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NDAA FY2016 Changes to Military Retirement

MGoBrew11

Well-Known Member
pilot
Yep. Also, anyone entering the service before 2018 is grandfathered into the legacy/existing system, with the option to take the new system.

The new system isn't a bad deal, it's just not as good of a deal (**if you serve at least 20 years**). If you get out before 20 years, under the new plan, you still get some retirement benefit; which stands in stark contrast to the existing system where those guys that punch out before 20 yrs get nada.

The only "losers" here are guys that join in/after 2018 and end up doing a career; come to think of it though- the real losers are the guys that got out "early" within the last few years.

Along those lines if someone hypothetically doesn't see themselves doing 20+ years and would prefer government matches to contributions, is there any way they can opt into the new system?
 

Spekkio

He bowls overhand.
Yep. Also, anyone entering the service before 2018 is grandfathered into the legacy/existing system, with the option to take the new system.

The new system isn't a bad deal, it's just not as good of a deal (**if you serve at least 20 years**). If you get out before 20 years, under the new plan, you still get some retirement benefit; which stands in stark contrast to the existing system where those guys that punch out before 20 yrs get nada.

The only "losers" here are guys that join in/after 2018 and end up doing a career; come to think of it though- the real losers are the guys that got out "early" within the last few years.
I still don't folow. What was preventing SN Timmy (or anyone else) from investing in TSP that made him leave the service 'with nothing?'

This plan doesn't actually make it much better for a guy who leaves early, mostly because TSP has a Roth option. Granted that option is relatively new, but it existed before they started to make this plan.
 

Rugby_Guy

Livin on a Prayer
pilot
I still don't folow. What was preventing SN Timmy (or anyone else) from investing in TSP that made him leave the service 'with nothing?'

This plan doesn't actually make it much better for a guy who leaves early, mostly because TSP has a Roth option. Granted that option is relatively new, but it existed before they started to make this plan.


I think they will do 1% of base pay and match up to 5%, so 6% of your base pay could be paid into TSP by government. I still question the metrics they used and the E-7 example I read about from earlier in the year.

I wonder if someone stays past 20, will they still gain a higher % of base pay for the years they stayed in past the 20 year mark?
 

azguy

Well-Known Member
None
I still don't folow. What was preventing SN Timmy (or anyone else) from investing in TSP that made him leave the service 'with nothing?'

This plan doesn't actually make it much better for a guy who leaves early, mostly because TSP has a Roth option. Granted that option is relatively new, but it existed before they started to make this plan.

Under the current system, the TSP contribution isn't matched by the government, it's really not a benefit at all. 5% matching is a huge benefit (that I believe is) offered pretty commonly in the private sector which we don't get under the old system (because a 50% non-contributory pension is such a good deal and very expensive to the government all by itself).

For a LT contributing to TSP under the new plan, the 5% matching works out to ~$3,500/yr of free money.
 

Pags

N/A
pilot
Under the current system, the TSP contribution isn't matched by the government, it's really not a benefit at all. 5% matching is a huge benefit (that I believe is) offered pretty commonly in the private sector which we don't get under the old system (because a 50% non-contributory pension is such a good deal and very expensive to the government all by itself).

For a LT contributing to TSP under the new plan, the 5% matching works out to ~$3,500/yr of free money.
Previously TSP was an option that service members could use. It was essentially the same as a private investment option such as NFCU, USAA, John Hancock, etc but it was easier because it was government. But there was no matching.

This new system will offer 1% automatically plus up to 5% matching. The matching is a new benefit that was not previously available.
 

Spekkio

He bowls overhand.
I'm aware of what the changes are. You previously said that a 4 and out servicemember left with nothing, which implies he couldn't invest in TSP. I just don't agree with that line of why the new system is better.

Also while the new system will default to deducting 1% of a Sailor's pay, they can switch that off.

As for your LT example, if I took the match at this point in my life instead of Roth TSP, I would pay more than the $3,600 back in taxes on the back end. I'm not sure how that would affect a single E3, though.
 

BPeterson93

Soon to be Naval Aviator
From what I've read here, you can opt for a 40% pension after 20 years of service, locked until you're 60 years old, or a 5% matched contribution for the duration of service?

With the 40% pension, does the plan still offer another 2.5% additional for every year of service after the 20?
 

Spekkio

He bowls overhand.
No, but the folks who came up with it tried to gear it to those Junior E's who aren't likely to spend a career in the military and who constitute a majority of folks in the military (in addition to saving money, which was the main point).
Why should policy makers for the military retirement system take input from people who aren't going to retire from the military on which plan is better? Not just people who won't retire, but junior servicemembers who don't even understand the details?
 

azguy

Well-Known Member
None
I'm aware of what the changes are. You previously said that a 4 and out servicemember left with nothing, which implies he couldn't invest in TSP. I just don't agree with that line of why the new system is better.

