Blended Retirement System

"The best time to start saving is ... yesterday."

- Someone smart, wise, and wealthy ... probably

To those of us not particularly interested in finances (including me until about a month ago), the Blended Retirement System (BRS) and the Thrift Savings Plan (TSP) do not mean much. I heard one of my co-residents discussing their investment portfolio and developed a severe case of what can only be described as financial FOMO; I had an overwhelming concern that I was screwing up my future through inaction. In this section, I intend not only to explain the Army's new retirement system, but also to ignite the same fire in you that was started in me to take a stronger interest in personal finance.

This page only applies to you HPSP individuals after you have started residency (full time active duty).

The Army's Traditional (Legacy) Retirement Program

Until 2018, if you joined the Army and you served your country for 20 years or more, you were rewarded with the opportunity to retire and collect 2.5% x number of years of service of your highest average 36 months of base pay, or put more simply, 50%* of your highest average pay over three years, for the rest of your life. Additionally, you received some nice benefits like Tricare for the rest of your life, and getting a free stack of pancakes at Denny's on certain days of the year.

If you left at 19 years and 364 days, you just got the pancakes (and they were probably pretty stingy on the butter!).

In 1986, the Army introduced the TSP. It acted like a 401(k) - providing tax benefits for retirement savings.

As you could imagine, people were not too happy about this set up - having served let's say 12 years and leaving with no benefits was not considered to be leaving on a good note. It was after this that the Army introduced the Blended Retirement System.

The Army's Blended Retirement System

If you commissioned after January 1st, 2018, you were automatically enrolled into the BRS. This system changed a few things in the Army's retirement program to give SOMETHING to veterans who left prior to a full, 20-year career. The deal works as follows:

The Army will automatically contribute 1% of your base pay to your TSP even if you put in nothing*. You have the opportunity to contribute some of your paycheck into your TSP, of which the Army will match up to 5% for a grand total of 10% of your base pay (at the cost of 5!). You can contribute far more than this (see below), but the Army caps out at 5%. ADDITIONALLY, if you make it to the mythical, 20-plus-year career, the Army will give you 2.0% x number of years of service of your highest average 36 months of pay, or put more simply, 40%** of your highest average pay over three years, for the rest of your life.

So if you discharge prior to 20 years of service, you will still have gotten something from the Army to show for your work, AND Denny's will get you that free short stack with all of the disgusting "syrup" you could ask for!

The Thrift Savings Plan/Retirement - Background (Facts - NOT Advice)

At this point, you may be thinking "Hey jackass! I'm an intern! I've been out of med school for six months. I can't even dream of retiring, yet!" To this I would reply "Oh, hey me from one month ago, how is drowning on the wards going?"

But, I would also say that the best time to start investing is yesterday! Unbeknownst to my younger, foul-mouthed self, there is a whole world of financial magic that exists to make life after the Army MUCH brighter. This magic applies to you whether you owe the Army 16 years, or four, and it starts with the TSP. Before I get to the advice portion of this topic, we need to lay some ground work.

• The money that goes into your TSP is contributed to an account similar to a personal Individual Retirement Account, or IRA. There are a few flavors of retirement accounts out there, but the two you care about for the time being are Roth and Traditional. While there is a great deal of nuance to each, they generally function as follows: A Roth IRA collects your money AFTER you've paid taxes on it. All of the interest made on the money in that account is NOT taxable. Contrast this with a Traditional IRA: you pay no tax on the money you place into that account, but when you withdraw the funds, both the money you've invested and the interest earned is taxable. You are free to take money out of either account after you are 59 and 1/2 years old. Yes, I know there is more nuance, here, but this is the gist.

  • • You are free to choose whether your contribution goes into either a Roth or Traditional TSP, however, the Army's contribution will always go into a Traditional account.

