Cheez whiz, guys, lighten up a little. The military's here to defend your rights to say stuff like that, but this is not a political question. It's all about the money and the retention rates.
I'm coming up on 20 years of active duty service. I am currently an 05 and am on track to make O6. My plan is to serve 30 and walk away and not work again. I would be 52 years old. To accomplish this goal I would need to rely mostly on this pension rather than my current investments.
Is this risky?
I think you're taking a reasonable risk. Let me answer both questions.
No doubt Nords will be along with detais, but IIRC by law the military pension fund is required to be fully funded at all times. I qualify for a(n infinitessimal) Fed pension and I consider it equal to a treasury bond. IOW, if I don't get paid the $20 a week I am owed in 20 years, we will all be eating rats and collecting rainwater for drinking. At that point, my stash of whiskey, shotshells and rice & beans will ensure I am King of the Dump.
Like Brewer says, the DoD funds the pensions for the services with special-purpose intra-government Treasury bonds for the purpose. If those default then we'll already have too many other problems to notice.
For example, here's an old CBO report on military compensation:
http://www.cbo.gov/sites/default/files/11-14-12-MilitaryComp_0.pdf
A paragraph on p. 23 says
To fund the retirement system, DoD sets aside an amount equal to a predefined percentage of basic pay in accrual payments while service members are on active duty. Future costs are dictated by the structure of the benefits, the mix of people receiving them, and inflation in the economy that determines the annual cost-of-living
adjustment (COLA). For the future, costs could be managed by changing the vesting period, by changing the mix
of defined benefits and defined contributions, or by some other means.
DoD has seen your retirement coming and is getting ready for it.
These bonds have actually been perceived as a problem. The funds are accrued on very conservative assumptions in even more conservative investments. DoD could solve some significant cashflow problems if they'd adopt more realistic pension-accounting procedures and invest in some other assets. It would not be as bold as the old proposal to privatize Social Security, but it would stop essentially overfunding the pension plan or earn a higher return.
When SECDEF gripes to Congress about excessive personnel costs, this pension accounting system is one of the more significant portions of the cost.
I'm sorry, I don't understand. What I am concerned about is the government taking away or reducing the pension. Last year they tried to reduce cost of living increases by sneaking the cut in another bill. I'm guessing it's only a matter of time until they try something like this again.
They're going to try something like that every year, but the process moves very slowly and the military advocacy groups are very effective at lobbying for the status quo.
Last year's attempt not only sneaked by the advocacy groups (without debate) but it even sneaked by the Armed Services Committees of both Houses without debate. I can only imagine the "frank conversations" that went on in private offices. When the fait accompli was passed, you saw how the military groups campaigned to have it repealed for all those who've joined the military before 2014. This time they had a lot of support from Congress, too.
In 1986, Congress passed REDUX. It took 13 years to realize their mistake, and they repealed it. Yet in the last 30 years we've seen military pay indexed to the Employer Cost Index (although that's been suspended), Tricare Prime fielded, Tricare For Life established, CRDP, the new GI Bill, and a host of other additions to military pay & benefits. It's all a pendulum swing, and it'll swing both ways several times during the remainder of our lives. There will be changes to the pension system, but current servicemembers (and current retirees) will be grandfathered. I think your pension will continue to grow with national inflation, and it'll certainly grow faster than your personal rate of inflation. No need to focus on the negative.
You also have a TSP account, and I sincerely hope you've been maximizing the contributions. (If not, then here's your chance to catch up.) If you want to be even more financially secure then save additional amounts in your Roth IRA and your taxable accounts. However my O-4 pension covers over two-thirds of our non-discretionary spending, and most of that spending is fixed-rate mortgages. In 10 years my O-4 pension will probably cover 75%-80% of our non-discretionary spending.
Speaking of that plan to go for 30, I'd personally suggest taking it one tour at a time. The O-6 billets are scarce and the competition is [-]backstabbing[/-] fierce. If you're having fun then stay on active duty as long as you're enjoying yourself. But when you get treated to the harsh realities of O-6 assignments and political infighting, if you've been pushing yourself to financial independence then you don't have to stay to 30. You could leave at 20, 22, 26, or at the end of a tour. There's still plenty of bridge careers (if necessary) for O-5s with 20 years of service, and the closer you are to FI then the more choices you have.
I think what is a bigger threat is that of Tricare (not the TFL Medicare supplement). The Tricare Prime benefit has been under fire for a while now and the rates have gone up...of course the increases have been minimal in comparison with other health insurance (I hate that word insurance, I wish they would call is a health SERVICE plan since that is what it really is). Right now, I am going to live just fine on my pension, and this is in part because of the low cost of Tricare...you CANNOT beat $555 a year for coverage. Now, if this were to go up what the civilian side of the house is paying (the ACA website shows coverage for the DW and I for a Gold plan would be in the neighborhood of $16K a year) then my rear is going back to w*rk.
I agree that Tricare Prime is at risk, and I suspect that within the next decade the program will be scrapped for something resembling the ACA choices or even Tricare Standard. However I think the annual deductible will still be capped at $3000 (or even less for some ranks).
Another perpetual proposal is an annual fee for TFL. It has been voted down every year. The last figure I remember hearing was $200/year. My father currently pays $4500/year for his Medicare supplemental insurance.
I agree. Congress has dabbled with the civilian side and is working on more changes. Federal civil service retirement under the newer plan, (FERS), does not have COLA until the retiree hits age 62. Also, other earned income above about $16k will reduce your retirement income, (FERS Supplement), by a calculated amount. This discourages pursuing another career and limits personal freedom.
I can see these kinds of things happening to military retirement pay in the future, also. Congress will nibble at it a little at a time. But I think the changes will affect the new people coming in and others will be grandfathered. As of right now though, I think a military retirement is one of the best things going. You certainly can't beat the health insurance that goes with it either.
I know when I was active duty 30 some years ago, you could retire with 20 years at 50% of pay and a sliding scale above that. I know things have changed over the years since then. Kinda like civil service. What is the present minimum military retirement plan like? I know there is TSP, but any matching, etc? Still 50% with 20?
As far as I know, the "CPI-1%" offset for servicemembers who have joined in 2014 is still in effect. (The legislation has been repealed for everyone else.) We'll see how DoD and Congress feel about that in 5-10 years as servicemembers begin to vote with their feet.
TSP is not matched for the military. The law is on the books, and DoD has authorized the services to use it, but I haven't heard of that happening. The focus is still on bonus pay and re-enlistment bonuses (which can both be put in the TSP).
The current retirement plan is High Three (average of the highest 36 months of pay) at 50% of base pay for 20 years. It's a little less than the Final Pay system you remember, but it still works out to roughly 30%-35% of total active-duty compensation.
There's plenty of Congressional nibbling, but you get the military that you pay for. In 1999 retention (even during a drawdown) sucked so badly that REDUX was repealed. In 2005-2009, even with the Great Recession, the services were throwing out plenty of enlistment bonuses and retention incentives. We're going to see a lot of scary drawdown headlines through 2018, but peace is not breaking out all over.
