When you’re saving and investing aggressively for financial independence, it’s possible to reach FI in less than 20 years— even when you don’t earn any sort of military pension or VA disability compensation.
However life comes at us fast, and many of us started our military careers with less financial literacy than others. If you’re just starting to walk the path to financial independence in your 30s or 40s, it’s easy to feel that you’re too far behind to catch up.
The Simple Lane to FI.
Even worse, when you’re carrying consumer debt then you’re more susceptible to seeking a fast lane to FI. (Pro tip: there is no fast lane to FI.)
In 2018 when the Blended Retirement System started, servicemembers with less than 12 years of service could opt in. That choice was hotly debated at the time, but eight years later we’re starting to see the first cohort of BRS pensions.
BRS retirees are also eyeing the lump sum option. For example:
“I’m retiring at 20 years under BRS and weighing the lump-sum option. Does anyone know how much it would reduce my monthly retirement pay until age 67, and roughly how much the lump-sum offer would be? For those who’ve already gone through this decision, would you still take the lump sum at that reduction, or would you pass and keep the full monthly check? Interested in hearing others’ thoughts and experiences.”
and
“I am taking 25% lump sum of my retirement, the current discounted value is at 6.46%. I should receive around $76,000ish before taxes and will still get $1,442.30 a month for my military pension. Even with having them take out 22% tax for federal I will pocket around $59,000ish. I plan to use this to pay down debt, cover some living expenses and the rest I will put into a high yield savings account.”
From the title of this post, you may suspect that I could be biased. However I also appreciate the power of a hand up, not just a handout. You’d want to make an informed choice on this opportunity to shed crippling high-interest debt, or to start a business, or to simply optimize your FI math for greater wealth.
Let’s look at the pros and cons of a BRS lump sum.
Con #1: The Discount Rate
What’s your cost?
Financially & mathematically, the BRS lump sum sucks. Lobbyists of the financial industry have persuaded Congress to grant DoD a license as the nation’s largest payday lender.
The DoD fact sheet for the BRS lump sum specifies an annual discount rate for retirees. As of this writing (May 2026), the discount rate is currently 6.46%. The next annual discount rate will be announced in June:
“According to the published formula, the Lump Sum Discount Rate (LSDR) for lump-sum elections occurring in calendar year 2025 is 6.46 percent, as calculated by the DoD Office of the Actuary. This rate is in effect for any retirement for which a member is eligible to begin receiving retired pay during the period from January 1, 2026, through December 31, 2026.
The next update to the LSDR will be published in June 2026 to be applied to lump-sum elections occurring in calendar year 2027.”
You can analyze this with your own spreadsheet from:
- your High Three pay base (average of your highest 36 months of base pay),
- your age at retirement, and
- the discount rate.
You can also use CFP Daniel Kopp’s Google Sheet template to “File | Make a copy” or download a copy of the spreadsheet to your system, and then edit it with your numbers.
Here’s where the emotions of behavioral financial psychology begin to kick in.
We humans would always rather have money today than wait until tomorrow. The discount rate estimates how much we’re willing to pay *right now* to have that Tomorrow Money (at its future value).
A lot of analysis went into that discount rate. On the other side of this lump-sum offer, the Dept of Defense has platoons of actuaries who know far more math & logic than most of us have ever studied. They’re experienced in estimating risk and at predicting how many millions of dollars they’d have to pay out *now* for people who are eager to make a deal.
If you’re retiring from active duty in your late 30s or early 40s, which side of this contract do you think is more likely to benefit from you giving up 25-30 years of a portion of your pension payments? The DoD side or your side?
If you were applying for a 30-year mortgage, would you be happy with an interest rate of 6.46%?
Con #2: The Debt Trap
“But Nords, I can use the lump sum to pay down debt! Right?”
Ah, we’ve seen that movie before.
Some of us are old enough to remember the 2001-17 era of the Career Status Bonus of the REDUX pension system.
This was a $30K lump sum paid out at 15 years of service in return for a reduced pension (unless you stayed for 30 years) with a reduced Cost Of Living Adjustment. Part of the REDUX/CSB pension math is a reset at age 62, where the smaller pension (with a smaller COLA) is reset to a larger High Three pension (but still with a smaller COLA). You can find more details (and reader comments) at this REDUX/CSB post from the archives.
Most of the CSB retirees received their $30K, paid about 22% federal income tax on that bonus, and essentially gave up $100K over the next two decades. One study estimated that lifetime pension income was reduced by $370K.
I’m sure some retirees needed the CSB help to clear their credit-card debt. This assumed that they changed their behavior to avoid getting into more consumer debt ever again. Maybe some of them wanted to use the bonus for a down payment on their next home. I’m sure that others expected to make more money in the stock market (or cryptocurrency!) than they’d give up in pension.
I’m convinced that way too much of the bonus money went into awesome pickup trucks. Especially if someone thought they needed that pickup truck for their contractor bridge career.
