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Retirement: BRS/High 3

Wickle

New Member
Hello ladies and gentlemen,

As of Jan 2018, I have the option of going for the BRS or the High 3. I have done my research and have gathered that if you are planning to stay in for 20, the old system would be better.

However, I have also read that if I started to max my TSP early (Jan 2018), my retirement in the long run would be more than the legacy system. Is this true?

I am leaning towards the legacy system, but I am still young in my career and am 90% sure I want to serve until retirement. However, I am still in the schoolhouse and don’t really know what the fleet is like yet.

In addition, would taking the legacy also be a gamble? Not everyone is guaranteed promotion to O-4. Any guidance in this matter would be greatly appreciated. Thank you for all your help and happy new year.
 

AllYourBass

I'm okay with the events unfolding currently
pilot
In addition, would taking the legacy also be a gamble?

I'm not a financial expert and I am sure more people will weigh in with greater insight into your earlier questions, but I'm just going to tackle this particular question because it's low-hanging fruit.

Yes. Yes it is. If you don't opt into the BRS and get out after serving 19 years, you're fucked. You leave with zero retirement benefit. Without digging deeply into your post history, my assumption is that you're an aviator or planning to become one. If you look into the retention rates for aviators, you'll notice making 20 years is absolutely no guarantee, and that's if you're even planning to stay that long (and then again, despite your plans now, life has a funny way of changing them).

Most of what I've read indicates that the legacy option is preferred if you're going to make 20, but I've even seen some people try and contradict that based on time in service, as you mentioned. I haven't sat down and done the math myself on that claim because my decision to opt into the BRS was pretty easy based on my own numbers (I've been in service a little under five years and I'm statistically not going to make 20).

If you haven't done the online training—which would surprise me based on command requirements, at least in the Navy—do that and some Googling before you make your decision.
 

MIDNJAC

is clara ship
pilot
I think it might be worthwhile to discuss what BRS actually is. I did the mandatory (in person) training, and walked away still not really knowing what it amounted to. So I read up a little on it. I'm not going to make any suggestions, since everyone's situation is different, and there are pros and cons for everyone. I'll bottom line that by saying the DoD is not changing its retirement system to provide better benefits to service members.......they are doing it to statistically save money and reduce retirement payouts.

BRS incorporates two different monetary benefits. The first is the retirement annuity. This is the exact same concept as the legacy system. Must make it to 20 or greater years active or equivalent reserve service, it is still based on your "high 3", and is still the only retirement "pension" you will get from the DoD under BRS. The difference is that the multiplier is 2.5 with BRS, versus 3.0 with the legacy system. See my last sentence in the first paragraph. Read as reduced retirement benefits. This is probably why you are hearing the legacy system is better if you are going to 20.

The second benefit is DoD matching of your TSP contributions. This is obviously not 100% matching.....think it is something on the order of 5% of your basic pay maxed out (could be wrong on that, but I believe that is accurate). This is the area where they get to advertise BRS as giving a greater percentage of service members some benefits. In other words, you could do 4/8/10 years and get out, and provided to contributed to your TSP throughout, you would leave with some amount of free money from the DoD towards/into your TSP fund.
 

Wickle

New Member
Thank you for all your help. I am currently halfway through TBS, and the class we were given on it was a quick 40 minute run through.

From what we have been told here, I was under the impression aviators have a high retention rate due to the need for pilots? Is there a source I can look into for this?

From the calculators I’ve been using online, it seems if I contribute 5% starting now, my pension is higher than the legacy.. assuming I am able to make it to 20. Something seems a little off about that though?
 

tarjas

Alooo-haaa
None
Don’t forget that you are not able to pull money out of TSP penalty free until you are 59.5 while your pension starts the day you retire. Also, with TSP you have a more significant portion of your .gov retirement compensation exposed to market risk. Finally, your pension is (somewhat) inflation adjusted.

It wouldn’t be a tough choice for me if I was planning on making it to 20....
 

Pags

N/A
pilot
It wouldn’t be a tough choice for me if I was planning on making it to 20....
Too bad you only get 49% of the vote on whether or not you make it to 20. Let's not sugar coat this and make it seem to the OP that all he has to do is keep showing up for 20yrs and he'll get a legacy retirement. Just because the demand for pilots is high now doesn't mean that it will be when the time comes. And there seems to be no good way to predict that sort of thing 10 years out. Up until the time I failed to select for O4 EVERYONE during my career told me and my peers that as long as we kept showing up and didn't get a DUI we'd make O4. All of a sudden that didn't happen. Also selecting legacy can paint yourself into a corner when it comes to career decisions. If sticking around to 20 is your only option and your career isn't going the way you wanted it to it can make the decision to bail harder. For instance, if you were to make O4 but not DH (Navy specific, I know) and then face 8 or so years of BS tours to get to 20 is that worth it?
 

Jim123

DD-214 in hand and I'm gonna party like it's 1998
pilot
And since this is a USMC thread, big green kicked a lot of good 75xx Captains to the curb during the last five years.
 

armada1651

Hey intern, get me a Campari!
pilot
I don’t see many people talking about Reserve options when it comes to this decision. Reserve retirement is still a pretty good deal - you have to wait a little while for it, but it’s still a decent chunk of money and maybe more importantly, affordable healthcare later in life.

