...Reshape military benefits, add civilian programs

[tsptalk]

Panel would reshape military benefits, add civilian programs

"The military should transfer future military members and retirees to federal civilian programs like the TSP and the FEHBP to cut costs and modernize its benefit systems, according to a new commission report released Jan. 29.

"The Military Compensation and Retirement Modernization Commission recommended the military move from a pension system that rewards 20 years or more of service to a blended plan involving a pension and Thrift Savings Plan contributions.


"Under the current plan 83 percent of service members leave the military without any retirement benefits, while the proposed plan would give retirement benefits to 75 percent of service member because of its shorter vesting time, according to the commission."


More: Panel would reshape military benefits, add civilian programs

 

[Boghie]

This would be a very smart thing to request...
Those 83% get nothing, and I am not really impressed with TriCare...
The remaining 17% receive benefits at the whim of future politicians honoring past promises...

I would welcome an automatic 5% going into TSP before the military member pays a cent. Then match it to 5%. For an E1 the initial government contribution would be 928/year. If the E1 contributes 5% the annual contribution would be $2,946. The E1 would contribute $982 of that - or about $41/pay period out of a gross check of $774/pay period. The total amount going into the 401(k) would be $122/pay period. This on a gross salary of $18,564.

If the Perpetual E1 is 19 years old and his salary goes up by the inflation COLA than here are the retirement numbers:

• Annual Starting Salary: $18,564
• Starting Balance: $0
• Average Inflation: 3%
• Contribution: 5% (resulting in an initial $2,946/year)
• Average Return: 8%
• Retirement Age: 65
• Ending Balance: $1,801,717
• Annual Income: ~$35,000

Folks, that ain't bad for our 46 year E1. When our E1 retires as an E1 he/she will be able to pull out twice his/her annual salary inflation adjusted. But, we know that someone 60 years old makes more than an E1. So, does this look like a good idea. Yup...

And, if the chap serves four years he can move almost $14K to his/her new employers 401(k) or his/her Traditional IRA. Actually, since he/she is still at a low income tax rate after four years these assets can get migrated to a Roth.

Finally, I am using an average return of just 5% over inflation. The S&P500 averages more than 7% over inflation. Our E1 will have to suffer on a bit more than $70K/year inflation adjusted if he sits in the 'C Fund'.

 

[Boghie]

Just read the linked article. They have some weird benefit at 8 years and use estimates as of an E7 while talking about 3% contributions and earning 7%. However, the documentation states that a military member would get the same TSP benefit as we do. That reduces the above, so here goes:

If the Perpetual E1 is 19 years old and his salary goes up by the inflation COLA than here are the retirement numbers:

• Annual Starting Salary: $18,564
• Starting Balance: $0
• Average Inflation: 3%
• Contribution: 5% (resulting in an initial $1,856/year)
• Average Return: 8%
• Retirement Age: 65
• Ending Balance: $1,135,094
• Annual Income: ~$22,000

If he/she sat in the 'C Fund' like BirchTree than this would be the result:

• Annual Starting Salary: $18,564
• Starting Balance: $0
• Average Inflation: 3%
• Contribution: 5% (resulting in an initial $1,856/year)
• Average Return: 10%
• Retirement Age: 65
• Ending Balance: $2,022,628
• Annual Income: ~$45,172

The numbers will very likely be significantly higher because salary increases are higher than inflation (promotions over E1 salary). But, the ending balance will be more subdued because a smart investor would be taking risk off the table at age 55 onward. Finally, I use a retirement duration of 20 years which is a bit short. And, even more finally, for some reason the military member (like us) would also get a pension. Personally, I would wipe out the pension and enhance the match as stated above. What 19 year old should be investing (whether from his check or as a benefit) in the 'G Fund'. Yuk...