New Military Blended Retirement System starting in 2018

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servusdei
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New Military Blended Retirement System starting in 2018

Post by servusdei » Mon Jun 27, 2016 1:23 pm

The military is pushing out new blended retirement system to cut pension costs starting in Jan 2018. See this for more info: http://www.militaryonesource.mil/footer ... _id=290760. Those who joined between 2006 and 2017 may choose to opt in. A choice to opt in is irreversible. Has anyone seen any calculators developed for this? I created one here https://docs.google.com/spreadsheets/d/ ... 1153203771 and wonders if anyone might be kind enough to look it over to see if there be any errors and anything I missed. It seems that if you know for sure you will not stay for full 20 years to qualify for the pension, opting in is a no-brainer. On the other hand, if you know for sure you will stay for 20 years, you will almost certainly fare better staying with the current system. Most folks, myself included, don't know for sure. It seems the probability of making it to 20 years is the big unknown and depends on many factors, such as likelihood of promotion to the next rank for me. I would appreciate any thoughts/comments/suggestions. Many thanks!

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neutics
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Re: New Military Blended Retirement System starting in 2018

Post by neutics » Mon Jun 27, 2016 2:01 pm

Nice work! I have not seen any sort of calculator for this yet, though they are supposedly still tweaking the final version (in our favor I'm sure).

I honestly didn't parse through your formulas very closely but in theory I like your thinking. Trying to calculate the after-tax present value is nice, but assumes that all pension or incentive-related income falls completely into that marginal tax bracket. As you know we generally enjoy lower than normal MTB's due to how BAH is treated. Not a nitpick as I realize this spreadsheet is already complicated enough.

The part that's hard to put a number on, and my problem with the new retirement system as a whole, is the 'lump-sum' option which they are betting many will take instead of the full monthly pension. Unfortunately, many of these will be lower ranking and more likely to not spend/invest it wisely. Where I fault the DOD is in using an artificially high "personal discount rate" according to those they think will be more likely to take the deal without taking the time to crunch the numbers like you did. So, in the end they will get the short end of the stick.

I'm grandfathered and won't even have a choice, but agree that for most folks in your situation it makes sense to try to stick it out to 20 if possible.

servusdei
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Re: New Military Blended Retirement System starting in 2018

Post by servusdei » Tue Jun 28, 2016 5:56 am

neutics wrote:Nice work! I have not seen any sort of calculator for this yet, though they are supposedly still tweaking the final version (in our favor I'm sure).

I honestly didn't parse through your formulas very closely but in theory I like your thinking. Trying to calculate the after-tax present value is nice, but assumes that all pension or incentive-related income falls completely into that marginal tax bracket. As you know we generally enjoy lower than normal MTB's due to how BAH is treated. Not a nitpick as I realize this spreadsheet is already complicated enough.

The part that's hard to put a number on, and my problem with the new retirement system as a whole, is the 'lump-sum' option which they are betting many will take instead of the full monthly pension. Unfortunately, many of these will be lower ranking and more likely to not spend/invest it wisely. Where I fault the DOD is in using an artificially high "personal discount rate" according to those they think will be more likely to take the deal without taking the time to crunch the numbers like you did. So, in the end they will get the short end of the stick.

I'm grandfathered and won't even have a choice, but agree that for most folks in your situation it makes sense to try to stick it out to 20 if possible.
Thanks for commenting! I changed "marginal tax rate" to just "tax rate" and added explanations. The tax rate for continuation pay should be close to the marginal rate because continuation pay is on top of base pay. As for the tax rate for pension pay, it might be less than the marginal rate if the pension is the main or only source of income during retirement.

As for the lump sum option, that would depend heavily on the discount rate, since the formula for a growing perpetuity is PV= A/(r-g). (Technically, the pension is a growing annuity with formula PV= A*((1+r)^n-(1-g)^n)/(r-g), but assuming N is large enough given longer life expectancy today, the simpler formula for growing perpetuity is a close enough approximation.) Assuming inflation rate g is about 3%, if discount rate r is 8% (what I would use), then the pension is worth about 20 times its annual payment (A). But if one is an investing genius and has a discount rate of 13%, then the pension is worth only about 10 times its annual payment. I agree with you the DoD will probably suggest using a high "personal discount rate" like 12% while using a low expected inflation rate like 2% to make the a lump sum option of only 10 times the annual pension amount (or perhaps even less) seem attractive. As for me, I'll use a more reasonable 8% discount rate, or maybe even a 6% discount rate (since market return is not guaranteed and the pension is a reliable source of cash flow), and won't go for the lump sum option unless they offer 25 times the annual pension amount.

warner25
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Re: New Military Blended Retirement System starting in 2018

Post by warner25 » Tue Jun 28, 2016 8:42 am

I think you're over-complicating the matter. DoD is rolling this out to reduce retirement costs, and that cost-cutting must be at the expense of retiring service members. I don't believe there are any realistic assumptions you can input to make the deal look better, and I'm very put off by some DoD officials stating otherwise.

Ok, if you're certain that you'll leave service before 20 years, then it obviously makes sense to take the deal and get something vs. nothing. Short of that, I think it's best to choose the legacy system while it still exists. Examine what happens if you guess wrong about your career path: (1) Choose legacy and leave before 20, and you miss out on a few years of relatively small matching TSP contributions. (2) Choose blended and stay for 20+, and you miss out on many thousands of dollars more in retirement pay for the rest of your life.

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neutics
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Re: New Military Blended Retirement System starting in 2018

Post by neutics » Tue Jun 28, 2016 8:54 am

warner25 wrote:I think you're over-complicating the matter. DoD is rolling this out to reduce retirement costs, and that cost-cutting must be at the expense of retiring service members. I don't believe there are any realistic assumptions you can input to make the deal look better, and I'm very put off by some DoD officials stating otherwise.

Ok, if you're certain that you'll leave service before 20 years, then it obviously makes sense to take the deal and get something vs. nothing. Short of that, I think it's best to choose the legacy system while it still exists. Examine what happens if you guess wrong about your career path: (1) Choose legacy and leave before 20, and you miss out on a few years of relatively small matching TSP contributions. (2) Choose blended and stay for 20+, and you miss out on many thousands of dollars more in retirement pay for the rest of your life.
Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years. I'm always amazed at how little fellow military members have in their TSP, even after 10+ years as an officer, so in my mind the incentive to match will help encourage a higher savings rate and not to rely on their pension.

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Re: New Military Blended Retirement System starting in 2018

Post by Wayson » Tue Jun 28, 2016 11:44 am

neutics wrote:
warner25 wrote:Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years. I'm always amazed at how little fellow military members have in their TSP, even after 10+ years as an officer, so in my mind the incentive to match will help encourage a higher savings rate and not to rely on their pension.
I'm not so sure about the 89% figure. Maybe across all branches, but when you break it down by service and paygrade (E vs O), I think you'll find that a higher percentage of officers end up doing 20. I've seen a figure (and I googled for it and can't find it again) that claimed that 30% of all Air Force officers do 20+ years; I remember that this was the highest number, and I think the Marines had the lowest.

