If you're on the road to a decision about whether to opt in to the new Blended Retirement System, you might find that road intersects with decisions you make about life insurance, experts say.
Defense officials say about 2.2 million service members will be eligible in 2018 to opt into the BRS. These include active-duty members with fewer than 12 years of service and reserve-component members with fewer than 4,320 retirement points as of Dec. 31, 2017. Everyone else now in uniform remains with the legacy system; those entering service as of Jan. 1, 2018, will be in the BRS.
Service members facing the decision should take stock of their financial situation, said Stephen Pietropaoli, chief operating officer for Navy Mutual, a nonprofit veterans service organization that sells life insurance and provides financial education.
"My hope is that having to do that now, having to make that opt-in, opt-out decision in 2018, will at least increase the financial awareness and intelligence of these folks," Pietropaoli said.
The process hopefully will help service members make better decisions about their investments, their Thrift Savings Plan and their life insurance – specifically, whether they need more coverage to supplement what they receive through the Servicemembers Group Life Insurance program, Pietropaoli said.
And as service members make the transition from the military, "they’ll make sure they think about replacing [SGLI], because they’ve had to think about that at some point."
The decisions about BRS and about life insurance are closely tied to financial security now and in the future, said JJ Montanaro, a certified financial planner with USAA’s Military Advocacy Group.
Such moves "could have six-figure implications, so they should be well thought out," he said. "In terms of seriousness, I think they’re connected. They both should reflect your current situation and what you see in the future."
When the new retirement system goes into effect, service members under that plan will have different amounts of savings and investments, and a smaller military pension than those under the current system, said Mike Meese, a retired Army brigadier general who is chief operating officer for American Armed Forces Mutual Aid Association. And unlike traditional military pensions that begin immediately after retirement, money invested in the TSP can’t be withdrawn until age 59½ without penalty.
Under the new system, a 20-year retiree who dies unexpectedly likely would leave a much smaller income to family members than under the current system. The TSP contributions and government match of up to 5 percent most likely wouldn’t make up what would be a 20 percent difference in Survivor Benefit Plan payouts, Meese said. As a result, you might need more life insurance to make up for that shortfall.
WHAT YOU NEED
Most service members pay for the maximum $400,000 coverage through SGLI, for $29 a month. While that's plenty of insurance for many people, others may choose to purchase additional coverage through other sources.
When looking at life insurance, you should consider how much is needed to pay off debts, to fund goals such as children's education, and to cover final expenses. But another major component is determining how much would be needed to replace your lost income.
What is the family going to need for housing and utilities, transportation, food, child care and other expenses of daily living? Many insurance providers and other agencies offer online calculators to help determine that figure.
On the retirement side, you're also looking at income replacement. In this case, you're projecting future expenses and income, to get an idea of how much you would need to save as a nest egg in order to replace what you earned while you were working, Montanaro said.
"Both decisions – BRS and life insurance – are also directly affected by your career plans and separation from service," he said. Service members lose their SGLI term insurance when they leave the military, and can either buy insurance elsewhere or convert their SGLI to Veterans Group Life Insurance.
The decision about whether to opt in to BRS should be greatly influenced by how long you plan on serving, Montanaro said.
"If you don't intend to make the military a career or aren't likely to be able to serve long enough to qualify for retirement, switching to BRS is probably a good call," he said.
With BRS, those who separate from service prior to retirement can still leave the military with DoD-provided retirement benefits in the form of automatic and matching TSP contributions.
A FULL FINANCIAL APPROACH
One common element to both decisions is the ability and capacity to save money. With the new BRS, much hinges on the service member's ability to save at least 5 percent of his salary via the TSP to get the 5 percent matching funds from the government.
Many individuals cut insurance costs by buying term insurance, which covers a specific period of time instead of a full lifespan – the next 20 years while the children are still at home, for example, Montanaro said. That's designed to make sure the spouse and children are provided for in case something untimely happens.
"But one of the things that you're considering as you buy life insurance is the fact that you're going to ultimately retire – and have a nest egg to support that," Montanaro said. That nest egg also would help support your spouse in the event of your death, replacing the need for insurance.
"If I'm a saver and I save and invest, that could affect how I approach life insurance, and it certainly could affect how I approach the BRS decision," Montanaro said. "If you can't figure out how to save 5 percent, then obviously BRS is going to be minimal help for you."
If you don't do a good job saving and you find yourself at the end of your term insurance plan, staring at retirement, you probably need more life insurance than you thought.
"BRS, by taking the smaller annuity, one of the elements you're banking on is your ability to save for the future," Montanaro said.
BEYOND THE BOTTOM LINE
Another key element to both these decisions has nothing to do with crunching numbers, he said: It's about what you see in your future, and about what control you have over that future.
Are you going to be able to qualify for military retirement? You have control over some elements of that, but not all of them, Montanaro said. Some elements of that BRS decision involve trying to project what you think is going to happen.
By the same token, life insurance is all about protecting your loved ones against an unplanned disaster – your premature demise – before you have the savings and investments to take care of them.
"The big thing, from an overall standpoint, is the serious nature of the decision, whether it's life insurance or BRS," Montanaro said. "Hopefully service members will spend time evaluating what works best in their circumstances, and leverage the training and the calculators out there to make a decision that's right for them, as opposed to simply checking a box or not really giving it the attention I think it deserves."
Karen Jowers covers military families, quality of life and consumer issues for Military Times. She can be reached at firstname.lastname@example.org.