by Rebecca Alwine
The new Blended Retirement System (BRS) officially goes into effect Jan. 1, 2018, but many service members and their families already are tired of hearing about it.
From mandatory briefs to articles and spreadsheets galore, much has been released about the new program, but despite all the information out there, understanding of the BRS remains surprisingly low.
According to the 2017 Blue Star Families Military Family Lifestyle Survey, the majority (51%) of those who indicated they were eligible for the new BRS say they do not understand it and 42% indicated they did not understand how the new system compares to the old benefit.
Instead of breaking down the pros and cons (again) of staying with the traditional retirement pension or switching over to BRS, we’re going to present you with some questions you should be ready to answer before making a decision.
Even with all of the information available, many families are still unsure of the “right” answer. Hopefully using some questions and advice from military financial experts, you’ll be able to navigate your way through this puzzle.
Consider your current financial situation
Your current financial situation may be more important in guiding your decision toward changing to BRS than you think. Kate Mielitz, a financial wellness coach, feels that being honest with yourself about your budget, debt, and future plans are crucial in making a good decision. Here are some questions she recommends you answer:
Are you in debt? If yes, how much debt? The average American has over $16,000 in credit card debt, $50,000 in student loans, $30,000 in auto loans and an $180,000 mortgage.
Do you have an emergency savings? How much? The 2017 Blue Star Families Lifestyle Survey reports that 49% of military families do not have access to $5,000 in savings.
Do you use a written budget each month? If not, why not? Mielitz suggests you consider how your financial needs may change between now and separation from the military and how you are planning to replace income.
Have a plan, now
What is your plan after the military? What is your time frame until you get out? Do you intend to work after you are out of the military? The typical enlisted service member who retired in 2017 as an E7 will receive $26,842.80 per year. The typical officer who retired in 2017 as an O4 will receive $45,950.40 per year. (Assuming, in both situations, the service member served three years at their retired rank.)
Have you reviewed your credit report? Will your credit be in good shape when you get out of the military? Anyone who knows Dave Ramsey knows he’s not a fan of relying on a credit score, and as he says, “It only takes into account how good you are at borrowing money and giving it back.” But, for those looking to borrow money again in the future, it is important.
Where do you plan to retire? “Now is the time to find out what your tax implications will be when you retire,” says Christine Maxwell of Her Money Moves. Eighteen states now exempt military pensions from taxation and an additional nine states have no personal income tax, so if you are retiring to one of these states, you may have a different outlook than if you aren’t. Also make sure you understand if the state will tax your traditional TSP distributions as income. There are several things to consider here.
Be realistic
Daniel Kopp, an active duty officer currently separating from service, stresses the importance of being realistic, both about your career in the military, and about your preparedness for life after transition. Kopp shares his passion for personal finance with the military community through his blog at www.militarylifeplanning. com and by teaching courses.
How likely is serving a full 20 years? Kopp explains that taking your career one assignment at a time is a far better way to plan a career than confidently boasting about something that statistically has a smaller chance of happening. I am a perfectly good example of this, for the first 7.5 years I thought for sure I would stay for an entire career, but then personal things dramatically changed and now I’m separating at nine years.” Put some healthy skepticism in the probability you will make it to 20 years, he advises.
Doug Nordman, the respected voice behind The Military Guide, shares this insight regarding career progression: “Officers have a higher retirement rate than enlisted personnel,” he says. Between the often-surprising statistic that only 17% of people in the military actually serve the 20 years required for retirement pension, BRS deserves at least consideration from each person eligible. Nordman also encourages service members to consider their personal financial decision. “If you’re going to reach financial independence while in the military, then it doesn’t really matter what you pick, right?”
While the right answer for you may not be the right answer for your neighbor or co-worker, the consensus is clear. Planning for retirement is crucial. Experts and novices alike suggest starting as early as possible.
Arkansas and West Virginia recently became the latest states to not tax military retirement pay, bringing the total number to 18.
The following states do not tax retired military pay:
• Alabama
• Arkansas*
• Connecticut
• Hawaii
• Illinois
• Iowa
• Kansas
• Louisiana
• Maine
• Minnesota
• Mississippi
• New Jersey
• New York
• Ohio
• Pennsylvania
• West Virginia*
• Wisconsin
*effective 2018
An additional nine states do not have a personal income tax:
• Alaska
• Florida
• Nevada
• New Hampshire*
• South Dakota
• Tennessee*
• Texas
• Washington
• Wyoming
*tax only dividend and interest income
For more on the Blended Retirement System or to help you make the best decision for your family, visit www.AmeriForce.net/BRS
Rebecca Alwine is a freelance writer, Army wife, and mother of three. Over the past 10 years, she’s discovered she enjoys coffee, lifting weights, and most of the menial tasks of motherhood. When she’s not writing, she can usually be found hiding behind the sewing machine or with her nose in a book. You can follow her on her website, whatrebeccathinks.com