I do absolutely agree with you on people's seeming unwillingness to contribute anything to TSP. I just don't understand it; I hear so many fellow officers say "oh I'll start saving after [next promotion]" (as if getting promoted was a certainty) or "I'll be able to save once I hit 20 and get a job as a contractor/GS". Like we haven't had multiple rounds of the DoD Hunger Games in the last few years complete with a lot of budget and position cuts/consolidations.

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neutics
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Re: New Military Blended Retirement System starting in 2018

Post by neutics » Tue Jun 28, 2016 12:08 pm

Wayson wrote:
I'm not so sure about the 89% figure. Maybe across all branches, but when you break it down by service and paygrade (E vs O), I think you'll find that a higher percentage of officers end up doing 20. I've seen a figure (and I googled for it and can't find it again) that claimed that 30% of all Air Force officers do 20+ years; I remember that this was the highest number, and I think the Marines had the lowest.
Probably because the Air Force is the country club of the military and the Marines have it perhaps the worst (followed closely by the Army?) :) I've seen both sides as my wife was a Navy Medical Officer, stationed at Parris Island and MCAS Beaufort, and grew up an Air Force brat.

Not sure about the 89% either. This article http://warontherocks.com/2015/03/milita ... et-a-deal/ claims 83%, but that only includes active duty. I would argue, at least from an Army perspective, that the 20-year rate is lower for my generation of mid-career officers thanks to the last 10-12 years of almost continuous conflict and deployments. This certainly drove many fine officers away from active duty, either completely out or into the reserve component. That's my story, and I plan to stay until 20 for a Reserve retirement (which is likely not included in these numbers either).

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Re: New Military Blended Retirement System starting in 2018

Post by Ketawa » Tue Jun 28, 2016 1:18 pm

I made some calculations that I posted in this thread: New Military Retirement System.

It's important to note that the value of the pension (an annuity) increases with lower interest rates. At the time of the post, the annuity interest rate was 2.125%. Now it's down to 1.625%. Nobody knows when or if interest rates will return to higher levels.

Quoted here.
Ketawa wrote:It's pretty simple: the new military retirement system is a pretty large cut for personnel who stay in long enough to receive a pension, and a small benefit for personnel who do not.

You can make a crude comparison between the two systems by using the TSP's annuity feature to find how much it would cost in the TSP to buy an annuity to make up the difference in pensions. Here is an example. I'm copying numbers from a spreadsheet I made which was set up to mirror the TSP annuity calculation worksheet. All numbers based on 2015 pay tables.

CG officer, Academy graduate, makes O-4, gets out at 20 years. The annuity is a single life annuity with no additional features and increasing payments.

Code: Select all

High 36 base pay                                             7405
Pension amount, current system                               3702

Code: Select all

Age                                                            41
Monthly annuity factor per $1k account balance               3.22
Preliminary estimate of monthly annuity payment per $100k     322
Current monthly annuity interest rate                       2.125
Interest rate used in monthly annuity factor tables         5.000
Index increase (decrease)                                  -2.875
Interest adjustment factor                                  0.215
Adjustment multiplier                                      -0.618
Increase (decrease) to estimate                              -199
Annuity payment per $100k                                     123

Code: Select all

Market Value of Pension, Current System                   3010887
Market Value of Pension, Future System                    2408710
Difference                                                 602177
With a 2.5% multiplier, the pension is worth about $3.0M. With a 2.0% multiplier, it's worth about $600k less. This ignores other benefits like health insurance.

What would TSP returns (real) have to be to have $600k extra in your TSP due to the matching contributions? I assume the max continuation pay of 13 months is paid at the start of the 12th year to make the comparison as rosy as possible. I don't know the actual mechanics of this; I imagine 13 months will only be offered to personnel in specialties high in demand. It's also not necessarily realistic since it wouldn't be able to go in the TSP due to contribution limits, but it's just an estimate. The calculation is based on making O-2 after 1 year (it's really 18 months), O-3 after 4 years, O-4 after 10 years, and staying O-4 until 20 years. In the CG, O-4s are guaranteed 20 years even if they don't make O-5.

Code: Select all

Investment Return (real)
           16%
                                              Earnings   Earnings    Ending        
Years Service  Pay Scale    Base Pay  Match   on Match  on Balance   Balance
         0      O-1 < 2       2934      352       28                   380
         1      O-2 < 2       3381      406       32         61        879
         2      O-2 > 2       3850     2310      185        141       3515
         3      O-2 > 3       4434     2661      213        562       6951
         4      O-3 > 4       5219     3132      251       1112      11445
         5      O-3 > 4       5219     3132      251       1831      16658
         6      O-3 > 6       5470     3282      263       2665      22868
         7      O-3 > 6       5470     3282      263       3659      30071
         8      O-3 > 8       5744     3446      276       4811      38605
         9      O-3 > 8       5744     3446      276       6177      48504
        10      O-4 > 10      6659     3995      320       7761      60579
        11      O-4 > 10      6659     3995      320       9693      74587
Continuation Pay             90878                                  165465
        12      O-4 > 12      6991     4194      336      26474     196469
        13      O-4 > 12      6991     4194      336      31435     232434
        14      O-4 > 14      7221     4333      347      37189     274303
        15      O-4 > 14      7221     4333      347      43888     322871
        16      O-4 > 16      7354     4412      353      51659     379295
        17      O-4 > 16      7354     4412      353      60687     444747
        18      O-4 > 18      7430     4458      357      71160     520722
        19      O-4 > 18      7430     4458      357      83315     608852
About 16% returns for the TSP returns to match the value of the pension.

We should use a very low discount rate of 0% to 2% real to compare the two systems, representing the expected real return for a guaranteed investment, in this case the G Fund. The pension is a guaranteed benefit if you stay in 20 years.

At 0% real, the TSP has a balance that is $159k higher. At 2% real, it is $187k larger.

In other words, the pension is cut 20% in the new system. In a somewhat apples-to-apples comparison making very generous assumptions like 13 months of continuation pay, the matching contributions in the TSP make up about 4-6% of that difference, for an overall cut of about 14-16% depending on the discount rate.

warner25
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Re: New Military Blended Retirement System starting in 2018

Post by warner25 » Wed Jun 29, 2016 8:11 am

neutics wrote:Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years.
Setting aside the accuracy of the percentage, I believe that most people who leave do so immediately after their first contract, and many of them planned on it from the beginning, so their decision is easy. I agree that many others, however, are left in a tough spot trying to predict the future: both their own decisions, and their probability of surviving up-or-out. For them, it's more about guessing than numerical computation.

