New in 2017: Huge changes ahead for military retirement

[nhboy]

" The year ahead will prompt many of today’s 1.3 million active-duty service members to make a big decision about their retirement benefits: whether to preserve their place in the traditional military pension system or opt into a new "blended" benefits package.

Troops can start doing their research this year, but those who are eligible to make a choice have a full year before they can opt in to the new plan. That window will last from Jan. 1, 2018, through Dec. 31, 2018. Everyone who joins the military on or after Jan. 1, 2018, will be automatically enrolled in the new plan.

In the months to come, the Defense Department will roll out an expansive education program to ensure all troops understand the difference between the two benefits and are prepared to make such a critical personal financial decision. There will be classes, online educational tools and a calculator that will enable military personnel and their families to compare the two options based on their current career status and plans for the future.

The law contains a grandfather clause giving all troops entering the service prior to 2018 the option to keep the legacy retirement benefit, which offers a monthly pension check equal to 50 percent of basic pay after 20 years of service. "

http://www.militarytimes.com/articles/military-retirement-pension-thrift-savings-plan?utm_content=buffer74376&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

 

[b23hqb]

They will have a choice to make. TSP, as long as maxing out what they gov matches and choosing the right program, could really put them in a more advantageous position come 59 1/2 years old. 40% of base pay at 38 or 39 years old is not too shabby with 20 more years of reasonable work ahead.

 

[Rommey]

They will have a choice to make. TSP, as long as maxing out what they gov matches and choosing the right program, could really put them in a more advantageous position come 59 1/2 years old. 40% of base pay at 38 or 39 years old is not too shabby with 20 more years of reasonable work ahead.

The problem is the same as all the other programs that required the lower enlisted people to voluntarily contribute to something (e.g., VEAP). They mostly did not contribute as they 1. didn't have a lot of discretionary spare money each payday, 2. couldn't see the benefit (asking an 18-year-old to think about what his 60-year-old person isn't usually high on the consideration list...), 3. they may not be doing more than their initial enlistment, and 4. don't understand the benefit (and likely won't have knowledgable enough advisors). The people who probably will start looking at this will be those "career" personnel, so they likely will have lost 6-8 years of no contributions before they realize they should contribute.

 

[b23hqb]

The problem is the same as all the other programs that required the lower enlisted people to voluntarily contribute to something (e.g., VEAP). They mostly did not contribute as they 1. didn't have a lot of discretionary spare money each payday, 2. couldn't see the benefit (asking an 18-year-old to think about what his 60-year-old person isn't usually high on the consideration list...), 3. they may not be doing more than their initial enlistment, and 4. don't understand the benefit (and likely won't have knowledgable enough advisors). The people who probably will start looking at this will be those "career" personnel, so they likely will have lost 6-8 years of no contributions before they realize they should contribute.

They will be educated on this one. It is the way all pensions are heading today (Think FERS for all govt agencies since 1985). Besides, an E-1 base is 1600 per month (my base in 1972 was 280 per month, and I was putting away 50 per along with a savings bond, as many of my buds were as well)) - only the max 5% contribution of $80 deducted would equal a monthly contribution to TSP of $160.00. I think most of them will be able to see and understand that. Most of those dudes should live and eat for free on base, more than likely single, and if they can't see their own future for that measly chunk of change, pre tax (another item that will be explained fully to them), then ya just can't fix ignorance. It will be their choice, and they will only have one other choice. That will be explained as well.

I have some faith in the younger generation.

Even if in for only four years, with normal promotion to e-4 sometime in there, that chunk of about $8500 or so bucks, not counting gains in investments, in their name, will convince enough youngsters the advantages of that.

We'll see. We have no choice.

We'll see. The reserves do a real good job of teaching this stuff.

