PSA - things I should have done....

[Jim123]

I'm actually a pretty big fan of the BRS over the old "cliff" system but probably not for the reason most people would think.

I like that it gives a small reward for people who get out after one or two hitches, not that there weren't already rewards for 4, 5, 10, or whatever years of service (bonuses, educational programs, the GI Bill). But what I really like is it changes the 5-15 year "do I stay in or do I get out" question- I think in the long run that will encourage a lot more people to do a single enlistment or one 4~5 year run of commissioned service, and then go be a civilian again. That's what I really like about it. A lot of people with a little bit of military experience is healthier for the country than a little bit of people with a lot of military experience.

I don't think this particular opinion is overly popular with higher paygrades and echelons; those people are concerned about making the military an instrument of maximum effectiveness. That's their job (actually, duty) and a lot of turnover for the same effectiveness costs a lot of money. But I say fine—figure out what the cost effectiveness tradeoff is and let the government decide what to do about it—and if all you can think about is the military's effectiveness then I suggest you're suffering from tunnel vision.


(ramble rant off)

 

[SynixMan]

Rental cost is not far lower than living costs in most areas. Where I live my mortgage + taxes is about $500 lower than I'd pay in rent for a similar property. If you're Dink then that's one thing, but finding a 3-4 bed single family for the kids runs a pretty penny.

The real equalizer is closing costs and mortgage financing fees. It takes on average 7 years to break even on that.

The kicker is that you always have to have shelter - it's a basic need. Retirement funds don't pay out until 59.5, and if you're always renting you'll need enough saved up to cover that cost (which amounts to $2 million to live a middle class lifestyle from age 60 to death assuming no other pension). It would take 20 years of max annual investment into TSP and another 17 years of waiting to get over $2M (or 32 years of straight investments).

This is not to say that one shouldn't invest, but that it's not a get rich quick scheme.

Obviously it was an overall cost savings measure from the otherwise extremely generous Active Duty retirement. I also hear retiree healthcare is becoming less generous from various sources. I think this change was a decent balance when they could’ve just change the year multiplier and moved on after people stopped bitching.

In any event, it doesn’t matter, because people entering the service now won’t have the choice to pick the old system.

 

[Hair Warrior]

I think the 4-year additional commitment to transfer the Post-9/11 GI Bill to a family member is dumb. It should be transferable whenever you want. You can give your after-tax salary to a loved one at any time - why not this benefit?

 

[Spekkio]

But what I really like is it changes the 5-15 year "do I stay in or do I get out" question- I think in the long run that will encourage a lot more people to do a single enlistment or one 4~5 year run of commissioned service, and then go be a civilian again. That's what I really like about it. A lot of people with a little bit of military experience is healthier for the country than a little bit of people with a lot of military experience.

I don't think that $5k saved up in a TSP account over an initial enlistment is going to move the needle on the 'do I reenlist'-o-meter.

 

[Pags]

I'd be careful about extrapolating your pay and experience in naval aviation to 'most servicemembers.'

The average time a person spends enlisted is 6.7 years, and that includes retirees. Needless to say, the 2-4 years of 5% match an E4 / E5 gets (assuming he remembers to adjust his contributions) is not doing a whole lot. It's theoretically better than 0, but if I were a 20 year old junior enlisted I'd be saving all my excess cash to afford transitioning out of the Navy when I go to college on the GI bill in 2 years.

Agree to disagree. I agree that an E5 who leaves after 6yrs isn't going to have a huge nest egg. But he will have something and that's better than he would have had under the old system. Hopefully this kick starts a saving habit that he carries with him. Or maybe it's there if time gets tough. It also gets him smart to the idea of investments. At least they now have an option if they so choose to do so. A smart guy could squirrel away a decent nest egg on his first enlistment and then forget about it and come back to a tidy little sum 40yrs later. Which again, is more than that guy would have had under the old system.

What I don't know I'd what level of access that guy has to TSP if he separates. Can he keep contributing to his L2060 once he's out?

 

[Pags]

I think the 4-year additional commitment to transfer the Post-9/11 GI Bill to a family member is dumb. It should be transferable whenever you want. You can give your after-tax salary to a loved one at any time - why not this benefit?

To convince people to stay in, duh.

 

[wink]

20 year old junior enlisted ... saving ... excess cash to afford transitioning out of the Navy when I go to college on the GI bill in 2 years.

Unicorn

 

[Spekkio]

Agree to disagree. I agree that an E5 who leaves after 6yrs isn't going to have a huge nest egg.

This is where I disagree from a practical perspective.

Junior enlisted pay is on the order of $2k a month average take home over the 4 years. If a person was really good with money and saves up half that it's $48k over an enlistment. 75% brings this up to $75k, but I offer that's virtually impossible. This money has to carry him through miscellaneous expenses of transition, going to college, buying clothes, getting a car, furniture, healthcare expenses, and everything else associated with starting a real grown up life without the need for loans and credit cards whose interest rates would exceed the ROI for a TSP. Simply put, a 4 or 6 and out Sailor financially planning for his transition can't afford TSP unless he's going to be supported by someone else for some period of time.

