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Military service comes with many benefits that can assist service members even after they are done serving. One key benefit for those who choose the long path is a retirement plan that matches or exceeds those of other employers or individual plans.
In 2016, the U.S. Department of Defense replaced its legacy High-3 system with the Blended Retirement System (BRS). The BRS went into effect in 2018.
Key Takeaways
- The U.S. military retirement system transitioned from the legacy system to the Blended Retirement System (BRS) in 2018.
- The Blended Retirement System combines the legacy system and the Thrift Savings Plan to offer retirement savings and benefits to all members, no matter how long they serve.
- Active-duty, National Guard, and Reserve members are all given access to the retirement system.
- You’re not limited to only using the military retirement system when you’re serving; saving for other reasons and investing are other options that can help you become financially secure.
Legacy Retirement System
The military’s legacy retirement system had two options for active service members. Those who served between July 31, 1980, and January 1, 2018, were offered a plan called the High-36 or High-3 system. This system multiplied the number of years a service member served by 2.5%, then multiplied the product of those figures by the average of their highest three years of pay.
This group could also choose from the REDUX/Career Status Bonus option, which awarded a $30,000 bonus at 15 years of service, but their retirement pay was calculated at a lower rate. This option multiplied each year of credible service by 1% plus 1/12th of a percent for each month under one year. The result was multiplied by the average of the member’s highest three years of pay, and at age 62 reverted to the High-3 calculation. The REDUX option was sunsetted in December 2017.
Those who entered service before December 31, 2017, and had more than 12 years of service kept their High-3 retirement plan. If they had less than 12 years of service, they could choose from this system or the Blended Retirement System. Service members who joined after January 1, 2018, were/are automatically enrolled in the Blended Retirement System.
Reserve Component and National Guard
Reserve and Guard members were also eligible for this retirement system, but their requirements were calculated differently. They received one point for each day of active service or drill period, and 15 points for each year while part of the Reserves or Guard. Their retirement pay was determined by dividing their total reserve points by 360, then multiplying that figure by 2.5%. This figure was multiplied by either the member’s final pay figure (called the Final Pay Plan) or the average of the highest three years of pay (High-3).
Reserve and Guard members who accrued more than 4,320 retirement points by December 31, 2017, kept their legacy retirement plans. Those with fewer than 4,320 points by that date could choose between the legacy and Blended plans. Members who joined after January 1, 2018 were/are automatically enrolled in the BRS.
Blended Retirement System
The Blended Retirement System (BRS) is a combination of a 401(k) and the legacy military system. Service members are eligible after 20 years of service to receive an amount equal to:
2% × (Number of Years Served × Average of Their Highest Three Years of Pay)
The amount paid increases by 2% for every year of service above 20 years and increases in retirement via an annual cost-of-living adjustment.
In addition to this defined benefit, service members are enrolled in what’s called the Thrift Savings Plan (TSP), which is the equivalent of a 401(k) retirement plan. The member can contribute any amount of their pay to their TSP following Internal Revenue Service (IRS) rules, and the military matches any contributions up to 5% after their 24th month of service.
| Service Member TSP Contributions & Matching | |||
|---|---|---|---|
| Member Contribution | Automatic Contribution | Service Match | Total Contribution |
| 0% | 1% | 0% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 1% | 2% | 5% |
| 3% | 1% | 3% | 7% |
| 4% | 1% | 3.5% | 8.5% |
| 5% | 1% | 4% | 10% |
| >5% | 1% | 4% | Member contribution + 5% |
The military continues matching contributions until the end of the last pay period of a service member’s 26th year of service.
Important
Member contributions to the TSP cannot exceed $23,500, and the combined contributions cannot exceed $70,000 (in 2025). The TSP is also portable, which means service members can transfer all or part of their account into an individual retirement account (IRA) or employer retirement plan.
The military also offers a bonus program in the BRS called continuation pay. This is a one-time payment between service years eight and 12. It is calculated based on retention needs, the member’s skills, and if their career field and positions are hard to fill. The pay rate for this mid-career bonus is a member’s monthly pay multiplied by a factor of between 2.5 and 13, depending on the previously mentioned circumstances.