Years later, I’m getting another round of questions from those REDUX/CSB retirees. They’re approaching their 60s, and they want to know how much their new pension will be. When we do that calculation, we can also figure out their discount rate.
After dozens of e-mails, not one of them has said “Thanks DoD, this was a great deal!”
If those CSB/REDUX pensioners were retiring today with what they know now, I suspect they’d all decline a lump sum.
Con #3: “This Time It’s Different.”
Yes, BRS is a different lump-sum offer than CSB/REDUX, but not in a good way. And not only is the math tilted against people who are tempted by the money– it appeals even more strongly to our emotions.
Not only are you borrowing from your pension at 6.46% until age 67, but you’re also doing the following:
- Potentially paying higher income taxes today (federal, state, locality) on a lump sum instead of in your income-tax bracket of your full BRS pension… even if you elect to take the lump sum over four years.
- Giving back some of the lump sum to the IRS/Treasury for months as estimated tax withholding. DFAS will withhold an estimated amount of the tax you’ll owe, and you’ll have to figure out your own refund when you file your next income-tax return.
- Giving up tax-exempt VA disability compensation (for a disability rating of less than 50%) until you would have received that amount of the lump sum pension in VA disability compensation. See the link below.
The zinger on VA disability compensation is in Section 7.a.(3)(h)(1) of the policy document.
“1. Per Section 633 of P.L. 114-92, which amended Section 5304 of Title 38, U.S.C., the VA will withhold disability payments to any retiree who elects to receive a portion of their retired pay as a lump sum until the amount withheld (i.e., not paid to the retiree on a monthly basis) equals the gross amount of the lump sum payment received by that retiree.”
Be aware that if you’re divorced any time before age 67, the full amount of your pension is still subject to division under the Uniformed Services Former Spouses Protection Act. In other words, the state divorce court can assume that you’re currently receiving your full pension even if you took a lump sum. Your ex-spouse’s lawyer will certainly exploit that clause of the BRS to the fullest extent of the law.
Pro #1: You Have A Choice.
From the emotions of behavioral financial psychology, you’d want to ask yourself these questions:
– If you’re borrowing (for a house, a car/truck, or a business) is this the best place to get your money? Is there nowhere else in the entire U.S. where you could get a better deal from a broker, a family member, your own savings, or even a small-business / disabled veterans grant?
– If you’re borrowing to pay off consumer debt (credit cards), have you already stopped the behavior that got you into this debt? Or will the lump sum just be a temporary patch on a bigger problem?
– If you’re paying off medical debt, have you consulted a medical-debt counselor for alternate payment plans? Most hospitals will settle for a much smaller sum of money.
– Are you borrowing to invest in real estate? Stop now. Browse the BiggerPockets website (and podcasts) to learn better/cheaper ways to get started.
– Are you borrowing to invest? Is this the best interest rate you can get? I’m bullish on the American economy, yet I’m experienced enough to be pessimistic about investing with a margin loan from Interactive Brokers… let alone from DoD.
– Are you borrowing to invest in crypto, online betting, alternatives (metals), startups (angel investing), or a hot tip on the next AI service? Good luck, but I’m happy to discuss angel investing with you if you’re an accredited investor.
Pro #2: There are no more pros.
Yes, you might be sensing a theme here.
Whatever you might want to do with a BRS lump sum: you can do even better by taking your normal monthly BRS pension deposits and investing a portion of that every month instead of “borrowing” at the discount rate.
You’ll also pay lower income taxes and you’ll keep your tax-exempt VA disability compensation.
You might keep your marriage too.
Call To Action
If you’re paying off consumer debt, please visit your military base’s family financial support center or emergency relief agency. Review your debt with them and plan your payoff. Most importantly, understand how to avoid incurring that type of debt again.
If you’re going to start a business, get on Linkedin and network with small-business owners. Talk with your local chapter of your Small Business Association. Contact a Veterans Business Outreach Center. Attend business events like Patriot Bootcamp or Boots to Business.
Use the DoD BRS Calculator to estimate the size of your lump-sum options.
If you expect to have a VA disability rating, use the VA’s disability compensation tables to figure out how much you’re giving up to receive your lump sum.
Talk with your local credit union or community bank to figure out places where you can borrow money at lower interest rates.
Put your numbers into CFP Daniel Kopp’s spreadsheet.
… and please ask more questions or share your story in the comments!
There are no affiliate links or paid ads in this post. Try your military base library or local public library before you pay money for these books– in any format.
Military Financial Independence on Amazon:
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Raising Your Money-Savvy Family on Amazon:
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Related articles:
Wise Stewardship Financial Planning’s BRS Lump Sum Calculator
Fear And Despair In The Time Of Bear Markets
“What If The 4% Safe Withdrawal Rate Fails?!?”
In-service Roth Thrift Savings Plan Conversions
Reasons To Keep Your TSP Account (or NOT)
Early Withdrawals From Your TSP and IRA After The Military
Military Financial Independence 