NDAA FY2016 Changes to Military Retirement

[wlawr005]

This thread has taken a turn towards discussions on appropriate investment procedures, etc.

Any advice on where to start better educating myself? It's like reading another language right now.

I don't have a fucking clue what anyone is talking about here so I started browsing investopedia.com

Pretty basic stuff on there geared to clueless people like me. Try checking out Investing 101 in their university first and go from there.

 

[Spekkio]

For a 30 year retirement, starting *any* year since 1926, a 4% SWR would have been successful...

A) bullshit

B) You act as if I made this up. I didn't.

 

[villanelle]

A) Since you claim bullshit, please tell me what year since 1926 a 4% WR would have failed before 30 years? If it's bullshit that the answer is "none", then enlighten me. I'm not really sure how you can even argue this. It's a well established fact (see the chart, for starters) that a 4% SWR at 50/50 would have been successful every single year since 1926, for which we have 30 years of data.

B) As for your link, the fact that people who have a vested interest (pun intended) in making people invest more claim that we need to invest more? Not what I'd recall especially reliable.

 

[HokiePilot]

This thread has taken a turn towards discussions on appropriate investment procedures, etc.

Any advice on where to start better educating myself? It's like reading another language right now.

I recommend a Random Walk Down Wall Street
http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393330338

This book, now in its 9th edition, is based on the premise that you can't beat the market. Any attempt to pick winners or losers or time the market will just increase transaction costs and cause you're long term returns to be lower. The book popularized the notion of buying index funds and just holding on. Vanguard was founded with this premise in mind. All of the funds in TSP follow this logic. It also includes explanations of different types of investments and sample investments diversifications for different ages.

 

[HokiePilot]

A) bullshit

B) You act as if I made this up. I didn't.

Dude, calm down.

I don't know why you are pushing this so hard. You did read in that article where it said this was controversial. And you also saw in this article where it said if you had a well diversified that included small-cap stocks you can actually withdraw at 3.5%. If you are flexible, 4% is an OK place to start. Note, it recommends staying invested in the market even when you are retired. Overall, the article encourages one to save and be frugal. That is hardly bad advice.

If you are so concerned about outliving your funds, I suggest purchasing an annuity. Diversified companies are more capable at handling the risk that you live too long. There are all sorts of ways annuities can be structured, but as a starting point, a 65 y/o male can purchase a fixed annuity for ~$167k per $1000 of monthly income. If that 65 y/o man decides he can live on his own investments for 20 years before his annuity pays, it would only cost ~$26k per $1000 of monthly income. That is good insurance against living too long.

Source: https://investor.vanguard.com/annuity/fixed

 

[Flash]

...If you are so concerned about outliving your funds, I suggest purchasing an annuity....

To bring the thread full circle, even with the new retirement system military retirees will have an annuity. So that is one worry less for retirement!

 

[HokiePilot]

If only there was a source document to clear up all of the speculation about the new retirement system:
https://www.congress.gov/bill/114th-congress/senate-bill/1356/text?resultIndex=5

Executive summary:

The new retirement system will be in effect for all members who join after January 1st, 2018. For people who joined between January 1st, 2006 and December 31st, 2017, they may stay with the old system or elect the new one. That election can only be made during CY2018.

Starting January 1st, 2018:
They new retirement multiplier will be 2.0 not 2.5. Members can still earn a 50% retirement by spending 25 years in.

Automatic contribution to TSP of 1% starting at 60 days of service and ending at 26 years of service. This money comes from the secretary and not the member.

Matched contribution to TSP starting at 2 years of service and ending at 26 years of service. 100% match up to 3% of members base pay and 50% match for the next 2% of monthly base pay. Between automatic and matched, the secretary will not contribute more that 5% of base pay.

A new continuation pay for full TSP members. At 12 years of service, if a member obligates to serve for another 4, the member receives a payment of (2.5 x monthly base) plus, at the discretion of the secretary (monthly base pay x (a number determined by the secretary up to 13 months)).

Lump sum retirement payment. Members eligible for retirement may elect to receive 25% or 50% as a lump sum payment. This payment will be calculated from the discounted present value of the full pension minus "an appropriate percentage as determined by the secretary".