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Re: New Military Blended Retirement System starting in 2018

Post by navyasw02 » Wed Jun 29, 2016 10:09 am

Wayson wrote:
neutics wrote:
warner25 wrote:Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years. I'm always amazed at how little fellow military members have in their TSP, even after 10+ years as an officer, so in my mind the incentive to match will help encourage a higher savings rate and not to rely on their pension.
I'm not so sure about the 89% figure. Maybe across all branches, but when you break it down by service and paygrade (E vs O), I think you'll find that a higher percentage of officers end up doing 20. I've seen a figure (and I googled for it and can't find it again) that claimed that 30% of all Air Force officers do 20+ years; I remember that this was the highest number, and I think the Marines had the lowest.

I do absolutely agree with you on people's seeming unwillingness to contribute anything to TSP. I just don't understand it; I hear so many fellow officers say "oh I'll start saving after [next promotion]" (as if getting promoted was a certainty) or "I'll be able to save once I hit 20 and get a job as a contractor/GS". Like we haven't had multiple rounds of the DoD Hunger Games in the last few years complete with a lot of budget and position cuts/consolidations.
Until they implemented the Roth option, there wasnt much reason to get excited about TSP when there was limited fund choices, no matching contribution, and signup red tape (ie. TSP "open seasons").

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Re: New Military Blended Retirement System starting in 2018

Post by neutics » Wed Jun 29, 2016 10:28 am

navyasw02 wrote:
Wayson wrote:
neutics wrote:
warner25 wrote:Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years. I'm always amazed at how little fellow military members have in their TSP, even after 10+ years as an officer, so in my mind the incentive to match will help encourage a higher savings rate and not to rely on their pension.
I'm not so sure about the 89% figure. Maybe across all branches, but when you break it down by service and paygrade (E vs O), I think you'll find that a higher percentage of officers end up doing 20. I've seen a figure (and I googled for it and can't find it again) that claimed that 30% of all Air Force officers do 20+ years; I remember that this was the highest number, and I think the Marines had the lowest.

I do absolutely agree with you on people's seeming unwillingness to contribute anything to TSP. I just don't understand it; I hear so many fellow officers say "oh I'll start saving after [next promotion]" (as if getting promoted was a certainty) or "I'll be able to save once I hit 20 and get a job as a contractor/GS". Like we haven't had multiple rounds of the DoD Hunger Games in the last few years complete with a lot of budget and position cuts/consolidations.
Until they implemented the Roth option, there wasnt much reason to get excited about TSP when there was limited fund choices, no matching contribution, and signup red tape (ie. TSP "open seasons").
The TSP is still cumbersome in terms of signing up, access, changing beneficiaries, and the inability to make in-plan conversions. The fund choices are arguably still limited, with the only addition being Lifecycle funds which are themselves a composite of the five index based options. Yes, the Roth option is awesome but my argument is that military members do not appreciate their lower than average MTB or the incredibly low fees in the TSP. It's an education issue, and part of the broader problem of insufficient savings rates.

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Re: New Military Blended Retirement System starting in 2018

Post by warner25 » Wed Jun 29, 2016 10:36 am

For tax-sheltering $16,500/year (the limit back when I started) and getting a near-globally diversified portfolio for just 2 basis points, I was thrilled with the TSP long before hearing any discussion of a Roth option or a match.

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Re: New Military Blended Retirement System starting in 2018

Post by neutics » Wed Jun 29, 2016 10:46 am

warner25 wrote:For tax-sheltering $16,500/year (the limit back when I started) and getting a near-globally diversified portfolio for just 2 basis points, I was thrilled with the TSP long before hearing any discussion of a Roth option or a match.
Agree completely, I think we're all on the same page! I'm curious how the DOD plans to educate us all on this new system in the next year or so.

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Re: New Military Blended Retirement System starting in 2018

Post by jrtexas » Wed Jun 29, 2016 11:15 am

My son comes home on leave next week fro Overseas. He is enlisted and wants to stay 20+. he has been is 7 years now, but has extended when he went Overseas,so he will be in 12 years. He will be asking me my advice,since I'm retired with a police pension. I say stay in the old system. Agree? And continue supplementing the shit out of his TSP.

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Re: New Military Blended Retirement System starting in 2018

Post by navyasw02 » Wed Jun 29, 2016 11:40 am

neutics wrote:
The TSP is still cumbersome in terms of signing up, access, changing beneficiaries, and the inability to make in-plan conversions. The fund choices are arguably still limited, with the only addition being Lifecycle funds which are themselves a composite of the five index based options. Yes, the Roth option is awesome but my argument is that military members do not appreciate their lower than average MTB or the incredibly low fees in the TSP. It's an education issue, and part of the broader problem of insufficient savings rates.
I dont think military doesn't save or doesn't want to, they just may not have saved in the TSP.

Flash back to pre Roth, I couldn't justify putting money in TSP when I could get an index fund for a marginally higher expense ratio in a taxable account. I didn't want my money locked up until 59 1/2 when I was already in a low tax bracket and the benefits of a traditional TSP weren't enough to make it worthwhile. I know there's some exceptions and there's other ways to take out money, but I had a house that wasnt renting or selling and a spouse that wasnt working thanks to my 7th PCS move and liquidity was more important. I was still saving, but just elsewhere.

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Re: New Military Blended Retirement System starting in 2018

Post by sergeant » Wed Jun 29, 2016 4:46 pm

jrtexas wrote:My son comes home on leave next week fro Overseas. He is enlisted and wants to stay 20+. he has been is 7 years now, but has extended when he went Overseas,so he will be in 12 years. He will be asking me my advice,since I'm retired with a police pension. I say stay in the old system. Agree? And continue supplementing the shit out of his TSP.
Yes. He should stay with the current plan and max out his TSP. Hopefully he is using the ROTH option.
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Re: New Military Blended Retirement System starting in 2018

Post by gator15 » Wed Jun 29, 2016 11:14 pm

Someone earlier inquired why soldiers don't take advantage of tsp. From my experience it's education. Many soldiers aren't familiar with tsp. When you explain it to them many cant get past the fact that you can't withdraw until you are nearly 60 yrs old. I know there are exceptions but getting a 25 year old to invest for a future 30 years out is tough. Also, many soldiers are scared to invest in general. They don't want to deal with the risk.

