Military Retirement to Change

[audette]

I hadn't heard about matching up to 5% after 2 years. That makes it a whole lot better than what I had heard previously (which was only a 1% match, ever).

I expect folks would get grandfathered in, or would at with a certain cutoff in years in. Or, perhaps, the ability to choose between the two systems if they have, say, 5 years in.


I wonder what this will do for senior retention? Probably not an issue currently, but having a chunk in your TSP makes the carrot of a retirement at 20 years a lot less of a pull to stay in that long.

[audette]

Well, still, 5% is better than what you see in a lot of private industry...

[amaristella]

Well. What I see in that article sounds like a good idea. I guess I'd need to see a more thorough number crunching analysis with all the little details, though.

[dcn]

I feel like when this first was approved a few weeks ago I read an article that stated the new system would be for new members who join after a certain date and those currently serving would fall under the current system.

In any case, I think this is great and kind of wish we had an option to switch.

[Beeps (WOT?*)]

Dec 17, 2015 9:15:03 GMT -5 dcn said:

I feel like when this first was approved a few weeks ago I read an article that stated the new system would be for new members who join after a certain date and those currently serving would fall under the current system.

In any case, I think this is great and kind of wish we had an option to switch.

This should be interesting. In the past, (my MIL and SFIL are both government retirees who were employed when the pension system changed a couple decades ago) if you're in service for X period of time, you're not grandfathered in but you will be able to opt-in to the new program and the agency will settle a lump sum into the account to make up for any loss of pension; those who have served longer would be grandfathered in. My ILs were eligible for grandfathering; many of the newer employees (10 years or less iirc) weren't but saw lump sums for retirement accounts.

I like the idea for those going forward who can't or won't make it to the full 20 but will still have some sort of guaranteed retirement and match to incentivize saving for retirement (rather than a simple set-aside IRA which many younger people don't commit to.)

[audette]

Jan 5, 2016 7:33:42 GMT -5 Beeps (WOT?*) said:

Dec 17, 2015 9:15:03 GMT -5 dcn said:

I feel like when this first was approved a few weeks ago I read an article that stated the new system would be for new members who join after a certain date and those currently serving would fall under the current system.

In any case, I think this is great and kind of wish we had an option to switch.

This should be interesting. In the past, (my MIL and SFIL are both government retirees who were employed when the pension system changed a couple decades ago) if you're in service for X period of time, you're not grandfathered in but you will be able to opt-in to the new program and the agency will settle a lump sum into the account to make up for any loss of pension; those who have served longer would be grandfathered in. My ILs were eligible for grandfathering; many of the newer employees (10 years or less iirc) weren't but saw lump sums for retirement accounts.

I like the idea for those going forward who can't or won't make it to the full 20 but will still have some sort of guaranteed retirement and match to incentivize saving for retirement (rather than a simple set-aside IRA which many younger people don't commit to.)

I think I've heard that new servicemembers would be auto-enrolled for TSP contributions (can't remember how much, but I think at least to get the match), and that they would have to later opt-out if they chose.  With the typical hoops to jump thru that getting paperwork like opting out would take, as well...

[Beeps (WOT?*)]

Jan 5, 2016 12:44:41 GMT -5 audette said:

Jan 5, 2016 7:33:42 GMT -5 Beeps (WOT?*) said:

This should be interesting. In the past, (my MIL and SFIL are both government retirees who were employed when the pension system changed a couple decades ago) if you're in service for X period of time, you're not grandfathered in but you will be able to opt-in to the new program and the agency will settle a lump sum into the account to make up for any loss of pension; those who have served longer would be grandfathered in. My ILs were eligible for grandfathering; many of the newer employees (10 years or less iirc) weren't but saw lump sums for retirement accounts.

I like the idea for those going forward who can't or won't make it to the full 20 but will still have some sort of guaranteed retirement and match to incentivize saving for retirement (rather than a simple set-aside IRA which many younger people don't commit to.)

I think I've heard that new servicemembers would be auto-enrolled for TSP contributions (can't remember how much, but I think at least to get the match), and that they would have to later opt-out if they chose.  With the typical hoops to jump thru that getting paperwork like opting out would take, as well...

I rather love this. A lot of younger people don't think about retirement, and it's sooo important to start early. We didn't and are so far behind the 8-ball that we are fortunate that my DH is a high-income earner to compensate. My ILs have a great retirement because of their pensions, and we know a lot of union members who also profited and are able to retire with their pension plans. It's kind of sad to see them going the way of the dodo bird but it's just not economically feasible any more. Make it mandatory and make them work for getting *out* of it so that they have something to show for it down the road. I just hope they adjust the income to make up for the savings requirements so it's not actually a loss of pay for new recruits.

[calmcosmo]

I wrote an article several years ago when everyone thought retirement reform was on it's way and then it puttered out.

The military has always been a delayed compensation model. Over the course of retirement, the pension of an O-5 with 20 years is an average of 2 million dollars. Matching 401k programs don't make up for that 2 million. I would agree that it helps to give men and women who don't stay in 20 years (the vast majority, admittedly) something to take away. But for career service-people it is not as lucrative.

Another part of my research surrounded career for military spouses and the losses they incur over a 20 year career. The average career-oriented spouse loses 40% of his/her earning power due to PCS moves and lack of upward mobility. That money lost is compounded by loss of retirement income and of course the magic power of investments. It's A LOT of money. And unlike the average government worker who can pull the 9-5 for 20 years in DC and be a dual income family if they choose, most military families are required to pick up and move which either forces geographical separation or resigning from work again and again. It REALLY rubs me the wrong way when people say that the military should have the same retirement program as the average government worker. My in-laws were both government employees (Dept of Interior and Postal Service) and they have lived in the same house since 1977. Hardly mobile or worrying about one of them having to leave their job again and again.

When they did the original study on retirement they did not take into account spousal employment or it's impact of overall ability for a family to retire. My husband, who had about 10 years in at the time the study was released, would have left the military had they repealed the pension at that point. If they had, it would have become "too expensive" for him to serve. I have a master's degree and a high earning potential but have taken major his by several PCS moves in a very busy part of his career (we have lived in 4 different states in the past 5 years, and are moving again this fall). He has both an undergrad and grad degree in engineering (from USNA and Johns Hopkins) and has a lot more earning potential in the real world. Pair that with my ability to secure more stable work in the "real world" and it would become completely irresponsible for him to stay in the military without the delayed compensation.

My opinion is that it should be a choice. A choice for everyone - from those in right now with 15+ years and those just enlisting or commissioning. I feel like the military risks losing a lot of very qualified, educated, experienced people because of forcing a retirement system that isn't as lucrative when considering the statistics on spousal employment and combined family income.