• Now, in general, the names "Roth" or "Traditional" simply define the tax rules surrounding the account. A normal, personal Roth or Traditional account can be filled with a myriad of types of investments be it stocks, bonds, mutual funds, stock indices, etc. Your TSP is a bit different, but hold this thought for now and see below.*

• This was all very confusing for me, initially, so here is a quick summary:

  • • Your TSP holds your Roth/Traditional accounts, and a Roth/Traditional account holds your investment (stocks, bonds, etc).

• Next are the rules of contribution. To an individual Roth or Traditional IRA, you are permitted to contribute up to $6,000 per year. To a Roth or Traditional TSP, you are permitted to contribute up to $19,500 per year. These limits increase every so often. Your spouse may also have their own IRA with the same limit (regardless of whether or not they are employed). So for an individual, you can invest $19,500 + $6,000 = $25,500 per year towards your retirement accounts, for a military member with a civilian spouse, you can contribute $19,500 + $6,000 + $6,000 = $31,500 per year (outside of your spouse's employer-sponsored retirement accounts, such as 401k or 403b). For a military/military couple, they can contribute a whopping $19,500 + $19,500 + $6,000 + $6,000 = $51,000 per year!

  • A Roth IRA has an income-based restriction. If you make above a certain amount (this changes every so often - Google it!), you will not be eligible to contribute to a Roth IRA. HOWEVER, there is something that is called a "Backdoor Roth IRA" which goes a bit too deep for this intro that will allow you to contribute to a Roth IRA at any salary - Google this for more.

The Thrift Savings Plan/Retirement - Recommendations (Advice - NOT Facts)

Phew! That was a lot to process! Are you still with me? Walk away for a minute if you need to - it's only the financial future of you and your closest loved ones at stake.

I think it goes without saying, I am NOT a financial expert. I am writing this for the same reason I wrote everything else on this website - I struggled with this; it sucked, but now I am better off, and I see no reason why you need to go through the same hardship to reach the same ends. With this very strongly in mind, let's get to the good stuff: unsolicited advice from a total stranger.

1) Where to learn more about finances

The knowledge I have now comes from a few sources: random Google websites, talking to financial advisors, listening to better-informed friends, a fantastic attending physician at my hospital, and most helpful for you - financial advice podcasts. I know that for some people, the idea of listening to someone go on about money may be synonymous with banging your head against the wall, but hear me out!

My first piece of advice is to give a source such as Dave Ramsey (DR) or the White Coat Investor (WCI) a chance. They each have books, financial courses you can pay for, blogs, and what I recommend the most - free podcasts. DR focuses more on debt and smaller day-to-day financial planning while WCI focuses more on high-income earners and financial planning advice specific to medical professionals (Dr. Jim Dahle, who owns WCI, is a former Air Force HPSP doc who has several podcasts devoted to military finances, specifically). I'd recommend watching DR on YouTube, as it comes in bite-size chunks (and he has an unbearable number of ads on his podcast), and WCI works better as a podcast.

Listening to these throughout your day will put you in the right financial mindset to think about your own finances and financial decisions. Additionally, they will give you a foundation from which you can make more informed decisions about your future.

2) What to do with your TSP + extra income

a) The bare minimum

I do not care the level of effort you want to put into your financial future, or whatever else you have going on in your life. The one thing I am ORDERING you to do is to put 5% of your base pay into your TSP. I don't care what fund you put it into. If you do not get your 5% matching from the Army, you are giving away over $200 a month.

b) Roth vs Traditional TSP

The next thing to consider is Roth vs Traditional TSP. I don't want to get too far into this debate, as you can find countless articles comparing the two online. The main thing to consider is if you are a relatively traditional physician and you graduate medical school between the ages of 26-28, you are set to retire from the Army after a full career at 46-48 years old. At that point, you will have a substantial pension from the Army, and are likely to have other investments and will likely find another job. The point is, your income in retirement will likely be higher than it is now - i.e. your tax bracket is lower now than it will be later. Even if you leave the Army early, you will have a higher-paying job and still be in a higher tax bracket later than you are now. If you are following me so far, you probably see that I am suggesting you place your TSP into a Roth plan (for most people). Don't believe me? Try to find any financial advisor who recommends otherwise.

