Would I Have Switched To BRS If Given The Option? Part 2

If you haven’t read Part 1 yet, visit this post first.

Welcome back! In Part 1, I showed you whether I would’ve switched to the Blended Retirement System if I’d had the option when I first joined the military. That post was based on an answer I originally gave in response to a reader comment on The Military Guide. I then went into a little additional detail about my answer. Make sure you read Part 1 before reading this, as I’m jumping right in and things might be confusing without that background.

Since writing that comment, another Military Guide reader has posted additional comments. I’m not going to cover every single comment on my blog, so head on over to read more if you are interested.

But some of the comments were questions back to me, so I will address those here.

The Question: Would I Switch To BRS At A Later Point In My Career?

Warner wants to know whether I’d switch to BRS at the 11 years time-in-service point. I’ll get to that in a second, along with a thorough analysis of other years. But first I want to address his other points.

• “But your analysis is only relevant for someone at the beginning of their career”
  • Yes. I limited my response to one analysis that was hundreds of words long. It would’ve been rude of me to fill up another blog’s comments section with thousands of words about myself, so I didn’t. But I have a spreadsheet that looks at a lot more than that.
• “folks for whom this discussion is irrelevant, by the way, because they don’t get a choice.”
  • Actually, no. People who joined the military for the first time on/after 1 Jan 2018 don’t have a choice. But there are many thousands who were in their first year of service on 1 Jan 2018. My year 1 analysis was extremely relevant to them.
  • This is also important because 2018 is the only year where people under 2 years of service are automatically fully vested into BRS. That means people who choose to switch to BRS in 2018 can earn government matching immediately; those auto-enrolled in BRS have to wait!

But let’s get on with the bulk of the answer.

Would I Switch To BRS At Other TIS Points?

I decided to post 4 analyses today: 3 years TIS, 6 years, 9 years, and 11 years 11 months. That allows me to show a variety of situations, both dollar-wise and career-wise.

Please note that in today’s post I’m talking about me. What I would’ve done. I’m active duty, I’ve always been active duty, and I’ll probably end my career active duty. So it doesn’t really cover Reserve Component considerations. But it does give you a framework that you can use to consider your own career.

3 Years TIS, no Continuation Pay

Here are the numbers for if I’d opted into BRS at 3 years TIS. This spreadsheet uses the same assumptions I used in Part 1.

Without including Continuation Pay and with the previously used assumptions, I’d end up with $150,528.02 in 2024 (20 years TIS). The government portion of my notional TSP is almost exactly $100,000 less than the $250,000 “goal” set out by Hank in the original comment.

What that means from an income standpoint is that starting at the age of 41 (if I retired at 20 years) and using the 4% Rule, I’d be able to generate about $6021/annually. But Hank pointed out you’d need to replace $10,000 to be revenue neutral with High-36 (O-5 retiring at 20).

I showed how, if you start in BRS right at the beginning of your career, it’s basically revenue neutral. But later on, you have to decide what peace of mind and career flexibility are worth to you.

$10,000 – $6021 is $3979/year, or $331/month. We’ll ignore the benefits of TSP over a pension for now and just use the flat number.

Is $331/month in future income a price I’d have been willing to pay at 3 years TIS? Maybe, but…

3 Years TIS, with Continuation Pay

We also need to look at what the government portion of the TSP account would look like if I invested the Continuation Pay. Remember, making that smart move will put you significantly closer to “closing the gap” of the reduced pension.

With the Continuation Pay and the assumptions from before, I’d have $187,715.91 in 2024. That’s less than a $16,700 difference even accounting for 3 less years of contributions and compounding. Pretty good!

$187,715.91 will provide an annual income of $7508 (inflation adjusted after year 1) to offset the reduced pension. That’s a $2491/year or $207/month cost to receive the “insurance” of Blended Retirement’s guaranteed retirement benefits.

