Also Available On
Podcast Show Notes & Transcript
Blended Retirement System Continuation Pay
In this episode Mike and Amy continue their series on the military’s Blended Retirement System focusing on the mid-career Continuation Pay.
Takeaways
- Continuation pay is a mid-career retention tool in the Blended Retirement System (BRS) that incentivizes service members between their seventh and 12th years of service.
- Continuation pay does not impact the pension.
- Each service sets the multiplier for continuation pay, which can range from 2.5 times to 13 times the monthly base pay.
- The service obligation for continuation pay is four years from when the paperwork is executed.
- Service members can choose to receive the pay as a lump sum or spread it over multiple years.
- It’s important to consider the tax implications and TSP contributions when making the decision.
- The Army has a pending change to the window for requesting continuation pay, so service members should stay informed.
- It’s crucial not to leave this money on the table unless you’re certain you’re leaving the service soon.
Chapters
00:00 Introduction to Continuation Pay in the Blended Retirement System
03:07 Understanding Continuation Pay as a Mid-Career Retention Tool
07:32 Exploring the Multiplier and Service Obligation of Continuation Pay
09:35 The Pending Change to the Army’s Window for Requesting Continuation Pay
13:07 Continuation Pay in the Army and Marines
16:20 Maximizing Continuation Pay Benefits and Conclusion
Links
USAF:
https://www.myairforcebenefits.us.af.mil/Benefit-Library/Federal-Benefits/Continuation-Pay-?serv=26
Army:
https://myarmybenefits.us.army.mil/Benefit-Library/Federal-Benefits/Continuation-Pay?serv=125
Operation Retirement Readiness: www.operationretirementreadiness.com
Schedule a consultation with Mike: https://nextmissionfinancialplanning.com/contact/
Schedule a consultation with Amy: https://www.instarfp.com/contact
Transcript
Amy (00:02.254)
Hey Mike, on our last episode we provided an overview of the blended retirement system. But today we want to take a deeper dive into one of the two least well understood components of BRS. So we’ll talk about the other one next time, but this time we’re going to cover continuation pay.
Mike (00:22.995)
Yeah, continuation pay is part of the BRS, but it occurs mid -career. So you may not be thinking about it like a retirement benefit, but it’s a retirement benefit slash retention tool. And you need to be on top of this because it occurs somewhere between the seventh and 12th year. Every service handles it a little bit differently. And the size of the bonus is also
by the services. So that can vary depending on their recruiting and retention needs. And it can vary by component if you’re active or reserve component. So again, it’s not standardized. It’ll vary based on your service. And you just need to make sure you understand that. So we’re going to dive deeper into that and discuss all things continuation pay.
Amy (01:24.408)
So Mike, before we dig into the continuation pay, let’s first quickly do a review of blended retirement system.
Mike (01:32.671)
Sure. The blended retirement system went into effect January 1st of 2018. And during calendar year 2017, service members who entered after 2006 were given the option to either opt in to the new system or by default stay with the old system. And then anyone who entered after July for
on or after January 1st, 2018, they automatically went into the new BRS.
Amy (02:06.578)
Exactly.
And BRS is composed of three primary components. The pension, which is available at 20 years of service at the 2 % multiplier versus the 2 .5 % under the old system. There’s a lump sum option with the BRS pension as well, and we’ll get into that next time. The second component is the Thrift Savings Plan match. the bottom line is the government matches up to 5 % into your TSP. If you put 5 % in, they give 5 %
Listen to our last show for more details around the match, but that’s pretty much the bottom line. And then the last component, which we’re going to talk about today is continuation pay. So this is a mid -career retention tool like we talked about. It’s used to incentivize service members who are between their seventh and 12th years of service. And this is what we want to get into today. So Mike, let’s start with a general framework that applies to continuation pay for all the services.
Mike (03:07.255)
So whether your Army, Air Force, Navy, Marine, Space Force, the service is, they’re going to use continuation pay as a retention tool. The NDAA that introduced this specifies certain things that govern how they can go about this, but it’s primarily targeting service members between their seventh and 12th years of service.
And then the services get to set the multiplier of the base monthly pay. And they can make that broad and, OK, everybody gets the exact same thing. Or they can use it to target specialties. So working within these guidelines, services are supposed to be able to incentivize people to stay that they really need and target those skills.
you’ll see that based on how they’re employing it today, they don’t know that the services are really doing that targeted analysis and picking who they want to stay by skill set. Most of them are pretty broad, just the same multiplier applying to everybody. So maybe retention’s that good that they don’t need
do that right now, but it seems like they’re not using the tool as fully as they could if they are having any kind of retention issues in certain specialties.
Amy (04:49.4)
So before we jump too far into the details of each service, one thing that we should say upfront is that there’s one myth that we sometimes hear, and that is that continuation pay will impact your pension. Continuation pay does not impact your pension. The lump sum decision, which we’ll cover next time, will impact your pension, but continuation pay has nothing to do with your pension. It’s a bonus in return for service commitment. The service commitment for all services is four
That commitment begins when you sign the paperwork to request continuation pay, but then you can actually receive the pay over a period of years, two, three, or four years, depending on your service. So this allows some flexibility in managing your tax exposure. You should also, as part of this decision, consider your TSP contribution. So under BRS, you’re getting the match.