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Re: New Military Blended Retirement System starting in 2018

Post by qwertyjazz » Wed Jun 29, 2016 11:29 pm

gator15 wrote:Someone earlier inquired why soldiers don't take advantage of tsp. From my experience it's education. Many soldiers aren't familiar with tsp. When you explain it to them many cant get past the fact that you can't withdraw until you are nearly 60 yrs old. I know there are exceptions but getting a 25 year old to invest for a future 30 years out is tough. Also, many soldiers are scared to invest in general. They don't want to deal with the risk.
Interesting - I think you just posted on the where were you at 30 too. I almost feel like these threads show some of our biases when not placed together.
We trust soldiers to analyze complex risk decisions involving life and death. Then we say that they are wrong in prioritizing spending now over 30 years later. The default assumption in economics is usually that people go things for a good reason. I am not sure always if the decision not to invest in retirement is stupid. Now with tuition assistance and GI Bill, I cannot see the logic in not investing in education.
The new retirement system is better for most given a 20 year cliff. Math does not help much. You make a decision for someone else - your future self - without the ability to know where your life while be in the years to the 20. You pick a choice and you go with it. I do not think either should be one of regret. And neither is one that has to define your life.

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Re: New Military Blended Retirement System starting in 2018

Post by warner25 » Thu Jun 30, 2016 4:32 pm

gator15 wrote:Someone earlier inquired why soldiers don't take advantage of tsp... I know there are exceptions but getting a 25 year old to invest for a future 30 years out is tough.
This is it. Just look at the demographics. The military is almost exclusively made up of people in their 20s and 30s. I doubt the savings rate is much higher for the same age group outside of the military. Even most people on this forum say they didn't begin saving for retirement until later in life.

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Re: New Military Blended Retirement System starting in 2018

Post by navyasw02 » Fri Jul 01, 2016 2:34 pm

warner25 wrote:
gator15 wrote:Someone earlier inquired why soldiers don't take advantage of tsp... I know there are exceptions but getting a 25 year old to invest for a future 30 years out is tough.
This is it. Just look at the demographics. The military is almost exclusively made up of people in their 20s and 30s. I doubt the savings rate is much higher for the same age group outside of the military. Even most people on this forum say they didn't begin saving for retirement until later in life.
There's lots of factors, not just age. I had a well educated O5 early 40s in my office who said he was no where close to being able to max his TSP.

The biggest problem with the retirement change I see is that the military does not allow for a spouse to have a career very easily due to frequent moves. One steady salary plus a potential spouse's supplemental income doesn't allow for the same savings rate as a dual income couple in established careers. Spouses tend to lose out on tangible benefits like 401k matching that require vesting and intangible benefits like career advancement that require tenure. If the military really wants to "civilianize" its retirement system, they need to start looking at ways to keep people fixed geographically.

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Re: New Military Blended Retirement System starting in 2018

Post by blaugranamd » Fri Jul 01, 2016 5:48 pm

navyasw02 wrote:
warner25 wrote:
gator15 wrote:Someone earlier inquired why soldiers don't take advantage of tsp... I know there are exceptions but getting a 25 year old to invest for a future 30 years out is tough.
This is it. Just look at the demographics. The military is almost exclusively made up of people in their 20s and 30s. I doubt the savings rate is much higher for the same age group outside of the military. Even most people on this forum say they didn't begin saving for retirement until later in life.
There's lots of factors, not just age. I had a well educated O5 early 40s in my office who said he was no where close to being able to max his TSP.

The biggest problem with the retirement change I see is that the military does not allow for a spouse to have a career very easily due to frequent moves. One steady salary plus a potential spouse's supplemental income doesn't allow for the same savings rate as a dual income couple in established careers. Spouses tend to lose out on tangible benefits like 401k matching that require vesting and intangible benefits like career advancement that require tenure. If the military really wants to "civilianize" its retirement system, they need to start looking at ways to keep people fixed geographically.
Unless you're mil-mil, which has it's own drawbacks...
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Re: New Military Blended Retirement System starting in 2018

Post by MindBogler » Fri Jul 01, 2016 6:13 pm

I just spent too much time in a spreadsheet because I was curious. It is a flat 20% cut to the defined benefit. This will save the military money. The fact that many people will not put 5% of their salary in to get the match will save the military money. However, I don't think this is all bad for those who contribute the 5%. From military retirement to age 59.5 it is a definite cut. If you meet the 5% match and the TSP returns 5% real from 18 - 59.5 and then you withdraw 3% per year, it is near parity at 59.5, what happens as the TSP decays from withdrawals is a more complex question. If the TSP returns 6% real, it is a better deal. If TSP returns less than 5% real, it is a worse deal all around. The main issue here is the lower annuity hole from retirement until 59.5.

This will save the military money because people will fail to contribute 5% to TSP and receive their additional 4% match (5% total). If you are diligent and save, compound interest will make up the difference but I fear that your average, young service member will fail to understand compound interest or want to reduce their already low base salary, particularly early in their career when it would matter the most.

Here is the result of my spreadsheet with a simplified model assuming base pay is constant (x). Everything is stated in terms of x and the TSP returned 5% y/y real.
Image
You can plug in any number of yearly salary for x and then see the numbers yourself. That part of my spreadsheet was too messy to post and would take too much time to reformat for consumption.

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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Sat Jul 02, 2016 9:43 pm

servusdei wrote:The military is pushing out new blended retirement system to cut pension costs starting in Jan 2018. See this for more info: http://www.militaryonesource.mil/footer?content_id=290760. Those who joined between 2006 and 2017 may choose to opt in. A choice to opt in is irreversible. Has anyone seen any calculators developed for this? I created one here https://docs.google.com/spreadsheets/d/1cmVZ3Y4ivgyw3vs8na8RMhiLb5fj4ONV4WeBUOyrzn0/edit#gid=1153203771 and wonders if anyone might be kind enough to look it over to see if there be any errors and anything I missed. It seems that if you know for sure you will not stay for full 20 years to qualify for the pension, opting in is a no-brainer. On the other hand, if you know for sure you will stay for 20 years, you will almost certainly fare better staying with the current system. Most folks, myself included, don't know for sure. It seems the probability of making it to 20 years is the big unknown and depends on many factors, such as likelihood of promotion to the next rank for me. I would appreciate any thoughts/comments/suggestions. Many thanks!
Thanks, Servusdei, I've seen a couple of beta spreadsheets but yours is the best yet! I appreciate your posting it on The-Military-Guide-- I'll get that out to the readers on social media and post about it on another forum.
Wayson wrote:
neutics wrote:
warner25 wrote:Agree, but I also realize that something like 89% of those who raise their right hand don't make it to 20 years. I'm always amazed at how little fellow military members have in their TSP, even after 10+ years as an officer, so in my mind the incentive to match will help encourage a higher savings rate and not to rely on their pension.
I'm not so sure about the 89% figure. Maybe across all branches, but when you break it down by service and paygrade (E vs O), I think you'll find that a higher percentage of officers end up doing 20. I've seen a figure (and I googled for it and can't find it again) that claimed that 30% of all Air Force officers do 20+ years; I remember that this was the highest number, and I think the Marines had the lowest.

