The price of financial illiteracy

[samclem]

Instead of learning what they can do, fairly easily I may add, they would rather just delegate the responsibility to somebody else for a small fee.

It's possible that any particular (ignorant) client could luck into a competent, ethical FA and that their financial situation will improve dramatically as a result. It is more likely that, if they chose at random, they will choose a remora who will steer them to inappropriate products and suck them dry. IMO, by the time a client has educated himself sufficiently to allow him to choose a competent advisor, that client will be nearly able to do the work himself. Visiting a competent. ethical FA is still a good idea in order to get additional perspective and fine-tuning. Unlike getting your car repaired, I just don't think there's any substitute for self-education and getting your own hands dirty in this area.

 

[kcowan]

Unlike getting your car repaired, I just don't think there's any substitute for self-education and getting your own hands dirty in this area.

Sadly, the part about checking the tire pressure, fluid levels and cleaning the windshield is no longer outsourced. But that is no excuse for no longer doing it.

Just like shopping around for home repairs or electronics, anyone can gain significant insights by interviewing many different advisors.

 

[Texas Proud]

I will chime in again... but not on advice.... but as a taxpayer....

It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....

 

[jclarksnakes]

I will chime in again... but not on advice.... but as a taxpayer....

It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....

TexasProud,
...Agreed but not nearly as rich as the salaries of many of the execs in the companies that people like you and I invest in. Also not as rich as many of the fund managers making their living off our investments. Something to also consider is that with that large an income from their pensions and apparently equally large income from their work these people are paying a very large part of their pensions back to Uncle Sam in taxes. My military pension is far smaller than the couple in question but the combination of my pension and my and DW's paychecks and investment income has us paying more in total taxes than I get in my pension.
Jeff

 

[CitricAcid]

jclarksnakes, this is true. We choose to invest in these companies, however, by our own volition. Can't really decide not to pay taxes one year...

 

[samclem]

It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....

Unlike private industry, pensions of that magnitude are available to any American citizen who obtains a commission in the armed forces and competes successfully for promotion. There were no sweetheart deals to get it. If you believe it is too rich, then write your Congressman with your opinion. These pensions are part of a total compensation package that routinely lags the civilian sector.

Some will be pleased to note that the Government sometimes avoids paying these pensions. Many of those on the USS Thresher didn't get a dime. Celebrate the savings.

(This post replaces a more bluntly worded earlier version).

 

[Bestwifeever]

I know retired second-grade teachers who are getting a higher pension than that (if we figure $70,000 for each to make the combo $140,000 for the couple).... Nothing against teachers, but I think the military jobs might be a little harder to fill and they didn't get the summers off.

 

[Texas Proud]

I know retired second-grade teachers who are getting a higher pension than that (if we figure $70,000 for each to make the combo $140,000 for the couple).... Nothing against teachers, but I think the military jobs might be a little harder to fill and they didn't get the summers off.

My sister was a teacher with 41 years of service... getting in the mid $50s with no COLA.... to me, that is in the range I would think is 'fair'... maybe even a bit more.... but I think the $70K was earned in 20 years

SO... if someone goes into the military when they are 18.... stay 20 years... and start to get a $70K pension with COLA for the next 50 years.... hmmmm, not like a teacher IMO...

I wonder what the 'true' cost of that soldier really is...



OK... did a quick calc.... if the person was getting a 5% raise for 20 years and ended at $70K... and then got a 3% COLA for the next 40.... it is like paying them 2.4X of their salary if we only paid salary... so the 'gap' is not that great IF they did not happen to lose their life along the way...

 

[Texas Proud]

Just a curiosity question... what level do you have to be to GET a $70K pension?

 

[laurence]

Just a curiosity question... what level do you have to be to GET a $70K pension?

I suspect at least E-5 (Commander - Lt. Col in other ranks). How much does a senior manager in the civilian world make?

 

[samclem]

My sister was a teacher with 41 years of service... getting in the mid $50s with no COLA.... to me, that is in the range I would think is 'fair'... maybe even a bit more.... but I think the $70K was earned in 20 years

SO... if someone goes into the military when they are 18.... stay 20 years... and start to get a $70K pension with COLA for the next 50 years.... hmmmm, not like a teacher IMO...

I wonder what the 'true' cost of that soldier really is...



OK... did a quick calc.... if the person was getting a 5% raise for 20 years and ended at $70K... and then got a 3% COLA for the next 40.... it is like paying them 2.4X of their salary if we only paid salary... so the 'gap' is not that great IF they did not happen to lose their life along the way...

- What's "fair" is what the market decides is "fair". Right now the market apparently doesn't think the compensation package of which this retirement plan is a part is such a great deal, as re-enlistment rates are not appreciably changed from years past.

