Transcript:
Hello, everyone, I'm Derek Merkler, fiduciary financial advisor and author here at militaryfa.com with your Tip of the Week. This week I'm discussing how matching contributions work under the military's new Blended Retirement System. Under this new system, the retirement pension calculation fell from a 2.5% multiplier to 2%. In other words, at 20 years of service, a retiree receive 40% of their base pay and pension payments, rather than the legacy systems 50%.
In return for the decrease pension payments and to provide benefits for those who don't make it to 20 years, service members now receive contributions from their branch of service into their Thrift Savings Plan accounts. Not all of the contributions happened by themselves so, service members under BRS will receive an amount equivalent to 1% of their base pay placed automatically into tsp. The remainder are matching contributions. In other words, service members must contribute their own funds to tsp to earn the match. For each dollar of base pay that a service member contributes will receive $1 for dollar match up to 3% of their base pay. For the next 2% of base pay, they receive 50 cents from their service for each dollar they contribute. This comes out to matching contributions of 4% of base pay when the service member contributes 5% of their base pay. Add that to the 1% automatic contribution and the service member receives 5% of base pay in automatic and matching contributions into tsp.
Bottom line, service members under BRS that are looking to maximize their savings and retirement contributions should consider contributing a minimum of 5% of their base pay into the Thrift Savings Plan. If you have questions on this or any other financial topic, send me a message using the info posted in the credits. Until next time,