Overall, I think this is a good system. Currently, only 17% of members ever receive retirement benefits. This is clearly a win for those 83%. And no current military member can claim it is not fair to them or they they took away their benefits. Also, even a few thousand dollars in a junior sailor's TSP will help him/her learn about investing and at least get the conversation started about how to invest.

 

[HokiePilot]

OBTW, I propose a change in title to this thread. Military retirement is gone is demonstrably false. I propose something to the effect of "NDAA FY2016 Changes to Military Retirement and arguments about how to invest".

 

[wlawr005]

...arguments about how to invest".

 

[webmaster]

OBTW, I propose a change in title to this thread. Military retirement is gone is demonstrably false. I propose something to the effect of "NDAA FY2016 Changes to Military Retirement and arguments about how to invest".

That @HokiePilot is a straight shooter, he's got upper management written all over him!

 

[HokiePilot]

That @HokiePilot is a straight shooter, he's got upper management written all over him!

You caught me.

 

[Pags]

What I find interesting about all the investment discussions I haven't seen a lot of recommendations for financial planners. I wasn't an Econ or finance major in school and, honestly, the only part of investing that I find interesting is making money. All of the granular details and speculative arguments about retirement planning (a lot of it from interested amateurs barely out of their 30s) frankly bore the crap out of me. That's why I've ended up using a financial planner. I've used the same finance guy for years and he's provided very solid financial advice to my parents for their retirement planning and to my wife and I for our own planning. Not only does he provide guidance on products that he provides, but he's also helped with fund selection for 401ks, TSP, etc. Obviosuly finding a good financial guy is akin to finding a good mechanic, accountant, or contractor; but if you can find one they're solid gold.

 

[Spekkio]

Overall, I think this is a good system. Currently, only 17% of members ever receive retirement benefits. This is clearly a win for those 83%. And no current military member can claim it is not fair to them or they they took away their benefits. Also, even a few thousand dollars in a junior sailor's TSP will help him/her learn about investing and at least get the conversation started about how to invest.

Why do the 83% need another win? The 9/11 GI bill pays ~$70,000 in tax-free benefits for someone who elects to leave the military (think about that one when offered a bonus). This can be used for college or trade school training to transition to a civilian career path of your choosing. Is that not enough of a 'thank you for your service, here's a parting gift to you?' If you serve 6 years with an intention to go to 10 years you can transfer this benefit to your dependents, and it can be any dependent that gets put into DEERS up until the day you leave the service, after which you can reallocate to anyone on the list but not add new people.

I also don't like the line of reasoning "well, I got mine so it's okay to make it worse for the next guy." This is still a substantial cut for prospective future retirees any way you slice it. Probably not substantial enough to make or break someone's decision to make a career of the military, but a cut nonetheless. The continuation pay exists to compensate someone for longevity since the first 2 years of service are not matched by the federal government, and to provide flexibility to provide retention incentives.

BTW, I'm plenty calm. I was simply illustrating that there is risk involved that gets overlooked. I even conceded that in the case of a military retiree, running out of your 401(k)/TSP is not really a big deal.

 

[Randy Daytona]

Why do the 83% need another win? The 9/11 GI bill pays ~$70,000 in tax-free benefits for someone who elects to leave the military (think about that one when offered a bonus). This can be used for college or trade school training to transition to a civilian career path of your choosing. Is that not enough of a 'thank you for your service, here's a parting gift to you?' If you serve 6 years with an intention to go to 10 years you can transfer this benefit to your dependents, and it can be any dependent that gets put into DEERS up until the day you leave the service, after which you can reallocate to anyone on the list but not add new people.

I also don't like the line of reasoning "well, I got mine so it's okay to make it worse for the next guy." This is still a substantial cut for prospective future retirees any way you slice it. Probably not substantial enough to make or break someone's decision to make a career of the military, but a cut nonetheless. The continuation pay exists to compensate someone for longevity since the first 2 years of service are not matched by the federal government, and to provide flexibility to provide retention incentives.

BTW, I'm plenty calm. I was simply illustrating that there is risk involved that gets overlooked. I even conceded that in the case of a military retiree, running out of your 401(k)/TSP is not really a big deal.

The 83% is getting a win, but the primary reason for it to deflect attention from this being an overall benefits cut so the Pentagon spend less on personnel and more on weapons and/or operations.

 

[Recovering LSO]

^ I think what you've just described could also be called populism.