My Career at 3 Years TIS

I started my career in 2004. Right away, I learned of terms like “Force Shaping” and “Reduction in Force” – terms nobody had mentioned in ROTC. I learned about these terms because the Air Force went through multiple manning reductions around that time. Between 2004 and 2008, the Air Force officer corps was reduced by 13% (the enlisted corps shrunk by a similar amount). Check out Chapter 3 of this RAND report for more information about Navy and Air Force RIFs in the mid-2000s.

So by year 3 of my career I was intimately familiar with force reductions. Several friends had been forced to say goodbye to their careers. I myself had been through two rounds of force shaping/RIFs at this point…thankfully unscathed.

By the way, if you are thinking “well that doesn’t apply right now. We are growing the military!” remember that I’ve seen multiple cycles of shrink-grow-shrink-grow in my 14-year career. What is happening today is no guarantee of what will happen tomorrow.

My “Switch to BRS?” Questions: 3 Years TIS

I’ve talked repeatedly about how I think military members shouldn’t make this decision based on dollars alone. Let’s go through what I think is a good set of questions to be asking yourself. My answers are colored; blue means I’d lean towards BRS, orange means I’d lean towards High-36, black is neutral.

• Do you think you want to stay in the military for 20+ years?
  • At that point, I did
• How is your career going?
  • At 3 years, it was kinda meh. A little above average, but not exceptional
• Have you talked to your supervisor/commander/mentor about your career prospects?
  • lol no I definitely hadn’t
• What do you think of your career prospects right now?
  • Looking a bit scary due to force shaping/RIFs
• Do you have any family issues or concerns that may cause you to leave the military? EFMP, need to be near family, etc?
  • Nope
• Do you have any medical issues or concerns that may cause you to leave the military?
  • I have had a minor issue since college
• If you made it to military retirement, would you need a higher pension to meet your income needs?
  • Not sure

Given this assessment, I would’ve switched to BRS at 3 years TIS. At the risk of $207-$331/month in potential future income, and given a fairly even assessment, I would’ve taken the safer path. To me that’s a small price to pay for the guarantee of something if I end up leaving the military.

And yes, I know hindsight is 20/20. I can’t change the fact that I’m past this point in my life. I can only hope to help others think through this decision.

For the rest of the analyses, I’ll go through this a little faster.

6 Years TIS, no Continuation Pay

If I’d switched to BRS at 6 years TIS and didn’t invest my Continuation Pay, I’d be looking at $119,962.70 in the government portion of my TSP. That’s worth $4798/year using the 4% Rule and would replace about half of the amount of Hank’s reduced pension estimate ($10,000). The monthly reduced income in year 1 would be $433/month ($10,000 – $4798 = $5202. $5202 / 12 = $433)

6 Years TIS, with Continuation Pay

If I’d switched to BRS at 6 years TIS and did invest my Continuation Pay, I’d be looking at:

• $157,150.58 in the government portion of my TSP
• That’s worth $6286/year using the 4% Rule
• The monthly reduced income in year 1 would be $309/month ($10,000 – $6286 = $3714. $3714 / 12 = $309)

My Career at 6 Years TIS

At 6 years TIS, I was on my second assignment. Between years 3-5 my career record had risen up, but due to a small stratification pool my performance reports were back to meh-ish. Certainly not bad, but nothing to write home about.

The force management actions had continued and more of my friends had left the military involuntarily. Some had transferred over to the Army at this point instead of leaving entirely. Thanks to years of deployments to Iraq and Afghanistan, the Army was hiring, at least.

Plus many friends have started leaving the military just because their first commitments were over. I was watching them start new ventures through this weird new website “Facebook.”

I’d been through my own first deployment at this point and my morale was HIGH. I was here to serve. I’d applied to a program around this point that was difficult and would guarantee I would work long, long hours for years to come. I was ready.

My “Switch to BRS?” Questions: 6 Years TIS

Remember blue means I’d lean towards BRS, orange means I’d lean towards High-36, black is neutral.

