NDAA FY2016 Changes to Military Retirement

[Flash]

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....

I don't think you are acquitting yourself well in the math department. Are you talking about just money made or the are you including the 5% matching as well? Because the 5% matching should be included in that total but I don't think you are counting it. Also, that would just be what the investment would have made by the time your retired at 20, what about the money it makes before you can start withdrawing it?

 

[Flash]

....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.

What did the government have to gain by doing the matching beforehand? Any way you count it the higher pension benefit far outweighs the TSP matching so it only makes sense if they change the retirement system like they are doing with the military now and to FERS from CSRS back in the 80's.

I have heard nothing about them not matching the Roth option, why would anyone take it if they didn't?

 

[Tycho_Brohe]

What did the government have to gain by doing the matching beforehand? Any way you count it the higher pension benefit far outweighs the TSP matching so it only makes sense if they change the retirement system like they are doing with the military now and to FERS from CSRS back in the 80's.

I have heard nothing about them not matching the Roth option, why would anyone take it if they didn't?

That's what I meant, they should've made the change they're making now sooner.
As for the Roth matching, someone asked about it earlier in the thread, and I didn't see anything in the article that explicitly said it was or wasn't included. That said, I don't see why they wouldn't.

 

[wink]

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.

Oh yeah. Forgot about that. I still wish there were more similar tiers to the best NEW benefits added.

 

[Spekkio]

I don't think you are acquitting yourself well in the math department. Are you talking about just money made or the are you including the 5% matching as well? Because the 5% matching should be included in that total but I don't think you are counting it. Also, that would just be what the investment would have made by the time your retired at 20, what about the money it makes before you can start withdrawing it?

Again, how much do you expect a typical retirement fund to make in the last 10 years or so of someone's working career? I have seen little financial advice that tells people to have a substantial amount of their retirement funds (meaning more than 10-20%) exposed to the stock market at this point in their lives. You're basically talking about a fund now that is set to keep up with inflation.

I think it's a bit dangerous to assume all of these funds are going to experience very healthy average growth over the course of 40 years; the biggest determinant of how much your retirement will grow is how well the market does in your first 10-15 years of working when almost 100% of your fund is (or should be) exposed to the market. A mediocre period of market growth (e.g. from 2001 - 2012) would result in people not coming anywhere near the assumed 7-8% average compound growth number that gets thrown around as they start shifting more of the retirement fund to bonds and treasuries and away from the market after essentially losing money over that decade.

There's also the fact that a lot of 'set it and forget it' lifecycle funds still dump a lot of their investment (like 20-25%) into the international market which has been terrible for most of the last decade. No, it's not hard to do a self allocation, but does SN Timmy understand where his money is going when he invests in L-2060?

The FED has greased the economy to get people to spend spend spend. There's no surefire way to save up money, that includes in retirement funds.

 

[Flash]

Again, how much do you expect a typical retirement fund to make in the last 10 years or so of someone's working career? I have seen little financial advice that tells people to have a substantial amount of their retirement funds (meaning more than 10-20%) exposed to the stock market at this point in their lives. You're basically talking about a fund now that is set to keep up with inflation....

I don't have a fucking clue, if I did I would have headed north to Wall Street by now. But assuming one would only making $20-30k is quite a bit off if an O-5 puts 5% in TSP for his whole career.

No, it's not hard to do a self allocation, but does SN Timmy understand where his money is going when he invests in L-2060?...The FED has greased the economy to get people to spend spend spend. There's no surefire way to save up money, that includes in retirement funds.

No, there isn't, but TSP is a decent option even for SN Timmy in a world full of shitty ones.

 

[Flash]

Oh yeah. Forgot about that. I still wish there were more similar tiers to the best NEW benefits added.

I think it was supposed to do what the first GI Bill did, which was to educate veterans. Given the wild success of the first iteration I think it would be unfair to put too many limitations on it now. Even then I can see them trimming the benefit sooner or later, particularly with the transferability and the BAH the beneficiary still gets with that.

As for folks who endure a lot more in their term of service than others, I don't think there is any realistic way to compensate those who have endured more other than bonuses and valor awards. One guy's tough tour of duty is another's Monday. Choose your rate, choose your fate....

 

[P3 F0]

I don't think you are acquitting yourself well in the math department. Are you talking about just money made or the are you including the 5% matching as well? Because the 5% matching should be included in that total but I don't think you are counting it. Also, that would just be what the investment would have made by the time your retired at 20, what about the money it makes before you can start withdrawing it?

You are correct--I did not acquit myself well (I see what you did there).

I was working with monthly salaries and not converting them to annual. That changes things to a TSP of $226k - $372k, $73k of which is free/matched money before returns. That $73k is generating around $113k-$187k of investment return over that 20 years (again, assuming 5%-10% return), so all in all, not too shabby. If you live 20 years beyond retirement under the legacy system and collect an extra $200k, you're ahead of the new system curve.

Taking it one step further, since those nest eggs are sitting collecting that 5-10% over the next 20 or so years until age 60.... that works out to $600k - $2.5m. Not too shabby at all.

