DoD panel calls for radical retirement overhaul

Discussion in 'Life After the Academy' started by Luigi59, Jul 26, 2011.

  1. Luigi59

    Luigi59 Banned

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    Rest of the article HERE
     
  2. raimius

    raimius USAFA Alumnus

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    Well, they might find out how many people would utilize the earlier exit system...

    Not grandfathering the current troops seems like a pretty rough deal to those who are getting close to 20!
     
  3. hornetguy

    hornetguy USAFA Cadet

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    I'm sure this is going to create quite a long and touchy thread! I agree with raimius on those closing in on retirement.

    Don't know any details, but I have to say I like the idea. If it was me, I like the flexibility this offers and how it seems to mirror the private side retirement. 16.5% a year is quite a bit! That's over $5000 a year for a 2d LT like me when only considering salary and not BAH/BAS/COLA/etc.

    I remember our thread on toxic leaders, too. I know there are many instances where a toxic leader is found out around their 16-17 year mark but is allowed to stay out of pity and "fairness" to 20. I think this has the ability for us to be more selective in that 15-20 year group without causing outrage at people losing retirement benefits.

    OK, just read more into the article. Hum. It's a tough trade-off. It is a win-win scenario for the 83% who leave before 20 but a win-lose scenario for those that stay to 20 or more. I'm also curious about the medical coverage since that is not addressed.

    I have a feeling some replies will make me waver either way. I like the new plan mainly for the flexibility. Would like to see analysis on expected numbers at each pay grade and attrition with this system. Could it reduce the binge and purge cycle? Make it worse?

    I think we'll find the current retirees on here with quite a strong opinion (negative me thinks) on this plan. However, coming from the opposite side with 1 year in and looking at the future, I think I prefer the potential of this plan. Means if I hit 20 I would not receive near the same benefits as I would have, but if I leave early (and I like that flexibility to do so), I won't leave empty-handed on retirement.

    So many questions to ask!
     
  4. AikiBudo

    AikiBudo Member

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    I haven't seen the numbers on this one but every conversion from defined benefit plan to defined contribution plan I've looked at in the past has been done to cut costs and save money - resulting in fewer guaranteed benefits for the participants and a larger burden on them to fund their retirement with additional savings. In large part it is a transfer of risk (and potential reward) from the plan sponsor to the participants. The advantages of defined contribution plans (401k, TSP, etc.) are more flexibility in investing, transfers and withdraws.
     
  5. bruno

    bruno Retired Staff Member

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    I think this is short sighted and that the current retirement plan is a jhuge retention tool for mid-grade Officers and NCO's. It's embracing a civilian model that is IMHO a serious cause of employee uncertainty and dissatifaction and contributes a lot to turbulence in in manufacturing companies that really would benefit from employee longevity and experience. It also enormously understates the value of 20 year retirement for the retiree. Civilian professional employees are at their peak earning potential right around their early 50s- and they got that way by working their salry up thru years of employment. But that's not an option for a military retiree who spent his developmental years amassing fairly unrelated experiences. I know of few military retirees who stop working upon retirement- I know of a number however who took jobs paying less than what their coutnerparts were taking inorder to get into the business. Not being able to draw until 65 would be a huge hit. The benefit- portability of benefits. But while that may be a benefit to those who consider leaving- is it a benefit to the military? In the civilian world it incents employees to walk in the Civilian world- and they do all the time. In the military - do we want to encourage good mid grade NCOs to leave at 10-12 years? That's when they start to be really the bedrock of the force.

    Conversely- while it sounds good to encourage retention of senior people longer (another frequently mouthed objective in conjunction with this proposal)- reality is that promotion will slow down and we will contribute significantly to the greying of our leadership in a profession that values for highly practical reasons - youth and physical ability (at 54 - I can not lead 22 year old Infantrymen up hills . That matters ALOT. Maybe in some support functions and in some Officer positions age and physical capability aren't as critical- does an AF Finance or Personnel Officer need to be able to lift loads and lead by physical example? Probably not-in fact he's probably more useful at 50 than 25. But that's not true of the Marine or Army Infantry Command Sergeant Major who's physically worn out at 43 after 25 years of humping hills while getting shot at. The truth is that age impacts your ability to be an effective military leader, just like it does a professional athlete. ) While I'm intrigued by the thought of valuing different types of service differently for retirement purposes- it's too hard to manage- that would just not fly very far.

