Blended Retirement System Puzzle

[spaceman]

Happy New Year gents!

 

I have been trying to figure out for the past month whether I should opt in to the new retirement system or not.  I have a sort of nonstandard situation, which I'll explain, so finance at my base has no fricking clue and I haven't found anyone in the same boat as me to compare notes with.  I know many of you guys are financially way smarter than I am so maybe you can help me figure this out.

 

OK here's what I'm working with.  I'm an O-3 commissioned in June 2013, but I was enlisted in the Army reserve for several years before that.  My reserve time got me 7 good years towards a reserve retirement, and a few hundred AD days.  So, according to my SURF at least, my total active service date is August 2012.  My ADSC is up in September 2024.  I'm 31 right now.

 

So based on that, my options that I see are:

1. GTFO when my ADSC is up in 2024 (age 37).

2. Stick around for 20 AD years until 2032 (age 45).

3. Hang out until I have 13 AD years, add that to my 7 reserve years, get out and take the reserve retirement in 2025 (age 38).  Or switch to the guard at any time and accumulate some combination of at least 20 AD and guard/reserve years.

 

#1 and #2 are pretty obvious whether I should switch to the BRS or not.  #3 however seems like a reasonable compromise though since I wouldn't have to do a whole lot more to gain at least some kind of retirement.  I feel very unlikely to stick around active duty for 20 years anyway.

 

Now, correct me if I'm wrong, but the guard/reserve retirement is similar to the AD version where you get 50% of your high-3 base pay (or 40% with the BRS), with the difference being from the reserves you don't get paid anything until you turn 60.

 

I also don't know much details about how I'd go about getting a reserve retirement straight from active duty; most people do some AD time first then switch to the guard and I'd be doing the opposite.  I might try to go to the guard anyway when my ADSC is up so it's probably not a huge deal.  My point is I think I can at least get myself a guard/reserve retirement out of this thing.

 

Alright so anyway, I feel like scenario #3 is what I'm going to end up with.  I'm already putting 10% of my base pay into my Roth TSP, so if I switch to the BRS I'll get an extra 5% for free, which will continue from 2018 until at least late 2025 when I get out (so ~8 years of contributions).  Then after I get out it'll just sit there and grow until I become old.  When I turn 60 I'll start getting my little reserve pension which will be 40% of my old base pay.

 

Alternately, I don't swap to the BRS but do everything else the same.  Then I'll get 50% of my old pay starting at age 60, but I will not have gotten those 8 years worth of extra 5% TSP contributions plus their associated gains over the last ~22 years.

 

How can I estimate which will be worth more to me in the future?  I can't quite get the BRS calculator (https://militarypay.defense.gov/Calculators/BRS/) to match my situation, and my attempts to use other generic IRA calculators has left me more confused than when I started.  Any ideas?

 

Thank you for reading this diatribe if you made it this far!

[nunya]

2 hours ago, spaceman said:

Now, correct me if I'm wrong, but the guard/reserve retirement is similar to the AD version where you get 50% of your high-3 base pay (or 40% with the BRS), with the difference being from the reserves you don't get paid anything until you turn 60.

First problem is that the reserve pension won't give you 50% or 40% of your base pay, because you won't have 7200 points.  You'll have somewhere around 5,000, so your pension will be around 34% or 27% of your base pay.

As to your main question, you'll just have to model all of your assumptions in Excel.  

PV, FV, N, etc.  

https://www.tvmcalcs.com/index.php/calculators/excel_tvm_functions/excel_tvm_functions_page1

Don't forget to model healthcare expenses in your comparisons.  Tricare at 60 is nice; make sure you have some plan between 38 and 60.

Edited December 31, 2017 by nunya

[HossHarris]

Remember, BRS wasn’t created to benefit you. It was created to save money. If you have any inklings of going to 20 AD ( or equivalent in the guard or reserve) it’s an easy decision. 

[Termy]

Yeah i think you are looking at this wrong. You seem to ask “what should I do with my career?” Which is totally different than what retirement option to pursue. You need to know what your plan is then choose which retirement option works best. 

[spaceman]

4 hours ago, nunya said:

First problem is that the reserve pension won't give you 50% or 40% of your base pay, because you won't have 7200 points.  You'll have somewhere around 5,000, so your pension will be around 34% or 27% of your base pay.