Also while the new system will default to deducting 1% of a Sailor's pay, they can switch that off.

As for your LT example, if I took the match at this point in my life instead of Roth TSP, I would pay more than the $3,600 back in taxes on the back end. I'm not sure how that would affect a single E3, though.

Dude, TSP isn't a benefit- anyone can invest in a retirement savings fund. The ROTH piece is a bit of a benefit for mil/gov civ, but again, I think you're overvaluing the tax-free piece a bit compared to having the gov plug thousands of dollars into your retirement account via matching contributions. Also, who is saying that the new system won't match ROTH contributions? I don't believe they have promulgated that level of detail yet.
 

Flash

SEVAL/ECMO
None
Super Moderator
Contributor
...But when the new gold plated GI Bill rolled out I thought an opportunity was missed. IMO, some of the best improvements should have been rewarded to members who stay in past a certain point. I don't see the fairness of a guy that can separate in less than 4 years (honorably, of course) and never serves in the fleet or supports the real world, and he gets the exact same benefit as the E-5/6 that spent 8-10 years in. Not fair to the service members and not good business for the DOD.

Actually there is a significant incentive to stay in for the GI Bill, you can't transfer it to dependents until you serve 10 years total (an extra 4 years on top of your initial 6). It was a significant factor with several folks I know to stay in that extra four years and was a factor in my decision to stay in as well.

I think they will do 1% of base pay and match up to 5%, so 6% of your base pay could be paid into TSP by government. I still question the metrics they used and the E-7 example I read about from earlier in the year.

It isn't 6% of your base pay, it comes out to 5% because they don't match one for one up to 5%. The formula for contribution matching is:

- First 3% matched 1 for 1
- Final 2% is matched 0.5% each

So the matching formula is; 1 (automatic deposit) + 1 +1 + 1 + 0.5 + 0.5 = 5% matching.

I wonder if someone stays past 20, will they still gain a higher % of base pay for the years they stayed in past the 20 year mark?

With the 40% pension, does the plan still offer another 2.5% additional for every year of service after the 20?

I believe that is still the case, you still accrue 2.5% for every year after 20.
 

P3 F0

Well-Known Member
None
I'm pretty crappy at math, but if I'm doing this right, it looks like a typical Officer going to 20 is going to net (doing the bare minimum with 5% investment + 5% matching) somewhere between 20-30 grand in his TSP account, assuming TSP returns between 5% - 10%.

At 40% of his O-5 $99k base pay, he'll get (before taxes) a $39.7k pension check every year. At 50%, that check goes up to $49.7k a year. So, the only offset to making up that $10k delta is the whopping TSP he gets 10 or 15 years later, and its value is only 2 year's worth of that delta. And only $6k of that TSP (before the investment return) is free money--the rest is his own investment. That's a hefty cut.
 

wlawr005

Well-Known Member
pilot
Contributor
I'm not smart at this kind of stuff. If the government paid people less retirement, would it free up dollars to pay future service members more active duty money?

I feel like in the future the active duty compensation is going to have to significantly increase to remain competitive with the civilian sector.
 

Tycho_Brohe

Well-Known Member
pilot
Contributor
Along those lines if someone hypothetically doesn't see themselves doing 20+ years and would prefer government matches to contributions, is there any way they can opt into the new system?
Presumably, yes. If they let people who enlist within the next two years to choose between the two options, but not the people who are already in service and grandfathered into the legacy system, I'd be very surprised.
Dude, TSP isn't a benefit- anyone can invest in a retirement savings fund.
TSP has much lower fees than most 401(k) or IRA options. As it exists now, it's a benefit, just not a very good one. The addition of matching will certainly make it more competitive with what's offered in the private sector.
I'm aware of what the changes are. You previously said that a 4 and out servicemember left with nothing, which implies he couldn't invest in TSP. I just don't agree with that line of why the new system is better.
I think what he was getting at is that you don't get any more out of it than what you put into it (other than whatever your return is during that time).
I'm not smart at this kind of stuff. If the government paid people less retirement, would it free up dollars to pay future service members more active duty money?
It would, but I doubt it'll work that way (unless you count the matching contributions as extra pay). The whole point of this was to save money, because funding the pension obligations is a huge expense. It still will be, just less huge.

I'm just surprised it took them this long to implement matching on the mil side, civilian gov't employees in FERS have had it for a while. I certainly hope they'll match Roth contributions, because it doesn't make a whole lot of sense for me at this point to make traditional contributions instead, when my marginal tax rate is probably the lowest it's ever gonna be while I'm working.
 
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