Army "Right Sizing"

[Tycho_Brohe]

Yeah, except life expectancy is more like 83 not 73. They may not pay YOU for 40 years, but on average they're paying everyone for 40 years. Using a 7% discount rate is inaccurate. It's a federal government security, not common stock and therefore "risk free" ( except when it's not). An accurate discount rate is the historical 30 year Treasury, which is about 3.5%. You would also want to value it at the day you retire, the day it starts paying out.

One point to make, then I'll lay off the threadjack.
For the discount rate, you would only use the risk-free rate if you were only allowed to invest in risk-free assets. Most of the time, the average return of the stock market (usually the S&P 500) is used as a proxy for the discount rate, since that's what people usually invest their money in. Obviously, if your investing behavior is different, you'd have to adjust it. But going back to the previous example, my pension is worth $125k to me today because if they just gave me that lump sum, and I invested it and got that return, I could basically make my own pension of the exact same payments. As for how it applies to the government cost, I'm really not sure, since I don't know how they handle their float, but they'd be idiots to invest it solely in risk-free Treasuries. Which I realize could be the case.

EDIT: Go figure - "The Secretary shall immediately invest in interest-bearing securities of the United States such currently available portions of the Fund as are not immediately required for payments from the [Civil Service Retirement and Disability] Fund."

 

[Spekkio]

Just to be clear, I'm not talking about what "matters" to you, to me, or to some cosmic sense of justice and morality. I'm speaking strictly about what matters, when the knives are out and the votes are counted, to the members of our legislature. And I stand by my belief that money is what matters to them.

You made another interesting statement, though, about having better uses for your money. What about uses for my money?
If this budget becomes law, then my retirement benefits would stand to lose a significant amount over my lifetime. Just to use round numbers, let's say $100k total. If I, and 10,000 other military officers who stand to be affected by this budget, each donated $2,000 to an advocacy group that would then hire the PR folk, the copywriters, the marketers...You can make a hell of a dent in a niche issue for $20 million. And it would be an EXCELLENT use of my $2,000.

That's how the game is played. But we in the military like to think of ourselves as being above politics and most of all, above money in politics. That's why we lose.

I think you are over-estimating the impact someone can have with individual donations.

My district's representative (who voted yea for the bill along with most other Representatives), has raised over $1.5 million for next year's election. You think he would miss $500, or even $2000 from me? There aren't enough servicemembers from District 3 NY for him to care. He cares more about staying in good faith with the local utility and transportation unions that contribute $10-15k each to his campaign.

We don't have strength in numbers because we all register to vote at our 'home' districts, thus dispersing the impact of servicemembers voting as a bloc, if we even did vote as a bloc. I think you'd have a point if all servicemembers voted for the same or only a handful of Reps and the same Senators, but we don't.

 

[lowflier03]

Military retirement is in line with similar careers that force a person to leave at a relatively young age, so I take issue with Obama's quote linked above.

If they're not going to compensate people for the forced career transition, if they can make one at all, then there's little reason to stay in that long. Might as well get started on the inevitable at an age where you are most marketable.

I think this is going to be the key point for retention issues in the future. Not only has the faith been broken, but whats to keep it from being further broken in the future? And if we are not going to be compensated adequately, then it makes the most sense to get out right at the end of initial commitment for pilots, (the 10 year mark also looks good for other specialties.)

At that point you have gained the highest level of proficiency at your job, (whether it be flight quals/currency in the cockpit, leading your division, driving the ship, leading troops in the field, etc.) Traditionally there is a drop off in actual skills when the transition is made to field grade/O-4, or to E-7 for the enlisted. You are no longer doing your job, you are managing. So why would service members stick out the low pay and risk losing their marketable skills, when the retirement isn't guaranteed. You're better off making the jump to the civilian side while you are young, proficient and marketable. If you're going to be stuck being a manager, why not actually get paid like one (both salary and retirement contributions). Not to mention the increased stress on body and family from the coming 10 years of deployments you would have to look forward to.

I predict this is going to get ugly for retention. Service members have stuck it out for 10+ years of wartime wear, tear, and deployments, and now the goverment says, "thats nice, but don't expect us to honor our side of the bargain."

 

[ssnspoon]

So we should cut $54B from somewhere else? JSF?

The problem with this is the numbers are wrong...look at the CBO website, it is an easy read, only 10 pages, but only 1 paragraph regarding our retirement COLA...NOT $54 Billion, the number they save from us is $6 Billion...OVER TEN YEARS! So, they only save $600 million/year until 2023. Ohh yeah, you will also read where $78 billion is coming from, remember this is money being used to "provide relief from sequester" that money comes from EXTENDING sequester from 2021 to 2023. We are EXTENDING sequester by 2 years in order to get partial relief for one year...makes sense to me

 

[jmcquate]

You yougens don't understand DC math. Nothing is real, because no one knows what the budget numbers are. You'll learn. Don't try to use what you learned in college to understand the way this town works.

 

[smoke_screen]

As someone who got out after 10 I would say that the bonus, this 1%, general incremental comp changes, actually are drivers in decision making. Like taxes. Small taxes influence behavior. It matters to people, it is going to impact retention. Honestly though, who cares about retention... the military is so institutional and middle class jobs hard enough to find, backside of the last 10 years... really I am not worried at all about its impact on national security as a civilian taxpayer, or really about its impact on the efficiency of tax dollars... those seem like trumped up or blatantly fabricated arguments. I think the argument is that military members are repeatedly told that xxxxxxx hard life decision is worth it for financial upside, and then this violates that understanding (i.e. BOL calculator, etc).

Also - regarding the financial impacts of staying in - using the age 45 as a jump off point from the military... I think the home equity you build by getting out and buying a home on a 15 year mortgage, and if married, the "bonus" of having a spouse that can work a normal, fulfilling, convenient job that interests them, (both are electives) are huge factors. I also think that your age-45 civilian earning power is decidedly higher if you start at 30 in the civilian world than retire at 45 from the military and start fresh, so that part depends on how long you plan to work and how you want to live in retirement. Overall - I think its a wash and that if you love it, stay in, if you don't get out, because the aggregate benefits are very close on either path. I once considered staying in purely for financial reasons and that would have probably been a miscalculation.

 

[Spekkio]

You guys keep talking about lower retention numbers like that's a problem in an Army that is 'right sizing.'

 

[Renegade One]

I also think that your age-45 civilian earning power is decidedly higher if you start at 30 in the civilian world than retire at 45 from the military and start fresh...

This just depends. Often true, I'm sure…equally often not true. But the "life value" of a military retirement (with the benefits attached) is something not to be discounted as a part of whatever you define as your "family compensation package" for the rest of your life.

You're right..the "electives" you describe are significant…and huge factors. Overall, good post with lots of good "thinking/talking points" for the community. Thanks.

 

[Recovering LSO]

Interesting research from Pew.

(obviously pulled from a WA site, but feel free to use for your own purposes the next time you cast a ballot).








Me thinks there is a element at play here that has been written about quite a bit during the last eight years. Another good read.

That Senator McCain voted for this legislation, while not surprising, is still troubling...

 

[smoke_screen]

Its a tough one because actually given life expectancy increases, the current benefits are probably unnecessarily generous. People who disagree seem to argue that on a purely emotional level. So Congress and these 67 are probably looking at the facts and realizing that even with the change, we are still "taking care of our veterans." Big time! What they don't see, at least I doubt, is with how big an emphasis, and with what detail, the current benefit package is discussed among the force. So, people have made huge decisions based on it (narrowly) and I don't think you want a scenario where military members lose trust with the earnestness of leadership to stand by its word. At under $10B I think it would have been a bargain... However, again, even when this provision is fixed, the damage is done IMO.

But then again my bias is the Wardroom/Ready Room so I am less certain how much it really matters to the "deck plates."

 

[Spekkio]

The thing with mil retirement is that it's 'one size fits all' for a military that can have unique experiences.

Take case 1: A person enlists as an 11B in the Army and makes a career out of it. He's survived multiple tours in Iraq, but he FTS E-8 and are he retires at 44 years old. He has a wife and 3 children aged 14, 12, and 7. He doesn't have a college degree. While on one hand, his retirement is 'generous' for paying him $35,668 per year to 'do nothing,' on the other he did multiple combat tours and the retirement is not going to support his family. His earning potential at 44 years old with no degree and limited experience in a skillset that exists outside of law enforcement, which he is too old and broken to do. He's got to find a way to make at least another $55-65k to have the same standard of living that he had while in the military. I don't know if you looked at average salaries for high school graduates with no experience, but it's not that high.

So you take away retirement, and this person has a strong financial reason to leave the military after 1 enlistment.

Take case 2: Navy EMC who retires at 42 after FTS E-8. Also has a family of 5, but he used his in-rate training toward his college degree that he earned on shore duty. He has never seen combat. His earning potential is significantly better on the backend because of his background as an electrician. You take away his retirement, he'll probably do just fine.

And there are many cases inbetween.

The military needs SNCOs and senior officers. To get them, it needs to keep people around long enough where making a transition to another career is difficult. And then it will force them to retire in their 40s anyway. So it either needs to compensate people for that, or allow servicemembers to stick around into their 50s and 60s. Otherwise it's financial suicide to do more than 1 tour for many pivotal jobs. You instead should do your 4 years, take your $70k+ in GI bill benefits and go forth in another career. There's your non-emotional argument.

Fun fact: if they raise the min wage to $15/hour, a 20 year E-7 won't even make that much on retirement. But it's 'too generous' and he's expected to live off of it.

 

[exNavyOffRec]

The thing with mil retirement is that it's 'one size fits all' for a military that can have unique experiences.