    Finally- it is unconscionable that they would change this for the current force- it's not ethical and it's probably open to legal challenge. They were enlisted under one set of circumstances- I can't see how they would get away with not grandfathering currently serving personnel. So overall- I think this is a short sighted budget cutting proposal masquerading as an improvement.
    Hornetguy:
    The reason that us old guys (who by the way already are getting our pensions so we aren't the ones really in this fight- I'm in a no-lose situation here) are probably mostly against it- is not that I don't value change. I do- but I don't value change for the sake of change or change that has some seriously negative impacts without offsetting benefits. I'm against it because I am in a position to evaluate the value of this program both personally and for the Army, and because I am now in a position to see how capricious 401K based retirement programs- (and if you think otherwise about 401k plans you must have been sleeping thru 2008/2009 when the Market just tanked. Lot's of employees lost their jobs and suddenly discovered that their retirement plans wer eworth 25-45% less than they had been a year earlier. That's the model they want you to adopt?)
     
    Last edited: Jul 27, 2011
  6. goaliedad

    goaliedad Parent

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    I think how a person views defined benefit vs. defined contribution retirement plans changes as one ages.

    The young kids just starting out who don't have a longer term view of their career just can't see where they are going to be in 20 or 30 years. Any money they can see in their pockets today looks good.

    Where I work, there are 2 pension plans you can choose from when you start. One is a traditional defined benefit plan and the other is a defined contribution plan (401k style) where you manage your funds and are fully vested from day one.

    Almost everyone who hires in under the age of 30 chooses the 401k style pension plan, and almost everyone starting over the age of 35 chooses the traditional pension.

    What is more interesting is that there seems to be a divide in the culture between the 2 groups. The managers who are in the 401k style pension seem to have shorter horizons on the projects they choose to pursue than the managers in the traditional pension. They also seem more interested in the image of the institution than the institution itself at times where at the traditional pension participant seem to accept the image of the institution as it what it is.

    For organizations that are evolving rapidly with the changing world, this shorter visioned thinking clearly can outmaneuver a longer visioned organization, posing serious challenges to the continuation of that longer visioned organization.

    However, all organizations mature eventually and must turn to the longer vision as the revolution eventually burns itself out. If it doesn't, eventually a risk taken in the shorter vision model will fail catastrophically.

    The military is too mature of an institution to be changing its vision from longer term vision and committment to a shorter term vision with regards to its personnel. The recruited soldier of today will not be outmoded in 20 years, unlike the newly minted techie hire in private industry. In fact s/he will be more valuable with time. In this model, making the incentives favor longer employment (over a shorter career) is worth the money.

    However, in these times of perceived financial doom, there are many with a very short vision of the military who don't understand the impact of changing the incentives to give relatively greater favor to short term employment. They think they can take the employment model of the high-tech startup company (where there is no institutional loyalty) with no incentive to stay onboard past today's project and effectively apply that to a function that will need loyalty and continuity in leadership in prepituity. We can't afford to do this to the institution that the world depends upon to keep stability worldwide.
     
  7. bruno

    bruno Retired Staff Member

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    GoalieDad - really nicely put- you've articulated my thoughts far better than I did. The whole 401k thing was originally a way to improve on defined benefits plans- (many companies offered them as supplements to defined plans allowing the company to reduce it's obligations under then common pdefined plans) but it rapidly became seen as the way for companies to get out from under the cost of traditional defined benefits retirement plans altogether. They then sold them as an improvement with "portability" as the improvement and something that is an adaptation to the "new" work ethic in which employees aren't expected to stay with the company for long. However - IS THAT A GOOD THING in an organization that believes in training, increasing levels of complexity and responsibility and loyalty? Is the Army (or the other services) a better place if it follows that model? I don't think so.
     