- Virtually nobody in the military is retiring today and getting a $70K. Here's a pay table.
2008 Military Pay Chart

Military retirees get 50% of the average of their last 3 years of basic pay starting at their 20th year. For every year they stay, the percentage increases 1.5%.

http://www.patriotoutfitters.com/2008-Military-Pay-Chart.htmTo get retirement checks valued at $70K per year after just 20 years of service, the individual would have to be a two star general at 20 years. There are virtually none of those.

 

[Texas Proud]

Samclean...

True... it is what the market will bear.... and I think that we are putting WAY to much on the current military.... I want them fresh in case we get into a REAL war... as I said before... this is not 'war'.. the first month was and we kicked a$$....

OK... the pay scale is interesting... I will take a look at it tomorrow...

As to Lawrence... it is according to what size company and where you are located... if you live in the middle of the country.... CEOs might make in the $150s to $250s for a mid sized company...

If you live in NY and work for a wall street or mega bank... you could be a flunky SVP with not much power and be making about $500K with bonus (I knew a couple of these and boy was it a waste of money)....

Believe me.... I am not trying to 'put down' all the great people who defended our country... and a lot on this board.... but if my quicky calculation is correct (and I doubt it)... 2.4 times current salary does seem like a lot... maybe we should pay MORE when they are working and less for retirement.... but that will probably cost us more... who knows

 

[haha]

Samclean...

As to Lawrence... it is according to what size company and where you are located... if you live in the middle of the country.... CEOs might make in the $150s to $250s for a mid sized company...

No way is an O-5 or O-6 a CEO.

Ha

 

[Marquette]

I suspect at least E-5 (Commander - Lt. Col in other ranks).

O-5? E-5 would be a Sgt or there-abouts I think...

 

[laurence]

O-5? E-5 would be a Sgt or there-abouts I think...

Total typo, meant O-5, E-5 is Petty Officer 2nd class in the Navy, and I think Seargant in the other branches.

 

[laurence]

No way is an O-5 or O-6 a CEO.

Ha

Definitely didn't mean to imply CEO, but senior director or VP isn't a stretch. Considering I'm at 100k being a 1st level manager, I don't think it's a stretch. I've got 5 employees, a Lt. Col or Commander may be in charge of hundreds.

 

[RDamien]

Wow. Well assuming they do pull down 240k, that's about what we make. We finance less than 500k as opposed to their 1 mil and I think we're still stretching it. Our renovations so far are under 100k, I can only imagine what they paid.

I dont see how they could save a penny with those numbers, not to mention the kids and other extras. We live pretty spartan, no housecleaner or other amenities.

I just dont see that ending well.

 

[Gardnr]

Military retirees get 50% of the average of their last 3 years of basic pay starting at their 20th year. For every year they stay, the percentage increases 1.5%.

To get retirement checks valued at $70K per year after just 20 years of service, the individual would have to be a two star general at 20 years. There are virtually none of those.

One small correction. It actually increases 2.5% (actually 2.5 basis points) for each additional year. In other words the formula is years of service multiplied by 2.5%. So at 22 years it's 55% of the average of the last 3 years of basic pay (which is only a portion of total pay, not including housing allowance, a food allowance (BAS), any bonuses or incentive pay, etc.).

You're right, $70K per year is very high and they'd have to be a senior officer (0-6 or above) with many more than 20 yrs of service to attain that level. Maybe Nords can clarify on what their rank and yrs of service were.

I just retired at 21 yrs of service as an 0-5 (AF Lt Col) and my pension is $41,244 gross.

With that said, they're out of control and foolish with their money. Typical Americans!

 

[jclarksnakes]

Gardnr,
...Welcome to the forum. Thanks for your service and also thanks for bringing some fresh information to this. I retired in 1993 from the army and was thinking they had to be O6 with more than 26 years to have pensions that large and you have somewhat reinforced that thinking. Hopefully Nords will get out of the surf, dry off and provide more specific info regards their rank and time in service.
Jeff

 

[jclarksnakes]

These people do seem to be totally messed up financially but to me they seem like fairly typical high upper middle class keep up with the Joneses spend spend spend type people. Does anyone have an opinion whether they are more or less messed up than the more typical American family with a combined income of $75K and a $200K mortgage and $50K in other debt?

 

[Marquette]

$70k a year and all they had to do was take an all-expense paid vacation for 20+ years to some tropical locales.... oh, and risk their lives and the lives of their crew and put up with more upper management then I've ever had to.

They can keep it and I'm more than happy to help contribute to that.

 

[samclem]

One small correction. It actually increases 2.5% (actually 2.5 basis points) for each additional year. In other words the formula is years of service multiplied by 2.5%. So at 22 years it's 55% of the average of the last 3 years of basic pay (which is only a portion of total pay, not including housing allowance, a food allowance (BAS), any bonuses or incentive pay, etc.).

