Military Spouses: Prepare Your Family for Success in the BRS Era
Katy Stevick is a military spouse living in Fayetteville, NC. As a First Command Financial Advisor, she helps military families shape positive financial behaviors through face-to-face coaching. Katy is also leading the local chapter of The Milspo Project, an organization that helps military spouse entrepreneurs achieve growth beyond circumstance. You can connect with Katy on Facebook at @KatyStevickatFirstCommand.
Would you be surprised to know that most military spouses are responsible for managing our families’ personal finances? I wasn’t surprised either. A recent survey confirms: military spouses often bear this important responsibility for our families.
It is only natural that we tend to put the financial pieces together on the homefront, paying bills and tracking monthly spending. It can be an extra burden but also a privilege, and we can do a lot more good for our families by carrying this privilege into managing our finances in the direction of our long term goals.
A key to this long term planning is about to change drastically as our military undergoes one of the most significant changes to pay and benefits in 70 years. The Pentagon’s new Blended Retirement System (BRS) is now law, and in less than one year, all incoming service members will fall under this program.
It will transform the way we think about and plan for the possibility of lifetime financial security.
Troublesome Tradeoffs: How BRS Works
Existing service members with less than 12 years of service on December 31, 2017, can stay with the traditional retirement or opt in to the new system. The BRS will be standard issue for service members who join on or after January 1, 2018. This new system introduces lump sum bonuses and 401(k)-style contributions to the lexicon of active-duty and reserve military retirement planning.
Unfortunately, it also reduces the guaranteed income from a military pension by 20%. The BRS replaces the reduction in monthly retirement pay with two components: automatic and matching contributions to the Thrift Savings Plan (TSP) and a continuation bonus to be awarded between the 8th and 12th year of service. The continuation bonus (intended to manage retention) will be 2.5 or more months of pay.
BRS Risks Outweigh Rewards for Many Career Military Families
For the next generation of career military families, BRS places increased financial decision-making and risk directly on the shoulders of the individual service member and his or her family. Some important factors to keep in mind include:
- To earn the full TSP match, you will need to contribute 5% of your pay toward the plan.
- The continuation bonus is part of the 20% reduction in guaranteed income from the traditional pension – invest it, don’t spend it!
- The growth of TSP and continuation bonus investments over time is essential to maximizing your pay after retirement.
3 Tips for Making the Most of the BRS
Making the BRS work for your family depends on making smart financial decisions like:
- Enroll in the plan early in January 2018 to earn the maximum TSP match for the year. Putting off the decision until later in the year means you’re basically throwing away free money.
- Remember to match your asset allocation to your risk tolerance.
- Develop and stick to a family financial plan that includes strategies for building your savings, investing wisely, and protecting your family with adequate insurance.
If you’re not sure how to create a family financial plan, there are financial coaches available to you who understand military benefits and military lifestyle challenges. A recent First Command survey reveals that more than half of middle-class military families* who work with a financial advisor participate in the Thrift Savings Plan (TSP), while less than one-third without an advisor contribute to the plan. This dramatic gap highlights the potential advantage service members gain from working with a professional coach, especially as TSP participation will be key to effectively utilizing the new system.
As a financial advisor with First Command, I’m proud to offer complimentary financial plans to active duty service members and even more proud to provide face-to-face coaching to help them stick to their plan. I’m also happy to make referrals to my colleagues who live near you, so you can work with someone face-to-face to help you with the important decisions BRS requires you to make.
*Commissioned officers and senior NCOs in pay grades E-5 and above with household incomes of at least $50,000 surveyed via the First Command Financial Behaviors Index®