I do absolutely agree with you on people's seeming unwillingness to contribute anything to TSP. I just don't understand it; I hear so many fellow officers say "oh I'll start saving after [next promotion]" (as if getting promoted was a certainty) or "I'll be able to save once I hit 20 and get a job as a contractor/GS". Like we haven't had multiple rounds of the DoD Hunger Games in the last few years complete with a lot of budget and position cuts/consolidations.
The first time I saw the 83% figure was in a 2011 presentation leaked from the Defense Business Board on redesigning retirement. It did not distinguish among active-duty, Reserve/Guard, and medical/disability retirements. That figure was widely quoted at the hearings (and the 2015 report) of the Military Compensation and Retirement Modernization Committee.

I haven't seen an actual report, let alone a link to a website, but it might be buried in a non-public document from RAND or CNA or Congressional summaries. I keep checking the annual DoD actuary reports on retirement demographics, but they don't seem to track rolling retirement percentages.

Way back in 2004 I saw a document with retirement percentages by service & rank. Enlisted Marines were the lowest around 8% (because the Corps designs their retention programs that way) and Air Force officers were the highest at about 35% (because we're all envious of the AF quality of life). Army officer/enlisted retention was slightly better than the Marines but not as good as the Navy.

"Luckily" the new blended retirement system will include mandatory TSP enrollment, hopefully defaulting to the L2050 fund instead of the federal civil-service G fund. (I've seen threats that voluntary "disenrollment" from the TSP will be a huge hassle involving training, counseling, and written warnings-- which would be repeated annually.) Of course the new retirement system is only worth the effort if servicemembers contribute at least to the match, and preferably to the maximum. Even then it depends on stock-market returns to outperform (or lag) the current High-Three pension system.

My readers with no TSP account tell me two things:
1. "I don't trust the government with MY money." Well, actually you have to trust Blackrock, the custodian for the TSP, but I understand the concern. However none of these readers are putting the equivalent contributions into their Vanguard accounts, either.
2. "I don't want to lock my money away until age 59.5, which is really, like, old." (Or sentiments to that effect.) I explain rollovers and conversions to them, as well as ways to tap their Roth IRAs without penalty or tax.
Some of these servicemembers sound as if they're stockpiling gold bullion along with shotgun ammunition and MREs. Others don't trust the stock market and want to invest in rental real estate (which they're reasonably proficient at). If you find these sentiments ludicrous or unbelievable, well, you need to spend more time with Millennial servicemembers and a few Gen X woolly mammoths. Us Boomer dinosaurs can remember life without the TSP so we're darn glad to have had the chance.

But as others have said, the blended retirement system is in DoD's best interests. Remember all those years ago when there was a brief discussion about "privatizing" Social Security? DoD unloaded a huge accrued pension liability (that had to be deposited in special-purpose Treasuries) and dumped it squarely on the shoulders of the servicemembers (who have to "earn" it as TSP matching in the stock market).

DoD will do even better if they can hoodwink retirees into taking part of their pensions as a lump sum.
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Re: New Military Blended Retirement System starting in 2018

Post by navyasw02 » Sun Jul 03, 2016 1:44 am

Here's a link to the final report from the commission:

http://www.ngaus.org/sites/default/file ... 2015_0.pdf

Worth a read, although I dont agree with many of their findings or recommendations.

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Re: New Military Blended Retirement System starting in 2018

Post by AJP3 » Mon Nov 14, 2016 10:26 pm

Haven't read through the whole thread to see if anyone found this but since this was the first occurance of the question I thought I'd leave the link here.
From the DOD Office of the Actuary. A break down of the demographics of retirees.
http://actuary.defense.gov/Portals/15/D ... 115918-660

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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Mon Nov 14, 2016 11:31 pm

AJP3 wrote:Haven't read through the whole thread to see if anyone found this but since this was the first occurance of the question I thought I'd leave the link here.
From the DOD Office of the Actuary. A break down of the demographics of retirees.
http://actuary.defense.gov/Portals/15/D ... 115918-660
Thanks. That's a great DoD Actuary report distributed annually (a year or two in arrears). It has a lot of very interesting and useful data in it, but nowhere does it describe how many servicemembers joined in a year and then what percentage of that year's cohort served until retirement.

The last time I read a summary of retirement percentages (broken down by rank & service) was at least five years ago. Back then I didn't appreciate how rare and useful it'd be, and I didn't keep track of it. It was probably a RAND or Congressional Research Service report (since it was quoted by the 2011 Defense Business Board) but otherwise I can't remember where to find it.

Another update:
DoD is still working on the comparison calculator, and they estimate it'll be on http://militarypay.defense.gov/BlendedRetirement/ in January 2017. That site also links to training materials, videos, and other FAQs.

Big picture: if you're on active duty now, and you think you'll go to at least 20 years, then you're probably excessively optimistic about the 17% odds. I'll concede that USAF officers have a much higher retirement percentage, perhaps ~30%, but that's still 1 out of 3 instead of 1 out of 6. If you're a Marine of any rank then the odds of you serving for at least 20 years may be as low as the single-digit percentages. Everyone with less than 14 years of active duty should have a mindset that they're leaving active duty when their next obligation expires.

But if you're one of the special snowflakes who "already knows" with less than 14 years of service that you're going to go to 20, then the decision depends on how long your DoD matching contributions will compound in your TSP account. You'd probably want to have at least 10-12 years in an aggressive asset allocation (C, S, or I funds) for that compounding to exceed the difference in the value of the High Three pension that you're giving up.

In other words, anyone who joined the military before 2010 and who expects to serve on active duty for at least 20 years should stick with the current High Three pension. You're already expecting to beat the odds of serving until retirement, so don't take any additional risks with your assets. For the sake of your mental, physical, and emotional health, I hope the reality matches your optimistic expectations of earning your active-duty pension.

On the other hand, anyone who's in the military now and does not expect to serve on active duty for 20 years should convert to the new Blended Retirement System (if elegible). When your life priorities turn out to match the current odds of leaving active duty before 20 years (whether that's 91% or 83% or 70%) then the DoD matching TSP contributions will give you more money in your account than you'd have under the current High Three system.

That's not just my experienced informed opinion-- it's my personal recommendation to my active-duty daughter and her active-duty spouse, who were both commissioned in 2014.

Regardless of which retirement system you choose, when you decide to leave active duty then I still recommend that you consider serving in a drill billet in the Reserves or National Guard. The #1 regret of my readers in their 50s (and older) is that they didn't try to reach 20 good years for the non-regular pension which starts at age 60 (for most retirees). For Reserve/Guard pensions, the financial difference between the High Three and Blended Retirement Systems is much smaller.
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Re: New Military Blended Retirement System starting in 2018

Post by navyasw02 » Tue Nov 15, 2016 4:14 pm

Nords wrote:
AJP3 wrote:Haven't read through the whole thread to see if anyone found this but since this was the first occurance of the question I thought I'd leave the link here.
From the DOD Office of the Actuary. A break down of the demographics of retirees.
http://actuary.defense.gov/Portals/15/D ... 115918-660
Thanks. That's a great DoD Actuary report distributed annually (a year or two in arrears). It has a lot of very interesting and useful data in it, but nowhere does it describe how many servicemembers joined in a year and then what percentage of that year's cohort served until retirement.

