legacy vs BRS

[noiboy1987]

Hoping to get some good advice.

My situation - Active Duty and unfortunately didn't start contributing to my TSP until 8yrs in (kicking my ass still) and am currently at about 11 yrs in. That leaves me with 9yrs left to contribute. My question is should I stay in the current system (legacy) or should I switch to the BRS and get that extra 5% match. I currently contribute 10% so that would put me at a "15%" contribution each month. Everyone says its a hands down question and I should stay with the legacy and get that 50% pension vs doing the BRS and getting a 40% pension. The reason I ask is because the people that tell me this, I don't think realize that I'm not getting an impressive G fund return. I'm getting a 20% + return each year now thanks to this amazing website and group of people. So is the BRS 5% match extra money for me at a 20% + annually worth the 10% decrease in pension?

Things to consider: I will be 38yrs old when I receive my pension, and also plan to get a federal job after the AF so that way I can keep contributing to my TSP.

Any advice is greatly appreciated.

[jackyl33]

Stick with Legacy, that extra 10% pension is for the rest of your life, I know the daily strategies on tspcalc look amazing, but a 20-30% return every year is impossible, if it was so easy why would anyone need to work. I think timing the market works some of the time, not most of the time. Good luck to you.

[twarr3]

Depends, 10 percent of 1000 is 100 for life. TSP money will keep growing. I continue to work for my tsp. At this point my pension is great but not as much as tsp.

[crondanet5]

noiboy are you vested in the old military retirement system?

[Dana1962]

Aspire to something greater than federal employment after your military service. Take/put all you can into the TSP but be ever watchful knowing your government may want to take it from you at anytime in the future.

[Jokerswild]

Noi, in my opinion, stick with legacy and keep putting 15% of your pay into TSP while actively making IFTs that continue to make you >20% if you plan to retire at 20. This way you don't lose any money from your pension AND you'll continue to grow a nice nest egg for when your able to withdraw it. The BRS is a great program regardless of some people's opinions because it takes care of fed employees even if they don't get to retire and leave with something. Plus, especially with the help from this site, you could compound that amount from the beginning of your career, you can contribute less of your own income because government gives up to 5% and reach an amount more significant than what the legacy currently has. You're at the midway point, due to that, if you were to switch to BRS now, you would need to grow your TSP account to at least 300K to simply match the pension income you would have had under legacy assuming you live to 75. Hope that at least gives you something to consider.

[evilanne]

Before making a decision, you should calculate it based on actual dollars and what that 5% match would earn with different assumptions for future rates of return in comparison to the 10% retirement pay. Under the legacy, you don't have to do anything to receive that 10% (which includes COLA).

For those not planning on retirement from the military, BRS becomes a better option. What happens if you don't make it to retirement for whatever reason. What's the chance that you won't make 20 years?

[Aitrus]

Lots of good advice from the folks here, Noi. I think you're lucky to be getting it, a lot of members aren't even asking the question.

What I'm telling my guys is this:

"Assume you are going to retire as an E-7 with 20 years. How much more will you make in retirement at 50% vs 40% pension? Now look at the 5% matching. How much will that be over the next X years until you retire, and how much will that 5% match grow in the stock market by the time you retire?

Will the 5% match, plus the growth, be enough to equal or overcome the difference in the 40% vs 50% pension? Don't forget to include any re-enlistment bonus you might get under the BRS program as well. Once you figure all that out, you'll have your answer as to whether or not it'll be a good move for you.

Of course, this all assumes that you plan to make a 20+ year career out of the military. If not, then the new BRS is probably the better option because if you end up getting out you leave with something. On the other hand, if you first wanted to get out but then later decide to stay in, you still have a decent retirement package coming to you under the BRS."

[Navig8tor]

Here's what you need to do. By the way, I just retired after 30 years on active duty so I'm familiar with the all three current forms of military retirement.

This involves doing some simple math. When you see the numbers, you'll be able to make the decision based on your own circumstances. However, I think it's pretty clear.

Decide what pay grade you think you can achieve and hold for 36-months before you reach retirement eligibility. You have to be High-36 if you're looking at a 50% retirement. You say you have 9 years remaining; that gives you 6 years to make the target grade (or higher). I don't know what rank you are so I can't say what ultimate pay grade is attainable. However, if you're a E4 and expect to make E9 in 6 years, that is probably an unrealistic expectation. Pick an attainable pay grade and bust hump to get there inside 6 years. If you make it higher, great...at least you'll be able to generate an educated opinion based on your numbers at a lower pay grade. Work your numbers from that hypothetically attainable pay grade, the pay grade at which you expect to retire.

