NDAA FY2016 Changes to Military Retirement

[Maxillarious]

At the close of business Wednesday, while most people were traveling home to see their loved ones, stuck in airports or distracted with Thanksgiving visions of pumpkin pie and turkey dancing in their heads, Obama signed the defense spending bill into law.

As always, tucked deep into the words of the bill were some hidden nuggets- this one came with a lot of sweeping changes, the biggest one being the military retirement system is forever gone as we know it.

Lawmakers as well as the Secretary of Defense swore up and down that they wouldn't touch it, but they broke their promise while nobody was looking.

From now on, all new members of the military will no longer have a 20 year retirement pension.

The DoD will be going to a corporate style system of matched retirement savings.

Officials tried to spin it like this is somehow beneficial, but let's face it: the average value of the pension system was about $4.5 million per person, assuming you lived about 40 years after retiring.

Now, that value is more like $220,000- mind you, 95% of that is YOUR OWN MONEY that you contributed to retirement savings from your paycheck each month and a the rest, about $550 a year is what the government helps contribute.

Basically, the future military has been scammed into paying for their own retirement out of their own pockets. This was about nothing more than the Pentagon cutting costs. Disgusting.

Honestly, the carrot of a 20 year and then pension for life being wiggled in front of me was a large reason why I stayed in as long as I did and put up with as much bullshit as I did to try to get there.

Think the Navy has trouble now trying to get people staying on for those multiple sea tour billets? What do you think they're going to do when you tell them that now there's nothing waiting for them at the finish line?

http://www.militarytimes.com/story/...e-bill-military-retirement-overhaul/76302160/

 

[Spekkio]

Iirc, the blended plan being implemented was overwhelmingly popular, although I wonder if the survey results would have been different if not taken after a year many people saw 20%+ growth in their TSP/IRA.

Also, the only 'promise' I heard, from a person in no position to keep it mind you, is that any changes wouldn't affect current servicemembers. So far that's still true.

 

[Randy Daytona]

At the close of business Wednesday, while most people were traveling home to see their loved ones, stuck in airports or distracted with Thanksgiving visions of pumpkin pie and turkey dancing in their heads, Obama signed the defense spending bill into law.

As always, tucked deep into the words of the bill were some hidden nuggets- this one came with a lot of sweeping changes, the biggest one being the military retirement system is forever gone as we know it.

Lawmakers as well as the Secretary of Defense swore up and down that they wouldn't touch it, but they broke their promise while nobody was looking.

From now on, all new members of the military will no longer have a 20 year retirement pension.

The DoD will be going to a corporate style system of matched retirement savings.

Officials tried to spin it like this is somehow beneficial, but let's face it: the average value of the pension system was about $4.5 million per person, assuming you lived about 40 years after retiring.

Now, that value is more like $220,000- mind you, 95% of that is YOUR OWN MONEY that you contributed to retirement savings from your paycheck each month and a the rest, about $550 a year is what the government helps contribute.

Basically, the future military has been scammed into paying for their own retirement out of their own pockets. This was about nothing more than the Pentagon cutting costs. Disgusting.

Honestly, the carrot of a 20 year and then pension for life being wiggled in front of me was a large reason why I stayed in as long as I did and put up with as much bullshit as I did to try to get there.

Think the Navy has trouble now trying to get people staying on for those multiple sea tour billets? What do you think they're going to do when you tell them that now there's nothing waiting for them at the finish line?

http://www.militarytimes.com/story/...e-bill-military-retirement-overhaul/76302160/

Re-read the article. The pension does not go away entirely, just a reduction of about 20% if I remember correctly. There is also a new TSP to help everyone. I can't remember if medical benefits were changed. BTW, everybody in now is/can be grandfathered into the old system.

 

[Pags]

Sounds familiar to the FERS system that the rest of the government has been using for some time. The FERS retirement still has a pension component and is only a bad deal if you compare it to a military retirement.

5% matching is nothing to sneeze at. This is huge for those who end up leaving before 20, which is most people. Now Sailors who only serve out an enlistment leave the service with SOMETHING.

 

[Recovering LSO]

Anyone else remember when TSP was first rolled out and we were all told that there would be matching for "critical" specialties; aviation was pitched as one of them....

 

[Ektar]

5% matching is nothing to sneeze at. This is huge for those who end up leaving before 20, which is most people. Now Sailors who only serve out an enlistment leave the service with SOMETHING.

Pags, on this front I totally agree with you. I can't count the number of times I sat on Career Development Boards as a DivO and listened to my sailors plans to complete one enlistment before going back to school or their hometown. Knowing a sailor could leave with a bit of a nest egg is an investment in that sailors future and a small thank you token for serving their country from Uncle Sam.

 

[Spekkio]

Sounds familiar to the FERS system that the rest of the government has been using for some time. The FERS retirement still has a pension component and is only a bad deal if you compare it to a military retirement.

5% matching is nothing to sneeze at. This is huge for those who end up leaving before 20, which is most people. Now Sailors who only serve out an enlistment leave the service with SOMETHING.

