Changes to retirement passes first hurdle.

[Spekkio]

That said, being that Husband plans to do 20 and is most of the way there, I'm glad he'll be grandfathered in. Certainly this new plan is a big loss for those who do 20. The 20% reduction in benefit amount (from 50% of pay to 40% of pay) isn't catastrophically different, especially with the TSP contribution and match, and that small bonus at 12 to make up for some of it. But waiting until retirement age to start the pension is a giant difference. That makes me wonder what this will do to retention, when the carrot on the end of the stick is much smaller and they've added a lot of interim carrots for those not interested in the larger one at the end. And how much will be spent on bonuses to counteract any possible retention repercussions?

The report done on the subject indicates that under most market scenarios a servicemember will collect more total $ with the blended plan than the old plan, even though some of that money isn't being recouperated until 59.5.

 

[pourts]

Any time people do these studies, the timing is always very important. If they started the study in 2000 vs 2001 the outcome would have been much different. "Past results are no indication of future performance" and all that jazz. All in all I like the new plan. This is something the military must do in order to keep up with the changing labor market.

 

[villanelle]

From a philosophical point of view, I would be much more comfortable with a simple BAH rate regardless of whether you're dual mil, with dependents or unmarried. If people rate a benefit or allowance, give it to them and be done with it. I can't believe that dual mil couples make up a statistically significant portion of the overall military BAH costs. I understand that the military has at least a vague interest in promoting marriage and the nuclear family concept, but paying a higher BAH rate for dependents is bogus. That is a choice the member makes, and should ultimately take financial responsibility for.

Of course, we're all fiscally conservative/anti-entitlement ideologues... until it comes to our own paychecks.

I fully support getting rid of dependent BAH. It may not be "my own paycheck", but certainly my/our own bank account would see the decrease. I still support it as it seems both fair and sensible. Paying people for their personal decisions doesn't make much sense to me. For a crowd notoriously anti-communist, it's amazing how much support, "to those, according to need" gets support.

I think if they overhauled BAH to work like OHA, where a cap is set but you only get enough to cover actual expenses, it would definitely encourage people to spend every penny. And those who want to live far away so save money and maybe spend a bit of that savings on the longer commute would be SOL. Likewise, if they made the utilities portion usage-based, prepare to see people setting the a/c to 65. I've seen it in base housing overseas. Why not take a 45 minute hot shower when you aren't paying for it? (Rhetorical, as I can name several reasons.) For some, there's no reason to save if they aren't going to see those savings.

It is very similar to FERS but most earn only 1% a year towards retirement (law enforcement, fire fighters and a few others get 1.7% a year up to 20 years) and have to contribute towards retirement as well (0.8% to 4.4% of your pay depending on when you joined the civil service) while the military earns 2% with this proposed retirement plan.

I'm not following. Are you saying military would get 2% without any investment on their own part, and then a match after that?

The report done on the subject indicates that under most market scenarios a servicemember will collect more total $ with the blended plan than the old plan, even though some of that money isn't being recouperated until 59.5.

Sure, most will get more. Because those with 1-19 years, every single penny will be an increase. But those who do 20 will see significantly less. Which is exactly why I think there are potential retention repercussions. This in effect increases compensation slightly overall. But it does so in a way that creates less incentive to stick it out for 20.

I don't think we'll really know for 10+ years from implementation what it means for retention, because that will be the time where people who would have made the decision to stay for the 20 year retirement under the old plan get to that decision point. Will the smaller carrot at 20 mean significantly more people bail? I don't think there's any good way to know, and I don't think studies are especially reliable. People are notoriously bad at knowing their own minds. It's one thing to say, "I'd stay in for that" and another entirely to look at the decision after a 12 hour day of staff work, looking at orders for your 3rd overseas tour in a row, and having a wife who bemoans the death of her career caused by 9 years overseas, and still say you are going to stay. (Er... um... hypothetically speaking, of course.)

Time will tell.

 

[Spekkio]

I think if they overhauled BAH to work like OHA, where a cap is set but you only get enough to cover actual expenses, it would definitely encourage people to spend every penny. And those who want to live far away so save money and maybe spend a bit of that savings on the longer commute would be SOL. Likewise, if they made the utilities portion usage-based, prepare to see people setting the a/c to 65. I've seen it in base housing overseas. Why not take a 45 minute hot shower when you aren't paying for it? (Rhetorical, as I can name several reasons.) For some, there's no reason to save if they aren't going to see those savings.

