Blended Retirement System

A Simple and Military Specific Summary of How to Save for Retirement

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I’m a huge fam of Jim Lange. He’s a noted expert in financial management, saving for retirement, and estate planning. He’s written a number of books, some of which you can get for free on this page. If I ever move back to Pennsylvania, I’ll probably have him do my estate planning so that I don’t have to worry about anything in retirement.

He sends out a monthly newsletter that I get via snail mail, and it usually has a useful article in it. If you want it, you can get it here.

A previous edition had a section called “Jim’s Point-by-Point Summary of the Whole Retirement & Estate Planning Process.” It was simple but extremely useful. Below in bold are each of the points he lists for people who are still working, which is most of my readership. Let’s take each bolded point and militarize it for you so it is specific to those of us in the military.

Contribute at least the amount to your retirement plan that your employer is willing to match or partially match.

For those under the legacy retirement plan, this is not an option. For those under the new Blended Retirement System (BRS), you need to contribute 5% of your basic pay to the Thrift Savings Plan (TSP) to get the pull 5% DoD match:

BRS Matching

You also need to make sure you contribute 5% every month and don’t fill the TSP too early. If you max it out in October, you won’t get a match in November or December.

If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match.

This is $19,500 in 2020. You can do an extra $6,500 if you are 50 or over. You can even do more if you are in a combat zone.

Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it.

If you are able to fill your TSP account, next you’ll need to open an IRA at an investment firm. Vanguard is the obvious choice due to their across the board low investment fees and unique non-profit structure, but you can do this anywhere (Schwab, Fidelity, etc.).

If you make too much to contribute to a Roth IRA, you just use the back door Roth IRA option.

Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.

With a traditional plan, you take a tax deduction now and pay taxes later when you take the money out. With a Roth plan you pay the taxes now and the withdrawals are completely tax free.

The general principle is that if you are in a lower tax bracket now than when you are retired, you do the Roth. If you are in a higher tax bracket now, you use the traditional.

No one really knows what the future holds, though, making this decision tough. Here are some resources for you to check out when making this decision:

Traditional/Roth TSP Comparison Matrix

Roth vs. Traditional IRAs: A Comparison

Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.

While the TSP allows loans, I refuse to link to any information about it. Once you put money away for retirement, you don’t borrow from it unless it is an ABSOLUTE EMERGENCY.

Period.

The Bottom Line

Here are the point-by-point summary of steps Jim Lange suggests you take if you are saving for retirement:

  • Contribute at least the amount to your retirement plan that your employer is willing to match or partially match, which is 5% of basic pay in the BRS.
  • If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match, which is $19,500 in the TSP ($26,000 if you’re 50+).
  • Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it. Use a back door Roth IRA if you need to.
  • Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
  • Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.

Free Military One Source Guide to the Uniformed Services Blended Retirement System

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You can get a free guide to the Blended Retirement System from Military One Source here:

A Guide to the Uniformed Services Blended Retirement System

Guest Post – Why Most of You Should Switch to the Blended Retirement System

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By Dr. Keith Roxo, LCDR, MC(FS), USN*

My graduating class from the Naval Academy has just reached 20 years and the first in zone selection board for O-6 recently occurred. I was not in zone. This is because I am an O-4…for the second time. Even though I never had any intention of leaving active duty after my aviation contract, I did that very thing. Life has a way of intervening in our plans and we have to live and work within that reality. My reality was that at 10.5 years my spouse wanted me out. In hopes of averting marital disaster, I acquiesced and left active duty.

When I first arrived at the Naval Academy in 1994, the military didn’t even have the Thrift Savings Plan (TSP). The first enrollment period began in October 2001, 3.5 years after I was commissioned and more than 2/3rds of the way through my initial service obligation. Despite that, I was hooked for a bit longer as I was serving a concurrent obligation for an aviation contract that was eight years after my winging. I signed up for the TSP and have been contributing ever since. I was about to enter my first squadron and I was in the profession I had always wanted. I had no plans on leaving the military. If the Blended Retirement System (BRS) was available then I would not have switched and I would have been wrong given that I did leave active duty with no plan to return. As it turns out, my marriage failed anyway and I rejoined the military as a second time Ensign at USUHS.

By the time most physicians are able to leave, they are around half way to a retirement, as I was. I frequently tell people they shouldn’t leave the military for the money. You are giving up the ability to transfer the Post 9/11 GI Bill, the pension and the health benefit. Those are very valuable. But you shouldn’t stay for the money either. There is a lot that can happen between initially signing up for USUHS, HPSP, HSCP or FAP and when your commitment is up. Half way to a pension means you still have half to go. No amount of money is worth it if you are completely miserable and can do well enough in the civilian sector.

There have been countless articles that discuss the BRS (Editor – all of which can be seen here and here) and who, among the eligible, should or should not switch over to the new system. There are also numerous calculators that can show you, as best as possible, the actual number breakdown. However, few of these articles and calculators can account for the realities associated with leaving the military or staying until retirement eligibility. You never know what the next few years hold for you and how your goals in life may change, just as mine did.

This is why I recommend to all eligible people, who aren’t committed to well past 10 years, to make the switch to the BRS.

*The views expressed in this blog post are those of the author and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense or the United States Government.

My Guest Post About the Blended Retirement System on the White Coat Investor

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Here’s a link to my guest post on the White Coat Investor about the new Blended Retirement System:

The Military’s New Blended Retirement System

BRS and HPSP Students & New End-of-the Month Personal Finance Summary

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We’re all starting to get pinged about the mandatory Blended Retirement System (BRS) training. While I’ve created a BRS resource center on the other blog I write for, the specific case of how BRS works for medical students was recently run to ground by Dr. Jami Peterson, the Head of Student Programs at BUMED. Straight from her, the BLUF is:

Any HPSP student who signed their contract BEFORE 01 JAN 2018 will have thirty days after signing into their FIRST active duty station to declare if they want to do the legacy retirement system OR the blended retirement system. For any students who start AFTER 01 JAN 2018 will automatically be placed in the blended retirement.

I’m also going to start providing an end-of-the-month summary of the personal finance articles I’ve written. Here they are:

2018 Thrift Savings Plan (TSP) Contribution Limits Announced

Invest in Stock and Bond Index Funds or ETFs

Make an Intelligent Rent vs Buy Real Estate Decision

Saving and Investing for Military Personnel by the SEC

Three Things Every Young Medical Student and Physician Needs to Know – Part 1

Three Things Every Young Medical Student and Physician Needs to Know – Part 2

Reader Poll – Continue Financial Posts or Not?

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As I announced here, I am now blogging for another site focused on personal finance for people in the military called MilitaryMillions.com. For example, here is a Blended Retirement System (BRS) Resource Center I created over there.

My plan was to transition all financial content to that new site because duplicating it in two different places is tedious and it is easy to follow the financial blog if you want that content. I’m curious, though, what MCCareer.org readers want.

For example, yesterday I found another PDF of frequently asked questions on the BRS. I ask you, the readers of MCCareer.org, what you would have wanted me to do with that PDF. Use the poll below so I get an idea of what you guys want: