How solvent is the military pension?

[braumeister]

A retiree with 50% or greater rated disability now receives full retirement pay AND full tax free VA disability pay. There is no offset or decrease in retirement pay.

True. And for those with greater disability, I'm strongly in favor.
But I much prefer my lower disability rating and the offset.

 

[OAG]

Not sure how "solvent" it is or will be but it has been fine for 35.5 years so far (VA too). I suspect it will last longer than I will.

 

[W2R]

** Side note for the admins**
When I "Search entire post" for the phrase "How much did you spend" posted by me during "any date", it times out and generates a database error. When I run the search again and limit it to the title of the post, I get the thread I was looking for.

Either the database is too big, or it can't handle a poster with 26,000+ posts, or it can't search back 12+ years. I think this is more of a problem for the vBulletin coders or the website host's server parameters, not your database. But it would certainly be nice to have a search run longer before the server cuts it off.

Nords, I did "Search entire post" for the phrase "How much did you spend", for username Nords, and got 1599 posts returned almost immediately. http://www.early-retirement.org/forums/search.php?searchid=4028314 I wonder if perhaps it was a temporary problem?

 

[BLS53]

I think the COLA is the key to why military retirement has been such a good deal.
Mine began in 1989, and my retired pay has increased by a cumulative 92.7% since then. The CPI inflation has increased by 92.06% in the same period, so I'm holding my own very nicely.

But I don't see this lasting forever.

The trick is to live somewhere, where the COL is considerably below the national average that they base the COLA's on.

 

[BLS53]

They may tinker with COLA's and healthcare, but as far as the pensions going away for those already retired, no. If that happens the end time is near, and evaporation of pension income will only be one facet of day-to-day survival concerns.

 

[Redbugdave]

They may tinker with COLA's and healthcare, but as far as the pensions going away for those already retired, no.

I agree.

About the nickel and dime part...Click on Item #8. (Below)
Item #7 also affects what ChainsBeGone pointed out. (Below)
You may also want to look at some of the other items on the list, by scrolling down, too. It has to be approved, though. And I don't want to say the sky is falling.
This is the 2014 version.
Summary Table of Options | Congressional Budget Office

 

[Tadpole]

Boy why not just one line that reads - Eliminate all veterans benefits for Vietnam era vets.

 

[beltonr]

I'm coming late to this interesting thread, but feel right in the middle of it. I retired as a Colonel with 26 years in 2001 (3 months before 9/11). I went to work in the defense industry and will retire completely next month (January, 2015) at age 61. Since 2001 I have been investing my entire retirement pay equivalent - plus a little - rode through the 2008 downturn, and believe I'm ready to do this. I've worked hard on my retirement budget. My military retirement pay plus a 2% annual withdrawal from assets will meet my budget figure. That's only for 5 years until I hit 66 and start drawing Social Security, which will be roughly the equivalent of my 2% annual withdrawal. I have continually checked, rechecked and run numerous calculators and everything comes up positive. Military retirement is the centerpiece of this plan, along with (relatively) inexpensive Tricare/Tricare for Life (after 65) health care. Yes, I'm confident the military pension will continue, with possibly small to non-existent COLAs, depending who's running the government. I'm thankful to have it . . .

 

[unclemick]

As a non military type - my non cola pension comes from a defense contractor I avoid any reading of the history of French and British military pensions of times past. A lot of the trouble was due to past currency devaluations (especially for ex pats) and I think in one case(British? - a PBS tv program) a requirement to relocate home to spend the money.

heh heh heh - hopefully we here in the good ol USA understand 'fiduciary'.

 

[friar1610]

I'm coming late to this interesting thread, but feel right in the middle of it. I retired as a Colonel with 26 years in 2001 (3 months before 9/11). I went to work in the defense industry and will retire completely next month (January, 2015) at age 61. Since 2001 I have been investing my entire retirement pay equivalent - plus a little - rode through the 2008 downturn, and believe I'm ready to do this. I've worked hard on my retirement budget. My military retirement pay plus a 2% annual withdrawal from assets will meet my budget figure. That's only for 5 years until I hit 66 and start drawing Social Security, which will be roughly the equivalent of my 2% annual withdrawal. I have continually checked, rechecked and run numerous calculators and everything comes up positive. Military retirement is the centerpiece of this plan, along with (relatively) inexpensive Tricare/Tricare for Life (after 65) health care. Yes, I'm confident the military pension will continue, with possibly small to non-existent COLAs, depending who's running the government. I'm thankful to have it . . .

Don't know what your expenses are but I should think you will be more than fine. I retired at 58 with O-6 pension/28.5 years. Worked as a BB for 6 years and saved a lot but really didn't like it so retired for good. Finances have been pretty easy in retirement. Like you, military retirement is the centerpiece but I feel a lot more comfortable with a nice cushion in case the military retired benefits are reduced (relatively speaking) in the future. Good luck.

 

[World Traveler]

We have done what you are planning to do. It will be 18 months at the end of next week since we retired. I understand your concerns, we had much of the same ones, particularly DW, who is fearful that the benefits that we rely upon will be diluted in the future. I scoffed at this at first, but after last year's retiree pay COLA challenge, I'm not so sure. There are no guarantees, but we have no regrets taking the plunge.

We have done what we can to mitigate the risk and what we've done falls in line with much of the advice given on this thread. We have socked away funds in TIRAs, Roths, TSP, and taxable accounts to cover the unknown and big emergencies. At O6, we were able to save about half of my pay every month so the funds increased rapidly after that point. I didn't stay to 30 as I didn't want to live on the East Coast anymore, but financially, it wasn't necessary to stay and it gave us the freedom to leave the Service and be grateful for the memories and opportunities that Service life had provided.

Our lifestyle fits easily within the retired pay, but keeping your cash flow positive and expenses low is key. Here in Colorado, it's easy. If you retire in the D.C. area or a higher cost of living area it could be a challenge.

Great post and sound advice.

 

[texasdiver]

One thing to think about if you are dumping current savings into the TSP (as you should be) or traditional and Roth IRAs is that you will have an 8 year gap from your retirement date at age 52 and age 59.5 when you can start taking withdrawals from your additional retirement savings without penalty.

For most people I think that miniscule risks to the stability of a Federal pension is greatly outweighed by the far greater risk is that life's uncertainty will throw additional costs at them. Just make sure you have a plan B or "cushion" as others put it which could either be investments or earning potential of some sort.

 

[Nords]

One thing to think about if you are dumping current savings into the TSP (as you should be) or traditional and Roth IRAs is that you will have an 8 year gap from your retirement date at age 52 and age 59.5 when you can start taking withdrawals from your additional retirement savings without penalty.

For most people I think that miniscule risks to the stability of a Federal pension is greatly outweighed by the far greater risk is that life's uncertainty will throw additional costs at them. Just make sure you have a plan B or "cushion" as others put it which could either be investments or earning potential of some sort.

I get this position from a lot of readers who dismiss tax-deferred investing for precisely this misguided reasoning. It's not the whole picture, and because of this lack of detail a lot of people are missing out on TSP & Roth IRA contributions.

The issue is that younger servicemembers (or civilian employees) think that they can't tap their tax-deferred accounts until they're 59.5, so they're not going to "risk" locking up their money for years and years of their lives.

The reality is that they can attempt to maximize their tax-deferred contributions for decades and then, just a few years short of retirement, build up a cash stash by shifting their contributions to taxable accounts. In the case of military retirees, they're frequently starting a bridge career and won't need to tap those tax-deferred funds early.

For those who think that they can't possibly live without being able to touch their tax-deferred accounts before 59.5, here are two simple methods:
1. Anyone can withdraw their Roth IRA contributions any time without penalty.

2. When a TSP or a conventional IRA is converted to a Roth IRA, then five tax years after the conversion the principal of the conversion (but not the gains) can be withdrawn tax-free and penalty-free. Most bloggers refer to this as a Roth conversion ladder because you convert a year's worth of principle five years before you'll need it and repeat the process every year until you're 55 years old. By the time the conversion ladder ends, you're over age 59.5.

Of course there's always the 72(t) SEPP, but planning ahead with a cash stash and the other two methods seems a lot easier.

Early Withdrawals From Your TSP and IRA After The Military - Military Guide
Funding The Gap: "I Need Money From My TSP!" - Military Guide
How Should I Invest During Retirement? - Military Guide