As far as I understand, the old method of doing housing allowances pre-BAH did this, and it led to a widespread depreciation of benefits as most servicemembers try to find places within the limit, which then results in a lower limit being calculated the following fiscal year. Over time, it became difficult for people PCSing to find rentals within their allowance.

I fully support getting rid of dependent BAH. It may not be "my own paycheck", but certainly my/our own bank account would see the decrease. I still support it as it seems both fair and sensible. Paying people for their personal decisions doesn't make much sense to me. For a crowd notoriously anti-communist, it's amazing how much support, "to those, according to need" gets support.

Along that line of logic, why stop there? Why not get rid of BAH entirely? You get to live in the barracks for free, anything above that bare minimum of need for the servicemember is your expense?

Sure, most will get more. Because those with 1-19 years, every single penny will be an increase. But those who do 20 will see significantly less. Which is exactly why I think there are potential retention repercussions. This in effect increases compensation slightly overall. But it does so in a way that creates less incentive to stick it out for 20.

No, the amount collected from the pension and TSP would be greater even for a person who retires at 20 years. What you are talking about is whether the 20% paycut from 38-42 ish to 59.5 is worth the extra money later in life.

I think that for most people who plan on working post-military but not into their late 60s, it is.

Any time people do these studies, the timing is always very important. If they started the study in 2000 vs 2001 the outcome would have been much different. "Past results are no indication of future performance" and all that jazz. All in all I like the new plan. This is something the military must do in order to keep up with the changing labor market.

They simulate different market performance profiles over a long term timespan, the starting year is irrelevant.

 

[villanelle]

As far as I understand, the old method of doing housing allowances pre-BAH did this, and it led to a widespread depreciation of benefits as most servicemembers try to find places within the limit, which then results in a lower limit being calculated the following fiscal year. Over time, it became difficult for people PCSing to find rentals within their allowance.


Along that line of logic, why stop there? Why not get rid of BAH entirely? You get to live in the barracks for free, anything above that bare minimum of need for the servicemember is your expense?


No, the amount collected from the pension and TSP would be greater even for a person who retires at 20 years. What you are talking about is whether the 20% paycut from 38-42 ish to 59.5 is worth the extra money later in life.

I think that for most people who plan on working post-military but not into their late 60s, it is.

They simulate different market performance profiles over a long term timespan, the starting year is irrelevant.

Because there isn't enough housing to put everyone in it, and because it costs different amounts to live in different areas, so BAH works as a [flawed, but better than nothing] equalizer? Since service members can't choose where they are stationed, BAH isn't paying them based on a personal choice in the same way BAH w/ dependents is. And because BAH is used as a way of offering housing that is thought to be somewhat commensurate with what civilian counterparts would be likely to have. If you ditch BAH and force everyone in to a barracks room (assuming for a moment there were even close to enough barracks rooms to do so), you'd be cutting compensation considerably. It's unlikely people would be willing to take that kind of cut, anymore than they'd stick around for a 30% cut in their pay.

For the italicized, are you saying that the money the government puts in (not what the service member contributes) plus the scaled back retirement will be more than today's 20 year retirement? I don't see how that's possible. That would mean this program would be increasing compensation for the 20 year crowd, as well as for everyone else. And yet there is supposed to be a savings. So clearly, the math says that overall there will be less paid out. So how are you saying that the 20ers will be getting more? Maybe we are saying different things. I'm saying that government TSP contributions plus the changed pension will *overall* be less in total then today's 20 year program--that overall with all things considered, they will get less. It pretty much has to be, given that the math supposedly says this will be an overall cost savings. What they are giving the non-20s is 100% an increase over the $0 they get now. So clearly, there have to be cuts to the pension portion of the retirement plan that not only cover that increased expense, but that create savings as well.

If the program saves money, obviously someone is getting less. And since those who don't do 20 are clearly getting more, by definition they 20ers are the ones who'll be getting less.

I don't necessarily think it's unfair. I just think it really can't be predicted how this will affect retention.