 

[Clem72]

Every time they rejigger the retirement system for military or civil service it benefits the government (less payout) at the expense of the retiree. Sure its technically possible TSP may result in greater payouts in retirement, IF the market does well and you are invested in the right funds. Of course that also requires you to fully fund it (just funding enough for matching will result in a pittance at retirement), which means you effectively receive a $17k/yr pay cut.

 

[b23hqb]

Every time they rejigger the retirement system for military or civil service it benefits the government (less payout) at the expense of the retiree. Sure its technically possible TSP may result in greater payouts in retirement, IF the market does well and you are invested in the right funds. Of course that also requires you to fully fund it (just funding enough for matching will result in a pittance at retirement), which means you effectively receive a $17k/yr pay cut.

Just curious - where did you get that 17k figure for a pay cut/loss?

 

[Rommey]

They will be educated on this one. It is the way all pensions are heading today (Think FERS for all govt agencies since 1985). Besides, an E-1 base is 1600 per month (my base in 1972 was 280 per month, and I was putting away 50 per along with a savings bond, as many of my buds were as well)) - only the max 5% contribution of $80 deducted would equal a monthly contribution to TSP of $160.00. I think most of them will be able to see and understand that. Most of those dudes should live and eat for free on base, more than likely single, and if they can't see their own future for that measly chunk of change, pre tax (another item that will be explained fully to them), then ya just can't fix ignorance. It will be their choice, and they will only have one other choice. That will be explained as well.

I have some faith in the younger generation.

Even if in for only four years, with normal promotion to e-4 sometime in there, that chunk of about $8500 or so bucks, not counting gains in investments, in their name, will convince enough youngsters the advantages of that.

We'll see. We have no choice.

We'll see. The reserves do a real good job of teaching this stuff.

I remember how they tried to explain the various things throughout my military career. Let's just say they weren't always the most knowledgeable folks that had to explain things. Second, we were all there at the low ranks and I remember trying to save a little as a single airman living on base with a meal card (meaning no BAS/BAH/VHA), but once I got married, those BAS/BAH/VHA payments didn't come close to covering living expenses, so discretionary saving was one of the first things eliminated. I honestly can't remember ever thinking about what was going to happen 20 years down the road, so trying to convince me to put away for something that I wasn't going to be able to see for almost 40 years wasn't even a remote consideration. It really wasn't until I was in for about 6-7 years and had decided that I was probably going to stay for the long haul, did I start looking at what options I might have, post-military.

Today I max out my 401K and my wife maxes out her 403B but we have only had these accounts since I retired from the military. Most of my "saving" during the last 8 years of my military time was aggressively paying off the mortgage, so while I wasn't putting anything in a typical retirement account, I don't have a mortgage so it makes it infinitely more easy to max out savings.

As for the younger generation...I have tried to get my daughter to put as much into her 403B as possible (and at first she couldn't put much because their living expenses left little room for much else). She wasn't even fully taking advantage of the match (she gets 2% no matter what she contributes, and could get up to 5% if she contributes 5%) even though she said she understood that she could. I have finally convinced her that every raise she gets that she should increase her contribution but its not something that comes intuitively to her.

I hope your optimism in the younger generation is correct.

 

[Clem72]

Just curious - where did you get that 17k figure for a pay cut/loss?

17k Is the maximum you can contribute to a tax deferred retirement account (such as the TSP or a 401k). So if you now need to pay $17k to receive the same retirement benefits that were previously included in your employment package, you have effectively been garnished by the same amount. Of course you are free to invest less (and surely many will), but then you will have a worse retirement.

Under the old system is was what, 50% of your high 36 month average plus 2.5% for every year over twenty. So an E5 retiring with 20 years will take home around $35k/yr. (rough estimate, I don't know exactly what people get paid anymore).

Under the new system, a 1.6% annuity (which is the figure the gov is currently using) would require you to have $2.19M in your retirement account. FAT chance that will happen in twenty years, even if you do put in 17k every year and get excellent market returns.