I’m in the window where I can choose between the systems and I plan to stay on the legacy. I have no intention of doing more than 11 years of regular active duty, but I do think I can manage 9 good Reserve years. Something to think about anyway.
 

sickboy

Well-Known Member
pilot
And since this is a USMC thread, big green kicked a lot of good 75xx Captains to the curb during the last five years.


Along the same lines, all the Marines in my current squadron are planning on getting out or going to into the Reserves. Maybe a self selecting sample size (it's VTs after all).
 

Swanee

Cereal Killer
pilot
None
Contributor
And since this is a USMC thread, big green kicked a lot of good 75xx Captains to the curb during the last five years.

This last O-4 board was brutal to anyone connected to the prowler world. Most of those guys were drafted into a dying community, and are now the example that the needs of the service (or lack thereof) trumps all else. Proof positive that you can do everything right, but you'll never have a career in the Marine Corps because of things that were completely out of your control.
 

DanMa1156

Is it baseball season yet?
pilot
Contributor
I wrote this response to a friend who is a fellow O-3 coming up on 8 years of service. If I were in your shoes as an O-1 (I assume), I would absolutely opt in. Your chances of it outperforming the high three system are much higher than mine. One caveat, I still do not know where the contributed money is going. I've been told by 2 different TSP reps 2 different things, but I tend to belive the first one, that it will go into the traditional account and be taxed later. Keep in mind this post is written as if it could go into the Roth option, but the math doesn't change all that much. I also was very rough with the math numbers, not using marginal tax rates, and instead used just lump sum rates, but the idea remains the same:

TLDR: Opting into BRS is a cheap way to give you options, secure *Some* retirement income steam, and may even outperform the legacy system, even for someone with 7.5 years in.


1. Your current balance in TSP has no bearing on your decision. You should only be concerned about future wealth and where it's coming from. What's past is past. What you've already been contributing to TSP doesn't have any bearing on the future comparison of one plan over another.

2. Here's my assumptions:
O-3 at 7.5 years at time of opting in (January 2018), remains on active duty to 20 on a normal promotion schedule. He gets a 7% return, contributes 5%, gets 5% match, and dies at 85. Begins withdrawing from TSP at 67. Gets the Navy agreed upon continuation bonus at 12 years and takes a 0% lump sum option. Here's my results, and I use "present day dollars" because the "future dollars" option on the BRS Calculator is misleading at best - it appears to show the spending power of your pension rising at 3% annually, which is false - it's tied to an inflation index. It doesn't rise in spending power.

3. Results:
In this scenario: the total value of the High-3 Legacy System is 2.1 million dollars, keeping in mind that's taxed at whatever the bracket is at the time, let's just say for argument's sake it's 20%, so over the course of time, that comes down to a total value of 1.68 million. The BRS system's value is a combined 1.68 million (pre tax) pension plus 252,000 in (non-taxable, if you did Roth) government contributions & growth for a total of 1.949 million total value pre-tax. Using the same tax bracket, the total value is now (1,680,000*.8)+(252,000) = $1,596,000, so 84,000 less than the legacy system. When we add in the $18,000 bonus from continuation pay and we'll assume you don't invest it at all and blow it in a crazy night in Las Vegas, now the difference is only $66,000 in favor of the legacy system. (If you invested 100% of that bonus and got 7%, by the time we start taking withdrawals in this scenario, the total value would be $168,000 if compounded annually, which would put BRS ahead of Legacy by $80,000, which I got from $168,000-88,000). In either system, and here's the moot point about your own contributions (assuming you would put 5% away in TSP regardless of getting a match or not), you'd have an additional $252,000 from your own contributions and growth. Of note: I'd have to check the math, which I'm too lazy to do right now, but from what I gather, the BRS calculator assumes your TSP money stops growing when you begin withdrawals, which would skew these results to be favoring the legacy system. Your money will continue to grow, at least at some rate as long as you don't keep it in cash exclusively.

4. Analysis:
The results between the two you can see are remarkably similar. If you got 8% in the market, it's even tighter. If taxes go up from that 20%, it favors BRS since more of your money isn't taxed.

So what am I buying if I buy into BRS? It's effectively an insurance policy, and a very cheap one at that, and one with the very real possibility of outperforming my other retirement option. Most service-members to not make it to 20, including officers, so this allows me to walk away with something, which is better than nothing. If you were to FOSx2 (a very real possibility in aviation), then you'll really be kicking yourself. A SWO or Submariner may have a bit different calculus here on how much they value that insurance policy. But it also buys me flexibility. What if I get orders I don't want to take? Well, I can walk away knowing again, that I have something, which is better than nothing, so I've also bought a bargaining chip that I'm keeping in my back pocket - that is, a serious option to leave without being tied to the magical 20.