 

[Spekkio]

Because there isn't enough housing to put everyone in it, and because it costs different amounts to live in different areas, so BAH works as a [flawed, but better than nothing] equalizer? Since service members can't choose where they are stationed, BAH isn't paying them based on a personal choice in the same way BAH w/ dependents is. And because BAH is used as a way of offering housing that is thought to be somewhat commensurate with what civilian counterparts would be likely to have. If you ditch BAH and force everyone in to a barracks room (assuming for a moment there were even close to enough barracks rooms to do so), you'd be cutting compensation considerably. It's unlikely people would be willing to take that kind of cut, anymore than they'd stick around for a 30% cut in their pay.

You can't have it both ways. If you are arguing that BAH should pay for the bare minimum and have perks for rank/seniority, then everyone should have to live in the barracks until O-4. No space or married? You get 50% of the median price for a studio in your geographic area for E-1 to E-6. E7 and above and JOs get the median for a 50% of a 2 BR, O-4 and above get the median for a 1 BR. Anything living arrangements beyond that is a choice the servicemember makes and not provided as an allowance.

If you decide to start basing it on need because that would be unpopular, you now buy yourself into the same situation we are in now - providing an allowance based on varying need and not just based on rank/TIS. You are just quibbling over where to set the bar, which requires making assumptions about the 'typical' family size/situation for a servicemember of a given rank. Those who don't fit the assumption can stand to make (or lose) a lot of money. Even collecting leases will do nothing because a smart servicemember will rent the max allowed benefit or even over the max allowed benefit and then sublet a room without telling the Navy about it.

The current BAH system isn't as terrible as people make it out to be. What we're really talking about is how newly minted JOs writ large have been able to milk BAH because they are usually single and can find a place well below the asking price. I think if you polled married enlisted sailors w/ children, you'd find that they don't think BAH is nearly as generous. They don't have memories of several years of pocketing 25-50% of it tax-free and have difficulty finding a place that meets their needs within BAH if they can't get a house on base.

For the italicized, are you saying that the money the government puts in (not what the service member contributes) plus the scaled back retirement will be more than today's 20 year retirement? I don't see how that's possible.

It's possible because the gains for TSP are paid from the pooled growth of the stock market and not from the DoD's account.

Even with the proposed 5% match, 5% of Ensign or LT pay into a TSP is cheaper than 10% of O-5 pay plus COLA raises until the member and his wife pass away... ditto for the enlisted payscale.

 

[Tycho_Brohe]

For the italicized, are you saying that the money the government puts in (not what the service member contributes) plus the scaled back retirement will be more than today's 20 year retirement? I don't see how that's possible. That would mean this program would be increasing compensation for the 20 year crowd, as well as for everyone else. And yet there is supposed to be a savings. So clearly, the math says that overall there will be less paid out. So how are you saying that the 20ers will be getting more?

To settle the confusion, Spekkio is not saying 20'ers will be getting MORE money, per se, from the government than they otherwise would. He's saying the panel found that the blended plan compensated people better than the traditional retirement, or something to that effect. The distinction is WHEN you get the money. For that twenty years before you see a dime of the pension, you're getting free money from that match and (hopefully) investing it. Instead of that money sitting in the government pension fund barely outpacing inflation, you can put it in stocks or bonds where it can get some compound growth. So the government is paying out less money, and everyone is still getting more in the end.
Since people are getting grandfathered in and can choose the traditional or the blended, it'll probably cost the government more at first, which is why they're raiding Tricare as Spekkio mentioned. But in the long run, defined contribution plans are more economical than defined benefit plans.

 

[villanelle]

You can't have it both ways. If you are arguing that BAH should pay for the bare minimum and have perks for rank/seniority, then everyone should have to live in the barracks until O-4. No space or married? You get 50% of the median price for a studio in your geographic area for E-1 to E-6. E7 and above and JOs get the median for a 50% of a 2 BR, O-4 and above get the median for a 1 BR. Anything living arrangements beyond that is a choice the servicemember makes and not provided as an allowance.

