Proposed new Military Retirement Plan

[mickeyd]

The US military is floating out a new flexible retirement plan that seem to be quite different than the current scheme. You want options? You got it.

Quote:

This “flexible” plan is an economist’s dream, relying heavily on computer modeling informed by personal discount rates for military populations going back to 1990. Discount rates tell economists how individuals are willing to trade current dollars for future dollars. The QRMC model, developed by RAND, assumes a servicemember discount rate of 15 percent, which means $100 paid now will be as attractive as $115 next year. Much was learned from discount rates measured during the post-Cold War drawdown. Given the choice of accepting a lump-sum cash payment or an annuity that would last twice the length of their time in service, 90 percent of careerists chose the lump sum, even though its cost to the government was a mere fraction of the annuity option. Similarly, thousands of servicemembers today, as they enter their 15th year of service, are accepting a $30,000 bonus to shift voluntarily under the less generous Redux retirement plan. In pocketing the cash, they cut the lifetime value of their retirement by an average of more than $300,000.

MOAA: Military Officers Association of AmericaObservation Post – A Deeply Discounted Retirement

[ziggy29]

What they really need to do is draw a line in the sand: as of this day, new hires/recruits will no longer be eligible for the traditional pension plan. We can't afford it. We will raise your base pay, provide annual retention bonuses and give generous matches to your TSP, but defined benefit plans are killing us.

Anyone already in the system as of [line in the sand date] is grandfathered in, and will receive the deal as currently being promised to them.

[donheff]

So, we (through our Government) take a very cynical approach to our defenders. Most of them are not sophisticated enough to realize how we are sticking it to them so lets offer them a bad deal that appeals to their spend now outlook. How very free market of us.

[BLS53]

Part of the proposal includes deferral of drawing the pension until age 57. Opposed to now when the pension begins immediately upon the completion of 20 years.

There's a few folks who really love military life that this won't bother. But for the bulk of the troops, I don't see them hanging around. The pension, as is, is the main reason to stay in. Might as well get out and work in the civilian world, if the pension can't be drawn until age 57. The new plan is moreless a glorified form of social security.

[samclem]

These ideas come up frequently, and nothing comes of 90% of them.

What many civilians don't realize is that if a military member on active duty separates even one day short of 20 years, he gets a retirement check of zero dollars. Nothing. So, once a guy/gal gets about 10-14 years of service, they are gonna ride things out no matter how rough the ride gets. Tjis new proposal changes the rules--there's nothing magic about 20 years anymore.

If this one actually gets accepted, it will be interesting to see all the unintended consequences within the military services .
1) The first one that comes to mind: How will detailers fill all the crappy assignments? Ther are plenty of jobs that almost nobody want to do, but when you are an O-4 or an E-6 with 14 years of service, you pretty much have to just choke down that 12 month unaccompanied tour to Korea. But , if a guy can jump ship and still get most of his retirement while not leaving his family for a year--he'll probably do it.

2) Fewer unaccompanied tours-they'll build family housing in someof the places where we didn't have/need it before.

3) Fewer folks in "continued" status. In my opinion, this will not be a positive thing. It's good to have people around who can/will tell the boss when his idea stinks, and officers who have seen a lot and who are not competitive for promotion are the ones most likely to do this. Fewer of them will stick around under this proposed system.

4) Lower experience levels: The experienced, dedicated, and professional NCO corps is a hallmark of the US military, and a major reason for our tactical/operational success. This system would probably lead to a flatter pyramid. That's bad if your forces are using sophisticated tactics and needs to react rapidly to changes during the fight.

5) More positive incentives: Bonuses, etc to go to unpopular places, take unpopular jobs, or even to stay in the service.

[REWahoo]

Quote:

Originally Posted by samclem What many civilians don't realize is that if a military member on active duty separates even one day short of 20 years, he gets a retirement check of zero dollars. Nothing.

Yep. Several of my friends who knew I spent several years in the military prior to leaving for a career in the 'real' world asked me when I retired how much I'd be getting from my time in the service. Seemed surprised when they learned if you left before 20 years you got zip.

[Michael Dirubio]

All- Please be patient, this is my first post. The new system will evetually replace the defined benefit system. Its simple economics. The govt needs the money! I do want people to realize that one paragraph was a little misleading:

Similarly, thousands of servicemembers today, as they enter their 15th year of service, are accepting a $30,000 bonus to shift voluntarily under the less generous Redux retirement plan. In pocketing the cash, they cut the lifetime value of their retirement by an average of more than $300,000.

Of the 10 or so Navy personnel I know who have taken the REDUX, there is more to it than financial ignorance. All of them planned to stay in the Navy past 20 years. Under the REDUX plan you got a 30,000 bonus but retired at 40% vs 50% of base pay. Under REDUX you also got a smaller COLA (slight). Thats where the 300,000 figure comes from. However, under the REDUX if you stayed longer than 20 years the retirement percentage improved at a higher rate than normal. I.E. 3.5% per year vs 2.5%. Both top out at 75% at 30 years. If you stayed 3 more years (23 vs 20), you retire at 51.5%. You also got a COLA catch up at 62. Most info I have seen makes the REDUX more valuable after 25.5 years. Properly invested the 30,000 makes a nice 529 plan or IRA start. I could only do 20 years. The military is a young man/woman's game.

