Spekkio
He bowls overhand.
That calculator assumes BRS or straight military retirement. If you take high 3 AND max TSP then the numbers aren't even close.
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Retirement: BRS/High 3
- Thread starter Wickle
- Start date
Spekkio
He bowls overhand.
The analysis is flawed in that you're comparing apples to oranges. There is nothing magical about BRS that enables a person to contribute to TSP. There's nothing magical about BRS that allows a servicemember to transfer his TSP account post-service to another 401k. The only thing that BRS changes is that it reduces your percentage of retirement pay (and amount your spouse will get if you pass away or are killed on active duty as a result) per year of service and in turn provides a match for money invested into a retirement account, along with a continuation bonus because the military won't match your first few years of service anyway.
If you're going to compare apples to apples, you need to assume that the person invests the same 5% into TSP regardless of whether he is using high 3 vs. BRS. And if he's doing high 3, that money should be going into a Roth TSP.
So High 3 is 50% of base pay at O-4/O-5 + 5% invested into Roth TSP * compounded growth - income taxes on pension
BRS is 40% of base pay at O4/O-5 + (5% invested into Traditional TSP + 5% government match ) * compounded growth + continuation pay * compounded growth - income taxes on pension - income taxes on TSP
At that point, you're really just comparing if the 5% match + continuation pay minus taxes post-retirement on traditional TSP will outpace the extra 10% guaranteed in retirement at 20 years, tax break from the Roth TSP, and 2.5% for each year beyond (pro tip: it doesn't, and that's the whole point of the change).
Additionally, a post-retirement O-4/O-5 is going to be making in the realm of $40-50k in retirement in present year dollars. For a married person with no (or grown) children, that puts their federal marginal tax rate much closer to 12% than 20% (16% if single). This doesn't say anything about state taxes, which is something you may not be protected from after you retire from the service. And in some states, like NY, your federal pension is not taxed for state income tax, but your income from a 401k retirement account is.
Now there's more to this equation than just money, like whether you want to take the 5% match now because you may leave before 20 years regardless of whether or not you want to, even though it will be less money in retirement. Or whether you just want to say f-it and spend the extra 5% pay on hookers and blow knowing that you have more in retirement from a military pension anyway. Or whether you'd prefer to diversify that investment into something other than stocks that you can't touch until age 60.
Speaking of TSP, pay attention to what funds you stick your money in. What could go wrong.....?
I don't think you checked my numbers well enough. This is what I compared. I didn't account for someone already contributing 5%, so when I showed the benefits, I subtracted the amount the person contributed and only included government benefits (whether in the form of pension, or matching TSP). The numbers are much closer than you might have thought initially.
Yup.
BRS calculator breaks out TSP value into both the government contribution and your contribution values so that you can compare.
Simply remove the TSP line that covers your contribution's value, and you've got an apples to apples comparison.
If you're not at least an O-4 Select, I see little reason not to opt in, and I can still see why some O-4's safe to make O-5 might choose to opt in.
It's not all about the money, and the relative value of the two plans can skew one way or another depending on where you choose to live, how long you live, market performance, Congress, etc.
Nothing in your career, much less life, is guaranteed.
Even if you are fairly close to the opt in mark, having the option to jump ship if a great opportunity comes up becomes more viable.
It also adds some flexibility to planning out shore duty assignments...as a job that is a little off the career track but also offers great transition networking options at 8 YCS is a lot more useful than it used to be.
Man, always the "ray of sunshine" you are . . . . . .
Spekkio
He bowls overhand.
Nah, I checked your numbers and have done this analysis myself extensively. If you assume an 8% average return early but then taper off to 5% later on in life on a 401k (8% is unreasonable, no 50 year old holds 100% stocks in a retirement account), the BRS costs the servicemember about $200k in post-retirement money in today's dollars (or about $5,000 a year) and it saves the service about $500k per retiree. That's without any tax analysis, but with a ROTH TSP option it would be about $7-8k a year difference.
There are advantages to BRS but more money ain't it.
BT
The biggest cost-saver for this change/analysis - BAH-C and elimination of TRICARE standard as we know it - was never implemented, probably because someone rightfully realized that MTFs couldn't handle 100% of all dependents.
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A 50 year old hanging into mostly stocks isn't unreasonable. He still has at least a decade before withdrawals begin. I've heard CFP's recommend staying into 100% S&P type funds until about 5 years before withdrawals are needed. Separate discussion anyway.
My numbers use a 7% return. There really isn't a terrible difference. I'd love to see what your numbers are and how you arrived at them - I think I was very clear how mine add up.
Just because it's saving the service money doesn't mean it's bad for the member. I 100% recommend that anyone who joined the military in the past 2-3 years opt into BRS. I'm at the 7.5 year mark and I could nearly break even.
Send me your e-mail. I also have a separate calculator from a USAF Captain that has been praised. I'd love to send it to you.
FormerRecruitingGuru
Making Recruiting Great Again
This SERIOUSLY needs to be a STICKY, especially with many Navy and Marine Corps OCS candidates wanting to know more about the new retirement system.
Spekkio
He bowls overhand.
Even at 7%, you're costing a brand-new servicemember about $100k-$150k. I've not read any reputable financial advice to keep 100% of retirement in stocks at 10 years to retirement. The stock market has crashed twice by over 50% in the last 17 years, so I don't know why anyone would think that's a good idea unless you can recover from a 50% hit to your retirement somehow.
The analysis is very sensitive to rate of return, so if you are going to assume a 7-8% return (I would call that extremely optimistic) vice a more realistic 5-6% return then you're not doing a complete analysis. There's also the flaw of averages at play but over 20 years we probably don't have to go there...
I don't know how you're arriving at numbers that suggest a person with 8+ years of service should opt-in purely based on financial considerations when I'm showing a $200k shortfall with 6% average return for a brand-new servicemember, but that's 6+ years of 5% match completely lost. At the end of the day, it's your money, you do what you want. But even if your math is correct (and I'm not confident that it is), the break even is based on a lot of best-case assumptions for how the market is going to react and how the member invests his money.
You say this like it was my idea...
Public Service Announcement: if you are one of those nerds (like me) that maxes out your TSP each year, make sure you calculate your max percentage so you aren't leaving money on the table by reaching your limit too early... nobody likes culminating early 
Max Percent = 18,500/(annual base pay + incentive pay + special pay)
This assumes constant deposits throughout the year. I recommend you throw the numbers on a spread sheet to see all the deposits and ensure that you don't reach the 18,500 personal contribution limit (not government match) before the last paycheck.
This makes it even more interesting for people in a combat zone trying to max out all the financial benefits (SDP, and tax exempt into TSP up to $55k).
Max Percent = 18,500/(annual base pay + incentive pay + special pay)
This assumes constant deposits throughout the year. I recommend you throw the numbers on a spread sheet to see all the deposits and ensure that you don't reach the 18,500 personal contribution limit (not government match) before the last paycheck.
This makes it even more interesting for people in a combat zone trying to max out all the financial benefits (SDP, and tax exempt into TSP up to $55k).
Who is saying that? The information that I received from our base representative is that you can contribute to Roth, but matching will go into regular. I will say that they could have published something on this point on the website to alleviate the confusion.