Take case 1: A person enlists as an 11B in the Army and makes a career out of it. He's survived multiple tours in Iraq, but he FTS E-8 and are he retires at 44 years old. He has a wife and 3 children aged 14, 12, and 7. He doesn't have a college degree. While on one hand, his retirement is 'generous' for paying him $35,668 per year to 'do nothing,' on the other he did multiple combat tours and the retirement is not going to support his family. His earning potential at 44 years old with no degree and limited experience in a skillset that exists outside of law enforcement, which he is too old and broken to do. He's got to find a way to make at least another $55-65k to have the same standard of living that he had while in the military. I don't know if you looked at average salaries for high school graduates with no experience, but it's not that high.

So you take away retirement, and this person has a strong financial reason to leave the military after 1 enlistment.

Take case 2: Navy EMC who retires at 42 after FTS E-8. Also has a family of 5, but he used his in-rate training toward his college degree that he earned on shore duty. He has never seen combat. His earning potential is significantly better on the backend because of his background as an electrician. You take away his retirement, he'll probably do just fine.

And there are many cases inbetween.

The military needs SNCOs and senior officers. To get them, it needs to keep people around long enough where making a transition to another career is difficult. And then it will force them to retire in their 40s anyway. So it either needs to compensate people for that, or allow servicemembers to stick around into their 50s and 60s. Otherwise it's financial suicide to do more than 1 tour for many pivotal jobs. You instead should do your 4 years, take your $70k+ in GI bill benefits and go forth in another career. There's your non-emotional argument.

Fun fact: if they raise the min wage to $15/hour, a 20 year E-7 won't even make that much on retirement. But it's 'too generous' and he's expected to live off of it.

Good examples, I know several people that fit case one who end up working at Walmart, Target, or other jobs that you would not expect someone retiring at the E-8 level doing, I just met on Friday a retired AF E-9 (Senior Master Sgt?) who after 26 years in the USAF is working as the night manager at Motel 6.

I also know several that fit case 2 that have had issues finding jobs because while they have degrees, they lack certifications in the field they want to enter. I myself closely fit case 2, I was able to find a good corporate job and after getting a few certifications just had another company offer me a job that would be a pretty good pay increase.

On your case 2 I would put it "he'll probably do fine in a few years once established in the corporate world"

 

[smoke_screen]

Good points... let me elaborate on Case 1: I would say he is a patriot, a hero, worthy of being held up before the eyes of an adoring nation... and that his financial compensation for volunteering is probably overly generous. Two decades of health care including 3 kids worth of broken bones, etc, on Tricare, financial security while raising his family (layoffs are scarce), highly compensated for the marketability of his skillset, VA benefits including zero down home purchase, mil pension+second career 401k+social security... I think he can work at Home Depot at 44 and will be working alongside other similarly skilled people with families and will make twice as much with the pension while doing it. Do you think it's likely that the average Case 1, if he had not joined the military, would be in any better financial position at age 44 with 3 kids? I'm not sure. I think we owe our freedom to people being willing to be in Case 1, but I also think he is very, very well taken care of given his statistically probable alternative earning potential if he were not accepted for some reason as a teenager, and that he repeatedly re-upped to continue down the Case 1 track. Overall, I am FOR the current pension, but just saying.

 

[exNavyOffRec]

Good points... let me elaborate on Case 1: I would say he is a patriot, a hero, worthy of being held up before the eyes of an adoring nation... and that his financial compensation for volunteering is probably overly generous. Two decades of health care including 3 kids worth of broken bones, etc, on Tricare, financial security while raising his family (layoffs are scarce), highly compensated for the marketability of his skillset, VA benefits including zero down home purchase, mil pension+second career 401k+social security... I think he can work at Home Depot at 44 and will be working alongside other similarly skilled people with families and will make twice as much with the pension while doing it. Do you think it's likely that the average Case 1, if he had not joined the military, would be in any better financial position at age 44 with 3 kids? I'm not sure. I think we owe our freedom to people being willing to be in Case 1, but I also think he is very, very well taken care of given his statistically probable alternative earning potential if he were not accepted for some reason as a teenager, and that he repeatedly re-upped to continue down the Case 1 track. Overall, I am FOR the current pension, but just saying.

I will say he would not be in a better financial situation, and here is why, even with retirement working at HD is going to overall be a pay drop, one that he probably wasn't expecting as what we hear before retirement is "you have all these skills, you will get a good job making good money", yes we have skills, and yes we could make good many IF you are lucky to get THAT job, most don't and it is a surprise for most retirees. The one that didn't join the military is most likely not going to experience that pay drop.

I think in general we do a poor job of setting realistic expectations for our soon to be retirees, but I do think making them aware of true expectations is something that is fixable.

 

[Recovering LSO]

smoke, mirrors, and words

It doesn't matter if your example 2 Sailor never saw the ocean, let alone combat (however it's defined today). He took a job (several times if you count re-enlistments) with mutually agreed upon compensation assurance. If changing the rules now is what makes financial sense - start with the recruiting office now, not the guys who have been re-upping and re-upping under a different set of rules.

This is somewhat similar to what public sector employees in Wisconsin protested over. Big difference, they can strike and they can organize into labor unions.