The last time I read a summary of retirement percentages (broken down by rank & service) was at least five years ago. Back then I didn't appreciate how rare and useful it'd be, and I didn't keep track of it. It was probably a RAND or Congressional Research Service report (since it was quoted by the 2011 Defense Business Board) but otherwise I can't remember where to find it.

Another update:
DoD is still working on the comparison calculator, and they estimate it'll be on http://militarypay.defense.gov/BlendedRetirement/ in January 2017. That site also links to training materials, videos, and other FAQs.

Big picture: if you're on active duty now, and you think you'll go to at least 20 years, then you're probably excessively optimistic about the 17% odds. I'll concede that USAF officers have a much higher retirement percentage, perhaps ~30%, but that's still 1 out of 3 instead of 1 out of 6. If you're a Marine of any rank then the odds of you serving for at least 20 years may be as low as the single-digit percentages. Everyone with less than 14 years of active duty should have a mindset that they're leaving active duty when their next obligation expires.

But if you're one of the special snowflakes who "already knows" with less than 14 years of service that you're going to go to 20, then the decision depends on how long your DoD matching contributions will compound in your TSP account. You'd probably want to have at least 10-12 years in an aggressive asset allocation (C, S, or I funds) for that compounding to exceed the difference in the value of the High Three pension that you're giving up.

In other words, anyone who joined the military before 2010 and who expects to serve on active duty for at least 20 years should stick with the current High Three pension. You're already expecting to beat the odds of serving until retirement, so don't take any additional risks with your assets. For the sake of your mental, physical, and emotional health, I hope the reality matches your optimistic expectations of earning your active-duty pension.

On the other hand, anyone who's in the military now and does not expect to serve on active duty for 20 years should convert to the new Blended Retirement System (if elegible). When your life priorities turn out to match the current odds of leaving active duty before 20 years (whether that's 91% or 83% or 70%) then the DoD matching TSP contributions will give you more money in your account than you'd have under the current High Three system.

That's not just my experienced informed opinion-- it's my personal recommendation to my active-duty daughter and her active-duty spouse, who were both commissioned in 2014.

Regardless of which retirement system you choose, when you decide to leave active duty then I still recommend that you consider serving in a drill billet in the Reserves or National Guard. The #1 regret of my readers in their 50s (and older) is that they didn't try to reach 20 good years for the non-regular pension which starts at age 60 (for most retirees). For Reserve/Guard pensions, the financial difference between the High Three and Blended Retirement Systems is much smaller.
Why is 14 years your go/no go year? I always heard and assumed it was 10 since you can make O4 in 10 and also E6 which both have statutory retirement at 20 years.

I wouldnt recommend anyone who is already serving to switch to blended as they've already lost several years of TSP matching benefits.

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Re: New Military Blended Retirement System starting in 2018

Post by Engineer250 » Tue Nov 15, 2016 5:38 pm

servusdei wrote:It seems that if you know for sure you will not stay for full 20 years to qualify for the pension, opting in is a no-brainer. On the other hand, if you know for sure you will stay for 20 years, you will almost certainly fare better staying with the current system. Most folks, myself included, don't know for sure. It seems the probability of making it to 20 years is the big unknown and depends on many factors, such as likelihood of promotion to the next rank for me. I would appreciate any thoughts/comments/suggestions. Many thanks!
I would agree with your assessment entirely. Generally when a "new" system is offered it's worse than the old system. Feds went through this in the 80s with the change from CSRS to FERS. Some people chose to switch, but it was a much better decision to keep the old system (assuming you will stick around long enough to get a benefit).

TSP matching - all the stuff I can find says it matches the military member's "base pay". That means it doesn't include things like housing allowance, right? Seems kinda crummy if that is indeed the case, guessing most military members consider their "whole" check as their pay.
Nords wrote:My readers with no TSP account tell me two things:
1. "I don't trust the government with MY money." Well, actually you have to trust Blackrock, the custodian for the TSP, but I understand the concern. However none of these readers are putting the equivalent contributions into their Vanguard accounts, either.
2. "I don't want to lock my money away until age 59.5, which is really, like, old." (Or sentiments to that effect.) I explain rollovers and conversions to them, as well as ways to tap their Roth IRAs without penalty or tax.
Some of these servicemembers sound as if they're stockpiling gold bullion along with shotgun ammunition and MREs. Others don't trust the stock market and want to invest in rental real estate (which they're reasonably proficient at). If you find these sentiments ludicrous or unbelievable, well, you need to spend more time with Millennial servicemembers and a few Gen X woolly mammoths. Us Boomer dinosaurs can remember life without the TSP so we're darn glad to have had the chance.
I wasn't in the military, but I wonder if it's just a lack of education. When I started my first full time job in private sector there were a few "free" lunchtime classes from our 401k provider. Nowadays they (and the govt) auto-enroll people, but that wasn't the case back then. I think the providers have a vested interest in more assets and your company wants to see all the low earning entry level employees paying in so they don't face the rules on high earning employees. In the fed system, education on retirement seems even more emphasized. It's golden handcuffs all around and the average age feels like it's around 50 so everyone's counting down and knows plenty about retirement. They are all there to tell me that I better start maxing out my 401k as soon as I possibly can, regretting they didn't contribute more when they were younger themselves.

As a side note, I can't believe how many nice cars I see on base from the military members. The fed employees drive beaters that barely make it in every day and the military guys have sports cars I drool over every day. Since so many of the feds are veterans it's hard to figure out the disconnect, could quite possibly just be an age thing, or maybe the possibility of being stationed somewhere else makes a car a more precious investment that they can keep.
navyasw02 wrote:If the military really wants to "civilianize" its retirement system, they need to start looking at ways to keep people fixed geographically.
I would have joined already if I could guarantee a home base in my city. Agree this would draw in more people.
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Re: New Military Blended Retirement System starting in 2018

Post by gator15 » Tue Nov 15, 2016 6:32 pm

Some of it is lack of education while others prefer not to use TSP because they can't fathom waiting 20 to 30 years to touch the money. I thought I was fairly educated regarding investing and TSP and it was a hard sell for me. There were a couple of years were I didn't invest in TSP. I preferred to put my money in a Roth and taxable account. To me, TSP didn't offer a matching contribution so what was the point. I changed my outlook after awhile and decided to invest in TSP for tax purposes.

I've tried to educate soldiers on TSP and investing in general over the years and most just aren't interested. Many aren't fond of the stock market. Others don't want to wait 30 years to get retirement money. Some feel they don't have the income to invest. They are one income households. When it comes to nice cars or what might be perceived as extravagant spending, many soldiers don't have the mindset of financial independence or retiring as soon as possible. For those who complete a 20 year career and receive retirement pay, they look to get another job upon retiring from the military. I've never heard a person who completed a 20 year career say his or her intent was to stop working overall because they were financial independent.

