If you're reading this, chances are that you are eligible for or will be automatically enrolled in the military's new Blended Retirement System (BRS).
As of Jan 2019, roughly 1 in 3 eligible active duty members opted into BRS, or about 400,000 troops. Adding the roughly 150,000 troops that entered active duty service in 2018 and were automatically enrolled in BRS, that makes 550,000 active members under the new system. And that number will continue to grow since everyone who joins the military on or after 1 Jan 2018 is automatically enrolled in BRS.
The difference between the High 3 (old) and BRS retirement plans are summed up nicely by The Military Wallet:
High-3 Plan:
50% pension at 20 years, plus 2.5% for each additional year served.
BRS:
40% pension at 20 years, plus 2.0% for each additional year served;
Plus matching TSP contributions of up to 5% of your base pay;
Plus Continuation Pay Bonus at 12 years of service, worth at least 2.5 times monthly base pay
So that's the summary of the big differences between the two retirement systems. There are lots of places to learn more about High 3 and BRS, and the DoD has also put together some quality calculators to help you determine exactly how much you'll have (and have to contribute) under each system. But none of those are going to look at BRS through the lens of FIRE..... which is why you're here!
So, lets talk about why BRS is a great system that gives you OPTIONS for your FIRE goals.
The key element of BRS is its flexibility. The old High 3 system gave servicemembers the opportunity to contribute to their TSP accounts (basically a government 401k) but did not mandate contributions or incentivize them with matching funds. Worse, the extremely valuable pension (discussed here) only vested if you served 20 or more years. That's right: if you serve 19 years and 364 days, you get nothing from Uncle Sam.
The problem with this cliff-vesting model is that, according to DoD, 81% of service members in the legacy retirement system never make it to 20 years. The pension take rate is generally highest among Air Force officers (possibly because of long-term flying commitments and bonus contracts) and lowest among enlisted Marines. Anyone who doesn't make it misses out on even basic retirement assistance. And those that stay in past their initial service term often call the 20-year retirement "golden handcuffs" that keep them serving through less desirable assignments or when they've lost motivation... instances when they might prefer to get out.
The Blended Retirement System seeks to change this system of haves and have-nots. By automatically putting 1% of base pay into each and every servicemember's TSP -- whether they contribute or not -- everyone is guaranteed to have a little bit saved for retirement. Servicemembers are also automatically enrolled to contribute 3% of their base pay to the TSP -- a nice way to begin the lifestyle of automating savings! After 2 years of service, if members opt to contribute more to TSP, the government will match up to 5% of base pay. All of this money belongs to the member regardless of when they choose to leave the military and it gets to grow over the course of their whole working career, capitalizing on the power of compound interest.
Of course, TSP is primarily a "normal" retirement focused investment vehicle. And FIRE is all about hitting financial independence early. Good news: BRS doesn't take away the amazing military pension benefit! It just reduces it slightly, from 2.5% per year served to 2%. If you factor in the continuation pay incentive that the military offers to keep folks in a bit longer, you may end up further ahead than if you were under the traditional system.
When it comes to FIRE, all of this means you have options. If you were locked in under the old High 3 system and had been slow to save, you may be "forced" to stay in longer (or work after you get out) in order to make ends meet in retirement. It takes 26.5 years of service to get a $10,ooo/month pension for an O-5.... which means you would be retiring at 48.5. Maybe that's not your FIRE goal -- you want to raise your children full-time or do some extreme travel while you're in your 40s. Or maybe you don't want to be locked into the military that long -- your family doesn't want to deal with the PCSs and deployments anymore or you have a passion for another career. Or maybe you CAN'T stay in that long, because of promotion setbacks or medical issues. There are so many reasons the 20-year system doesn't work for everyone -- as 81% of military members can attest!
So at its heart, the Blended Retirement System gives you options with you FIRE future. Saving early, with a match from the government, preserves your freedom to make decisions to support your specific FIRE goals. Doug Nordman, at The Military Guide, calls BRS “a lifestyle decision masquerading as a financial decision.” He's absolutely right: enrolling in BRS is about preserving a variety of options for your future. And what could be more FIRE friendly than that?
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