Blended Retirement System

Written by: Tom Jackson

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For decades, members of the military had little to consider when it came to retirement planning. If they chose to remain in the armed services for at least 20 years, they would receive an annuity calculated at 2.5% times the average of their highest 36 months of basic pay (i.e., a person retiring after 20 years would receive a pension at 50% of their highest pay).

But those who didn’t stay for at least that long – an estimated 83% of all military personnel – were mostly out of luck when it came to qualifying for a retirement pension.

That situation changed drastically in 2018 with the introduction of the new Blended Retirement System, which was created by the passage of the 2016 National Defense Authorization Act.

The biggest upshot from the Blended Retirement System (BRS) is that the percentage of military personnel qualifying for retirement benefits will greatly increase. That is possible thanks to the introduction of the Thrift Savings Plan, a 401k-like program which begins 60 days after joining the service and includes an automatic contribution from the military.

As a result, it is now estimated that 85% of service members will receive a retirement benefit as veterans, even if they don’t stay in the service for 20 years.

Those who do stay for at least 20 years (including members of the National Guard and Reserve), will still qualify for monthly pension payments under the annuity feature of the Blended Retirement System, though calculated at a lower rate than the legacy system.

The BRS also includes a “continuation pay” bonus for those who choose to re-enlist after completing between 8 and 12 years of service (the typical midpoint of a military career), and an option to receive a “lump sum” payment upon retirement of either 25% or 50% of the service member’s gross estimated retired pay in exchange for smaller monthly annuity payments.

Who Is Eligible for Blended Retirement?

The Blended Retirement System automatically covers all service members who joined on or after Jan. 1, 2018.

Those who joined between 2006 and 2018 were given the choice to remain in the legacy retirement system or opt into the Blended Retirement System; the opt-in window was from Jan. 1 to Dec. 31, 2018.

Service members who joined before 2006, remain in the traditional (also known as the Legacy High-3) system where they will qualify for a lifetime monthly annuity after 20 years of service.

How Does the Blended Retirement System Work?

As its name suggests, the Blended Retirement System “blends” the traditional annuity program for service members who retire after at least 20 years with the Thrift Savings Plan (TSP) that is similar to the 401(k) retirement program prevalent in the civilian workforce. This defined contribution plan provides for an automatic contribution by the military to each service member’s TSP account. It allows the service member to invest a percentage of their own pay in stocks, bonds and/or government-backed securities and receive matching contributions from their employer.

Updates to The Legacy Retirement System

The annuity from the Legacy High-3 system (otherwise known as the military’s defined benefit pension) remains largely the same under the BRS, except that the monthly annuity payment is 2% multiplied by the number of years in service, instead of 2.5% under the traditional formula. That means an Army veteran who retires after 20 years of service will receive 40% of their highest 36 months of base pay through the Blended Retirement System, or 60% for those who retire after 30 years.

To make up for this reduction in the monthly annuity payments for those who make it to 20 years of service, the government will contribute to a service member’s Thrift Savings Plan.

Under this new defined contribution program, the military will contribute 1% of service members’ base pay each month to the TSP automatically. Members entering the armed forces after Jan. 1, 2018, must wait 60 days before the automatic contributions begin. They also will be automatically enrolled to contribute 3% of their basic pay to the TSP’s Lifecycle Fund appropriate for their retirement age. While they can opt out of the 3% contribution, they will be automatically re-enrolled at the beginning of each calendar year.

After two years in the military, service members can begin receiving contributions from their branch up to 5% of their basic pay (including the 1% automatic contribution mentioned earlier). Both the automatic 1% and the matching contributions of up to an additional 4% of pay continue through the end of the pay period during which the service member attains 26 years of service.

Service members have a range of investment funds to choose from in the TSP, from safe government securities that provide relatively low returns, to government and corporate bonds that offer modest returns with moderate risk, to domestic and international stocks that offer the potential for highest returns accompanied by the most risk if the stock market tumbles. Investors can also choose to invest in Lifecycle funds that blend investment types with risk levels tailored toward their year of birth and when they plan to start withdrawing funds. The longer the anticipated time until retirement, the more aggressive, or risky, the investments in the Lifecycle fund will be.

