Can I make it on my military pension?

[target2019]

I've read a dozen articles about the pension cuts, and I am surprised that this went through the house so quickly. The way this is being described, it is a 1% cut in the yearly cost of living adjustment. Am I wrong in thinking this does not cut the base pension, but definitely slows the growth of the pension until the retiree is 62?

Do I also understand correctly that the pension and growth each year is not touched for those who are disabled?

I've heard this discussed at work, and there is a lot of confusion.

 

[samclem]

I've read a dozen articles about the pension cuts, and I am surprised that this went through the house so quickly. The way this is being described, it is a 1% cut in the yearly cost of living adjustment. Am I wrong in thinking this does not cut the base pension, but definitely slows the growth of the pension until the retiree is 62?

Do I also understand correctly that the pension and growth each year is not touched for those who are disabled?

All you've written is right. In 2016 the COLA is CPI -1/4%, in 2017 the COLA is CPI -1/2%, and starting in 2018 and evermore it is 1% less than the CPI. For the typical military retiree this will result in approx 18% loss in real pension spending power at age 61. There is supposed to be a one-time catchup at age 62, at which full CPI COLAs resume, but that seems like something that is likely to be eroded in the future if this initial deal goes through--and it definitely will unless the Senate rejects it (now it looks like they'll pass it, unless senators get some education on what they are doing/what this means).

From a Tom Philpott column:

The cumulative effect would be to cut the lifetime value of military retirement by roughly $83,000 for a typical enlisted member who retires at age 40 after 20 years' service. The typical officer retiring at age 42 after 20 would lose about $124,000.

. . .
The Ryan-Murray deal, said Hayden, reneges on assurances by Congress in setting up the Military Compensation and Retirement Modernization Commission last year, as well as promises from President Obama and his defense secretaries, that any substantive changes to retirement would be "grandfathered," impacting only future generations of members. Current retirees or serving members were to be protected.
The budget deal, said Hayden, "basically shoots the grandfather."
"I have to think anyone who signed on to this doesn't understand the full effect it will have on purchasing power of promised retired pay," Hayden said. The message being sent to the current force and younger retirees is, he said, "they just changed the rules on the benefit you signed up for."
To do so without the armed services committee holding a single hearing, and without any analysis conducted on the impact on force readiness, said Hayden, is "absolutely insane."

 

[Nords]

I'd appreciate it if anyone has a link to the text of the actual legislation, not just an article on a media website. I'm working up a post on the topic, and I have plenty of links from the usual military media sites.

I'm curious whether such a retroactive change is even legal, let alone de facto. Does MOAA file suit in federal court first?

I suspect that the bill will be passed with the 1% COLA reduction intact. Then Congress (and the military advocacy groups) will spend the election year fixing the problem. But those of you who are old enough to remember REDUX may also recall that it took over a decade for DoD & Congress to understand the consequences of their actions.

 

[samclem]

Nords,
Great to see you!
The deal that passed out of the House was " H.J.RES. 59 ". I'm looking for the text of it now, will append it to this post if/when I find it.

Added: Here's a page that is supposed to contain a link to the final version.
http://thomas.loc.gov/cgi-bin/query/D?c113:6:./temp/~c113Us3kOl::

About the legality of it: I haven't heard anybody provide a reason why it would be illegal/unconstitutional.

Subsequent edit: I think this is a much better link to the proposed deal. See Sec 403 (pg 53 of 77 in the .pdf)
http://walter.thehill.com/sites/default/files/amendment1_0.pdf
Also, this version doesn't show any CPI -1/4 % or CPI -1/2% phase-in, just a CPI -1% adjustment every year starting Dec 31, 2015.

 

[braumeister]

About the legality of it: I haven't heard anybody provide a reason why it would be illegal/unconstitutional.

Sure it's legal. Not much different from previous retroactive maneuvers.

First pass: "You'll have free health care for life."

20 years later: "Oh, well, we weren't technically authorized to say that, so never mind."

 

[youbet]

Sure it's legal. Not much different from previous retroactive maneuvers.

First pass: "You'll have free health care for life."

20 years later: "Oh, well, we weren't technically authorized to say that, so never mind."

And even if they were "technically authorized to say that," they could still chop already earned benefits on their whim.

 

[powerplay]

Here is a link to a 4 page summary of the Bipartisan Budget Act of 2013. The summary is dated Dec. 10, 2013 and the link is from the budget.house.gov site.
The changes to military retirement are on page 3 of the summary.


http://budget.house.gov/uploadedfiles/bba2013summary.pdf

 

[samclem]

I added to my previous post. To repeat:
I think this is a much better link to the proposed deal. See Sec 403 (pg 53 of 77 in the .pdf)
http://walter.thehill.com/sites/defa...endment1_0.pdf
Also, this version doesn't show any CPI -1/4 % or -1/2% phase-in, just a CPI -1% adjustment every year starting Dec 31, 2015.

 

[Nords]

I added to my previous post. To repeat:
I think this is a much better link to the proposed deal. See Sec 403 (pg 53 of 77 in the .pdf)
http://walter.thehill.com/sites/defa...endment1_0.pdf
Also, this version doesn't show any -1/4 % or -1/2% phase-in, just a -1% adjustment every year starting Dec 31, 2015.