If you decide to start basing it on need because that would be unpopular, you now buy yourself into the same situation we are in now - providing an allowance based on varying need and not just based on rank/TIS. You are just quibbling over where to set the bar, which requires making assumptions about the 'typical' family size/situation for a servicemember of a given rank. Those who don't fit the assumption can stand to make (or lose) a lot of money. Even collecting leases will do nothing because a smart servicemember will rent the max allowed benefit or even over the max allowed benefit and then sublet a room without telling the Navy about it.

The current BAH system isn't as terrible as people make it out to be. What we're really talking about is how newly minted JOs writ large have been able to milk BAH because they are usually single and can find a place well below the asking price. I think if you polled married enlisted sailors w/ children, you'd find that they don't think BAH is nearly as generous. They don't have memories of several years of pocketing 25-50% of it tax-free and have difficulty finding a place that meets their needs within BAH if they can't get a house on base.

It's possible because the gains for TSP are paid from the pooled growth of the stock market and not from the DoD's account.

Even with the proposed 5% match, 5% of Ensign or LT pay into a TSP is cheaper than 10% of O-5 pay plus COLA raises until the member and his wife pass away... ditto for the enlisted payscale.

I didn't argue that it should pay the bare minimum. I argued that it shouldn't pay for differing personal choices, like family size. I see this as totally different. Giving everyone a studio, per your suggestion, or giving everyone (or everyone of the same rank) a 3 bedroom SFH, treats them all the same. Giving the ones who marry an extra $100 per month clearly does not.

So no, I'm not quibbling over where to set the bar. Every O-4 in San Diego gets $2900. Every O-1 in Jacksonville gets $2000. (Numbers totally made up.) EOD.

I don't think the BAH system is terrible. I do think there's shouldn't be a different pay based on family size, but that's a relatively minor thing. There's a few other tweeks I think make sense, but I don't think it's terrible, and I didn't recommend total overhaul. In fact, I argued against making it a use-or-lose, like OHA.

And I don't think you can/should count gains in TSP as part of the compensation. That's not money from the government, that's money from the stock market. Money that would be just as available outside the compensation package. Also, do you really think all or even most people are going to actually contribute enough to get that 5% match? Not going to happen. And of course, there's the risk of *losing* money, too.

If I'm figuring out how much someone is paid, I don't look at what they do with that money and how it grows. I look only at what money they are given. If I buy a home with my salary and it bring in $5000 in profit per year and appreciates by $30,000, I don't calculate my salary has having been $30,000 more per year based on the growth it allows me to buy. And in the same way, I don't count the growth in my 403b as part of what I was paid. I count my employer contribution, but not the growth. That's the standard way to calculate compensation. Using the growth of the employer contribution (and maybe even the employee contribution required to get the full match, if theses studies are being really underhanded) is nonsensical.

It's entirely wonky math. Mostly, it's propaganda made to look the new program more desirable.

So if we go back to calculating in a less disingenuous way, we are back to this new system paying people less overall. Which is fine. The labor market will adjust accordingly. I don't think it's necessarily bad, but I do think that manipulating the numbers to claim otherwise is shady.

 

[Tycho_Brohe]

It isn't wonky math, disingenuous, or propaganda, it's accounting. It's time value of money and discount rate. If you're given a dollar today, it's worth a hell of a lot more than getting a dollar twenty years from now. I'm sure the panel made assumptions as to the growth rate of the stock market (I'd have to check what rate they used, but I doubt they assumed 20% annually, it was probably fairly realistic), but if you're investing over a period of at least twenty years, the odds are heavily, heavily in your favor that you'll get much better performance than the government would by keeping it in the pension fund, and almost nil that you'd actually lose money over such a long period, especially if you're contributing throughout those 20 years (dollar-cost averaging).

The problem I foresee with the match is the lack of financial literacy. Someone starting service out of high school or college without a financial background is probably not going to know what to do with that money. I expect there will be a lot of millennials that would keep it all in bonds, or worse, in cash, because they saw the baby boomers get burned by the market just before they were supposed to retire. But they shouldn't have been so exposed to stocks if they were that close to retirement in the first place, they should've been maybe half stocks, half bonds. If they could've drawn from their bond position for a few years, they would've seen their stocks bounce back and surpass their previous high, but instead a lot of them panicked, sold at the bottom and locked in their losses, and now they're putting off retirement and working again. It was a huge mess that could've been avoided if someone taught them (or if they picked up a single book about) the basics of asset allocation.