Enrollees in the TSP are entitled to all the funds in their account once they are fully vested. Under the BRS, service members are always vested in their own contributions and earnings, as well as immediately vested in the service matching contributions and their earnings. To become vested in the military’s automatic 1% contribution, however, they must have completed two years of service. If the service member has completed two years of service before opting in, they are immediately vested in the entire account.

Once vested, the funds in the account are portable, meaning they can be left in the TSP to grow or moved to another qualifying government or private-sector retirement account when the service member leaves the military. The funds are also available for loans and withdrawals under the same rules that apply to 401(k) and similar retirement plans. Find more information about combining military retirement with benefits from the private sector called second retirement.

Continuation Pay

In addition to the defined benefit (annuity) and contribution (TSP) components of the BRS, the new system also provides for “continuation pay,” which is designed as a type of one-time bonus for re-enlisting in the service around the mid-career mark. The exact timing and amount of the bonus varies among branches of the armed services, but it is targeted after the completion of eight years but before the completion of 12 years of service. Continuation pay acts as a sort of carrot to entice Army or other service members who have already logged significant time in the armed forces, to continue serving, ideally until they reach the 20-year retirement mark, at which point they become eligible for monthly annuity checks.

The continuation pay amount can range from 2.5 to 13 times a service member’s monthly basic pay for those on active duty and 0.5 to six times basic pay for members of the National Guard and Reserves on drilling status. The factors that determine the pay-rate multiplier for those eligible for continuation pay may include the retention needs of a particular branch, as well as specialty skills and hard-to-fill positions.

Lump Sum Option

Yet another feature of the Blended Retirement System is the option to receive a “lump sum” payment at retirement. Retiring service members (or National Guard/Reserve members reaching age 60) may choose to receive either 25% or 50% of the discounted present value of a portion of their future retired pay, in exchange for reduced monthly payments. Retirees will see their monthly retired pay return to the full amount when they reach the full Social Security retirement age (67 for most people).

Those who select a 25% lump-sum payment will receive monthly retirement pay at 75% of their normal full retirement pay. A 50% lump sum will reduce the monthly amount to 50% of normal full retirement pay. The good news is that upon reaching age 67, monthly pay will return to the normal full amount.

Lump sum payments are also discounted by a rate that changes from year to year (it is 6.54% in 2022) and are taxable. The new discount rate is published in June of each year.

To receive a lump sum payment, a service member needs to complete the necessary form no later than 90 days prior to his or her retirement date (or date of eligibility for retired pay if in the Guard or Reserves).

Service members should weigh the pros and cons of taking a lump-sum payment in exchange for reduced monthly pay. As a Department of Defense fact sheet on the lump sum option states, “Note that a lifetime of equal, non-discounted monthly payments is worth more. For most service members, a guaranteed stream of income for life is likely a better option than a lump sum.”


While seemingly much more complicated than the legacy “High-3” annuity system, the Blended Retirement System in a nutshell combines elements of a traditional defined benefit pension plan that provides a guaranteed income stream upon retirement with a 401(k) defined contribution plan (the Thrift Savings Plan) that enables service members to contribute their own pay (and receive automatic and matching contributions) into a range of investment options. It blends the certainty of the traditional annuity system that provides monthly retired pay based on years of service and final basic pay with the flexibility of the TSP, which allows service members to adjust or stop contributions, make investment selections, and withdraw or take out a loan on their account balance.

Service members also have the opportunity to receive continuation pay – basically a direct cash payout or bonus – at the mid-career mark if they choose to re-enlist, and upon retiring can choose to receive lump sum payouts in exchange for smaller monthly payments.

Every person who joined (or will join) the armed services after Jan. 1, 2018, is covered by the BRS. Those who joined between 2006 and 2018 had the option of remaining in the legacy system or signing onto the BRS, while those who joined the service prior to 2006 remain in the legacy system.

While a lot to digest and consider, the new system gives service members more control over building their retirement nest egg and the ability to tailor their retirement pay toward their own life circumstances and goals.

For the latest information on the BRS, or answers to specific questions, service members should check with their Human Resources Department/Workforce Management/Personnel servicing or visit the BRS Resource website.

About The Author

Tom Jackson

Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.


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