Here is a link to a 4 page summary of the Bipartisan Budget Act of 2013. The summary is dated Dec. 10, 2013 and the link is from the budget.house.gov site.
The changes to military retirement are on page 3 of the summary.
http://budget.house.gov/uploadedfiles/bba2013summary.pdf

Excellent, thanks guys.

The best advice I have for these situations is that if a single point of failure (like this one) can derail a retirement plan, then the plan didn't have enough safety margin to begin with.

OTOH my retiree COLAs have accumulated to 32.1% between 2002-2014, and now I have to do some spreadsheet math to come up with impact that this legislation would have had over that same time. (Instead of looking up COLAs between 2002-2014 I'm just going to go with my own 1099-Rs.) This finagling with CPI is one more reason that we should all hope for an economy that can sustain a low-inflation policy.

 

[BLS53]

Well, I'll be 62 in 2015, so I'll only be affected a year. Just thankful for the compounded full COLA's I've gotten over the last 19 years.

I am a little surprised at this 1% thing. All along, I've been expecting the Chained CPI, which historically is about a 0.3% cut from the current formula. My sense is that Paul Ryan pulled this 1% idea from some of the states that are doing it in pension reform.

 

[target2019]

Trying to understand if this is a retroactive cut.

 

[BLS53]

Trying to understand if this is a retroactive cut.

God I hope not. That would mean all present retirees owe the government a boat load of money.

 

[BLS53]

Why should you be shocked? That same change was foisted on Federal employees thirty years ago in 1984 ---- to include Law Enforcement and Firefighters who usually retire a bit earlier than most with 20 to 30 years service.

If I recall, that change came through legislation. Not as part of a fiscal budget.

 

[samclem]

Trying to understand if this is a retroactive cut.

If "retroactive" means "reducing benefits that were already earned through military service" then it is certainly retroactive.

A non-retroactive cut would be "Present servicemembers, you will keep all the retirement pay you have earned to this point in your career. That monthly amount will always be increased by the full CPI every year, just like we've always promised. But from this point forward, any monthly retirement amount your accrue on top of that will not receive the full CPI COLA every year, that amount will receive a COLA of CPI -1% every year. There will be a catchup when you are 62, your checks will be restored to the amount they would have been if we hadn't made this change. Present retirees: Of course you will be unaffected--a deal is a deal and you met your half of the bargain. Thank you."

Doing it the second way avoids breaking the promise: Servicemembers can decide whether they want to keep working toward retirement, or take a different path. Doing it that way would assure nothing was being retroactively taken from those who already fulfilled their end of the bargain that explicitly existed throughout every day of their career.

 

[MichaelB]

This cut is tough for service members in or nearing retirement. More so because there was no pension underfunding, as has been the case for recent public sector pension changes. It will be interesting to see what other members think, especially those in the armed forces.

The discussion will be all the richer if we can keep it focused on pension and retirement and away from politics and other unrelated topics.

 

[samclem]

Another point on the existing proposal: It reinstates TRICARE Prime eligibility for 171,000 retirees who were to be kicked out of the program (because they live too far from a military hospital--though why that should matter to TRICARE baffles me). It's a one-time reinstatement: move 2 miles to a new house closer to the hospital but out of your present ZIP code and you've lost eligibility again.

Here's an article about it.

Uncle Sugar takes with one hand and gives with the other . . .

 

[steelyman]

This cut is tough for service members in or nearing retirement. More so because there was no pension underfunding, as has been the case for recent public sector pension changes. It will be interesting to see what other members think, especially those in the armed forces. The discussion will be all the richer if we can keep it focused on pension and retirement and away from politics and other unrelated topics.

Agreed. I was not in the armed forces (unless you count the REW patrol) but I know about cuts. I think it can be difficult to adapt.

 

[clifp]

Before the thread gets derail. McDevin if you haven't purchased Nord's book The Military Guide to Financial Independence and Early Retirement you should.

Also start reading his blog here

 

[haloFIRE]

Quick Math

Did a few simple calculations based on my anticipated retirement date, age at retirement, and estimated retirement. My quick hip shot shows me losing roughly 65K. I'll rework my calcs to factor the compounded loss, suspect that will add another good chunk.

Running a few scenarios to see how much additional time I'd need to serve in order to make up the lost buying power between age 51 and 62. My quick SWAG tells me I'd need to work an additional 2.75 yrs (ballpark) to stay where I'd planned to be. Good news is at age 62 I'd be ahead of where I had planned. That said, don't think I can stay sane in the current environment for another 2.75 yrs.

Heck of a way to treat those already retired, and folks like me that have planned for decades and are close to retiring.

I started thinking about ER as a teen. Besides wanting to serve the Nation, the primary driver for me enlisting, and later earning my commission was the retirement plan. There were many times while I was deployed that I thought to myself, "suck it up....in a few years you can ER". Well, maybe that's just a few more years off now.... Wish I could believe that. I think this is just the first step down a very slippery slope of reductions.