And if people don't contribute enough to get the full match, that's on them. That's free money they're leaving on the table. If they're using the money instead to pay down credit cards or student loan debt, that's understandable and definitely the right call, but if they're spending it on lattes instead...

 

[Hopeful Hoya]

...millennials...

It's funny, that's almost exactly how I feel. Even though I have a financial background and will be working in finance this summer, I was reading through this thread and I don't understand most of the financial planning talk going on here. As someone who will be graduating in a year and entering the military (hopefully) or the labor force, I feel wholly unprepared to begin planning for my future.

 

[nittany03]

It's funny, that's almost exactly how I feel. Even though I have a financial background and will be working in finance this summer, I was reading through this thread and I don't understand most of the financial planning talk going on here. As someone who will be graduating in a year and entering the military (hopefully) or the labor force, I feel wholly unprepared to begin planning for my future.

Disclaimer: I'm not a financial planner, just a schmuck who knows how to save.

Set aside 10-20 percent of your take-home pay. Open a Roth IRA. Max it out as soon as you are able; you can put $5000/year in it. Use index funds. I recommend Vanguard; I have a bunch of money there because they're a reputable company and have low fees. They even have Target Retirement Date funds which will start out aggressive and become more conservative as you age. If you enroll in TSP, put the funds in Roth TSP. Don't touch it then. Just let it grow. That's all there is to it when you're an Ensign. Seriously, you can plan all you want, but if you do that, you'll be leaps and bounds ahead of your peers who aren't doing squat. But start EARLY. Like the day you get your first paycheck. Compound interest is the most powerful force in the universe, but it needs time to work its magic.

Asset allocation is relatively simple when you start: mutual funds. Stocks are OK if you want to put the time in and manage them. But don't let one stock dominate your portfolio. I had a ton of a bank stock in '08, and I took a bath. Details don't matter, but we're talking a lot of money lost. Because I didn't diversify and the company unexpectedly tanked. Mutual funds diversify for you. Good news; they follow the market more or less and won't have the bottom drop out. Bad news; you won't get the sometimes-insane rate of return you will by snagging the next Apple or Google. Stocks can earn you the proverbial "fuck you money," but for every company that does that, many don't.

I'm 34 and almost completely still in stocks and mutual funds. Because I'm not retiring for 30 years. What Tycho is talking about is that people in their late 40s, 50s, and 60s should slowly sell their stocks and mutual funds bit by bit and move partially to bonds. That "risk" makes you money when you're young, because you should be dollar-cost averaging and socking away money. To hell with the balance sheet; you shouldn't care. When you're older, you need guaranteed money to plan your retirement. Bonds give you that, but their long-term rate of return is peanuts compared to a good mutual fund. So the bonds won't appreciate as much, but will be there, guaranteed (well, mostly). When you're young, this is dumb because you need to build up as much money as you can. When you're old, it's smart. You don't care about long term returns, you care about guaranteed money to live on.

Older people who got wiped out in '08 didn't understand this, and were long stocks and mutual funds, which then took a dive. Great for guys like me who were young enough to recover (though I took it in the balls when Wachovia got bought out). Bad for the people who really needed the nest egg right then.

 

[Spekkio]

Giving everyone a studio, per your suggestion, or giving everyone (or everyone of the same rank) a 3 bedroom SFH, treats them all the same. Giving the ones who marry an extra $100 per month clearly does not.

Giving someone $600 more a month in tax-free money to pay rent in the same geolocation because they are different ranks also doesn't treat everyone the same. We are talking about an allowance for housing; the cost of housing is a function of location and family size, not rank or TIS. Rank is merely used as a way to make assumptions about a servicemember's age and family size in BAH calculations. If you want to take out family size because that's a 'choice,' then the logical conclusion is to pay everyone the cost of half of a 2 BR or full cost of a 1BR and call it a day.

So no, I'm not quibbling over where to set the bar. Every O-4 in San Diego gets $2900. Every O-1 in Jacksonville gets $2000. (Numbers totally made up.) EOD.

So you're saying we should set the bar at the 'with dependants' rate? Every newly minted O-1/O-2 who is single should get an amount that equals the median rent for a 3BR home? Every single E-4/E-5 should get the amount for a 2 BR apartment? You and I know that won't last, particularly when they start subletting rooms to make 1/2 - 2/3 of that money back tax-free.

