Disclaimer: While this article is written for a brand new E-1/0-1 in the US Department of Defense, the lessons or concepts are still applicable for every rank and service.
Congratulations on joining the United States Department of Defense (DoD) and “Welcome Aboard” as they say in the Navy. Regardless of if you decide to serve for 4-years or 40-years, we here at BlendedRetirementSystem.com thank you for stepping up and volunteering to serve the American people and defend the Constitution of the United States of America. In joining the Department of Defense you now have been automatically enrolled in the Blended Retirement System (BRS).
The automatic enrollment (per BRS FAQ) is supposed to occur on average within 90-days of officially joining the Department of Defense. This may not always be the case for each individual due to unique circumstances such as delays during in-processing, government holidays/shut-downs, etc. However ultimately very soon after joining a branch of service within the DoD, you will be issued a Thrift Savings Plan.
The TSP is the primary mechanism provided by the DoD for servicemembers under the overarching Blended Retirement System to begin saving for retirement. The second aspect of the BRS is the military pension for those who are eligible (having served 20+ years or more). Combined, the TSP and the military pension make up the BRS. All servicemembers are provided the TSP but not all become eligible for the military pension.
So why does the DoD have the Blended Retirement System?
The brief answer is that historically 80% of those who join the DoD, did not serve the required 20+ years or more and were ineligible for a military pension. This large percentage of servicemembers were left with nothing for retirement, unless they actively saved themselves, and this was not a good situation for veterans. Other considerations such as cost savings for the government, careerism, and a “one size fits all approach” also were at play in the decision to shift from the legacy retirement system to the new BRS. For more information, you can find our article on “Why Did the Military Retirement Change?”
What this means for you who have newly joined the DoD is that you are automatically enrolled in the BRS. You do not have a choice to enroll in the legacy retirement plan, so you need to understand the BRS. Everyone’s circumstances and situation are different, so rather than giving specific advice on what to do, we here at BlendedRetirementSystem.com want to provide you with some important principles to follow as you see fit.
Principles
- Self-Education: Now more than ever, it is important that you take responsibility for your financial situation, future, and retirement. The DoD and each individual branch have a slew of resources available for you to educate yourself on the BRS and retirement planning. You must put in the time and effort to understand and make decisions on your specific financial situation.
- Play the Odds: Historically almost 80% of those who join the DoD do not serve 20+ years and are therefore ineligible for a military retirement pension. While you may think you will serve 20-years or more, it is statistically unlikely. With that data point in mind, it is important that you do not solely rely on the belief that your retirement will come from a military pension. Additionally, the government is going to provide you a match of up to 5% match in your TSP, leaving that money “off the table” and not taking it, even over a 20+-year career would be a large financial lost opportunity.
- Consider the Free Money: The US government is going to automatically provide a 1% match (OF what?) into your TSP. Additionally, the government will match up to an additional 4% of your TSP contributions. With a potential total match of 5% of TSP contributions over a potential 20+-year career coupled with average compounding interests, the value of this government match can be measured in the hundreds of thousands of dollars in your retirement fund. By not investing the minimum required to maximize the 5% contribution match by the government, the servicemember fails to capitalize on the opportunity presented.
- Start Early: While there are many varying concepts on how to fund retirement, one almost universally agreed concept across every expert is the value of time. Funding a retirement plan early is one of the most important decisions a servicemember can make. Even a small contribution of $50/month at the rank of E-1/0-1 can have the same impact over time as contributing $200/month at the rank of E-3/0-3. Compound interest and the value of time are some of the most fundamental principles of any solid retirement plan.
- Reverse Engineer the Plan: When thinking about your retirement, even at the rank of E-1/0-1 you can sit down and think about what type of retirement you are looking for. Do you want to have millions of dollars? Do you want to own several properties across the country or world? Do you want to have revenue-generating assets to your next of kin or do you want to leave money? Do you want to have the ability to donate to causes you believe in? Having a goal to shoot for and then figuring out how to accomplish that goal is important. Retirement may seem far off at the rank of E-1 in the Navy or Army, however, as they say “time flies” and making smart financial decisions early pays dividends later.
As always the team at BlendedRetirementSystem.com is excited to assist you and others like you in understanding the Blended Retirement System now and in the future. Please follow us on social media for updates and any new information we can provide.