If you take that full lump sum and you’re contributing a lot to your TSP, you’re going to end up hitting the max before the end of the year, which means you’re going to lose out on the match for the rest of the year. So you’re going to want to pay attention to your TSP contributions in the year in which you’re going to request the bonus based on the timing of the bonus.
So the service obligation, this is, you know, one note. It’s not like most service obligations. If you read the memo for your service, they will tell you what happens if you decide to leave before you complete the obligation. So as you might imagine, if you leave before you complete the four years, then you’ll have to pay back the portion that you haven’t earned. So for example, if you take the bonus and then you leave after two years, you’ll have to pay back about
the bonus and then probably some interest. You can actually get out, but you have to pay back the bonus. That’s the bottom line. So even if you’re on the fence about staying, you could take the bonus and tuck it away in a high yield savings account and then just use a portion of it as you earn it. So for example, if you take the bonus, then you can spend 25 % of it once you complete the first year, because you won’t have to pay back the 25%.
Amy (07:05.402)
Now keep in mind that a portion might go to your TSP and you’ll still have to make that up, so you’ll just have to have cash on hand. So that’s just a couple of the other details and things to keep in mind as you consider this decision. But Mike, let’s start doing an overview of the differences between each of the branches.
Mike (07:31.871)
And first I want to just kind of highlight a useful tool that DoD publishes each year and it’s a memo that communicates the bonus multiplier for each service and the years of service that they’re targeting that year. That’s available on militarypay .defense .gov.
We’ll put a link in the show notes, but also you can just search for BRS continuation pay rates, 2024, 2025, whatever year you’re looking for. like I said, it will give you the service specific details. And you’ll want to look at that and just see, even as you approach, maybe
six years out or just see what is going on. Because some of the things are changing right now, but you can see what each of the services are doing and specifically your service is doing. So continuation pay by the system can target anywhere from 2 .5 times to 13 times the monthly pay for the active component.
And again, it’s supposed to be used as targeted retention tool that I talked about. But right now, all the services are using the 2 .5 multiplier, except the Marines, who in 2024 have a 5x multiplier on for their folks. So like I said, either everything’s great with retention or the services are just kind of taken the easy way, the cheapest way.
and not paying the significant bonuses to the target folks.
Amy (09:35.062)
Yeah, and you know, the memos, each of the services have a memo and we will post links in the show notes for this podcast to try and get you as close as possible to those memos. Some of them require our CAC logins, but we’ll get you as close as we can.
Mike (09:54.121)
Sure. So we’re going to now start running down. We’ll talk a little bit about some of the individual things that are happening within the services. And so I’m retired Air Force, so I’m going to start there for Air Force and Space Force. Basically allows service members, both the active and reserve components, to request continuation pay.
at 12 years of service. There’s no real window, but it’s right at that 12 -year point that you qualify for this. About 180 days before you reach that 12 -year point, you’re supposed to get an email. I’m not sure if that’s coming through myPERS or from AFPC in some way.
This has been a few years, so do your homework. Ask some folks that are a couple years ahead of you if you’re reaching that point. And the US Air Force memo is actually behind the CAC login. So we’ll point you to the right area, but you’ll have to do a little searching to find that. So that’s Air Force and Space Force. Also quickly hit on the Navy.
Similar, sailors can request continuation pay at 12 years of service also. Similar to the Air Force, about 180 days out, sailors are going to receive an email saying, hey, you’re eligible for this. And then the sailors need to make the request through the Navy Standard Integrated Personnel System.
So that’s a couple of the services. Amy, you want to hit the army?
Amy (11:51.886)
Yeah, yeah, I’ll cover the Army and the Marines and actually start with the Marines since they’re pretty similar to the Air Force and the Navy. So the Marine Corps allows Marines to request continuation pay up to one year before reaching 12 years of service. So it’s a little unique, but similar compared to Air Force and Navy. The Marines…
Amy (12:16.25)
So you can request it up to one year before, but they don’t pay the bonus until you’re at 12 years of service. So like other services, Marines should be notified 180 days before eligibility. To request continuation pay, the Marine has to sign a Statement of Understanding election form and submit that to the unit admin section via electronic personal action requests in Marine Online.
The Army is a real outlier here at this point. At the time of this recording, there’s a pending change to the window for the Army, but let’s first talk about the window as of today. So today we’re in July 2024. So for calendar year 2024, an Army soldier can request continuation pay when they have at least eight years of service, but no more than 12 years of service. Okay, so that’s for this year.
However, there is additional guidance that’s out for calendar year 2025. In calendar year 2025, soldiers may request continuation pay when they have at least eight years of service, but no more than nine years of service. So this is a big deal. Assuming there’s no change to that calendar year 2025 memo.