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Re: New Military Blended Retirement System starting in 2018

Post by Phillies2008 » Tue Nov 15, 2016 7:01 pm

Engineer250 wrote:As a side note, I can't believe how many nice cars I see on base from the military members. The fed employees drive beaters that barely make it in every day and the military guys have sports cars I drool over every day. Since so many of the feds are veterans it's hard to figure out the disconnect, could quite possibly just be an age thing, or maybe the possibility of being stationed somewhere else makes a car a more precious investment that they can keep.
When you deploy overseas for 6 months to 1 year multiple times over the course of a few years with nothing to spend money on you tend to save up a nice amount of money. That, and a lot are foolish with their money.

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Re: New Military Blended Retirement System starting in 2018

Post by Geronkas » Tue Nov 15, 2016 8:19 pm

Gator15,

You have not met me, I am that guy. I will not be looking for employment once I retire. Just hit 20 years in the Army and I will retire in 2018. I am 53 and joined the army at 34. Currently, I max the Roth TSP and have been doing so for years. With catch up contributions I am putting away $24,000 a year and have done so since the year I turned 50. In 2007 I received a bonus while in Iraq and I had it all go into the TSP. I max out Roth IRAs for me and the wife, and have done so for many years. We also have a taxable account with vanguard, our Roths are with Vanguard as well. My car is 15 years old and my wife's car is 10 years old. Last car payment was in 2007 and we have no credit card debt. I am enlisted, E-9 and my wife does not work currently and she has worked very infrequently over the past 20'years due to our many PCS moves. My oldest daughter starts college soon and the Post 9/11 GI bill will pay for her education. I feel blessed to have earned my military pension and sad that newer service members may not be as fortunate.

Geronkas

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Re: New Military Blended Retirement System starting in 2018

Post by gator15 » Tue Nov 15, 2016 9:01 pm

Geronkas wrote:Gator15,

You have not met me, I am that guy. I will not be looking for employment once I retire. Just hit 20 years in the Army and I will retire in 2018. I am 53 and joined the army at 34. Currently, I max the Roth TSP and have been doing so for years. With catch up contributions I am putting away $24,000 a year and have done so since the year I turned 50. In 2007 I received a bonus while in Iraq and I had it all go into the TSP. I max out Roth IRAs for me and the wife, and have done so for many years. We also have a taxable account with vanguard, our Roths are with Vanguard as well. My car is 15 years old and my wife's car is 10 years old. Last car payment was in 2007 and we have no credit card debt. I am enlisted, E-9 and my wife does not work currently and she has worked very infrequently over the past 20'years due to our many PCS moves. My oldest daughter starts college soon and the Post 9/11 GI bill will pay for her education. I feel blessed to have earned my military pension and sad that newer service members may not be as fortunate.

Geronkas
SGM/CSM,

I commend you for your accomplishments. You are a rare breed. I realize there are some who have a desire and the ability to retire early, but most don't. I often talk to both officers and enlisted alike about the great opportunity they have. For the most part, they have a stable job with stable income. They know they will get paid on the 15th and the 30th and they know how much they will be paid. They should be able to save some money. My message has gone from saving and investing to merely just saving. If I can get them to save, maybe I can get them to invest later.

Like you, I'm saving to potentially retire early. Not saying I will, but I want the option. I'm lucky enough to have started saving upon entering the service 13 years ago. I didn't always know why I was saving. Early on, financial independence wasn't really on my mind. A friend put a bug in my ear about the idea of investing before I join the service and I became intrigued by the idea. As I've gotten older, my goals are becoming clearer. I think I'm going to be alright. The challenge is now to get those around me to start saving/investing. I'm monitoring this topic because I want to be able to explain this to soldiers so they can make informed decisions.

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Re: New Military Blended Retirement System starting in 2018

Post by Geronkas » Tue Nov 15, 2016 10:34 pm

Gator15

Thanks for all you do in talking to soldiers about saving and investing. I do the same. When I was a First Sergeant I would ask new soldiers if they were enrolled in the TSP, some were, but many more were not. I was able to influence some to sign up for the TSP and that really made me feel awesome. But it continues to be a struggle to get soldiers to even save, let alone invest. Like you, I am very interested in this topic and will continue to check in. Keep up the good work brother. And I am a SGM, not really interested in the CSM thing. SGM, Same, Good, Money; less stress.

Geronkas.

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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Tue Nov 15, 2016 10:44 pm

navyasw02 wrote: Why is 14 years your go/no go year? I always heard and assumed it was 10 since you can make O4 in 10 and also E6 which both have statutory retirement at 20 years.

I wouldnt recommend anyone who is already serving to switch to blended as they've already lost several years of TSP matching benefits.
It's just a rule of thumb, not a hard date. Servicemembers at 14 years might sign a bonus contract or an enlistment contract that'd take them up to 17-20. Others might know at 12 years /that they're leaving active duty as soon as their obligation expires at 14.

I hear you on O-4 at 10, but the Air Force and the Navy have both pushed O-4s out of the service before 20. In the AF case it was over 140 O-4s at about 15-17 years of service, and the Navy case was TERA with only a few months' notice of a huge group of submarine O-4s who had been continued "until retirement eligible"... which BUPERS liberally interpreted to include as short as 15 years of service.

And let's not forget the Army's ongoing Officer Separation Boards.

Making O-4 or E-6 is no guarantee of making 20. Yet you're also correct that it won't go past 20.
gator15 wrote:I've never heard a person who completed a 20 year career say his or her intent was to stop working overall because they were financial independent.
*Ahem.*

Now you've met (at least) three of us. My spouse (Navy Reserve) and I (active duty) both retired when we were eligible, and neither of us sought out a bridge career. We reached FI on a high savings rate, despite many classic investing mistakes in the 1980s-90s.

I'll never say never, but the dissatisfiers of working for a paycheck far outweigh the satisfiers.

It's hard to find a widespread study about military veterans, bridge careers, and financial independence. A PhD dissertation based on 1990s data indicated that over 85% of retiring officers went on to seek a bridge career. The more senior the officer, the more likely they were to move right into another paycheck job.
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Re: New Military Blended Retirement System starting in 2018

Post by Geronkas » Tue Nov 15, 2016 10:56 pm

Nords

Your blog and personal FI story have motivated my own journey. Your blog provides a wealth of financial information for service members and retirees. Thank you.

Geronkas

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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Wed Nov 16, 2016 5:06 am

Geronkas wrote:Nords

Your blog and personal FI story have motivated my own journey. Your blog provides a wealth of financial information for service members and retirees. Thank you.