Example numbers (rounded to nearest dollar): An E5 at 8 years makes $37,512/yr in base pay. 5% of that is $1876. That's the "agency match" for the year. An E-9 over 20 years earns $72,828. The agency match on that is $3,641/yr. That said, if you're currently at the lower end of the pay scale, you're really not getting much of a match with the BRS. Even if you were an E-9 now (and had 9 years to go), 9 cumulative years of agency match on your salary, with only 2-year longevity raises and assuming no yearly pay raises, comes in at is $32,769. Granted, that's FREE MONEY that presumably will continue to grow while it remains invested. Seem enticing...but that's what the government wants you to think. HOWEVER >>>>

A High-3 retired E-9 with 20 years of service (again, assuming no yearly pay raises after retirement) will gross $36,414/yr in retirement pay. If you go for this Blended Retirement System farce, you'll reduce that retirement pay by 10% and gross just $29,131/yr. Assuming no pay raises (they are never a sure thing): $36,414 - $29,131 = $7,283. You're 38 at retirement. Say your life expectancy is 85. Over the course of your lifetime (47 years beyond age 38), if you go the BRS route, you'll save the government money by giving up $342,301 in retirement pay just so you could bank $32,769 in agency matching funds derived from this BOMDIGGITY new "Blended Retirement System."

The flip side of this coin is your TSP investment. As with any investment, it's never a "sure thing." You could lose your shorts one year, or we could go into a Bear market and be in a pinch for several years. I'd argue that your military retirement is pretty safe. Yeah, you could could go with the BRS, put in 5%, get a 5% match and IF you earned 8% on it and didn't touch it, you'd have a very nice balance in your TSP in your 80's. However, you won't earn 8% year in and year out, and you'll probably start withdrawing in your 60's (instead of your 80's). You can do just as well putting money into your regular TSP and a ROTH (or a combo of both) and stick with your guaranteed 50% retirement.

While this is my opinion, I think the math proves the "smoke and mirrors" of this cockamamie retirement system. The BRS was designed to save the government money while appeasing today's generation of uninformed recruits with the appearance of "easy money" that they can take with them after they do 4 years and get out. So you "don't leave the service empty handed." The cold, hard truth of the matter is the Pentagon and Service Secretaries dang well know that 1st termer's don't make enough to invest, nor do they have the wherewithal to do so. For those who do, the outlay of "agency match" won't amount to much, but it will save the military BILLIONS by reducing the retirement pay of the 1% who do serve long enough to actually retire. You know, don't give up a Gazillion Dollar Raptor or two...take it out of the hide of those who desire to make a career of the military.

My advice to you is to remain on the 50% legacy retirement system and continue to pile as much money into your TSP as you can until you retire from active duty. Worry about getting an agency match when you retire and get a federal job. Keep that $342,000 in retirement pay in your pocket. Unless the government just totally collapses, that military retirement pay is about as "guaranteed" as it gets in today's age. That's the entire reason the BRS came to be...it cost's too much to pay people who "retire" in their late 30's and early 40's.

Good luck and thanks for your service!!

[evilanne]

Excellent post Navig8tor. Another consideration is that money put into your TSP is not available to you immediately if you retire in your late 30s, early 40s as is your retirement pay without penalty. Government matching is always traditional and taxed when withdrawn as ordinary income and a 10% penalty applies before 59.5 unless an exception applies. If you have any disability %age part of your 40% or 50% retirement payment is not taxable. The employment situation in 9 years is uncertain, which may or may not impact when you decide to retire but the employment options in the Federal Government or Private Industry could be totally different and there is no guarantee that you can go directly from the military to civil service--hiring freezes tend to get in the way at times.

[Navig8tor]

Excellent post Navig8tor. Another consideration is that money put into your TSP is not available to you immediately if you retire in your late 30s, early 40s as is your retirement pay without penalty. Government matching is always traditional and taxed when withdrawn as ordinary income and a 10% penalty applies before 59.5 unless an exception applies. If you have any disability %age part of your 40% or 50% retirement payment is not taxable. The employment situation in 9 years is uncertain, which may or may not impact when you decide to retire but the employment options in the Federal Government or Private Industry could be totally different and there is no guarantee that you can go directly from the military to civil service--hiring freezes tend to get in the way at times.

Roger on all...and since the hiring practices for the DOD and Coast Guard were changed in April 2016, folks leaving or retiring from the military are now restricted to applying for federal jobs ONLY WHEN THEY ARE WITHIN 120 DAYS OF THEIR SEPARATION DATE. Read that again...you can't even APPLY for a federal job until you are within 120 days of separating. That's also FINAL SEPARATION DATE...not terminal leave. That means if you see your dream job open 130 days before you separate, a job that you do on active duty and can retire on Friday and come back to work in khaki's on Monday morning at the same desk...you can't even apply for the position.

With federal employment, the bottom line is the best you can do now is HOPE there is an opening that you like and can apply for during your last 3-4 months on active duty. That said, make sure while you're plowing money into your TSP over the next 9 years that you're also plowing money into your bank account. I'd say put enough in your bank account to sustain yourself for two years if you're aiming for a federal job. The hiring process, even if you are offered a job can go on a looooooong time. I'm talking 6-9 months from application to Day#1 on the job. It isn't supposed to take that long, but it can and does.