Service members facing a choice between new and old retirement systems in the coming year have a new online tool that may assist with the early stages of their financial research.
The tool, open to everyone at www.usaa.com/brs, allows service members to enter basic career information – both present details and future plans – and offers advice and potential future earnings data based in part on assumed investment returns.
While the delivery system may be new, the two-part takeaway for service members remains the same:
- Most people who retire from the military will maximize their retirement benefits by remaining in the current system.
- Because 81 percent of service members do not retire from the military, most troops will benefit from switching to the Blended Retirement System, especially those with just a few years in.
"The military is not going to force you into the BRS, but if you're going to take advantage of BRS, then you're going to have to take some action," said Josh Andrews, a USAA advice director who led the effort to develop the retirement comparison tool. "We don't want them to feel like they're being forced, but also don't want them to miss out on an opportunity."
KEEP IT SIMPLE
This tool isn't as extensive as the DoD calculator is expected to be. That calculator, which at this writing was still under development, is expected to allow service members to run various scenarios using differing financial variables.
USAA simplified its tool during development based on input from a 12-member focus group of service members and spouses that tested it. It takes only a few steps, uses broad categories of enlisted, officer or warrant officer rank, and assumes a 7 percent hypothetical growth rate for the Thrift Savings Plan.
It asks simple questions such as date of military entry, number of years served, and whether you plan to retire, or are unsure.
In the first version of the tool, USAA included a feature that allowed service members to choose an option that described their tolerance for investment risk, which would affect the growth rate of investments. But this confused the focus group members.
"They asked us to make it simpler," Andrews said.
WHO CAN SWITCH?
Everyone serving now is grandfathered into the current retirement system, with full retirement benefits after 20 years. Those with fewer than 12 years of service as of Dec. 31, 2017, have a choice: stay with the current system or go to the BRS.
If you do nothing, you'll remain in the current system. Those with more than 12 years must stay in the current system.
The decision must be made by the end of 2018, and service members can't begin opting into BRS until the beginning of that year.
Under the BRS, there's still a military pension if the service member stays until retirement, but the monthly pension would be 20 percent less than under the current system.
The USAA tool provides an overview of what the differences mean. Andrews walked through the tool using the scenario of an active-duty service member with eight years of service, retiring at the future rank of E-7 with 20 years of service. Under the current system, that service member gets a monthly retirement check of $2,851. Under BRS, the check is for $2,281, a difference of $570.
To recoup that difference, the service member would need to accumulate around $250,000 in savings and investments, based on a variety of factors – a figure so daunting, even to focus group members who planned a military retirement, that USAA officials decided to leave it out of the online tool, Andrews said.
DoD and service officials have been distributing educational materials to military leaders, to financial management experts within and outside the military community, and to service members. They point troops to experts to help answer the questions and do their research based on their own situations.
"We encourage people to do their research, talk to their financial adviser if they have one, and figure out what makes sense to them in their circumstances and situation," said JJ Montanaro, a certified financial planner and relationship director for USAA.
"This is just another step along the path to figure out what makes sense for the individual."