As a finance expert, I often get asked about the best ways to structure a retirement plan, especially for federal employees under the Blended Retirement System (BRS). The BRS combines elements of a traditional pension with a defined contribution plan, making it a hybrid system. In this guide, I break down the basic components of a BRS retirement plan, how they work, and how you can optimize them for long-term financial security.
Table of Contents
Understanding the BRS Retirement System
The BRS applies to service members who joined the military on or after January 1, 2018, and some who opted in before 2018. It blends three key elements:
- Defined Benefit (Pension)
- Defined Contribution (Thrift Savings Plan, TSP)
- Continuation Pay
Each component plays a critical role in retirement security. Let’s examine them in detail.
1. The Defined Benefit (Pension) Component
The BRS pension is a reduced version of the legacy High-3 system. Instead of 2.5% per year of service, it uses a 2.0% multiplier. The formula for calculating the pension under BRS is:
Annual\ Pension = (Years\ of\ Service \times 2.0\%) \times Final\ Monthly\ Base\ Pay \times 12For example, a service member retiring after 20 years with a final base pay of $5,000/month would receive:
Annual\ Pension = (20 \times 0.02) \times 5,000 \times 12 = \$24,000/yearCompared to the legacy system, which would have provided $30,000/year, the BRS pension is smaller. However, the trade-off comes with additional benefits like automatic TSP contributions.
2. The Defined Contribution (TSP) Component
The Thrift Savings Plan (TSP) is the government’s version of a 401(k). Under BRS, service members receive:
- Automatic 1% contribution from the government, even if they don’t contribute.
- Up to 4% matching if they contribute at least 5% of their own pay.
Here’s how the matching works:
| Your Contribution (%) | Government Match (%) | Total Contribution (%) |
|---|---|---|
| 0% | 1% | 1% |
| 3% | 3% | 6% |
| 5% | 4% | 9% |
For a service member earning $4,000/month contributing 5% ($200), the government adds 4% ($160), bringing the total monthly TSP contribution to $360.
The Power of Compound Growth
The TSP’s long-term growth potential is significant. Using the future value formula:
FV = P \times \left( \frac{(1 + r)^n - 1}{r} \right)Where:
- P = Monthly contribution
- r = Monthly return rate
- n = Number of months
If a service member contributes $360/month for 30 years with a 7% annual return (approx. 0.583% monthly), the future value would be:
FV = 360 \times \left( \frac{(1 + 0.00583)^{360} - 1}{0.00583} \right) \approx \$472,000This shows how disciplined contributions and employer matching can build substantial wealth.
3. Continuation Pay
The BRS includes a mid-career retention incentive called Continuation Pay. It’s a lump-sum payment offered between 8-12 years of service, contingent on agreeing to serve additional years. The amount is typically 2.5-13 times monthly base pay, depending on the military branch.
For example, an E-5 with 10 years of service earning $3,500/month might receive:
Continuation\ Pay = 3,500 \times 2.5 = \$8,750This payment can be invested in the TSP or other retirement vehicles for further growth.
Comparing BRS vs. Legacy Retirement System
To understand which system is better, we must compare key differences:
| Feature | Legacy System | BRS |
|---|---|---|
| Pension Multiplier | 2.5% per year | 2.0% per year |
| TSP Matching | None | Up to 4% match |
| Continuation Pay | No | Yes |
| Early Career Growth | Slower (no TSP match) | Faster (matching) |
The BRS is generally better for those who:
- Don’t serve a full 20-year career.
- Want more control over retirement savings.
- Can maximize TSP contributions early.
The legacy system favors those who:
- Serve 20+ years.
- Rely more on pension income.
Optimizing Your BRS Retirement Plan
1. Maximize TSP Contributions
Since the government matches up to 5%, contributing at least 5% of your pay is essential. Ideally, aim for the annual limit ($23,000 in 2024 for those under 50).
2. Choose the Right TSP Funds
The TSP offers several fund options:
| Fund | Description | Risk Level |
|---|---|---|
| G Fund | Government securities | Low |
| F Fund | Fixed-income bonds | Low-Medium |
| C Fund | S&P 500 stocks | Medium-High |
| S Fund | Small-cap stocks | High |
| I Fund | International stocks | High |
A balanced approach (e.g., 60% C Fund, 20% S Fund, 20% I Fund) can optimize growth while managing risk.
3. Reinvest Continuation Pay
Instead of spending the lump sum, consider rolling it into the TSP or an IRA. If invested at a 7% return, $10,000 could grow to:
FV = 10,000 \times (1.07)^{20} = \$38,6974. Supplement with an IRA
Beyond the TSP, contributing to a Roth IRA (if eligible) provides tax-free growth. For 2024, the limit is $7,000 ($8,000 if 50+).
Common Mistakes to Avoid
- Not Contributing Enough to Get the Full Match – Leaving free money on the table is a costly error.
- Overly Conservative Investments – The G Fund is safe but may not outpace inflation.
- Ignoring Tax Implications – Roth TSP vs. Traditional TSP has different tax treatments.
Final Thoughts
The BRS is a well-structured system that rewards proactive retirement planning. By understanding its components—pension, TSP, and Continuation Pay—you can make informed decisions that maximize long-term wealth. Whether you serve 10 years or 30, optimizing these elements ensures financial stability in retirement.
