Blended Retirement System Continuation Pay Details

The Air Force released PDSM 17-88 (dtd 30 November 2018) giving more information on the Calendar Year (CY) 2018 Blended Retirement System (BRS) Continuation Pay.  The continuation pay is a critical piece of the BRS and a key component for members struggling with the choice of opting in to the BRS or staying with the current 50% at 20 annuity.  Continuation pay is for active component and reserve component on active guard reserve Title 10 orders who:

• Are covered under the BRS (they will have to opt in on 1 Jan 18)
• Completed 12 years of service
•  Are able to obtain 48 months of retainability

The continuation pay for CY18 is 2.5 times the member’s monthly BASIC PAY.  It’s important to note that this is for basic pay only.  Many military members go straight to their LES and look at their gross pay and use that for bonus and retirement calculations.

Military members call it the “hump” after 10 years of service and it typically means we plan on staying in for 20 years—especially for those married with kids.  To take this pay, a military member will have to opt in to the BRS and will have the reduced annuity to 40% and only have 8 years of “saving” with the matching TSP contributions.  The military member will have a 4-year active duty service commitment, so the member will be in for 16 years after taking the continuation pay.

RECOMMENDATION:  Based off this information, and for people having to make the choice in the next couple of years, my recommendation is:  If you’re at 12 years, and know 100% sure you will retire from the Air Force, you should stick with the current 50% annuity retirement system. 

If there’s any chance you’ll get out prior to 20 years, then the continuation pay, plus 4-8 years of TSP contributions can be a nice separation bonus.  If you don’t opt into the BRS and separate before 20 years, under the current system, you get nothing but your unmatched TSP contributions to that point.  Current available information states very few of us will actually do 20 years, so not taking the continuation pay and getting the matching contributions, puts you at risk at separating with nothing.    

Blended Retirement System Basics

This post helps you understand the Blended Retirement System (BRS) basics.  Do you, now, or will you, supervise new enlisted military members or new officers?  Are you fluent on all the details of the new BRS that take affect starting 1 January 2018?  I suspect most of us aren’t.  Without going into all the details of the BRS, here are some things you need to know as a Supervisor or Commander.

Tell your new military members to save AT LEAST 5% of their paycheck to the Thrift Savings Plan (TSP) so they can MAX out the DOD contributions.

• Every new armed forces member will receive a DOD contribution of 1% of their salary to the TSP after 60 days of service.  This is automatic and the member will not have to do anything.
• All DOD TSP contributions belong to the member.  This means that even if they only do 60 days - 19 years, and don’t qualify for the “annuity”, they keep their DOD TSP contributions.  This is one of the key characteristics of the BRS.  Before the BRS, military members received nothing, but their own TSP contributions, if they did not complete 20 years of military service.
• If the member contributes 5% of their paycheck, they will receive an additional 4% (10% total, 1% from the automatic contribution) in DOD contributions.  This 5% DOD contribution is FREE money.

To adjust their contribution rate, they’ll need to go to MyPay (https://mypay.dfas.mil) à Traditional TSP and ROTH TSP à Change the contribution % to 5 (more is ideal).

• I’m hoping that supervisors at all levels discuss personal finances with their new members in the first 30 days of arrival at a new assignment.
• For 90% (my own opinion) of all new personnel, the ROTH TSP is the best option.  There are some exceptions of why a Traditional TSP is a better option for young personnel.  One exception is for lawyers that have massive school loans and the payments are income dependent.  A Traditional TSP lowers your Adjustable Gross Income (AGI) and lowers the payments.

Once they’ve changed their contributions to 5%, tell your new military member to go to www.tsp.gov, get a PIN, and then adjust their “portfolio allocation.”

• The “G” Fund is the default fund.  A lot of people I’ve financially helped didn’t know that their TSP contributions have all been in the G fund.  The 10-year rate of return is only 2.63% for the G fund, compared to the S Fund’s 8.13%. (https://www.tsp.gov/InvestmentFunds/FundPerformance/annualReturns.html)
• If you don’t know anything about the individual funds, then I recommend your new military member put all their money into the farthest out LifeCycle Fund.  As of 2017, the L2050 is the farthest out LifeCycle Fund.

There are other changes that they should keep track of.

• If they plan on doing 20 years or more, they need to know that the “annuity” went down from 50%, to 40% of their base pay.
• Depending on their career field, they should be on the lookout for continuation pay near their 12-year mark.
• If you supervise military members that have to face the opt-in, then I recommend you discuss with your services’ Family Readiness Center and talk to a trained BRS counselor.

Lastly, tell your new military members that saving money, staying out of debt, and investing will lead to financial success in the future.

• If you or your new military member is looking to start a financial journey, I encourage reading this article on my other website, the Financial Genome Project, at http://financialgenomeproject.net/where-to-start/.