Pentagon’s retirement proposal
The Military Times got a hold of DoD’s new proposal to Congress for altering the military retirement system for troops who make a career out of the uniformed services. It’s pretty difficult to understand, well, more difficult than the current “50% of the average top three years of earnings” system, but a lot of it revolves around the Thrift Savings Plan. So, let me tell you now how I’m a proponent of the TSP.
I started my TSP 14 years ago, and on the day that George W. Bush was reelected I had $35,000 in that account by maxing out the contributions in those lean-contribution days. I took a $50,000 loan from the account in 2009 to help buy my house in 2009 and when I retired last month, my account balance was hundreds of thousands of dollars. But, I’m using that as a life insurance policy for my family, not as part of my actual retirement income.
Like I said, I maxed out the contributions for 14 years and adjusted my lifestyle accordingly, because I hate paying taxes. The reason that the TSP works so well is that the costs in the plan are lower than almost any investment company out there. I used to be in the business, so I kinda know about that stuff.
So, my point is that you should be contributing to the TSP, even though the Secretary of Defense, Chuck Hagel is adamant that he does not expect to change the plan for currently-serving troops. We all know how quickly that can change since the DoD is looking for ways to keep their generals and civilians fat and happy and still cut spending – the troops, then, will bear the brunt of the cuts. The TSP is your own insurance policy against those personnel-cut-happy bureaucrats.
The new proposal by DoD seems to be a mix of a reduced defined benefit (pension) plan and the TSP, if what the Military Times reports is true. The current multiplier for figuring pensions is 2.5% (50% of the average of your top three years’ earnings for 20-year retiree) and they want to reduce that to 2.0% (40% at 20 years), with the TSP (which you can’t touch without being penalized by the IRS until you turn 59 1/2) making up the difference.
The Pentagon submitted two plans to Congress for consideration which they say won’t affect recruiting or retention. I don’t know how they can pretend to know that, but The Military Times explains the difference between the two plans;
An important difference between the two options involves the “transition pay.” Under the “partial benefit” plan that reduces retirement pay during the “working age” years and increases it at age 62, DoD would offer a generous lump-sum transition pay that mounts to about 2 1/2 or three years of basic pay. Under the other option that more closely resembles today’s system, transition pay would probably be equal to one-half or three-quarters of one year’s basic pay.
In the Stars & Stripes, they quote a Pentagon spokesman who is adamant to deflect blame from the Pentagon for this proposal;
The Pentagon prepared the report, “Concepts for Modernizing Military Retirement,” for the Congressionally mandated Commission on Military Compensation and Retirement Modernization, which is conducting a broad study of how the department pays its current troops and retirees. The commission’s report is due in February 2015.
“This is not a proposal, it’s not a plan, and it’s not a recommendation,” Pentagon spokesman Lt. Cmdr. Nate Christensen said. “It’s something we’re required to submit to the commission for their use as they work toward an ultimate recommendation to Congress and the President.”
No matter who proposed it, it’s sure to throw some doubt into the equation when the troops are making the decision whether they want to make to make a career out of military service or not. Any change to the current plan will eventually hurt retention and hinder readiness.
But the one thing that ease doubt is for you to begin contributing to the TSP now, no matter what your career status is. And if the Pentagon wants to make the TSP option more attractive to career personnel, they should begin matching contributions, because the last I heard, they weren’t.
Category: Military issues
TSP is absolutely a great system. Just increased my contribution. It is portable as well within the federal government. Going to maximize my payments shortly once I a missing done repaying my Service time towards FERS.
Jonn, you were wise in your maxing out your contribution. I did the same through my career in telecommunications and we just adjusted our living style to accommodate it. The problem in my industry is the same in the military. It is so hard to get a young troop to look ahead 30 or 50 years. To convince them, even with showing them the potential growth numbers, to save now, for later. They want that new car, new big screen, new everything, right now. They just can’t see past their next paycheck. You can only talk to them and arm twist them so much then let them make their choice. But it is a good program and I wish every troop would take advantage of it from day one.
Sparks–ain’t just the young troops. It’s EVERYBODY.
NHSparky that kinda surprises me. I would have thought older, wiser, more seasoned troops closer to retirement would be all over it at close to a 95% rate of participation. Really does give me some food for thought. I know the military pension is good but you need more to last a lifetime, depending on the lifestyle one wants to live. I remember telling young, new employees to jump on it full tilt and even show them the “magic” numbers of compound interest over a 30 to 40 year career. Maybe 2 in 10 listened. They always thought they would have time later. I would argue with them that the lifestyle you become accustomed to now will only become harder to break and cut back on later down the road.
I don’t know if TSP is available to Guard members, I’ll be sure to ask my kids. However, we have always instructed them to max out their 401K contributions where ever they’ve worked, it’s the smart thing to do.
Most large companies are moving away from defined pensions in exchange for matching on 401Ks. It make sense that the Federal government does the same thing. A very few companies have both but that may change as they have to absorb Obamacare costs.
Common Sense You are right. Some time well after I retired from Verizon, they did away with the defined pension plan for everyone. Only the 401K now. It use to be if you went to work for the phone company, the power company and a lot of others, especially the utilities, you took less pay for the pension plan on the end. I got out in time thank goodness. Now they are doing everything they can to upset and aggravate their employees to the max in hopes they will leave and thus reduce the numbers they are already laying off as hard as they can go.
It use to be the old company motto that we are “The Easiest Company To Do Business With and Work For” Now the company motto seems to be, “We’re Not Happy…Till You’re Not Happy!” Sad state of affairs anymore.
By the way…that new motto applies to customers as well as employees!
You can contribute to the TSP while in the Guard. Contributions made while deployed are made tax free.
I’m sure that B. Hussein 0bama will sign off on whatever he can take from us enlisted peasants and hand out to the welfare flunkies as soon as he gets back from his latest vacation, bless his/its heart!!
I contribute to the TSP on both the military and civil service sides of the house. BTW, if you’re federal civil service and you’re not contributing at least 5% of your salary to get the government’s matching contribution, you’re foolish – it’s free money!
Good point. I max out and make my wife do the catch up payment! She is AWESOME!
It is called FERS. Google it.
Damn … Good thing I planned early in 1979, saved ever nickle, and triple dripped.
Oh and I married UP!
So I keep reading about how if DOD retirement is altered then it will do away with concurrent receipt of va disability and retirement. I have a few questions and maybe someone here can answer. Would this do away with the concurrent receipt problem we face today? How would this law affect current retirees?
This plan is no different than FERS:
Member Contrib + DoD Contrib + TSP + SS = what you get.
Any questions?
One other thing. I have maxed and exploited TSP since it started. I have made much more than lost much less and will be laughing my millionnaire ass off in retirement.
BLUF: Great Investment Tool!
Oh … Marrying up helped too!