Roth and Traditional TSP
There are two types of TSPs regarding the way you’re taxed: the Roth TSP and the traditional TSP. They are similar to 401(k)s.
A Roth TSP allows you to contribute after-tax dollars, giving you the ability to make qualified withdrawals tax-free in retirement. This option is good if you believe you will make more in retirement than when working.
Traditional TSP contributions are made from pretax dollars, deferring taxes until you begin making qualified withdrawals. This option is good if you believe you will make less in retirement than when working, which means you could be in a lower tax bracket and pay less. Additionally, you can deduct the amount you contribute to the plan from your income, lowering your taxable income and possibly your tax bracket.
Fast Fact
Roth TSP contributions are tax-free if you’re serving in a Combat Exclusion Zone or a Direct Support Area. Traditional TSP contributions made while in these areas can be withdrawn tax-free in retirement, but not their earnings. While serving in these zones, you can contribute more than the annual traditional TSP limits, but combined contributions are still limited to the maximum amounts allowed by law.
Reserve and Guard Component Retirement
National Guard and Reserve Component members are eligible for the BRS, but they must have 20 years of qualifying service and reach age 60 before receiving any retirement payments (credible active service may lower the age requirement). The TSP works the same for Reserve and Guard members as it does for active-duty members.
Fast Fact
Roth and traditional TSPs allow catch-up contributions for those ages 50 and older. Few people will still be serving at that age, but it isn’t unheard of.
Other Retirement Systems
You’re not limited to only the BRS and TSP plans if you’re in the military. You can still invest in individual retirement accounts (IRAs), such as a Roth or traditional IRA.
Another option to consider is investing in a brokerage account, which can help you grow your overall net worth and diversify your investments.
Savings Options
- Savings Deposit Program: This program allows members an opportunity to earn a 10% interest rate on up to $10,000. You must be serving in an eligible combat zone and have been deployed for at least 30 days or one day per month in three consecutive months. The money is returned after the deployment ends.
- Military Savings or Checking Accounts: Banks may offer service members benefits, such as higher yields, lower account fees, or interest on a checking account.
- Taxable Investment Accounts: Money market funds, index funds, mutual funds, and exchange-traded funds (ETFs) offered by various brokers can give you more options for saving and growing your money.
- Life Insurance: The military (through the U.S. Department of Veterans Affairs) offers life insurance coverage of up to $500,000 for $30 per month. However, there is no limit to the number of nonmilitary life insurance policies you can purchase, as long as you can afford the premiums and the company agrees to insure you. Additional term and whole life policies might be additional savings options.
How to Create a Saving and Investing Plan
The first step in creating a saving and investing plan is to list your financial goals, such as homeownership, a comfortable retirement, or your children’s education. Next, assess your current financial situation by examining your accounts, income, expenses, and debts.
Once you’ve identified all your assets and incoming and outgoing cash, decide how to pay down any high-interest debts and reduce unnecessary expenses. Most advisors recommend funding an emergency savings account that can cover unanticipated expenses. It’s up to you to decide how much this savings account holds and how much you can afford to contribute to it, but it’s an essential part of financial readiness.
Tip
If you’re interested in investing in more than retirement accounts, it’s best to speak to a financial advisor about your options. Most military installations have established financial counseling programs, which service members and eligible family members can use for free to help them plan their financial futures.
After you’ve paid down your debts, reduced expenses, and built an emergency fund, you can determine how much of your monthly income you can afford to invest.
One of the best savings opportunities is while you’re deployed. Generally, you receive additional income when deployed and your personal spending decreases. While there is nothing wrong with using some of that extra income to splurge on something, the best thing you can do is use most of it to pay off existing debts or invest it in your TSP or other retirement savings plan.
Commit to it and don’t waver. There might be times when you can’t afford to contribute as much to your plan as you want to your plan, but every dollar counts.
The Bottom Line
Military service is a time-honored and rewarding opportunity to learn skills and earn benefits that can pay off for a lifetime. The military retirement system is one of the best retirement plans in the United States, so it’s important to take advantage of it.
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