Oh yeah, good point.  I guess I kinda assumed I remembered how the reserve retirement works, so I read up on it and you're absolutely right.  I have like 700ish points from my reserve time, so if I stick around until I have 20 total years I think I'd have something like 6000 points.

Thanks for that excel tool, this is way more useful than the calculators I was trying to use on USAA and Vanguard.  I gave it an initial wag and it doesn't really look like that extra 5% into my TSP is going to make as much of a difference as I thought since it'll only be 8 years of contributions and then stop.  I guess if I didn't have my prior service years it might make a little more sense...

As far as my career plan, I REALLY doubt I'll stay AD for 20 years, so I think shooting for the reserve retirement one way or another is a decent goal since it'll barely take me past my ADSC anyway.  That way I'll at least get some benefit from my dorky army reserve time besides mostly free college.

In a really perfect scenario I'll just get a sick airline job right away that'll pay so much that my AF retirement becomes trivial, but that's like a whole other thing

[HossHarris]

Don’t forget to factor medical into your equation. 

 

Tricare standard costs me nothing, and is a significantly better plan than the delta airlines gold option, which costs nearly $10k a year just in premiums. 

[Homestar]

9 hours ago, HossHarris said:

Tricare standard costs me nothing

Doesn’t Standard have an annual premium?

[HossHarris]

Prime has a premium ... about $600/yr for the family.  But There’s no out of pocket really. But you still have to do referrals, mtf, etc. Min total cost $600 .... max total cost is $600

 

standard has no premium. Go anywhere, see anyone, no referrals, no permission. Pay 20% with a cap of $3k per year for the whole family.  Min total is $0. Max total is $3k. No hassles. 

 

Delta gold is similar (20% ish co-pay). Costs over $650 a MONTH and the max out of pocket is $13k I think.  Seems to jive with other industries in the outside world.  I wouldnt expect healthcare costs to get any better either.

 

DON’T DISMISS the health care costs associated with your retirement / 2nd job.  Especially if you or your family (or potential family if may have kids someday) has any significant issues. 

[nsplayr]

My bar napkin math recommendations for guys is not to take BRS if you intend to make 20 good years (either AD or ARC) unless you're just starting out. If you're just starting out (~less than 4 years service) you have many more years of TSP matching contributions (16+) and there's just inherently more uncertainty on you actually making it to 20.

BRS is an outstanding deal for every single service member who doesn't make it to 20 years of service...they get something rather than nothing under the legacy system.

BRS is not a good deal for service members who make it to 20 years of service in general, other than those in the future who will have received the most years of matching contributions, always saved enough to receive the maximum match, and had good luck in terms of favorable market conditions.

BL: in your situation where it seems likely that you will make it to 20 either on AD or the ARC, I would not take BRS.

I myself am making the same decision, ~7 years active, ~3 years Guard, and extremely likely to serve at least 20 years. The market returns on those TSP matching contributions would have to be unrealistically high and consistent to make up for the lowered pension percentage.

[HossHarris]

Short time Guys that you recommend BRS to may not have a choice anymore anyways. 

 

So so it basically boils down to: “if you have a choice, choose traditional”

 

 

[spaceman]

Thanks for the insight guys.  I guess it does make more sense to stick with the traditional system.

Hoss, that's a good point about health insurance.  I worked as an engineer for a couple years out of college and I think I was paying like 10 or 15% of my salary just to cover myself.  Free tricare when I went AD was/is a big plus!

[nsplayr]

4 hours ago, HossHarris said:

Short time Guys that you recommend BRS to may not have a choice anymore anyways. 

 

So so it basically boils down to: “if you have a choice, choose traditional”

 

 

New folks that just joined the service in 2018 are automatically in BRS, anyone currently serving before today has a choice.

IMHO those on their first enlistment or otherwise with less than 4 years of total service should consider it whether or not they plan to stay until 20. Those who think they will make 20 with more than 4 years of service should probably stick with legacy. Those who are certain they won’t make 20 even in the ARC should choose BRS ASAP.

YMMV, I’m not a doctor, I just play one on TV.

