There has been a lot of recent activity surrounding the new Blended Retirement System (BRS), and I don’t intend to reinvent the wheel and explain the whole system to you when there are some nice resources that already exist:
What I intend to do is give you a bottom line recommendation if you have a choice about using the current retirement system or going with the BRS.
If you know you are going to resign before you are eligible for retirement, you should select the BRS. Under the current system, you would get no retirement benefit, so that is a no-brainer.
If you are not sure how long you are going to stay in the Navy, you’ll have a tough decision to make. I’d read the above resources but also check out this article that discusses how flawed the BRS is:
If you know you are going to stick around long enough to be eligible for retirement, my personal opinion is that you should choose to stay with the current retirement system. There are a few reasons for this:
- The BRS shifts risk from the government to you. We buy insurance when there is a risk that we can’t bear ourselves. People buy health insurance because a huge hospital bill could financially ruin them. We buy life and disability insurance because if a breadwinner died or was disabled in our household we wouldn’t have enough money to continue our desired lifestyle. The current government pension system is like retirement insurance. When it comes to retirement, the largest financial risk you run is that you outlive your financial assets. Social security insures against that, but so does your military pension, which regular readers know I highly value. Although the BRS has a pension as well, it is reduced, shifting more of this risk to you.
- Shifting risk to yourself is fine if you invest diligently and aggressively and the market earns a decent return. The problem is that most people don’t invest diligently or aggressively and no one knows what the market return will be over the next 10, 20, or 30 years. There are many people who lack the financial education they need (go here or here to get it) and invest in the Thrift Savings Plan but keep their money in the default option when you sign up, the G Fund. There is nothing wrong with the G Fund and I have some of my own retirement assets invested in it, but it is not designed to earn a high return. It is designed to not lose money and beat inflation. In order to benefit from the extra TSP money that comes with the BRS, you have to earn a high return and will need to be smart enough to invest in something more aggressive than the G Fund.
- If you control your spending, live in a reasonable house, and drive a reasonable car, you can enjoy the higher pension of the old retirement system and fill up your TSP every year, enjoying the benefit of both worlds. We have routinely saved 30% of our pre-tax income for retirement during nearly our entire Navy career, invested aggressively, and reaped the benefits. And I have a retirement pension on top of that?!?! It doesn’t get any better than that.