Five Ways To Make The Most of the Blended Retirement System

Everyone who has joined the military since 1 January 2018 is automatically enrolled in the Blended Retirement System – and many people who were already serving on 1 January 2018 made the choice to opt-in to the BRS. The BRS is a great retirement system that provides some sort of retirement benefits to over 80% of the people who join the military, even if they don’t make it to 20 years to earn military retirement pay. But while the BRS system is set up with proactive defaults, there are ways to ensure that you’re getting the most from the BRS.

Contribute Enough To Get The Thrift Savings Plan Match

One of the big features of the BRS is the government matching of a portion of your Thrift Savings Plan contributions. I hate the way this is presented pretty much everywhere, because often it’s unclear or misleading. So bear with me as I get wordy…

The government matches a portion of the first five percent of contributions that you make to your TSP account. But they don’t match it dollar-for-dollar on the whole five percent, nor do they match a portion for the whole five percent. They match dollar-for-dollar on the first three percent, then they match at 50% for the next two percent. The net result is that they match 4% for your first 5% in contributions. When you add this to the 1% automatic government match, that equals 5% of their contribution to 5% of your contribution, but it is important to know that it isn’t a straight-line thing.

Depending on when you joined the military, and whether you’ve ever suspended your TSP contributions, you are probably auto-enrolled at 3% or 5% right now. Check and make sure it is at least 5% so you’re getting your full government matching funds.

Roth or Traditional Thrift Savings Plan Contributions? That Depends

Government contributions always go into your traditional TSP account. But you get to chose whether you want your personal contributions to go into the traditional account or the Roth account, or even to put some in traditional and some in Roth. Your matching happens the same way regardless of which account you choose for your personal contributions.

The primary difference between these two types of TSP accounts is taxation. With Roth accounts, you pay taxes on the contributions now, but it grows tax-free and you don’t pay taxes when you take the money out. With traditional contributions, you get a tax break now, but you’ll pay taxes on that money plus all the growth when you take the money out later. There’s no single right answer for every situation – what’s best for you is going to depend on a variety of factors.

Pick Your Funds To Suit Your Goals

The TSP has five main funds, and then 10 special Lifecycle funds that feature an age-based mix of the five main funds. If you’ve never touched your TSP account, and you are in the BRS, you should be automatically contributing to the Lifecycle fund that correlates to your age.

Watch Your Continuation Pay Timeline

One of the features of the BRS is continuation pay, which is a lump-sum bonus paid mid-career, in exchange for a commitment to serve for an additional four years. The branches are allowed to set continuation pay bonuses between year 8 and year 12, though so far, every branch has chosen 12 years of service for their continuation pay bonus timeline.

You have to apply for continuation pay, and the process isn’t always clear, so keep up on your timeline and work with your personnel folks to ensure you don’t miss this important part of the BRS package.

The Blended Retirement System Is Just One Part Of The Picture

While you don’t want to miss out on the government funds, or the continuation pay bonus, everything else needs to be considered as part of your larger financial picture. Maybe you don’t want to contribute 15% to TSP because you’re paying down debt, or maybe putting money into a taxable account makes more sense for your specific situation. There’s no one-size-fits all answer (besides don’t miss out on matching funds and continuation pay.)

The Blended Retirement System is a great retirement plan even if you do nothing, but these small steps will ensure that you’re making the most of it.