[Gardnr]

Quote:

Originally Posted by Michael Dirubio The new system will evetually replace the defined benefit system. Its simple economics. The govt needs the money!

I agree with you. I think it's inevitable in this day and age of the disappearing DBP. It will certainly change many of the dynamics of decision making on the part of members and there will be some un-anticipated consequences. It'll be interesting to see what eventually come of this.

I've always thought there was something wrong with the all or nothing 20 yr vesting system.

And I sure wish we had the TSP around 15 years or so ago when I was starting to accumulate for retirement. The IRA was just a pittance.

[Nords]

Quote:

Originally Posted by Michael Dirubio All- Please be patient, this is my first post. The new system will evetually replace the defined benefit system. Its simple economics. The govt needs the money!

That's what they said in 1986, until the JCS stood up in front of Congress a decade later to sing an unprecedented four-part harmony asking them to help fix the military's retention problem. Turns out that the govt needs the volunteers more than they need the money. After all, they can always sell more bonds or raise taxes.

I can't speak for the infantry grunts, but the afloat Navy and the flying AF are far smaller today than ever before. Huge strides have been made in reducing personnel through overtasking and technology, and there are more savings to be found from streamlining training and engineering redundancy. Yet for some reason instead of fixing the system for procurement of weapons & platforms, DoD has decided that its funding shortfalls are a personnel problem. Oh, and the $30K "bonus" has remained at that price despite another decade of inflation. Hmm.

Quote:

Originally Posted by Michael Dirubio You also got a COLA catch up at 62. Most info I have seen makes the REDUX more valuable after 25.5 years. Properly invested the 30,000 makes a nice 529 plan or IRA start. I could only do 20 years. The military is a young man/woman's game.

By any chance do you have the stories of those people once they've passed their 22nd or 24th year and their assignment officers start playing hardball? I have, and the U.S. Naval Institute's PROCEEDINGS magazine has noted that many O-6s are leaving at 24, even retiring as O-5s, to avoid mortgaging their futures for even a two-year tour. If it's that painful at 24 then I can only imagine how brutal it must be at 15.

I'm not aware of any analyses that consider the COLA's full effect after age 62. IIRC that COLA catch-up at age 62 is a one-time reset. Subsequent COLAs are going to continue to lag by 1% and, with lifespans approaching 80 years, another 18 years of lagging by 1% will reduce purchasing power by another 20%. Perhaps Congress just wants the military to be populated by people who can't (or don't bother to) do math. But I could be wrong about that COLA reset-- anyone know the details or where to look it up?

Quote:

Originally Posted by Michael Dirubio All of them planned to stay in the Navy past 20 years.

For those of you considering REDUX, here's a thought. When I had five years of service I planned to stay in the Navy for 20 years. So did my shipmates-- one of my nicknames was "Lifer".

By the 10th year of service I'd fallen off the career track, I was a parent, and it wasn't the same Navy I'd joined. I also noticed that my bosses were having, if possible, even less fun than I was. What a great example to anticipate. Today one of my career regrets is being so focused on spouse co-location that I neglected to adequately research the Reserves and be ready to make the leap.

Spouse also planned to go to 20, despite combat exclusion laws and other forms of gender discrimination. When she was promoted and expected to remain on active duty for a few more years' time in rank (and retirement eligibility), she got the legendary unrefusable offer from her assignment officer. This time she had the knowledge, the confidence, and the financial security to give the chain of command a different kind of salute-- and she transferred to the Reserves at 17 years, 11 months, and 10 days. It was the best decision she ever made. Sure, she gave up her pension at age 41 but she traded it in for another promotion and a bigger pension at age 60. If she lives into her mid-80s she'll earn more Reserve pension bucks than she would have on active duty. Her psychiatric & healthcare bills are pretty certain to be lower, too.

Imagine that, as a part of REDUX, you'd not only put yourself in that same "Gonna make it to 30!" position but had also accepted $30K to stay there. If the military is a young person's game, then why are we prostituting ourselves to 30 years of service for a little extra cash? At this point we're no longer arguing about who we are... we're just haggling over the price of surrendering what little flexibility we have left.

[Michael Dirubio]

NORDS- I recieved a pretty detailed analysis on REDUX when it was proposed. I know the Navy Times website had a good look at the COLA catch up and the math. The basic decision point for me was this: The average Navy chief just doesn't make it to age 80. That stress is a killer, even later in life. For my peers who took the REDUX, if they die before 70 they make more with REDUX and staying 26 years than with the traditional retirement at 20. My last three years were on a fast attack in Pearl doing an ERO. 100 hour weeks and stress for breakfast, lunch and dinner. I just couldn't do 26. My motto now is "71 and I win!!!"

I see you are in Hawaii. I miss the trades and the waves, but not the traffic on the Farrington. Congrats to the Keiki from Waipahu for the Little League World Series win!!!

[BLS53]

Best era for retirement "deals", in the Navy at least, was during the Cold War drawdown in the mid-90's. 15 year retirements were being offered to many. Guys were getting lifetime COLA pensions while being in their early 30's in some instances. For an E-6, probably the monetary, monthly equivalent of age 62 Social Security.