You can liquidate TSP, but you owe a monthly payment (with interest to yourself) to pay it back, so it's only useful for emergencies.

 

[SlickAg]

So one of my fleet skippers was big into investing, owned some apartments somewhere in the Midwest (aka slumlord), and he liked talking about this stuff with young JOs and he turned me on to this. The year we cruised, I knew I was going to spend about half of that calendar in a combat zone and after some ready room bull sessions I decided to minimize my taxable income for the year by maxing out my TSP contribution from January to April (at the time it was $16 or 16.5?). We hit tax-free land in late June and out-chopped in November. I think I paid taxes on 16 or 17 thousand dollars that year. I actually got a call from the IRS a few years later saying I needed to provide proof of my deployment. Obviously it helped that my wife was also working full-time, but I would’ve had enough savings to cover it anyway.

I dig this thread. I was very lucky and had a good financial education from my parents and grandparents; for example, they encouraged me to put my money from high school summer jobs into an IRA and they discussed their financial strategies with my sister and me in order to expose us to saving early on.

My advice to new folks starting out:

1) maximize your TSP contributions. I started doing this from day one and it worked out very well for me, despite having that first little nest egg take a huge hit during the 2008 recession. If you have a spouse and can swing it, take the match from his/her employer and hopefully max out that 401k as well if it’s offered.

2) minimize debt. I took out the USAA career starter loan and that is the only loan I’ve ever had other than a mortgage (I ended upinvesting most of it since I had an NROTC scholarship and my parents picked up the rest, and my wife’s parents generously paid for her whole undergraduate education. I think this is perhaps one of the best gifts a parent can give their child (in addition to instilling a positive work ethic and sense of citizenship)). When we got married we were able to invest a significant amount of our income and that has served us in very good stead.

3) talk about financial matters with your future spouse! Know what their credit score is, know what debt they have, and be able to work together towards a financial goal. One of my best JO friends had a wife who worked as well, and they were literally living from paycheck to paycheck. We went out to pizza once and had to float them some money because they didn’t have enough in their checking account to cover it with their debit card. And we made the exact same amount of money. It blew my mind.

4) you can still have a very good quality of life and save for the future. If you can resist the urge to buy or lease fancy new cars all the time and buy a house sort of above your paygrade, you can still enjoy nice dinners, buy nice things, and do some traveling. Extreme frugality is one way to save, but along with lots of dudes here, it just isn’t for us. What’s the point of making money if you can’t enjoy some of it?

5) transition folks - I have only my own experience and those of my friends, but you have a small window after you get off active duty and before the reserve system acquires you to rollover your TSP. I got two checks - one of them for standard and one of them for my tax-free contributions. I rolled them into IRAs. I had friends that were unable to get their money once they “officially” became reservists (in reality you become one immediately and want to AVOID a break in service). I left a small amount in there just in case I ever want to get back in, but I wanted more control of my money sooner. Some people may disagree with that technique (and my other advice) and that’s fine. The important thing is saving, investing, and having a plan that works for you and your family.

 

[villanelle]

Rental cost is not far lower than living costs in most areas. Where I live my mortgage + taxes is about $500 lower than I'd pay in rent for a similar property. If you're Dink then that's one thing, but finding a 3-4 bed single family for the kids runs a pretty penny.

The real equalizer is closing costs and mortgage financing fees. It takes on average 7 years to break even on that.

The kicker is that you always have to have shelter - it's a basic need. Retirement funds don't pay out until 59.5, and if you're always renting you'll need enough saved up to cover that cost (which amounts to $2 million to live a middle class lifestyle from age 60 to death assuming no other pension). It would take 20 years of max annual investment into TSP and another 17 years of waiting to get over $2M (or 32 years of straight investments).

This is not to say that one shouldn't invest, but that it's not a get rich quick scheme.

This is the flawed thinking that causes people to make the less financially-wise decision, if I'm understanding what you are saying correctly. Comparing $2000 in mortgage to a $2200 rent payment and saying that owning costs $2400 less per year misses so much of the picture.

Slap on a modest $2000 in property taxes you'll pay for for that property taxes, and you are already basically back to even. (I know you mentioned taxes in your specific case, but I include it in the list for the sake of accuracy for anyone else considering the math.) Then there's homeowners insurance, maintenance (Generally 1% over the long haul is considered a reasonable projection, so that's $5000 a year on our $500k house; seems like a lot until the roof goes or the a/c shits the bed), possible HOA, (and likely 5-10% to a property manager when you move away and it's extremely difficult to manage on your own, plus time for vacancies when it becomes a rental) and suddenly our renter has a LOT more cash on hand than our owner/landlord. And don't forget the transaction costs associated with buying and selling, that eat up more money. And don't forget cap gains on profit if you haven't lived in it 2 of the last 5 (or 15 for active duty) years, eating into that appreciation that supposedly makes it worthwhile.
And that doesn't address what happens when you need to move then the market has tanked (and usually rents you can collect drop somewhat at the same time), so you can either eat a $100k loss on the property when you sell, or bleed out slowly at $300 a month for years.

