the spectrum, an O-10’s matching contribution would be $822.10/month!
To put that in perspective, an O-9 or O-10 with over 26 years of service will more than max out their annual Thrift Savings Plan contributions just by contributing 5% and receiving the 5% match!
Even for an E-1, the 5% match is an additional $1030+ per year contributed to their TSP, which after 40 years of compound interest can be quite significant.
By far my favorite thing about the matching contribution is that you get to take it with you when you leave the service. This allows service members who only served one or two terms to have a much larger nest egg when they reach retirement age!
Pros and Cons
As with everything, there are some pros and cons to the 5% match.
For example, the matching contribution automatically gets contributed to the traditional TSP, and you cannot change this. While there is nothing inherently wrong with the traditional TSP, I believe that for young service members, contributing to the ROTH TSP is more beneficial from a tax-advantage standpoint.
A pro is that the matching contribution automatically gets contributed to the Lifecycle fund that most closely matches the year you reach retirement age. That is leaps and bounds ahead of the days when your contributions automatically started in the G-fund. “Back in my day,” when your TSP allotments automatically started off in your G-fund, you could miss out on thousands of dollars’ worth of compound interest.
Take it from me…I’m one of those people who didn’t realize my contributions started off in the G-fund and lost thousands, if not tens of thousands, of dollars!
The amount of continuation pay you will receive varies based on your MOS and rank at the time you pass your 12-year mark. As I write this, I will be crossing the 12-year mark in 13 days and have elected to receive the continuation pay. Why wouldn’t you?
At this time, my MOS is receiving 2.5x our base pay, based on what my rank gets paid in the 12-14 years of service bracket.
Using myself as an example, as an E-6 with 12 years’ time in service, my base pay is currently $3,995.
$3,995 (base pay) x 2.5 (my continuation pay multiplier) = $9,987.50
$9,987.50 is a pretty awesome bonus if you’re planning on serving additional time in the military!
If for some reason you end up not reenlisting for a full four years, whether voluntarily or involuntarily, you will be required to pay back the prorated amount for the time you did not complete.
For example, if you received $10,000 continuation pay and then exited the military two years later, you would owe the military $5,000 for the time you did not complete the four years you had agreed to serve in order to receive the continuation pay.
Hopefully, I broke this down “Barney Style” enough for you knuckle-draggers out there! If you still have questions, please put them in the comments section down below so that I can answer them for everyone!
The Process of Receiving Continuation Pay
Despite how difficult it was for me to elect to receive my continuation pay, the process is actually quite simple.
Long story short, there is a Statement of the Understanding form you need to fill out, acknowledging that you understand what continuation pay is and that you either elect or do not elect to receive it. This form is different for every branch of service and can be found through your manpower affairs command or administration center.
Simply fill this form out, have your Officer in Charge or another Commissioned Officer sign as a witness, and then turn this form into your administration section. They will run it in what we in the Marine Corps call our Unit Diary – essentially your personal medical records – and then you will receive the continuation pay on or around your 12-year mark.
Below is a snippet from MyPay.gov showing my personal Leave and Earnings Statement. As you can see my continuation pay is scheduled to arrive on the paycheck after my 12-year mark. For example, I surpassed 12 years of service on August 18th, and am scheduled to receive the continuation pay on my September 1st paycheck!
That’s it. A pretty straightforward process that is overcomplicated because it is new and not fully understood by everybody in the military yet (typical of military paperwork processes).
Lump-Sum Retirement Option
In the old retirement system, retirees would immediately begin collecting their retirement pay and continue receiving it until they passed away. That’s all there was to it. There is nothing wrong with this system; in fact, our pension is one of the great benefits of serving in the military.
The BRS operates the exact same way but with one caveat. With the BRS, you have the option to receive a large lump sum at the beginning of your retirement, rather than just receiving the monthly checks.
This lump sum option of BRS gives service members choices at retirement. Service members covered through BRS who qualify for retired pay may be eligible to elect either a 25 percent or 50 percent discounted portion of their monthly retired pay as a lump sum in exchange for reduced monthly retired pay. Monthly retired pay returns to the full amount when the service member reaches their full Social Security retirement age, which for most is age 67.
If you do not elect to receive a lump sum, you’ll receive your full retired pay upon the date you become eligible. If, however, you do opt for a lump sum, you’ll need to decide if you want to receive 25 or 50 percent of your future retirement payments upon retirement. You may even choose between receiving one lump sum payment or annual equal payments – one a year for up to four years.
The downside to this is that you will only receive 50 or 75 percent of your monthly retired paycheck if you elect to receive the lump sum until you reach full Social Security retirement age and it reverts back to 100 percent of your retirement pay.
The biggest downside to receiving the lump sum is that it is discounted to the present value based on an annual DoD discount rate that is published in June of each year. For example, if the June rate is determined to be 6.99% (as it was the year of inception), that means your lump sum will be discounted by a 6.99% return. That is a fairly substantial discount and essentially means that you would need to invest your lump sum and earn a 6.99% return on your investment in order to break even on this discounted rate.
Lump-sum payments are also considered ordinary earned income and, depending on the amount, this might push you into a higher tax bracket.
Should you elect to receive a Lump Sum Payment?
For the vast majority of service members, taking the lump sum is probably not a good idea. Unless you are confident in your ability to earn more money investing your lump sum than the discounted rate at the year you receive the sum, you probably shouldn’t take it.
The worst thing you could possibly do would be to receive this lump sum and then blow the money on liabilities like a new car, hot tub, clothes, etc. Do not elect to receive the lump sum unless you intend to invest every penny in high yield investments. The only exception I can see to this rule would be if you used the lump sum to pay off very high-interest debt and are disciplined enough not to take out more debt in the future, then investing the money that you were paying on those debts.
You must notify your personnel office no less than 90 days before retirement if you would like to receive a lump sum. For members of the National Guard and reserves, you must notify your personnel office no later than 90 days before receipt of your monthly retired pay (which is around age 60).
Summary of Blended Retirement System Bonuses
The Blended Retirement System has many bonuses. Don’t believe the naysayers about the BRS. Just because it is different doesn’t mean it is worse.
Understand how to utilize each of these Blended Retirement System Bonuses to your advantage, and you will absolutely be able to have an incredible retirement…just don’t blow your money on dumb shit!
I think the BRS opens a lot of great doors for service members. You do need to ensure you know how to use the BRS to your advantage though!