1) There is nothing stopping Sailors under the old system from participating in TSP.
2) One thing that the analysis omitted was a comparison with investing in ROTH TSP + 50% retirement vs. the 5% match and 40% retirement. I have a feeling that the tax advantage from contributing as a servicemember to a ROTH plan would be significant.

As a general aside, yes, this is a bad deal for new servicemembers. The survey assumed 6-8% retirement growth in their analysis, yet I've read no financial advice that would tell a 50 year old to leave his retirement fund almost entirely invested in stocks. A more realistic growth estimate is around 4% over the life of the account, which accounts for shifting funds to more conservative options and dips in the market. Basically, it barely does better than inflation. My prediction is that in 15-20 years we are still going to have a glut of people who can't afford to retire because the $100,000-200,000 or so they saved in 2015 dollars over a 40 year career isn't going to grow as much and go as far as they think it will in retirement... especially now that the 4% rule is now a 3% rule, so a fund above would get to withdraw a whopping $3-6k a year in 2015 dollars.

I recognize that this blended plan was popular with Sailors, but I bet that the vast majority of them didn't understand the assumptions behind the analysis. They were shown two numbers and chose the bigger one. So it looks like servicemembers got what they wanted, they just didn't realize they were asking for a worse deal.

 

[Spekkio]

Oh, and here's another bonus: In some states (like my home state of NY) a government pension is not subject to state tax, but your traditional IRA/TSP/401K is. I wonder how many survey respondants knew that.

 

[Randy Daytona]

1) My prediction is that in 15-20 years we are still going to have a glut of people who can't afford to retire because the $100,000-200,000 or so they saved in 2015 dollars over a 40 year career isn't going to grow as much and go as far as they think it will in retirement........ They were shown two numbers and chose the bigger one. So it looks like servicemembers got what they wanted, they just didn't realize they were asking for a worse deal.

The civilian world is already seeing this now - so many of the boomers did not save enough and as a society we are going to have to deal with it.

The second part is DoD really wants to reduce personnel cost (like any other organization). In FY 2013, $143 Billion was paid for military pensions and medical benefits according to the WSJ - more than was spent on weapons. http://www.wsj.com/articles/SB10001424052702304747404579447021723232080 As life expectancy increases (the life expectancy in 1949 was about 68, now it is approaching 79), the load on the stressed taxpayers increases - soon, if not now already, people who have very little saved for retirement will ask (and vote) on why some government employees work 20 years and then receive a pension for 40 years. Don't shoot the messenger.....

 

[Spekkio]

The civilian world is already seeing this now - so many of the boomers did not save enough and as a society we are going to have to deal with it.

It's not a matter of boomer's being bad with money. It's a matter that 5% x 50,000 x 40 = 100,000. How much do you think the average person makes over the course of their career? And that's even an over-estimate since investing early, when people are making like $20-30k and paying off student loans, is much much more important than investing later... but 5% of 25k is a paltry $1,250 a year.

 

[Flash]

Anyone else remember when TSP was first rolled out and we were all told that there would be matching for "critical" specialties; aviation was pitched as one of them....

I honestly never heard this, I always understood it would not be matched for the military.

 

[Pags]

It's not a matter of boomer's being bad with money. It's a matter that 5% x 50,000 x 40 = 100,000. How much do you think the average person makes over the course of their career? And that's even an over-estimate since investing early, when people are making like $20-30k and paying off student loans, is much much more important than investing later... but 5% of 25k is a paltry $1,250 a year.

yeah, your math doesn't work out because those monthly investments will make interest. And I know you know this, but I think for accuracy it's important to show that if you take 5% of 50k over 40yrs and compound it at 7% then you'll end up with ~$428k. $430k isn't great, but it's a larger number than 100k.

As another example, if a Sailor serves for 4yrs and invests 5% of his pay and gets the matching for 11% total in TSP then, figuring a pay of 25k/yr, ABH3 Schmuckatelli would leave after his initial pump with 11k in the bank. Compound this at 7% over 40yrs and Mr. Schmuckatelli will have ~$165k. Which is $165k more than Sailors are getting after an initial investment right now.

 

[Recovering LSO]

They were shown two numbers and chose the bigger one. So it looks like servicemembers got what they wanted, they just didn't realize they were asking for a worse deal.

This also happens when agenda driven "pollsters" selectively choose the individuals they want to respond to their survey questions. Ask a 20 year old Airman and a 30 year old LT what they want out of their retirement plan and you're going to two wildly different responses. Only one of those responses likely fit with the going in game-plan.

 

[subreservist]

Ok...the thread title is a little misleading. My understanding is the pension under the new plan is not "gone" and that this is a blended plan, meaning it has both pension (traditional) and investing/matching elements. The 20 year pension is still there, but reduced from 50% to 40%, which is still received from the point of leaving service, but the money in the investment portion can't be acquired without penalty until 59.5yo.

At least that's how I read it...

 

[Flash]

This also happens when agenda driven "pollsters" selectively choose the individuals they want to respond to their survey questions. Ask a 20 year old Airman and a 30 year old LT what they want out of their retirement plan and you're going to two wildly different responses. Only one of those responses likely fit with the going in game-plan.

But which one is a lot more numerous in the military?