 

[b23hqb]

17k Is the maximum you can contribute to a tax deferred retirement account (such as the TSP or a 401k). So if you now need to pay $17k to receive the same retirement benefits that were previously included in your employment package, you have effectively been garnished by the same amount. Of course you are free to invest less (and surely many will), but then you will have a worse retirement.

Under the old system is was what, 50% of your high 36 month average plus 2.5% for every year over twenty. So an E5 retiring with 20 years will take home around $35k/yr. (rough estimate, I don't know exactly what people get paid anymore).

Under the new system, a 1.6% annuity (which is the figure the gov is currently using) would require you to have $2.19M in your retirement account. FAT chance that will happen in twenty years, even if you do put in 17k every year and get excellent market returns.

How do you figure that? If an e-5 (base pay of 3233 per month in 2017) retired today at 40% his retirement would be 1293 per month. An e-5 at 50% is 1616 per month. The yearly difference comes to $3876, or 323 per month. Contributing either the minimum to maximum of TSP allowed doesn't compute into any kind of 17k per year loss. It ain't going to take a long time to contribute to a matching tsp that will return 323 per month upon eligibility at 59 1/2. Those years between 39 and 59 will require some kind of employment to live, and continuing to invest in their tsp/401k will continue to grow. I don't see any loss at all, just a difference in lifestyle to live within one's means.

The govt is not figuring on any members tsp to be their primary retirement. It will be like SSA - a supplement to your retirement/pensions/savings. It is an option that over 20 years will probably be a better income earner than the 10% difference between the 40 vs. 50% retirement. Your 17k theory is not about making up for the 323 per month, or 10% difference. You think the entire contribution needs to be made up on a yearly basis. Bogus.

Retirement income is the responsibility of the individual - not any govt agency or business. That responsibility requires laying out money for investment. TSP is simply an investment vehicle.

I don't buy your theory at all, and I am a retired CSRS annuitant, with my tsp (voluntary when it opened up to csrs employees), in which I contributed the max avail until retirement. I have not tapped it even though I am 62, and will not until 69 if I can. The same options will be avail to the military now - it is a choice they have to make.

You are adamantly against it, no doubt. You're acting like that money just disappears, to be lost forever. It's still there, and there to be used at one's discretion. Saving for something is a sacrifice from short term satisfaction (spending it now) to long term benefits.

It's a change from the old style conventional way of doing things, and it is what it is. If it doesn't work out for some people, so be it. It's very difficult to live on just a military retirement alone anyway, so this is just another avenue for future income.

 

[Clem72]

You are adamantly against it, no doubt. You're acting like that money just disappears, to be lost forever. It's still there, and there to be used at one's discretion. Saving for something is a sacrifice from short term satisfaction (spending it now) to long term benefits.

You're an idiot if you equate my argument to disappearing money. If they are now requiring you to self fund what they were previously funding then that equates to a loss of whatever you have to put in to cover the difference. It doesn't matter if TSP could potentially pay out more (could also potentially pay out less). It's the same as if they told you "we are no longer going to give you a retirement, but will match up to 5% of your pay in lottery tickets. Good luck."

 

[b23hqb]

The only difference, by anyone's choice in this new setup, is if they would prefer the 40 vs 50% upon retirement. There is no loss anywhere, just a deferred payment in the future. If you call setting aside x number of dollars for future retirement as a loss, so be it. You don't seem to get that that choice is theirs to make, and IMHO, the smart move is to be responsible for your own retirement and not depend on any agency or business be there to give you a retirement. The volunteer military peeps will either go with it, or recruitment numbers will not be there.

Your analysis of any TSP or 401k personal retirement account would have every fiduciary financial planner in stitches at the ignorance of it. The govt at any time can renege on their promises for any retirement system just as they can renege on political promises. It has happened elsewhere lately, can could very well happen here.

Any responsible person will look to building their own nest egg as well as whatever kind of retirement pension they may receive. How does SS retirement sound to you? Do you think that is solvent and a good idea to rely on the govt for your income?