c) Basic TSP investing

Let's say after you've read all of the above and you really want a solid financial future, but you only want to put in a small amount of effort - you want to set it and forget it! That's fine! In that case, my recommendation to you is first rid yourself of any high-interest debt you have (credit cards, cars, etc), establish an emergency fund, and then to MAX OUT your TSP contributions each year (yes, all 19.5k) and put it into a Lifecycle (L) fund. The Lifecycle funds are designed to change the type of investments over time: switching from high-earning potential, risky investments, to low-earning potential, safe investments. The Lifecycle funds are composed of varying percentages of the aforementioned funds (C, S, G, I, etc.) and are professionally managed by a broker. The Lifecycle funds (such as the L2050 fund, for example) are designed to be more aggressive and risky earlier on (investments in a higher percentage of stocks/index funds), and to "mature" by the year associated with the fund, 2050, for example (it will contain a higher percentage of bonds/government securities). The idea behind this being that by the time you are ready to retire, even if the market crashes, your retirement fund won't be entirely lost. If you want to save for the future and really aren't interested in any of this, the Lifecycle funds are for you.

Oh, and about investing the $19,500 each year. I know you may have some other financial obligations going on, and since you're in the military, odds are you may have a few kids - I get it. You can still plan for your financial future! Here's the thing - you are better paid than any of your civilian counterparts and they still have 250k of student loans over their heads. So if they can make it, so can you! I know you are earning big-kid money now, but do your best to live well-within your means; buy the cheaper car, spare going out to dinner, and put that money towards your future. Here's some advice I once heard on Dave Ramsey's podcast: your kids can get a loan for college, but no one is going to give you a loan for retirement.

***KEY POINT*** you must contribute at least 5% each month in order to get the matching contribution from the Army. If you put $19,500 in the first four months of the year, and put in nothing for the next eight, you will miss out on the Army's matching contribution for those eight months. Therefore, you should do some calculations to determine the percentage you need to contribute each month to make it to $19,500 by December (or do the math so that you can still contribute at least 5% of your base pay through December).

d) TSP + personal investing

The next logical step after you have maxed out your TSP for the year is to start contributing to your personal IRA and that of your spouse. I will recommend a Roth for the same reason as above. You can open an IRA just about anywhere: USAA, Chase, Vanguard, Fidelity, Schwab, etc. As mentioned earlier, you can fill your personal IRA with a number of different financial vehicles (stocks, bonds, mutual funds, gold, etc). Within your IRA, one of the more basic things you can do is to invest into a mutual fund. A mutual fund is a conglomeration of various stocks, such that if any one of them tanks, your mutual fund stays strong, overall. I implore you to investigate mutual funds vs ETFs vs everything else on your own, but a mutual fund is one of the more basic investments you can make that has a significant return over simply keeping your money in a bank or a CD. There are a whole bunch of scary looking numbers to consider. The only three you may care about starting out are the "historical return," "risk potential" and the "expense ratio." Simply put, the historical return is the average rate of interest the fund has accumulated over a set period of time. Obviously, the higher the return percentage, the higher amount of money you would have made had you invested in the past. The idea (and the hope) is that the future looks similar to the past. The risk potential is a subjective scoring of exactly what it sounds like - the risk of that investment. A high risk investment usually means higher potential for reward. The expense ratio is simply how much USAA or Vanguard is charging you to manage your investment per year. The lower the expense ratio, the less you pay to have your money managed.

e) Advanced TSP Management

Once you get your feet wet in investing, you may want to play around with your fund allocations on your TSP. Are you 15+ years from retirement and want to play the investing game, go 90+% on the C fund! Do you feel like the market is heading for a downturn (COVID-24?) ship it all into the G fund! To be clear, I am being facetious. There are countless ways to set up your TSP and seemingly even more websites telling you the best way to do so!

3) Go wild!

Hey, look at you! If you've done anything on this page, you are likely ahead of all of your civilian peers financially, and are doing yourself a great favor. Congrats and happy hunting!