2022 AFBA Financial Planning Guide

service and is designed to encourage members to remain in service. It is payable at the discretion of each military service and will generally be a function of specialty skill and retention rates. Lump Sum Option. Service members under BRS who qualify for retired pay, may be eligible to elect either a 25 or 50 percent discounted portion of their monthly retired pay as a lump sum in exchange for reduced monthly retired pay. Monthly retired pay returns to the full amount when they reach their full Social Security retirement age which is generally age 67. 4–4. RETIRED PAY INCREASES. Each year military retirement pay is adjusted to meet the increased cost of living. This Cost-of-Living-Adjustment (COLA) varies from year to year based on the previous year’s Consumer Price Index (CPI). The chart below provides the retired pay COLAs that have been authorized over the last ten years.

elected to opt in, both the Service Matching and Automatic Contributions began immediately. Members are immediately vested in both their contributions and the Service Matching Contributions and the earnings associated with these funds. To become vested in the Service Automatic Contributions, however, you must have completed two full years of service. If you had completed two years of service before opting in, you were immediately vested. The defined contribution is a change from the legacy systems where there is no service contribution to your TSP. Under BRS, once you are vested, you walk away with the service contributions in your TSP account even if you don’t stay in the service for 20 years. In 2022, you can contribute up to $20,500 in your TSP. The matching contributions add up. For example, an E-3 in BRS who does not contribute to her TSP for five years is losing out on more than $6,000 in estimated DoD matching contributions and earnings. However if she contributes 5 percent of her pay over those 5 years, she would have around $16,000 in her retirement stash, counting DoD’s match and the earnings on the money. Defined Benefit. Members who stay in the Uniformed Service for 20 or more years are eligible to receive a defined benefit (pension) based on a percentage of their basic pay. Members of the National Guard or Reserve are also eligible for a defined benefit after reaching 20 qualifying years of service. The benefit amount is calculated using the same steps as the High–36 system (discussed earlier in this chapter), except the BRS uses a multiplier of 2% rather than High–36’s 2.5%. This means that after 20 years of service your pension would be 40%. Step 1: Determine a “retirement factor” by multiplying years of service for retired pay by 2%. The factor is increased for full months of service completed in the final year of duty. RC members years of service is determined by dividing the member’s total retirement points by 360. Step 2: Determine the average monthly basic pay received during the highest three years (36 months) of active duty. Step 3: Multiply the retirement factor (Step 1) by the average monthly basic pay (Step 2) and round the amount down to the nearest whole dollar. Continuation Pay . The BRS contains a Continuation Pay provision which is a direct cash payout — similar to a retention bonus. It is payable between 8 to 12 years of

Retiree COLA Increases

2022 2021 2020 2019 2018

5.9% 1.3% 1.6% 2.9% 2.0%

2017 2016 2015 2014 2013



1.7% 1.5% 1.7%

Members receive COLAs that equal the percentage increase in the CPI except for those under the CSB/REDUX system. Under this formula, the COLA increase until age 62 is the CPI rate of inflation minus one percentage. At age 62 there is a one–time COLA adjustment designed to provide full CPI coverage for every year past retirement. This recomputation, together with the adjustment of the retirement percentage factor previously discussed, results in the same retirement benefit for both High–36 and CSB/REDUX retirees at age 62. However, CSB/REDUX COLAs after age 62 are again set at the CPI index minus one percentage. 4–5. ENLISTED PERSONNEL RETIREMENTS. In order to qualify for voluntary retirement, enlisted members must generally have completed at least twenty years of active military service. They are normally retired in the active duty grade held at the time of retirement. However, if a member’s active service plus service on the retired list totals 30 years, he or she may be advanced on the retired list to the highest grade satisfactorily held on active duty and receive retired pay based on that higher rank.


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