The problem I foresee with the match is the lack of financial literacy.

It's not just financial literacy, but also the payscale for the junior enlisted servicemembers who far outnumber officers. They tend not to have a lot leftover to invest, and a 5% match on E-3 pay is peanuts.

Also, another key thing that people overlook: learn how to properly set your paycheck tax deductions, and check your state for whether you are exempt as a military servicemember. If you're getting more than about $1,000 back in a tax return, you're not claiming enough W-2 exemptions. The IRS has a calculator for this and exemptions are easily altered on mypay. An extra $200/mo can go a long way as an O-1.

 

[Tycho_Brohe]

It's funny, that's almost exactly how I feel. Even though I have a financial background and will be working in finance this summer, I was reading through this thread and I don't understand most of the financial planning talk going on here. As someone who will be graduating in a year and entering the military (hopefully) or the labor force, I feel wholly unprepared to begin planning for my future.

Set aside 10-20 percent of your take-home pay. Open a Roth IRA. Max it out as soon as you are able; you can put $5000/year in it. Use index funds. I recommend Vanguard; I have a bunch of money there because they're a reputable company and have low fees. They even have Target Retirement Date funds which will start out aggressive and become more conservative as you age.

This is good gouge, I'd just make three addendums addenda. First, don't contribute if you have debt with high interest rates. If your TSP/IRA is earning 7% but you're paying 20% on your credit card debt, you're losing money. Pay down credit cards and student loan debt. Second, build an emergency cash stash, something you can raid if, for example, you get in a fender-bender and don't want to go through insurance. The general rule of thumb is six months of expenses, and it takes a while to build (I still don't have mine where I want it). Third, if there is a match available when you're working, contribute enough to the 401(k)/TSP to get the full match before contributing to the IRA. Like I said, it's free money.
If you're the book-reading type, I recommend the Motley Fool Investment Guide and Stocks for the Long Run. If you like reading stuff online, Fool.com and finance.yahoo.com/personal-finance have some pretty good articles (just obviously don't click on anything that says "sponsored").

Oh, and don't apply for a lot of credit cards. The signup bonuses are tempting, but (A) it's an easy way to fall into debt, and (B) every time you apply for a credit card, your credit score takes a hit, and it takes another hit when you're approved because your average account age goes down. Get a few cards (maybe one everyday cashback card, one with revolving rewards, and one with a very low rate in case of emergency). Get them all at once, early on, and pay them off IN FULL every month. If you can't pay for it within thirty days, you can't afford it. My mother taught me to keep track of debit card charges using that register thing in your checkbook. I recommend using that to track your credit card purchases. Applying for them all at once will hurt your credit score starting out, but a few years down the road, your average account age will go up, you will (hopefully) have a history of on-time payments, and no negative marks like bankruptcy or collections, so your credit will be in much better shape when it comes time to really use it: buying a house.

That's all I can think of off the top of my head, but feel free to PM me if you have questions.

It's not just financial literacy, but also the payscale for the junior enlisted servicemembers who far outnumber officers. They tend not to have a lot leftover to invest, and a 5% match on E-3 pay is peanuts.

This. I actually owed $80 on my return this year, which worked out really well. People get excited about a $1000 tax refund, but what they don't realize is that they loaned that money interest-free to the government over the past year.

 

[Hotdogs]

Giving someone $600 more a month in tax-free money to pay rent in the same geolocation because they are different ranks also doesn't treat everyone the same. We are talking about an allowance for housing; the cost of housing is a function of location and family size, not rank or TIS. If you want to take out family size because that's a 'choice,' then the logical conclusion is to pay everyone the cost of half of a 2 BR or full cost of a 1BR and call it a day.

So you're saying we should set the bar at the 'with dependants' rate? Every newly minted O-1/O-2 who is single should get an amount that equals the median rent for a 3BR home? Every single E-4/E-5 should get the amount for a 2 BR apartment? You and I know that won't last, particularly when they start subletting rooms to make 1/2 - 2/3 of that money back tax-free.

It's not just financial literacy, but also the payscale for the junior enlisted servicemembers who far outnumber officers. They tend not to have a lot leftover to invest, and a 5% match on E-3 pay is peanuts.