• Do you think you want to stay in the military for 20+ years?
  • YES
• How is your career going?
  • Still kinda meh
• Have you talked to your supervisor/commander/mentor about your career prospects?
  • Still nope
• What do you think of your career prospects right now?
  • Uncertain…
• Do you have any family issues or concerns that may cause you to leave the military? EFMP, need to be near family, etc?
  • Nope
• Do you have any medical issues or concerns that may cause you to leave the military?
  • Same minor issue, but it was giving me a little more trouble
• If you made it to military retirement, would you need a higher pension to meet your income needs?
  • No. I was starting to learn more about financial independence

Given this assessment, I would’ve switched to BRS at 6 years TIS. At the risk of $309-$433/month in potential future income, I knew I could make that up with my own investments if needed. If I stayed until retirement the lower pension + my own investments would be plenty. If I didn’t,  I’d be walking away with tens of thousands of dollars. Either way BRS sounds pretty good for someone who wants to stay but doesn’t know what the future holds, right? BRS it is.

9 Years TIS, no Continuation Pay

If I’d switched to BRS at 9 years TIS and didn’t invest my Continuation Pay, I’d be looking at:

• $86,783.71in the government portion of my TSP
• That’s worth $3471/year using the 4% Rule
• The monthly reduced income in year 1 would be $544/month ($10,000 – $3471 = $6529. $6529 / 12 = $544)

9 Years TIS, with Continuation Pay

If I’d switched to BRS at 9 years TIS and did invest my Continuation Pay, I’d be looking at:

• $123,971.60 in the government portion of my TSP
• That’s worth $4958/year using the 4% Rule
• The monthly reduced income in year 1 would be $420/month ($10,000 – $4958 = $5042. $5042 / 12 = $420)

My Career at 9 Years TIS

Okay, now we are looking at some significant dollar differences. $420-$544 each month seems pretty large, right?The problem seems more clear now, doesn’t it?

NOPE

Welcome to my hell year. Back in this post, I talk about how my sister’s death was the catalyst for my desire to achieve financial independence. That was when I realized that no matter how much you like your job, you might not be able to do it forever. Or even to age 51.

I also broke up with a serious significant other at that point. One of the things contributing to the break up? The military. We lived 1000 miles apart.

My career was going well, but that really doesn’t mean a whole lot when you are thinking about your mortality. And all the things you want to do before you die. And how you really, really don’t want to spend your entire life doing what other people tell you to do. Especially when what they are telling you is something you don’t want, even though it’s good!

So while my career looked good on paper at this point, it didn’t “feel” good. And that was a new feeling to me, 9 years into my career.

My “Switch to BRS?” Questions: 9 Years TIS

Remember blue means I’d lean towards BRS, orange means I’d lean towards High-36, black is neutral.

• Do you think you want to stay in the military for 20+ years?
  • uhhhh???
• How is your career going?
  • Well
• Have you talked to your supervisor/commander/mentor about your career prospects?
  • Yes. They were good.
• What do you think of your career prospects right now?
  • As above
• Do you have any family issues or concerns that may cause you to leave the military? EFMP, need to be near family, etc?
  • Yeah!!
• Do you have any medical issues or concerns that may cause you to leave the military?
  • At this point in addition to my minor, persistent issue I was also diagnosed with another issue. The second one is minor if controlled, but could lead to major problems in the future. Neither issue is affected by work, btw.
• If you made it to military retirement, would you need a higher pension to meet your income needs?
  • No. I knew enough about my financial prospects at this point that I knew not only wouldn’t I need the higher pension, I wouldn’t necessarily need the pension at all. At this point it was a tossup.

Given this assessment, I would’ve switched to BRS at 9 years TIS in a heartbeat. At the risk of $420-$544/month in potential future income, I welcomed an alternate plan. The overriding factor here is how I felt about wanting to stay in for 20+ years. Not the money, not the career prospects. I was heavily weighing leaving and a switch to BRS would’ve made that choice easier with no long term harm in the future (thanks to my own investments). No question on this one for me.