5. Why am I choosing BRS?
This may get a little pilot specific, but I think a FOSx2 is a real possibility. I want to walk away with something and I want the flexibility of being able to walk away if I don't get something I want to do instead of agreeing to be a staff and boat donkey for 9 years accepting crappy orders from the detailer because he/she knows I've been suckered into 20 years. I'll do the reserves and not take crappy orders if I want. While the value of the retirement changes, the results are pretty much the same (I'll post later my reserve analysis) when comparing the two plans. I also believe, long term, taxes will go up. I want to have the maximum amount I can in tax shelters (ROTH IRA, ROTH TSP, traditional TSP, etc.). I still believe in the American and Global markets and I think investing is a good way to keep my income "streams" diversified. The pension payouts are at the whim of a Congress that continues to struggle with infighting. We assume it won't change because of the high level of military support we enjoy from the American public. Given how small of a population we really are (veterans), we really have little lobbying power in Congress if the American people don't support veterans (take a look at the post Vietnam years and the benefit cuts they saw). In my time in the military thus far, I've almost exclusively seen benefit cuts: Post 9/11 GI Bill eligibility, a 5% cut to BAH (they snuck that one really nicely) a cut to the fact that BAH used to account for the cost of renter's insurance, commissary hours, and so on. I think the only benefit I have seen increase is gym hours have increased on some bases. Call me jaded, but it is what it is - a political reality that can change on a whim. The pension may not be as rock solid as one may think - take a look at the number of city and state pensions that have been cut in the past 15 years.
 

MGoBrew11

Well-Known Member
pilot
I wrote this response to a friend who is a fellow O-3 coming up on 8 years of service. If I were in your shoes as an O-1 (I assume), I would absolutely opt in. Your chances of it outperforming the high three system are much higher than mine. One caveat, I still do not know where the contributed money is going. I've been told by 2 different TSP reps 2 different things, but I tend to belive the first one, that it will go into the traditional account and be taxed later. Keep in mind this post is written as if it could go into the Roth option, but the math doesn't change all that much. I also was very rough with the math numbers, not using marginal tax rates, and instead used just lump sum rates, but the idea remains the same:

Good post. I have also heard they will only contribute to the traditional.

This got me thinking....

I currently max out the Roth TSP every year. Will they still match the 4% to the traditional fund or am I going to have to contribute 4% to the traditional to get the match and then contribute the rest to the Roth. Kind of BS if you have to change your contribution for them to match....

To the OP: as others have already stated, the key to the BRS is that it gives you options. Legacy High 3 probably nets you more money if you end up doing 20, according to the BRS calculator on their website. But I would hate to not do 20 due to unforeseen circumstances and walk away with nothing. With BRS if you end up still doing 20, the High 3 with the slightly lower multiplier is still a good deal IMHO.
 

Jim123

DD-214 in hand and I'm gonna party like it's 1998
pilot
I'm mixed on the monetary value of the new vs old system (no secret the old one is a lot better if you stay 20 or more) but I like the improved financial freedom for people to get out after their first hitch (or their second...). I like that a lot and here is why:

You've got fewer and fewer people in this country who have served in the military. I'm not saying we have a warrior caste or a mercenary class or whatever catchphrase (because we don't), but if the numbers continue getting skinnier then eventually we will. This system will probably improve those numbers because the average individual duration of service will be fewer years, which means more people. I'd rather that society have four people who served five years apiece over one who served twenty, or better yet those four plus one who served for twenty instead of two who served for twenty. That's what I mean by the math getting skinnier.

The brass will gripe about lower retention, having to spend more money recruiting and training people, about losing well trained people, etc. Whatever. We'll have more people in regular society who have served than before. Those people will vote and they'll also talk to their friends who vote. More people with first-hand experience of serving in uniform is better, even if that experience was only a few years long. It's better for the health of the Republic.

I'm not sure how the "lifer" class in the military will play out. Will the ones who rise to the top do so because all the smart people got out early on and now they're the last man standing (or woman)? Or will the people who stay in for 20-30-40 years be the same personality types who have always stayed in? I figure probably the latter, same as it ever was.
 

DanMa1156

Is it baseball season yet?
pilot
Contributor
Good post. I have also heard they will only contribute to the traditional.

This got me thinking....

I currently max out the Roth TSP every year. Will they still match the 4% to the traditional fund or am I going to have to contribute 4% to the traditional to get the match and then contribute the rest to the Roth. Kind of BS if you have to change your contribution for them to match....

I guess we'll see in a month, but I am 100% under the impression that it doesn't matter where you contribute your 5% to, you'll still get the match. What hasn't been clearly stated is where that match will go, unfortunately. Also, I'd reeeeeaaaaly recommend if you're opting in you get up to 5%. If you think you can't save anymore, just add 1% to traditional and you probably won't even see the difference with the 2.4% pay raise we just got.
 

pourts

former Marine F/A-18 pilot & FAC, current MBA stud
pilot
You know if you are a total motard or not. Do you still wear silkies as underwear? If yes, and you are a motard, then choose the high 3.

If there is even the slightest chance that you may want to do something different after 5 or 10 years, then choose the blended option with TSP matching.

As for the ROTH discussion, there's no way in hell the matching it is going there. Its going into traditional.
 
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