1) Field grade, company grade, senior enlisted, and junior enlisted are not the same. Therefore BAH should be different as a part of their compensation package.

2) What a particular service member choses to do with his or her home (renting or owning) is none of the military's business until it becomes an issue with regards to readiness and ability for a member to deploy or effectively do his job. We're complaining about service members not being financial literate but start complaining with they make smart financial decisions. If you reduce compensation via BAH - it is going to affect recruiting and retention. $40-45k a year for an 0-1 right out of college is about par with the median salary of college graduate. a $6-8k pay drop is significant when a comparative company will pay (depending on degree) $12-17k above that. You would making recruiting a large number of STEM and Business majors difficult.

3) I would argue that junior enlisted would have enough leftover to invest if they stopped dumping money into things they probably don't need. Cars, large expensive trucks, motorcycles, guns, big TVs, expensive weekend outings, blowing deployment money, and insert a myriad of numerous things they probably don't need (I see it all over base regardless of service). Is it a lot? No, but they're still well ahead for the comparative peers in the civilian workforce who are not college graduates.

 

[robav8r]

Disclaimer: I'm not a financial planner, just a schmuck who knows how to save.

Set aside 10-20 percent of your take-home pay. Open a Roth IRA. Max it out as soon as you are able; you can put $5000/year in it. Use index funds. I recommend Vanguard; I have a bunch of money there because they're a reputable company and have low fees. They even have Target Retirement Date funds which will start out aggressive and become more conservative as you age. If you enroll in TSP, put the funds in Roth TSP. Don't touch it then. Just let it grow. That's all there is to it when you're an Ensign. Seriously, you can plan all you want, but if you do that, you'll be leaps and bounds ahead of your peers who aren't doing squat. But start EARLY. Like the day you get your first paycheck. Compound interest is the most powerful force in the universe, but it needs time to work its magic.

Asset allocation is relatively simple when you start: mutual funds. Stocks are OK if you want to put the time in and manage them. But don't let one stock dominate your portfolio. I had a ton of a bank stock in '08, and I took a bath. Details don't matter, but we're talking a lot of money lost. Because I didn't diversify and the company unexpectedly tanked. Mutual funds diversify for you. Good news; they follow the market more or less and won't have the bottom drop out. Bad news; you won't get the sometimes-insane rate of return you will by snagging the next Apple or Google. Stocks can earn you the proverbial "fuck you money," but for every company that does that, many don't.

I'm 34 and almost completely still in stocks and mutual funds. Because I'm not retiring for 30 years. What Tycho is talking about is that people in their late 40s, 50s, and 60s should slowly sell their stocks and mutual funds bit by bit and move partially to bonds. That "risk" makes you money when you're young, because you should be dollar-cost averaging and socking away money. To hell with the balance sheet; you shouldn't care. When you're older, you need guaranteed money to plan your retirement. Bonds give you that, but their long-term rate of return is peanuts compared to a good mutual fund. So the bonds won't appreciate as much, but will be there, guaranteed (well, mostly). When you're young, this is dumb because you need to build up as much money as you can. When you're old, it's smart. You don't care about long term returns, you care about guaranteed money to live on.

Older people who got wiped out in '08 didn't understand this, and were long stocks and mutual funds, which then took a dive. Great for guys like me who were young enough to recover (though I took it in the balls when Wachovia got bought out). Bad for the people who really needed the nest egg right then.

N03 - great post. But if this "change" in our retirement benefit comes to fruition (which many have resolved it will), this is a HUGE punch in the gut to something that has been probably the most important bedrock benefit members of the armed forces receive. The reason the 20 year retirement plan has been so valuable to so many is because folks could actually focus on their military careers, you know, the warfighting stuff, without having to become a finance expert. If you are in uniform now, you should fight kicking & screaming to NOT change the current retirement plan. Yeah, I know, it's financially unsustainable to continue down the current path. But this will have devastating effects on the military. And, as TB said, a few will be able to capatilize on the new system (if it is approved), but many will piss away the money either intentially or unintentially and will be left with something that is far less than what our current system provides. Rationalize it all you want through spreadsheets and budget numbers - this will hurt our military.