11 Years 11 Months TIS, no Continuation Pay

If I’d switched to BRS at 11 years 11 months TIS and didn’t invest my Continuation Pay, I’d be looking at:

• $60,788.13 in the government portion of my TSP
• That’s worth $2431/year using the 4% Rule
• The monthly reduced income in year 1 would be $630/month ($10,000 – $2431 = $7569. $7569 / 12 = $630)

I want to point something out in particular here. This is the “worst case scenario” for an officer looking at BRS, right? For an enlisted member the numbers would be different, but the ratios would be about equal.

In a worst case scenario, using real world investment returns and my conservative projections, the total difference between starting BRS in month 1 (investing CP) and switching in year 11 month 11 (not investing CP) is only about $144,000. That may seem like a huge number, but it really isn’t. Not when you are looking at decades of investing. It’s a few thousand dollars per year. This is what Doug Nordman likes to point out as a rounding error.

Anyway, I thought that was worth mentioning. Don’t get scared by large numbers. Break them down.

11 Years 11 Months TIS, with Continuation Pay

If I’d switched to BRS at 11 years 11 months TIS and did invest my Continuation Pay, I’d be looking at:

• $97,976.02 in the government portion of my TSP
• That’s worth $3919/year using the 4% Rule
• The monthly reduced income in year 1 would be $506/month ($10,000 – $3919 = $6081. $6081 / 12 = $506)

My Career at 11 Years 11 Months TIS

Phew. Year 9 was rough. Luckily it improved a lot after that.

By year 11.9 I was working on a special assignment that was really interesting and totally outside my wheelhouse. It was a blast, when it wasn’t incredibly frustrating (you know what I mean!). I was also looking ahead to a new job where I’d be doing something I’d been wanting to do since I was a Lieutenant.

Importantly, the twists and turns my career had taken had me checking off some of my bucket list items. Between the beginning of year 9 and the end of year 11 I traveled to seven countries. I worked with a lot of people from around the world. I was seeing real growth from projects I’d worked previously, and I was excited to see more.

Discussions with my leadership had me on a career path I was happy with, and I was excited to see what was next. And it’s continued that way ever since.

My “Switch to BRS?” Questions: 11 Years 11 Months TIS

Remember blue means I’d lean towards BRS, orange means I’d lean towards High-36, black is neutral.

• Do you think you want to stay in the military for 20+ years?
  • Yes
• How is your career going?
  • Really well
• Have you talked to your supervisor/commander/mentor about your career prospects?
  • Yes. Even better than before
• What do you think of your career prospects right now?
  • As above
• Do you have any family issues or concerns that may cause you to leave the military? EFMP, need to be near family, etc?
  • Still kind of, but not as bad as before
• Do you have any medical issues or concerns that may cause you to leave the military?
  • My long term issues remain
• If you made it to military retirement, would you need a higher pension to meet your income needs?
  • No. I was on track to not need any outside help on my retirement savings, pension or otherwise.

Given this assessment, I would not have switched to BRS at 11 years 11 month TIS. At this point I was back to fully on board with my career, and since the money was a wash either way there’d be no significant financial benefit to me switching.

Summary

So there you go. Given what was happening in my life and the military at the time, I wouldn’t have decided to stay with High-36 until basically the choice was out of my hands. Again, yes, I know this is hindsight. But that’s kind of the point. I’ve already seen a lot of hills and valleys in my career. I have dealt with burnout, and the disappointments, and the feeling of getting picked for your #1 assignment. I’ve been stratified high and…less high. I’ve had a lot of discussions with my bosses and my troops about career prospects. So I’m *hoping* some of my life experience can help inform the decisions of those of you who’ve been in the military for less time.

I know I said I’d answer more questions today about the assumptions I used for these analyses, but it’s late and I’m already at 3000+ words so I’m going to waive off on that for the moment. Look for a Part 3 later this week (here you go!).

I’ve given you a whole lot of numbers as well as some other things to think about. Have you run through a series of questions like my “Switch to BRS?” questions? Did I forget anything important? Leave a comment below if you have anything to add!