  8. Pima

    Pima Parent

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    This is a short sighted plan IMPO. As others have stated they are not thinking about what will motivate the member to stay pass whenever they want to leave.

    Many in the flying world leave @ the 14 yr point or the 20 yr and a day to become a busdriver in the sky. What usually makes them stay until 20? The dangling of the retirement pay. Anyone who has been a busdriver knows that they don't make a lot those 1st few yrs and if you have a family the retirement pay is how you will survive, if you can take the 401K and live off of it even with the tax implications, which would not be huge due to the low pay, you would be more likely to leave.


    Think about it, even currently the economy plays a huge impact regarding retention rate, but in good times many leave without the 401 option and that usually messes with promotion boards, but they had a safety net for planning those numbers. That net was knowing the majority of them who hit the 12-15 yr point would stay for the 50% retirement and they could plan accordingly. Remove that net and every yr personnel will be running around and trying to correct the balance. Throw in the economy like how it drastically changed in 08 and now it is out of control for long term strategic planning.

    Remember if the Flags stay or leave it will impact the Field, which will impact the Company and that will impact how many are needed to come out of SA/ROTC/OCS. It is all inter connected.

    OBTW, for youngsters in the AF that are rated. There wasn't always 2 flight bonuses, and WSOs didn't always have a bonus. It came around when the economy was great and the 14-20 yr groups were leaving in droves (02). They don't hand out 6 figure bonuses because they like to see the smiles on your faces Oct 1st. every yr. They do it because they need the experienced fliers to stay until at least 20. You know those guys that trained you at UPT, what is their nickname? I think they are called Grey Beards!:shake: Many of them are around because they stayed for that 50% pay when they retire since there is no 401. Not sure how many would if they had 15 yrs of a 401 K maxing out, and one 6 figure bonus they could put away would hang around for the last 5 if there was no financial perk for them to stay. Honestly, would you? Would you do 1 more deployment, 1 or 2 more moves, maybe a remote probably all 3 because they can (they have you to that 20 yr marker now), leaving your wife and children, missing birthdays, holidays and anniversaries, or would you take that 401 K and BOLT?

    I am pretty sure you would take the 401. Bullet and I would have taken the 401 at the 17 yr. marker. without even thinking about it for 1 second. Because we only had the 50% or nothing option dangling over us, we moved again, bought another home which we now have to rent due to the market, forced the kids to attend 2 HS, I gave up my career again, all for us to return to the place we left 3 yrs earlier. Yes, we opted to do that, but the reason why was because his other option would be a 1 yr remote to SKore if we wanted to stay here. Remote with 3 teenagers = IMPO insanity! That 401K option would have meant we could have stayed and financially be better off now since he would have left on Friday in his uniform and returned on Monday in a suit at the exact same pay, plus the 401K intact, with 25 yrs of it growing.


    That is why this is totally short sighted, or as we say in the Real Estate world, THEY ARE TOO BUSY JUMPING OVER THE NICKELS TO PICK UP THE PENNIES!
     
    Last edited: Jul 29, 2011
  9. Christcorp

    Christcorp Member

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    I like the TSP program that the military has. It allows individuals; especially those who may decide to not go 20 years, the opportunity to save and invest in their future.

    I can see possibly reducing the 20 year retirement plan, to somehow go hand in hand with the TSP. But to eliminate the 20 retirement plan totally I think is a bad idea. I currently work for the DOT. (State level). They have both. Similar to the current military. They have a retirement plan; I.e. minimum of so many years; the longer you work here the more you get; have to be "X" years old to receive the benefits; etc... They also have a deferred comp plan. Similar to a 401K, but it's a different section of the tax code. The employer (State) doesn't contribute much to it. This dual plan gives the employees flexibility in their futre.

