Key Takeaways
- Crafting an approach for saving and investing in retirement can help service members optimize their career earnings.
- To qualify for Blended Retirement System benefits, service members must have enlisted on or after Jan. 1, 2018.
- The BRS “blends” a defined contribution plan — the Thrift Savings Plan (TSP) — with a defined benefit pension plan.
Available to military personnel is what is called the Blended Retirement System (BRS), along with other exclusive savings and retirement programs. But just what is the BRS? That is covered below, as well as retirement options all can use while diversifying their portfolio.
What is the Blended Retirement System (BRS)?
The Blended Retirement System results from significant modifications the military made to its retirement system on Jan. 1, 2018.
The new plan “blends” a defined contribution plan — the Thrift Savings Plan (TSP) — with a defined benefit pension plan. The TSP is essentially a 401(k) retirement plan that permits military personnel to invest their own money. Options include stocks or government securities, and the employer contributes to the account.
In addition, at about 12 years of service, the BRS includes a mid-career continuation incentive. This is to encourage personnel to continue to their 20-year mark and qualify for monthly retirement payments. An option upon retirement will be a lump sum payment of 25% or 50% of one’s gross estimated retirement pay. It will yield smaller checks.
Who is Eligible for the BRS?
To qualify for Blended Retirement System benefits, service members must have enlisted on or after Jan. 1, 2018. If applicable, the member is automatically enrolled.
What was the Previous Military Retirement System?
Under the previous retirement system, there was only a defined benefit pension plan. Its military pension gave members lifetime income and a COLA to offset inflation. Pension eligibility began after 20 years of service. The pension amount was 2.5% x (# years of service) x (avg. monthly base pay of one’s highest 36 months).
The new system retains the pension but adds a Defense Department contribution and Thrift Savings Plan match.
What are Other Retirement Planning Options for Military Members?
Crafting an approach for saving and investing in retirement can help service members optimize their career earnings. Beyond the Blended Retirement System, options for military members include:
- Federal military retirement benefits. The two plans here include the Legacy Retirement System (LRS), for members who enlisted on or before Dec. 31. The LRS is a defined-benefit plan that pays service personnel at retirement a lifetime monthly annuity. The payment is based on years of service and the average of the highest 36 months of base pay. The individual must have served for at least 20 years. The other option is the Blended Retirement System.
- Thrift savings plan (TSP). This is a federal retirement plan for qualified government employees, including those in the military. It is similar to 401(k) plans in that military personnel can choose to contribute at least 1% of their base pay to their account. For 2024, service members may defer taxes on a maximum of $23,000. For those age 50 and older, the catch-up contribution cap for this year is $7,500.
- Individual retirement accounts (IRAs). IRAs can be used by military personnel to supplement their TSP contributions and federal retirement benefits. The contribution cap for this year for a traditional or Roth IRA is $7,000. The catch-up contribution is $1,000.
Note that while traditional IRA contributions are tax deductible, the benefit of Roth IRAs is tax-free retirement withdrawals.
What are Other Savings Options?
Military personnel also have savings options, such as:
- Savings deposit program (SDP) accounts. The Defense Department offers the SDP to active-duty military members serving in an eligible combat zone. They must also be deployed for 30 straight days or one day in each of three straight months. Up to $10,000 can be saved in this kind of account, earning a 10% interest rate, and compounding monthly. Withdrawals are only permissible under limited circumstances, Funds in one’s SDP account are returned to the service member when their deployment ends.
- Military savings accounts. There are a number of savings, CD, money market and other deposit accounts designed for service members and their families. Provisions or special benefits offered by these banks or credit unions can include lower fees for deposits or higher rates. Note that these accounts may have fewer restrictions than the SDP.
- Taxable investment accounts. With brokerage accounts, service members can save and invest with no limits on contributions. Note that opening an account with an online brokerage will not provide tax benefits. However, doing so may offer more options and flexibility regarding how one invests.
How is Retirement Savings Calculated?
A blended retirement system calculator can help, but the BRS employs the longstanding retirement annuity formula. It is the average of a military member’s highest 36 months of basic compensation times 2.5% of their years of service. Here, though, the 2.5% is adjusted downward to 2%. The government offsets the reduction by contributing 1% to the individual’s TSP.
Which Plan Should You Use?
As a service member, knowing one’s saving and investing options is only a portion of the equation. The larger financial outlook must also be considered and factored into one’s decision.
Such considerations should include:
- One’s debt load
- Their debt payment approach
- How much one’s income is expected to go up or down over time
- What one’s budget is and how much is typically spent monthly
- Anticipated retirement date
- The amount desired at retirement
- One’s age and risk tolerance
- How much one wants to save for other goals, such as buying a house.
Note, too, that one’s choice will depend on whether one plans to serve for 20 years, how one invests, and one’s investment returns. It is a good idea to speak with a financial advisor.
An alternative way to invest in one’s retirement is through a private-market Individual Retirement Account (IRA). The leading alternative investment platform Yieldstreet, for example, has a plan that permits investors to easily diversify their investments with less-volatile private-market investments. Such investments include a broad variety of asset classes, including real estate and art.
Overarchingly, the goal is to render retirement portfolios less reliant upon a constantly fluctuating stock market. After all, diversification ends not with taxable accounts.
Alternative Investments and Portfolio Diversification
Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.
However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10000.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
Summary
Like everyone else, military members must develop a retirement plan. Key to creating a retirement savings and investment strategy is understanding options and how they work together. Note that a Blended Retirement System calculator can help one with their overall retirement approach. A financial advisor will also be able to help.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
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