Geronkas
You're welcome! Glad it's helping.
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Re: New Military Blended Retirement System starting in 2018

Post by gator15 » Wed Nov 16, 2016 8:30 am

Nords wrote:
navyasw02 wrote: Why is 14 years your go/no go year? I always heard and assumed it was 10 since you can make O4 in 10 and also E6 which both have statutory retirement at 20 years.

I wouldnt recommend anyone who is already serving to switch to blended as they've already lost several years of TSP matching benefits.
It's just a rule of thumb, not a hard date. Servicemembers at 14 years might sign a bonus contract or an enlistment contract that'd take them up to 17-20. Others might know at 12 years /that they're leaving active duty as soon as their obligation expires at 14.

I hear you on O-4 at 10, but the Air Force and the Navy have both pushed O-4s out of the service before 20. In the AF case it was over 140 O-4s at about 15-17 years of service, and the Navy case was TERA with only a few months' notice of a huge group of submarine O-4s who had been continued "until retirement eligible"... which BUPERS liberally interpreted to include as short as 15 years of service.

And let's not forget the Army's ongoing Officer Separation Boards.

Making O-4 or E-6 is no guarantee of making 20. Yet you're also correct that it won't go past 20.
gator15 wrote:I've never heard a person who completed a 20 year career say his or her intent was to stop working overall because they were financial independent.
*Ahem.*

Now you've met (at least) three of us. My spouse (Navy Reserve) and I (active duty) both retired when we were eligible, and neither of us sought out a bridge career. We reached FI on a high savings rate, despite many classic investing mistakes in the 1980s-90s.

I'll never say never, but the dissatisfiers of working for a paycheck far outweigh the satisfiers.

It's hard to find a widespread study about military veterans, bridge careers, and financial independence. A PhD dissertation based on 1990s data indicated that over 85% of retiring officers went on to seek a bridge career. The more senior the officer, the more likely they were to move right into s xx d. D. another paycheck job.
You are right. Being promoted to O-4 doesn't guarantee that you will make it to 20. Several O-4s were sent packing in the Army over the last couple of years. I personally know of two who were separated. One had 16 years of service and the other 14 years. It's tough getting so close to retirement then being shown the door. The army gave one of the those officers close to $120k for his efforts but the taxman took a significant portion of this. I'm well aware you can be separated at any time. It's one of the reasons I continue to save so aggressively. If I make it to 20 I will be in a really good spot and may be able to retire and not have to work again. There are no guarantees though and as a result I will keep saving.

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Re: New Military Blended Retirement System starting in 2018

Post by TheMilPhys » Tue Dec 12, 2017 2:41 am

As the final hour approaches I wanted to open this thread back up to updates from anyone. I too have realized that even though I plan to stay for 20 years, the right decision is to switch to the BRS. Thank you to everyone on here for the input. Nords, your most recent post on "Tricky Details" is a great read and something I have been sharing with anyone who doesn't believe things that come out of my own mouth or posts.

The one gripe I do have with DOD is the fact that they are not releasing any information about how they will determine who will likely get a more aggressive multiplier for continuation pay. This is a large chunk of money that can compound for many years and take more of a dent out of the 20% pay cut. Oh well, best to prepare for lowest multiplier as I'm sure it will stay at 2.5x until we need better retention.

Anybody have new thoughts/ideas on opting in for those planning a 20 year career in the military? I'm switching to BRS :sharebeer

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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Tue Dec 12, 2017 12:44 pm

ghall24 wrote:
Tue Dec 12, 2017 2:41 am
As the final hour approaches I wanted to open this thread back up to updates from anyone. I too have realized that even though I plan to stay for 20 years, the right decision is to switch to the BRS. Thank you to everyone on here for the input. Nords, your most recent post on "Tricky Details" is a great read and something I have been sharing with anyone who doesn't believe things that come out of my own mouth or posts.

Anybody have new thoughts/ideas on opting in for those planning a 20 year career in the military? I'm switching to BRS :sharebeer
Thanks!

Kate Horrell gathered together all of the DoD resources and the posts of eight other bloggers into a massive roundup with 32 different links of calculators, comparisons, and other info that DoD does not address.
http://www.katehorrell.com/learn-about-the-militarys-new-blended-retirement-system/
Scroll down past Kate's logo at the end of the post to see the rest of the links.

Airmen MilDollar's post is particularly useful because it runs nine different types of data through the calculator for various ranks and lengths of service:
https://militarydollar.com/2017/05/15/brs-part-3-comparing-systems/

Here are the step-by-step instructions for opting in among all the uniformed services, including not only MyPay but Marine Online and Direct Access:
https://militarydollar.com/2017/12/11/opting-in-to-brs-step-by-step/
http://militarymoneymanual.com/opt-new-military-retirement-brs/

My daughter and son-in-law (both active duty) are visiting Oahu at the end of December. The BRS servers will open at 7:01 PM Hawaii time on 31 December (0001 EST 1 January 2018) and we've joked about doing their BRS opt-in on Facebook Live. Or maybe they'll find a more productive way to spend their time celebrating in Waikiki.
ghall24 wrote:
Tue Dec 12, 2017 2:41 am
The one gripe I do have with DOD is the fact that they are not releasing any information about how they will determine who will likely get a more aggressive multiplier for continuation pay. This is a large chunk of money that can compound for many years and take more of a dent out of the 20% pay cut. Oh well, best to prepare for lowest multiplier as I'm sure it will stay at 2.5x until we need better retention.
DoD doesn't have a clue and doesn't have to care-- it's all based on retention and that's decided by the individual services.

I suspect that the community managers for aviators (of all the services), nukes, and special forces will be pushing hard to boost those numbers in 2018. However those funds will have to be parceled out by DoD or carve their own cash from the individual services, and right now that pool of money is going toward the traditional bonus contracts. It'll take a few years to bulk up the multiples on the Continuation Pay contracts without cannibalizing the existing bonus contracts.

The Continuation Pay is particularly useful for those who are deployed to a combat zone around 11 years of service. That offers the opportunity to receive a tax-free lump sum which can be dumped right into the TSP (with its higher annual addition limit) to compound at tax-deferred expense ratios even lower than Vanguard.

Of course this is a terrible reason to deploy to a combat zone in the first place, and a four-year obligation might be the absolute last thing anybody wants to sign up for after deploying to a combat zone.
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Re: New Military Blended Retirement System starting in 2018

Post by sergeant » Wed Dec 13, 2017 12:50 am

Nords, thanks for the information. My son is an Army officer deployed to South Korea. He has used your site to help his platoon members make the right decision on this topic.
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Re: New Military Blended Retirement System starting in 2018

Post by Nords » Thu Dec 14, 2017 8:07 am

sergeant wrote:
Wed Dec 13, 2017 12:50 am
Nords, thanks for the information. My son is an Army officer deployed to South Korea. He has used your site to help his platoon members make the right decision on this topic.
You're welcome-- glad to help!
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