 

[BPeterson93]

Commissioning before 2018, do I have the opportunity to choose which system I participate in, or because I'm not actively serving yet, I'll be rolled into the new system automatically?

 

[Brett327]

Commissioning before 2018, do I have the opportunity to choose which system I participate in, or because I'm not actively serving yet, I'll be rolled into the new system automatically?

Nobody will be able to answer that question until the policy is written and promulgated. This will take time.

 

[webmaster]

God, what a shitty deal (for those that were planning on doing 20 years), that requires you to fund 6% out of YOUR PAY to get the 11%! I don't see a pay raise to make up for that, that is ALL SAVINGS for DoD. And only a paltry 1% before matching? Most companies have 3-5% direct contribution usually (and yes require sometimes a couple years for vesting). What may be a "better deal" in terms of portability for the E1-E5s seems like a crap sandwich for higher ranks, that realistically would have much better options for the JO crowd if they went out into the real world. Heck, my daughter has 3% direct contribution for her 401K with her first job out of college! The only thing this plan has going for it is the portability to walk away with some $$$ if you weren't going to make a career out of the military. And DoD saves $$$ from personnel expenses, win win for them.

The separate argument about no jobs out there, in my experience in the post military hiring world, the jobs are there, I was cold called/contacted for a variety of positions that were not flying but were well paying above what I made in the Navy. A good network, interview prep, tailored resumes, the willingness to MOVE and work outside of your preferred/dream job all factor in to your success. Too many of my peers refuse to move or take jobs that aren't what they want to do.

 

[BPeterson93]

God, what a shitty deal (for those that were planning on doing 20 years), that requires you to fund 6% out of YOUR PAY to get the 11%! I don't see a pay raise to make up for that, that is ALL SAVINGS for DoD. And only a paltry 1% before matching? Most companies have 3-5% direct contribution usually (and yes require sometimes a couple years for vesting). What may be a "better deal" in terms of portability for the E1-E5s seems like a crap sandwich for higher ranks, that realistically would have much better options for the JO crowd if they went out into the real world. Heck, my daughter has 3% direct contribution for her 401K with her first job out of college! The only thing this plan has going for it is the portability to walk away with some $$$ if you weren't going to make a career out of the military. And DoD saves $$$ from personnel expenses, win win for them.

The separate argument about no jobs out there, in my experience in the post military hiring world, the jobs are there, I was cold called/contacted for a variety of positions that were not flying but were well paying above what I made in the Navy. A good network, interview prep, tailored resumes, the willingness to MOVE and work outside of your preferred/dream job all factor in to your success. Too many of my peers refuse to move or take jobs that aren't what they want to do.

I did read in an article in regards to this topic that a large portion of the funds is being used towards continuation pay, for the 8 to 16 year range. So signing for another 4 years is supposed to net a larger "bonus." unless I misinterpreted the writing.

 

[Flash]

God, what a shitty deal (for those that were planning on doing 20 years), that requires you to fund 6% out of YOUR PAY to get the 11%! I don't see a pay raise to make up for that, that is ALL SAVINGS for DoD. And only a paltry 1% before matching? Most companies have 3-5% direct contribution usually (and yes require sometimes a couple years for vesting)....

It is 5% matching to get to 10% total, not 6% to get to 11%, the 1% automatic contribution is sort of included in 5% matching.

The formula for contribution matching is:

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

[Or] 1 (automatic deposit) + 1 + 1 + 1 + 0.5 + 0.5 = 5% matching.

As for 'most companies' that may be the case for many but they don't offer new employees a pension with it, or for the few that do it is not very generous. The new pension of 40% at 20 years is still pretty damn good and better than almost anything you could get in the private sector, and that is on top of the TSP matching. So not as good a deal but still pretty decent.

And DoD saves $$$ from personnel expenses, win win for them.

The whole point of change!

 

[webmaster]

Flash, I don't have the source document, but inferred from some paragraphs above that the last 1% of matching required 2% contributions, hence the 11% someone else already mentioned (5+6). I won't ever be under this system, but it is a complete erosion of benefits that doesn't come close to the existing plan that benefits service members. For an all volunteer force, part of the benefits package is/was free medical, GI Bill, job security, free training, and retirement pension with payout early in life via a traditional retirement at 20 years, or earlier if under a medical retirement.

The "whole point of change" is using a body of employees that don't have a voice in this process (outside of lobbyist groups MOAA, etc), that impacts future service members. I question the leaders that want to save costs (when the defense industry has been making trillions) through personnel cost cutting measures. The whole thing stinks.

 

[webmaster]

I did read in an article in regards to this topic that a large portion of the funds is being used towards continuation pay, for the 8 to 16 year range. So signing for another 4 years is supposed to net a larger "bonus." unless I misinterpreted the writing.

I doubt that will happen. Would be "nice", but honestly, some communities ALREADY get continuation pays to keep YOU IN. So, DoD is taking away a defined benefit, and there is a "promise" at a later date that there may be extra pay for critical billets? I wouldn't count on that money.