If the difference between renting and the mortgage is only $500 (more in rent), the the renter is likely coming out ahead. This is why the 1% guideline exists and why most RE investors (who are therefore unemotional about this, and not buying a property in which to live and then becoming a bit of an accidental landlord) won't even consider a property that doesn't come at least close to that.

It also doesn't address the time suck and stress of being a landlord, especially a long distance landlord. Ask this girl (yes, despite my outlook, I'm a landlord) how fun it has been to have a $5 supply line to a toilet burst in San Diego, when she's in Virginia. We are at about $40,000 in damages and costs, nearly all of which are very thankfully covered. (USAA has been a fucking delight, and I truly mean that. Tenant moved out and declared the property uninhabitable due to the damage and repair work, which I think was total bullshit and I was bracing for a fight, but USAA basically, "sounds good, send us a copy of the lease and the termination letter and we will pay the rent for as long as the repairs take". And that was it, I actually came out ahead because they paid me the full rent amount when I have to give a cut to my PM while it's actual collected rent.) But it hasn't been fun and if I had a full time job and had to manage it, I likely would have lost my mind.

There's also slightly difference considerations when looking at buying a place to live vs. renting, and buying a place as purely an investment. But the numbers are more or less the same.

As for retirement funds not paying out, hopefully we all have some in non-tax advantaged accounts by the time we get to that point but there's also a Roth ladder that can allow one to access the money, penalty free. You need to plan ahead to make it happen; it takes 5 years from execution to withdraw. And you lose some tax-advantaged growth, but gets you your "retirement" money before 59.5.

 

[RedFive]

If you're in any type of weird situation where you might qualify for the old retirement system and that's something you want, make sure you fight for it. I did indoc with my new wing at the beginning of the year and there was a non-pilot O-2 type who had gotten out and decided not to affiliate with the reserves for family reasons until several years later. She was just joining the reserves and going through indoc with me and they were trying to put her on BRS. She was about to go along with it when I asked the question about whether or not she met the cut-off from her previous AD time to still have the old retirement system. About 30 mins later the GS types from finance came back and apologized to her and kept her grandfathered in, which is what she wanted.

I know this is a pretty unique situation, but always ask if you think it doesn't sound right. Nobody cares more about your career than you -- certainly not the GS's slaving away in cubicles running finance paperwork all day long. You're just a number to them.

 

[Pags]

This is where I disagree from a practical perspective.

Junior enlisted pay is on the order of $2k a month average take home over the 4 years. If a person was really good with money and saves up half that it's $48k over an enlistment. 75% brings this up to $75k, but I offer that's virtually impossible. This money has to carry him through miscellaneous expenses of transition, going to college, buying clothes, getting a car, furniture, healthcare expenses, and everything else associated with starting a real grown up life without the need for loans and credit cards whose interest rates would exceed the ROI for a TSP. Simply put, a 4 or 6 and out Sailor financially planning for his transition can't afford TSP unless he's going to be supported by someone else for some period of time.

You can liquidate TSP, but you owe a monthly payment (with interest to yourself) to pay it back, so it's only useful for emergencies.

Yeah, I don't disagree with what your analysis but it seems like you're arguing a very specific case (what spekkio would do if had enlisted) that doesn't apply to everyone.

Also, if we follow your overarching thesis to it's conclusion we come to the answer that if BRS vs old is inconsequential to the majority of folks then let's ignore them and focus on those that it is consequential to: JOs who don't do 20. In these folks' case it's a good deal.

 

[wlawr005]

When BRS came out there was a statistic attached that said something like less than (some single digit number)% of the military makes it to 20 years. I'm grandfathered into the check-of-month club, but I thought the new retirement system was a little more realistic for a majority of people, far cheaper for the government, and more closely mirrored nearly any civilian retirement plan.

 

[Hair Warrior]

When BRS came out there was a statistic attached that said something like less than (some single digit number)% of the military makes it to 20 years. I'm grandfathered into the check-of-month club, but I thought the new retirement system was a little more realistic for a majority of people, far cheaper for the government, and more closely mirrored nearly any civilian retirement plan.

They also made us take a mandatory training trying to entice people to go into BRS with phony data that assumed your TSP would grow by 7% annually for 20 straight years with no economic downturns.

I’m in the 20-or-bust club.

 

[Jim123]

Yeah, no arguments from me about the hard sell aspect of the BRS rollout.