 

[timwalsh300]

This finagling with CPI is one more reason that we should all hope for an economy that can sustain a low-inflation policy.

Maybe I'm interpreting this wrong, but wouldn't low inflation be worse for the pension recipient if this change takes effect? If inflation ran 2%, the resulting 1% COLA would be only half of what's needed to maintain purchasing power. If inflation ran 10%, the resulting 9% COLA comes a lot closer to matching inflation.

The -1% formula seems very arbitrary.

EDIT: Playing with a spreadsheet, it looks like the amount of inflation actually makes very little difference over a 20 year period. In the 20th year, I see a loss of purchasing power of about 19% with very low inflation (1%, i.e. zero COLA), and about 17% with very high inflation (15%).

Tim

 

[samclem]

If I'm thinking about this right, every year the real purchasing power of your retirement check will be reduced by 1% (since an increase by the CPI rate would be "keeping up"). I don't think it matters much whether the CPI increases 2% or 20% per year: 20 years into retirement you are 20% behind (a little less than that, because the part you never got isn't reduced in the future).

Right now there is a "catch up." I expect that soon the age for that catchup might ("logically") be adjusted to match the retiree's SS Full Retirement Age.

Also: I note the legislation refers to "working age retirees," I think the implication is very clear. It seems to me that this compensation was earned and is now due. Whether a retired soldier, sailor, airman or Marine gets a job after fulfilling the requirements for this pension is not germane.

 

[Gatordoc50]

I think that deficit reduction will try to be accomplished with shared sacrifices. We have raised taxes on high income earners, put price controls on medical fees, and raised SS retirement to 67. There will be more to come. Specifically, I run my retirement numbers with a 30 % reduction in investment value, figuring that is about what is coming in the way of SS and Medicare cuts and tax changes.

 

[timwalsh300]

Regarding the "working age retirees" language, you are absolutely right. A lot of the people are looking at this from the perspective of "they don't really need the money," as if the pension is a kind of social welfare program, as opposed to "this money is due because of a contractual obligation."

I've heard people make similar arguments about military healthcare: "Why is it fair that troops and their families get free government healthcare but other Americans don't?" A surprising number of critics fail to recognize that service members have an employee relationship with the government, just like the critics have with their MegaCorp, instead of just a citizen/taxpayer relationship.

Tim

 

[target2019]

Yeah I'm with you! It certainly is cause for concern. However, i think military retired pay / disability will be the last benefits touched by the government. This would cause riots in the streets especially after the past 11-12 years of constant deployments and wars. I anticipate future retirement benefits being changed for those entering active duty, as I don't think it's sustainable for our government to keep paying future pensions, but I seriously doubt that they will fool around with the entitlements that were promised to those that so bravely served this nation in the past.

The Tricare, I expect to go up. So not sure what to think about that.

Devin,
I read all of your posts in this thread, and have general advice for you. Make sure you read and re-read advice, as it can fall between the cracks. The idea of reading the book mentioned is a perfect start.

The way you're gathering advice and all is similar to what I do. It is not the quickest route, but you get to ask a lot of questions and look at various scenarios. The base pension you're working from is well-deserved, but you see how things change in just a few months. I'm sure that at the time of your August post most of us would wager that mil pensions would not be touched. This is a very good example of how the unexpected can upset a plan. If you retirement dream is built on additional pillars, it will be more difficult to knock off course.

For now at least, it seems that some of your pension won't keep up with inflation, but at 62 will reset. Still, that's 20 years, and legislation can change anything as you've seen.

The part of your plan where you continuing working and wife gets a tech degree is fantastic. That has to happen, and it will add another pillar to the plan. But it will take 20 years of work and saving.

Your own job is what is causing the concern. Right now your plan stands on two pillars (pension and current job), and you want to quit. BTW, so do I, but I am waiting for megacorp to lay me off instead of quitting. I'm 20 years ahead of you, and have no pension (but wife will get one). We have at least six investing spaces (pillars) to support our retirement. None are large enough to support our plan alone. That is why we still work--to build more support into the plan.

Back to your job. Turn it into something that works for you, if possible. At least for now. If there is a way to cut the number of days you must go to the cube farm and eat b/s, by all means do that.

Keep gathering numbers and facts as best you can. Use all the tools to model and predict, and take some time to look at all of the future needs in depth. Health care is one big wild card, for instance.

Whatever way you go, I wish you well.

 

[target2019]

Regarding the "working age retirees" language, you are absolutely right. A lot of the people are looking at this from the perspective of "they don't really need the money," as if the pension is a kind of social welfare program, as opposed to "this money is due because of a contractual obligation."

I've heard people make similar arguments about military healthcare: "Why is it fair that troops and their families get free government healthcare but other Americans don't?" A surprising number of critics fail to recognize that service members have an employee relationship with the government, just like the critics have with their MegaCorp, instead of just a citizen/taxpayer relationship.

Good points. This made me think of some of the discussion in other threads about what is happening to megacorp retirees. The plan that was promised (or you thought was promised) is not delivered, and the money to be paid to offset costs will go un-used, as the plan being offered this year is way more expensive than going into the ACA marketplace.