Thanks for the correction, you are right (though I don't know of this "basis point" thangee of which you speak--I'm used to basis points being 1/100 of a percent. Neither here nor there). I also didn't bother with the redux/final pay/final three math, just to keep things simple. And, under the latest rules, some folks can stay on active duty and keep accumulating the points for up to 40 years total, which is really funny (for the last year, they would be effectively working almost for free, excluding the housing allowance, etc).

Welcome to the board and thanks for your service!

 

[deserat]

I'll add another wrinkle to the retired military pay - if you are a Reservist, it depends on how many 'points' you acquired and then those points are given a value based on your rank and years of service - I will retire as either a Lt Col or Col in the Reserves - I won't see a check until I turn 60 and that check will depend upon how many points and years along with the rank I acquired. To get what would be considered as an active duty retirement, you would multiply the number of days in a year times 20 years to see how many points you would need to approximate the payout of an active duty retirement - (7300 points) - I have close to 4000 points right now and am eligible for a retirement at 60. Additionally, I can send up to the max amount into TSP -the US government 401k/403B-like self directed retirement financial plan- (defined contribution).

As a Reservist, one also usually (depends on situation) has another job and can have pension benefits or other retirement vehicles available to them (401K/403B, 401A) - although lately it has been difficult for some to do both due to the extreme mobilization and deployment requirements levied on the Guard and Reserve.

So, to get back on thread---these people are making quite a bit of pension if it is both at $70K - they may have been flag officers - if that's the case, then I stand by my comment that they are master delegatees - and based on Nords reply to my comment, unwilling to check the bona fides of whom they trust......too bad - they may just lose that house.

 

[Nords]

Believe me.... I am not trying to 'put down' all the great people who defended our country... and a lot on this board.... but if my quicky calculation is correct (and I doubt it)... 2.4 times current salary does seem like a lot... maybe we should pay MORE when they are working and less for retirement.... but that will probably cost us more... who knows

Well this thread has certainly taken an unexpected turn.

I'm not in a position to discuss the details of these people's rank & longevity without making them easily identified, and that's not my intent. (Dual-military retired officer couples are a small fraction of a percentage of the military.) Together they've carried active-duty ID cards for over 59 years, commanded warships, run shore commands, and worked exceptionally long hours with sparse resources. They've also deployed around the world for a cumulative total of several years away from their kids. While they may be egregiously wasting their current pensions and their financial literacy, I don't have any doubts that they've earned it.

TP, you know how salaries on Wall Street and parts of Silicon Valley tend to be high because the continuity of employment is low? Or for firefighters & police because their jobs tend to be fairly harsh on body & soul? Or for doctors because they spend years going to school and work horribly long hours?

Let's visit the military's death/disability statistics on your workplace sometime, and then you can decide whether or not the pensions are priced correctly. Or have you work alongside the kind of people the firefighters/police get to spend quality time with. Or work the hours that medical interns & residents log when they're learning their trade. It may be your tax dollars at work, but you're gettin' every penny's worth. If the civilian world was paying more than the equivalent of the military pay & benefits then there would be very few people in the military. An entire industry spends a tremendous amount of time, energy, and analysis determining what it would take to hire away that young enlisted technician or that mid-grade officer before they become eligible for a pension.

Over the 30-year lifespan of an average TICONDEROGA-class AEGIS cruiser, it'll consume several billion dollars of construction, fuel, spare parts, maintenance, & overhauls-- quite possibly without ever firing a shot in anger. Its crew will consume several billion dollars more of pay, training, food, clothing, and all kinds of ordnance to be expended just for proficiency. Why, they cruise all over the world just to show the American flag in exotic liberty ports. By any reasonable financial reckoning or activities-based accounting that money is also wasted, especially when you consider that they didn't kill any enemies or break any "real" targets.

Here's another benefit that I hope most don't get from MegaCorp. If Navy enlisted "retire" before 30 years of service they're actually transferred to the "Fleet Reserve" where they can be recalled in national emergencies up to their 30-year point. SamClem and the other retired officers have been too modest to point out that "retirement" means a lifetime recall option "at the pleasure of the President". If things really go in the crapper then us geezer retired officers would find ourselves recalled, given military haircuts & new uniforms, and planted in command centers or staff jobs to backstop the younger active-duty people who are headed for the front. It hasn't happened since WWII and I sure hope it doesn't happen again but the law is still on the books.

I carried an ID card for 24 years to earn my current $37K/year COLA pension plus benefits. When spouse retires this year she'll have been doing so for nearly 30 years and will receive her pension in 2022. If military pay keeps up with the ECI over the next 14 years, then when her COLA pension starts up it'll be about $58K/year (the final numbers aren't in yet) in today's dollars. Go price those COLA'd annuities at Vanguard and decide whether we've been worth it or not.

I'm happy to continue this this part of the topic, but perhaps it would be best as a post starting another thread.

 

[Gardnr]

I'm happy to continue this this part of the topic, but perhaps it would be best as a post starting another thread.

No, I personally don't think that will be necessary. I think you've put this little sidetrack to bed with this post. Well stated.