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The Blended Retirement System (BRS) is an excellent way for military servicemembers to build their retirement savings. The BRS allows you to earn government matching up to 5% of your pay, so your Thrift Saving Plan (TSP) account can grow faster. This is a great change for the more than 80% of servicemembers who will not earn a 20+ year military pension.
I earned $3295 extra in matching from 1 Jan – 31 Dec 2018. That's real money, especially compounded over 40 years at 7%, when it will grow to $49,340.
The IRS announced the employer sponsored retirement plans (such as TSP and 401k) are increasing to $19,000 for elective deferral (employee) contributions in 2019. Individual Retirement Accounts (IRAs, both Roth and Traditional), are bumping up to $6000 for the year. That's a nice, round $500/month to max your IRA.
Optimize your TSP Contributions Under BRS
The BRS TSP match can be worth thousands per year if optimized correctly. The limiting factor is you have to contribute 5% each month, as the match is paid monthly.
Therefore, you do not want to make all of your $19,000 of contributions (the annual elective deferral limit) in the first 6 months of the year: you must space out your contribution for the full year if you want to receive the full match.
I used to front load my TSP contributions as fast as possible at the beginning of the year. Under the BRS, this is no longer optimal so I changed my contribution strategy.
Don't worry about going over the annual $19k limit. As long as you don't have another employer retirement account (401k, 403b, self 401K), the DFAS computers will limit your final contribution to ensure that you max out the account without going a penny over. This can result in a nice bonus pay bump around Christmas and the end of year holidays.
How Much Should I Contribute to the TSP to Get the Full BRS Match?
If you want to maximize your TSP contribution for the year ($19,000) and receive the full 5% TSP match you are eligible for, you must contribute at least 5% to the TSP every month.
The formula is pretty simple. Take your maximum elective deferral contribution limit of $19,000 in 2019. Divide by 12 months = $1583.33. Then divide $1583.33 by your monthly base pay to get a percentage of contribution.
For example, if your base pay is $5000/month, $1583.33/5000 = .3166 or 31.7%. Round up to 32% because you can only elect contributions in whole percentages.
If you contribute 32% of your $5000 base pay, you will deposit $1600 each month into the TSP, Roth or Traditional. Therefore, up until November you will contribute $17,600.
In December, because you only have $1400 left of contributions, the TSP computers should only allow you to contribute $1400 and the remaining $200 will be returned in your paycheck. A nice Christmas bonus! Now you have maximized your annual contribution and received the full 5% match every month of the year.
The chart below shows the percentage you should contribute monthly for all enlisted, warrant, and officer ranks up to O-8 and 26 years of service. You can change your contribution election on myPay for Navy, Air Force, and Army. Click each image to view full size or download the PDF or Excel document.
For example I am an O-3 with over 8 years of service. So I will elect to contribute 26% of my pay, based on the above chart. That means I will contribute 26% of my $6241 base pay every month to the TSP = $1622.66. For the 11 months up to November, that's $17,849.26, leaving me $1150.74 ($19,000 limit – $17849.26 contributed) to contribute in December.
Because $1150.74 / $6241 is 18.4% of my base pay, I contribute at least 5% of my base pay in December and receive the full 5% match every month of 2019.
How much is the TSP match worth monthly?
How much is the BRS TSP match worth annually in 2019?
If you receive the full BRS match every month this year, it can be worth thousands of dollars depending on your pay grade and time in service. Compounded over a few years or decades, your TSP match can grow to tens of thousands of dollars.
This additional investment can provide you with substantial additional income after financial independence or retirement. Click the image for a larger picture.
I hope these charts are valuable to you. Please share on your social media and leave a comment below if you have any questions about Blended Retirement System, the Thrift Savings Plan, or how to get the most out of the new system.