Edited January 1, 2018 by nsplayr

[matmacwc]

3 hours ago, nsplayr said:

New folks that just joined the service in 2018 are automatically in BRS, anyone currently serving before today has a choice.

IMHO those on their first enlistment or otherwise with less than 4 years of total service should consider it whether or not they plan to stay until 20. Those who think they will make 20 with more than 4 years of service should probably stick with legacy. Those who are certain they won’t make 20 even in the ARC should choose BRS ASAP.

YMMV, I’m not a doctor, I just play one on TV.

He is a doctor, don't let him be shy.  BRS is a good deal IF PEOPLE SAVE MONEY.  I heard a stat the other day that 70% of Americans don't have 1 month salary in the bank "just in case" .  Gotta get that TSP match, and for those who do:

https://federalnewsradio.com/mike-causey-federal-report/2017/08/16000-self-made-fed-millionaires/

 

[herkbier]

i Know this isn’t BRS related, but since medical was brought up.. if my friend leaves AD at the end of his ADSC and goes to the guard/reserve, how do his medical benefits change? Let’s assume he gets hired by a Legacy or SWA. 

And.. if he finishes his 20 in the guard/reserve, does he have any medical benefits between then and age 60?

Edited January 2, 2018 by Herkbier

[nunya]

While you're ARC, pay a little bit for TRS/Standard.  It's good coverage.

Between ARC retirement and 60, you'll have to use your employer plan.

Edited January 2, 2018 by nunya

[MooseAg03]

Tricare also advertises a Retired Reserve plan if you are under 60. Premiums for a family are about $1,000 a month, but it has a low deductible. It states you are eligible as long as you aren’t eligible for Federal Employee Health Benefits due to some other government employment. Might be a better option than employer coverage.

https://tricare.mil/Plans/HealthPlans/TRR

[pawnman]

On 1/1/2018 at 1:44 PM, HossHarris said:

Short time Guys that you recommend BRS to may not have a choice anymore anyways. 

 

So so it basically boils down to: “if you have a choice, choose traditional”

 

 

Only folks joining after Jan 1 don't have a choice.

I'd tell people the same thing nsplayer said - if you're at < 4 years in, take the BRS and contribute the max to TSP.  And for the love of all that's holy, don't leave it in the default G Fund.  With less than 17% of the military making it to retirement, better to leave with a start on that nest egg instead of leaving with zero retirement benefits.

[nunya]

I'm too old to have a choice, but I think if I had started off with the BRS, I almost certainly wouldn't still have a CAC in my wallet!  The ARC will be the ones most hurt by this in 10-15 years.

Edited January 3, 2018 by nunya

[fire4effect]

I was curious if any more had been done to "fix" the early reserve retirement discrepancy as originally introduced in 2007-2008. I.E. would it be made retroactive to 9-11 and fix the crazy fiscal year rule for determining qualifying service.  I  found (HR.569 - Reserve Retirement Deployment Credit Correction Act) Appears it hasn't gone very far from introduction a year ago but we can hope.

[JBueno]

I keep hearing "If your plan is to stay to 20". My plan is great but what about Big Blue's? 

We're always one waist measurement away from not getting the cliff vesting at 20. 

[pawnman]

5 hours ago, JBueno said:

I keep hearing "If your plan is to stay to 20". My plan is great but what about Big Blue's? 

We're always one waist measurement away from not getting the cliff vesting at 20. 

Or another short-sighted personnel management program.  At least you have control over your waist measurement.

[Champ Kind]

At least you have control over your waist measurement.

Certainly in control of the max but you can only get so skinny.

[matmacwc]

42 minutes ago, Champ Kind said:

 

Certainly in control of the max but you can only get so skinny.

 

SKy's the limit with meth.

[JBueno]

I guess my point is this: people are making decisions based on the assumption that if you WANT to get to 20 you WILL get to 20.

A bird in the hand is worth two in the bush. And it's also a decent stop at Mildenhall. 

[ThreeHoler]

I guess my point is this: people are making decisions based on the assumption that if you WANT to get to 20 you WILL get to 20.
A bird in the hand is worth two in the bush. And it's also a decent stop at Mildenhall. 

The Turd in Hand is not a decent stop.