Active-duty members of the United States Armed Forces have many options when it comes to retirement. As with any retirement plan, circumstances and rules change. Recent changes in rules, particularly in the newly-introduced Blended Retirement System or BRS, can cause changes to insurance plans and retirement preparations. Up to 2.2 million members of the military will be eligible to opt into the BRS, which means that many
What is the Blended Retirement System?
In 2016, the National Defense Authorization Act established the Blended Retirement System (BRS). It is called “blended” because it combines traditional military retirement pension plans with contributions to a service member’s Thrift Savings Plan. The BRS goes into effect on January 1, 2018.
Service members who entered the military prior to December 31, 2017 are still covered/grandfathered under the legacy retirement system. In other words, no one will be automatically enrolled in the new BRS. New service members entering the Armed Forces on or after January 1, 2018 will be automatically enrolled in the BRS.
In effect, the BRS is like a 401(k) plan. The Government makes matching contributions to the service member’s Thrift Savings Plan. Similarly, the performance of investments made by the Government is what determines the value of each plan.
The Benefits of the BRS
Unlike the legacy retirement plan in the military, the new BRS provides retirement benefits to a larger percentage of service members. It is estimated that up to 81% of members who join the military finish their commitment with no retirement benefits to show for it. Under the new BRS, about 85% of service members will gain benefits from the plan, even if they are not eligible for monthly retired pay.
Decisions about Enrolling in BRS
Service members are required to receive training on the new BRS and its implications. Retirement specialists and financial planners working for military-affiliated organizations like USAA may be able to help as well. The training and advice from retirement planning specialists will help service members make more informed choices about their plans. Specifically, these decisions revolve around investments, the Thrift Savings Plan, and the life insurance options available to service members. Life insurance is a critical component of the decision-making process. Currently, there is something called Servicemembers Group Life Insurance, or SGLI. The new BRS may impact what sort of benefits service members receive through the SGLI, or if they may need to add coverage to supplement what they may receive through the SGLI.
Life Insurance Implications of BRS
Service members worried about financial security need to take a hard look at the various options available and to determine if enrolling in BRS is the best financial move. These decisions are linked to current and future financial security, according to retirement planners who work with military members.
Take, for example, a retiree who has given 20 years of service to the military who unexpectedly passes away. In the legacy retirement system, he or she would be eligible for the full military pension, and family members would receive a monthly income based on time in service and salary. Under the new BRS, however, a much smaller income to surviving family members becomes part of the picture. Even things like contributions to the Thrift Savings Plan and Government match rates of 5% would not be enough to cover the income shortfall in many cases, which could be as much as 20% of a difference in current Survivor Benefit Plan payouts. Those military members thinking about opting in to the new BRS need to be aware that additional privately-purchased life insurance might be needed to cover any potential shortfalls.
SGLI and Insurance Considerations
Under the current SGLI plan, most service members pay 29 dollars a month for the full coverage of $400,000. That sounds like a lot of life insurance money, but some service members may choose to purchase additional coverage through private sources. There are many factors that influence how much additional coverage may be needed, such as:
- How much money will be needed to pay off any debts?
- How much additional money is needed for funding education for children?
- How much will be needed for any final expenses?
- What money will be needed for routine cost-of-living expenses such as housing, food, and transportation?
There are many insurance calculators that can help service members get a handle on these expenses and the need for additional coverage. Also, life insurance specialists are available to help guide smart financial decisions.
Retirees, or those soon to become retirees, need to also consider income replacement. This consideration includes future expenses and income as well as the amount needed to replace what was earned while working.
SGLI benefits are lost when a military member separates from the service. To cover these shortfalls, purchasing private life insurance is a valid option. Converting SGLI in a plan like Veterans Group Life Insurance is another option.
How to Decide if BRS is Right for You?
Time in service is the number one consideration when trying to decide whether or not to enroll in the new BRS. If you don’t plan on spending a full career in the military (20 years under current guidelines) or do not expect to serve long enough to qualify for retirement benefits, switching to BRS is most likely the best choice. BRS can benefit those members who separate from service prior to retirement, thanks to government-supported 5% matching contributions to the Thrift Savings Plan (TSP). Those contributions only apply if the service member contributes at least five percent of his or her salary to the TSP.
Service members who expect to make a long career out of their military service and plan to stick around long enough to qualify for pension benefits are better off remaining in the current system.
Final Words on the Blended Retirement System
Service members need to carefully evaluate their current situations before leaping into the BRS. By using retirement planning calculators, life insurance calculators, and getting help from financial professionals, he or she can make smart decisions about the financial future. Giving service to your country is an honorable pursuit, and military service members deserve to retire comfortably. BRS plans and legacy military retirement plans both work to provide financial benefits to service members, but there is still much homework to be done to ensure each plan is right for your specific needs.