If you have more than 12 years and less than 12, I’m sorry, if you have more than nine years, but less than 12 years of service and you’re thinking of taking continuation pay, you need to strongly consider requesting it this year. Policies can and they do change, but there’s no way to know whether our army is going to make a change for calendar year 2025 or after
So this could potentially be your last window of opportunity if they keep that window for 2025 down to eat between years eight and nine.
Amy (14:01.862)
So as we pointed out earlier, if you choose to leave the service, you will have to pay back the portion that you’ve not earned. So this might be a case where you take the money and you put it aside, maybe a high yield savings account, and then figure out your career decision as time goes on. There’s some risk in that, so don’t take that decision lightly. That’s not a recommendation. But this is kind of a unique situation if you’re in the Army because we don’t really know how calendar year 2025s can unfold.
or whether they’re to change the window in future calendar years if they don’t change it in 2025. So that’s a lot of, but just real quick army process, a little bit old school. You actually have to download a form. The form is called the request for continuation pay form. We’ll put a link in the show notes and then you just route that through your chain of command. So Mike, back to
Mike (15:00.787)
Yeah, that is a lot. You know, quick, quick thing. You know, we talked to, these these emails are supposed to come out. I think we’ve both heard from a bunch of people that have not gotten those emails. So if you’re in that window, specifically the army with stuff changing, you know, really dive in and, you know, the other services that have the fixed times.
at the 12 year point, know, as you’re approaching that, you know, be on the lookout and if you don’t see it, you know, start asking questions and stay on top of it because, you know, again, it’s your money. If you’re planning to stay and, you know, even as Amy talked about, even if you’re not, can still make, you know, if you’ve got a couple of years service commitment that you’re burning through, but, you know, going to get out after
it still may make sense to take it and get a little bit of extra money for your last couple of years. it’s, you know, like you’ve probably heard, it’s your career, you got to manage it. And so just make sure you’re not missing out on this money.
Amy (16:20.32)
Exactly. And it’s potentially a lot of money. So everyone needs to be proactive here and make good decisions, make decisions that make sense for their family, get some advice from senior leaders or, you know, if you have a financial plan or something like that. But Mike, let’s start to wrap up with a quick summary of everything that we’ve reviewed at this point.
Mike (16:43.305)
Sure, I’ll hit that. One thing I’ll also just quickly add is, you know, there are options. think, you’ve hit on it about, you can take this over multiple years. You know, there definitely could be some tax implications depending on your tax bracket and, you know, how much money we’re talking about, whether this is, you know, going to significantly increase your taxes.
So, you know, really, really look at that and consider your options there. Because again, you want to keep as much of this money as you can. you know, so potentially spreading it over a couple years could reduce that, you know, tax hit that you might see. So, definitely, definitely think about that and consider it. But, on to the wrap up. So,
Most service members allow the service or most services allow the service member to request the continuation pay at or right around the 12 year mark. Army again is the outlier. This year you can request it between eight and 12 years, but you know the memo that’s out there for 2025 reduces that window to the eight and nine year point. So again,
Army folks, get educated, figure out if you’re in that 10, 11 year window and thought you were just going to wait till the end of the window, that may be closing. So make sure you’re diving into that. Again, each service sets their multiplier. It’s a multiplier of monthly base pay. And that’s what you’re going to get.
Again, everybody’s using the 2 .5, except the Marines that are at 5. And then the service obligation is four years from when you execute the paperwork. If you don’t do the full four years, you have to pay back whatever you haven’t earned. And again, as I hit kind of at the beginning of this, you can take the lump sum or you can take it across multiple years.
Mike (19:11.615)
put it right into your TSP. So options there, but again, look at the tax implications of getting this. Probably say, especially for the Marines, that at a 5X multiplier, it’s almost an additional half a year of base pay that they’re going to be getting. So it could, again, significantly raise your taxes in the year if you take it as a lump sum.
Amy (19:42.444)
Yeah, Mike, just the last point, know, continuation pay doesn’t impact your pension. So it’s different than the lump sum. So two different decisions, continuation pay does not impact the pension. So other than that, think that hit everything, Mike. Hopefully this has been a helpful deeper dive into the mid -career.
sort of decisions and hopefully our mid -career listeners who have opted in to BRS understand everything. If not, please reach out with questions. There’s some material out online. Some folks are writing about this now, but we’re also happy to help point you in the right direction. We’re gonna have links in the show notes that are gonna be very helpful. Just lastly, this is a lot of money. You don’t wanna leave this money on the table unless you know for sure that you’re gonna leave service soon.
So other than that, Mike, I think that wraps us up. Next time, we’re going to discuss the nuance of the pension lump sum option, which is a completely separate topic. It’s nothing like continuation pay. And I know there’s some confusion around how it works. So we’re going to dive into that next time.
Mike (20:51.113)
That sounds great. Looking forward to
Amy (20:53.422)
Sounds good Mike, see you soon. Bye.