Understanding the Blended Retirement System (BRS)

The most significant changes to military retirement and disability pay in recent years revolve around the implementation of the Blended Retirement System (BRS). This system, which took effect on January 1, 2018, represents a major shift from the legacy “High-3” retirement system. For veterans, understanding the nuances of BRS is crucial for planning their financial future. Are you maximizing your retirement benefits under this new system?

The BRS combines a reduced defined benefit (pension) with a defined contribution plan (Thrift Savings Plan or TSP). Here’s a breakdown:

1. Reduced Pension: Under the legacy system, retirees received 2.5% of their “high-3” average basic pay for each year of service. The BRS reduces this multiplier to 2.0%.
2. Thrift Savings Plan (TSP): This is where the “blended” aspect comes in. Service members automatically have 5% of their basic pay contributed to their TSP account each pay period, and the government matches contributions up to 5%. This matching begins after two years of service. TSP is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve.
3. Continuation Pay: To incentivize retention, the BRS includes a mid-career bonus called “continuation pay.” This is a one-time payment, typically between 2.5 and 9 times your monthly basic pay, offered between your 8th and 12th year of service, in exchange for committing to additional years.

My experience in advising transitioning service members suggests that those who actively contribute to their TSP and take advantage of continuation pay are significantly better positioned for retirement compared to those who rely solely on the defined benefit portion.

Navigating Military Disability Pay and VA Compensation

Military disability pay and Veterans Affairs (VA) compensation are two distinct but often intertwined benefits for veterans. It’s important to understand the differences and how they interact.

• Military Disability Retirement: This is for service members who are deemed unfit for duty due to a disability. The disability must be deemed to meet a certain threshold of severity. If medically retired, service members receive either a disability pension or a lump-sum disability severance payment, depending on the disability rating and years of service.
• VA Disability Compensation: This is a tax-free benefit paid to veterans who have a service-connected disability. “Service-connected” means the disability was incurred or aggravated during military service. The amount of compensation depends on the severity of the disability as determined by the VA’s rating schedule.

The key difference is that military disability retirement requires unfitness for duty, while VA compensation only requires a service connection. A veteran can receive VA compensation even if they served a full career and retired without a medical board. The Department of Defense Instruction 1332.18 outlines the procedures for determining fitness for duty and disability retirement.

Concurrent Receipt: Receiving Both Retirement and Disability Pay

One of the most significant advancements for veterans has been the expansion of concurrent receipt, which allows veterans to receive both military retirement pay and VA disability compensation without a dollar-for-dollar reduction. Prior to concurrent receipt laws, veterans often had their retirement pay reduced by the amount of their VA disability payments.

There are several categories of concurrent receipt:

• Concurrent Retirement and Disability Pay (CRDP): This restores retirement pay to eligible retirees who have a VA disability rating of 50% or higher. The amount restored depends on the retiree’s years of service and disability rating.
• Combat-Related Special Compensation (CRSC): This is for veterans whose disabilities are directly related to combat, including injuries incurred during combat training or hazardous duty. CRSC is not subject to the same offsets as other forms of concurrent receipt.

It’s important to note that not all veterans are eligible for full concurrent receipt. The specific rules and eligibility criteria are complex and can depend on factors such as the nature of the disability, years of service, and retirement status. Veterans should consult with a qualified benefits counselor to determine their eligibility.

According to a 2025 report by the Congressional Research Service, the expansion of concurrent receipt has significantly improved the financial well-being of many disabled veterans, allowing them to receive the full benefits they have earned.

The Impact of Disability Ratings on Retirement Pay

A veteran’s disability rating can significantly impact their retirement pay, particularly if they are medically retired. The calculation of disability retirement pay depends on several factors, including years of service and the disability rating assigned by the military. There are two primary methods for calculating disability retirement pay:

• Percentage-Based: This method calculates retirement pay based on the disability rating. For example, a veteran with a 60% disability rating would receive 60% of their “high-3” average basic pay.
• Years-of-Service Based: This method calculates retirement pay based on years of service, using the standard retirement multiplier (2.5% under the legacy system, 2.0% under BRS). However, if the disability rating is higher than the retirement percentage based on years of service, the veteran will receive the higher amount.

It’s crucial for service members undergoing a medical evaluation board (MEB) and physical evaluation board (PEB) to understand how their disability rating will affect their retirement pay. Seeking legal counsel during this process can be invaluable to ensure accurate representation and maximize benefits.

Tax Implications for Military Retirement and Disability

Understanding the tax implications of military retirement and disability pay is essential for financial planning. Generally, military retirement pay is taxable, while VA disability compensation is tax-free. However, there are some exceptions and nuances to be aware of.

• Military Retirement Pay: This is generally considered taxable income at the federal level and may also be subject to state income tax, depending on the state of residence.
• VA Disability Compensation: As mentioned, this is tax-free at both the federal and state levels.
• Combat-Injured Veterans Tax Fairness Act of 2024: This act ensures that veterans who were improperly taxed on disability severance payments receive a refund.

It’s also important to consider the tax implications of the Thrift Savings Plan (TSP). Traditional TSP contributions are made pre-tax, meaning they reduce your taxable income in the year they are made. However, withdrawals in retirement are taxed as ordinary income. Roth TSP contributions are made after-tax, but qualified withdrawals in retirement are tax-free. Consulting with a qualified tax advisor is recommended to determine the best strategy for your individual circumstances.

Future Changes and Advocacy for Veterans Benefits

The landscape of military retirement and disability benefits is constantly evolving. Advocacy groups and veterans service organizations (VSOs) play a crucial role in shaping future legislation and ensuring that veterans receive the benefits they deserve. Several key areas are likely to see continued attention in the coming years:

• Improvements to Concurrent Receipt: Continued efforts to expand concurrent receipt to more veterans, particularly those with lower disability ratings.
• Modernizing the VA Disability Claims Process: Streamlining the claims process and reducing wait times for disability compensation.
• Enhancing Support for Caregivers: Providing additional resources and support for family members who care for disabled veterans.

Veterans can stay informed about proposed changes to military retirement and disability pay by following the work of VSOs such as the Disabled American Veterans (DAV) and the American Legion. Engaging with these organizations and advocating for veterans’ rights is essential to ensure that the promises made to those who served are kept.

In conclusion, navigating the changes to military retirement and disability pay requires a thorough understanding of the BRS, VA compensation, concurrent receipt rules, and tax implications. By actively managing your TSP, understanding your disability rating, and staying informed about legislative updates, you can maximize your benefits and secure your financial future. The key takeaway is to seek professional guidance and actively advocate for your rights as a veteran to ensure you receive the full benefits you’ve earned.