Started by NavyDads Co-Admin, Gary Mar 4, 2014. 0 Replies 0 Likes
Average Student Loan Debt in America: 2017 Facts & Figures…Continue
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Kyle what a detailed write up on this and super thanks for the research! Yes I've advised my Sailor to opt-in BRS as well before the year end deadline. He's currently on Roth along with other investment options in the market outside of TSP. My bottom line worse case scenario either one of the two flavors legacy or BRS as long as they're putting away monies automatically to set it and forget it. Can't go wrong either way but yes there's an option to be had on which would best suit to meet their financial/retirement goals moving forward..
Since my last post/question, I’ve had the time to do a little more research on the Blended Retirement System and here is what I’ve found. At least this is my opinion. OK, pros for the Legacy System: your annuity is 5% more when you retire after 20 years of service, for a total of 2.5% times your high 3 years of salary. If you leave the military before retirement, you can take the TSP investment with you. Cons, and this is significant in my opinion, NO GOVT matching on your retirement savings!
The Blended retirement: Pros, The GOVT matches your retirement investment up to a total of 5%, 1% automatically, and an additional 4% when you invest a minimum of 5% into your retirement account. As one article pointed out this is free money given to you by the GOVT with NO strings attached. Better yet you get to take these additional retirement savings with you, along with the TSP investment if you decide to leave the service before 20 years. Why this is significant is something called compound interest. Your Blended Retirement Savings account balance can be significantly greater then the Legacy System balance if you serve for the full 20 years. If you don’t serve 20 years, you are still taking more money with you then if you stayed in the Legacy System. There is also a signing bonus included in the BRS halfway through you service contract, that is not available under the Legacy system. Cons, Your annuity is 5% less under the BRS then the Legacy System, i.e. 2.0% times your high 3 years of salary. When I first read this In my mind getting a smaller annuity was alarming, so I had to do some number crunching to wrap my head around it. Here is what I found, depending on what your annual salary ends up being after 20 years, the difference between 2.0 and 2.5% could be several thousand dollars. That sounded scary. So how do you make that up? That’s where the matching under the BRS kicks in and the effect of compound interest over 20 years comes into play. There are savings calculators out there, where you can put in 5% of your current salary, enter 20 years, and play with different Return on Investments(ROI) and come up with a future balance. Remember the 5% is the additional free money being given to your sailor under the BRS system. With respect to the ROI, I personally have seen a 12% annual ROI for my TSP account, but this depends greatly on how you distribute your retirement savings in the different TSP accounts, C, S, I, G, or the managed L funds, not mentioning the Roth. That said I have also seen higher ROI depending on retirement distributions. Please make sure your sailors do not put all their retirement savings in the G fund! Yes, it is the safest, but it also pays the lowest annual ROI, less then 2%, last time I looked. OK, so here is a homework assignment, you need to do 3 things using your sailors current annual salary. First, multiply it by .025, for the Legacy system, save the answer. Second, multiply the same current annual salary by .02, BRS, save this answer. Third and final, find an online calculator that gives a future balance for a fixed annual/monthly investment, for 20 or however many years your sailor has left, that allows you play with the ROI%. I would vary the ROI from a low end of 7% to a high end of 12%. I think the TSP site offers calculators for this purpose, or just do a general web search. Subtract the .02 answer from the .025 answer and then divide the Future balance from the ROI calculator br the subtraction result. The number you get will represent the number of years in retirement before the difference in annuity payment before you would experience a loss. Since your sailors annual salary should grow over their career then end result should mean that the number of years should even be greater.
I have advised my sailor to get into the BRS system as soon as possible to take advantage of compound interest. I hope this helps anyone else struggling with how to advise their sailors.
Thanks guys! I haven't spent enough time here to learn anything.
I see there hasn’t been a lot of activity on this forum since 2013, but I’ll see if I can stir the embers! Given that the Navy is rolling out what they call the blended retirement system, I was wondering what the current train of thought was! My sailor has some time to decide between staying with the traditional retirement system or choosing the blended. I am very familiar with the TSP/FERS system as a civilian retiree, 30 years under FERS, but I am not familiar with all the nuances for the military system, especially this blended system. One question is that it is my understanding that under the traditional retirement system, TSP does not provide any matching, whereas under the blended there is, but you lose certain benefits/option from the traditional. There are always trade offs. Just trying to learn all I can so I can give my son good advice and direction on the decisions he has yet to make. Looking forward to any discussion!
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