    My ONLY PROBLEM with the article of eliminating military retirement at 20 years, is that they think most Americans are idiots. "Many Are". They think we can't read or understand what they are writing. One of the strongest points made in support for eliminating the 20 year retirement, is that the Pentagon is being forced to try and cut 400 billion dollars. And that this NEW PLAN will save the military/federal government LOTS OF MONEY. Do you know how long it will take to see these savings??? It will have absolutely NO IMPACT on the immediate goal of trying to save 400 Billion. There is no way that you can take a soldier/seaman/airman/etc... with 17 years, and tell them they are under a NEW SYSTEM, and they won't get a retirement. They can't save enough in their pseudo 401K in 3 years.

    I can see implementing such a program for new recruits. Even for those with LESS than 10 years in. But that means at least 10 years to recognize the savings. You can't thrust this upon an individual with 19 years in. And if everyone agrees with that, then there will be arguments that you can't force an individual with 18 years to go this route instead of the 20 retirement they were promised. That's why a 10 year arbitrary program would be the only acceptable plan. And even that could be debated.

    And we won't even get into all the past promises the federal government/military broke with their military members. I admit, the military can spend to much. I believe more than the Federal Government as a whole has over spent on pork/pet projects. This spending needs to be stopped. The majority of wasteful spending is NOT in the military. It's with federal programs that shouldn't even exist, or should be handled at the state level. Unfortunately, once the government starts spending money on a project, especially social programs, they don't know how to stop spending. Especially because they have made their voting base DEPENDENT on these programs. Instead, they blame the government spending problems on large users like the military. Even if they are a Necessity compared to their numerous other programs. It's easy to blame the military.

    If the feds weren't WASTING money on most of these other programs, and military spending was more wisely watched, we wouldn't even be in this position, and military pay, retirements, and benefits wouldn't even be an issue. It's only an issue, NOT BECAUSE it's excessive, but because the feds have wasted so much money on their feel good social and pork/pet projects, that they don't have enough money to do what they want. As such, they want it from the military. They use a a large chunk, and therefor can be BLAMED.

    But I digress. Such a new military retirement plan would be ok if it was limited to new recruits and those with less than 10 years. Also; in order for it to work, our economy has to be stable. Most people lost 40%+ in the stock market crash of 2008-2009. They still haven't recouped their losses. This plan is great for those who don't want to make the military a career. But it's typical liberal redistribution of wealth. Give the person with 5,6,7...10,12, years money from the backs of those who COMMITTED THEIR LIVES to the military. From those who didn't decide to bail on the military because the economy got good again or because a war was coming and they might have to deploy. I came in in 1978. I went through Iran hostage, grenada, Libya, Beruit, Panama, Guld war, gulf Part deux, terrorism at Khobar Towars, etc... I retired in 1999. Was I directly deployed to everyone of those events? No, but I was willing to. And I did deploy to many of them. I didn't leave when the economy recovered in the 80's or bloomed in the 90's.

    In other words, I believe that an individual whose is truly WILLING TO SERVE, in good times and bad, and commit their lives and their family's lives to the military, should be REWARDED for that sacrifice. For the others, the TSP is a great program. If the military/feds really care about those who don't stay 20 years, this is a great plan. But there's a difference between risking your retirement income when you're 25-30 years old, being 40-45 years old with 20 years and risking everything on the stock market. Oh well, that's my opinion. I'm just upset that they are PISSING on us and trying to convince us that it's raining. None of this helps today's 400 billion or reducing debt/budget.
     
    Last edited: Jul 29, 2011
  10. kp2001

    kp2001 USMMA Alumnus

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    One aspect that hasn't been addressed is that I foresee this causing a HUGE shortage of physicians in the military.

    Without the 20yr full retirement benefit there is almost 0 reason for a physician to stay in the military beyond their initial obligation. The difference in pay for the vast majority of physicians in the military is just too big for people to stay if they don't have some "awesome" retirement package waiting for them.

    So, all the physicians who are able get out, then guess what that does, it takes away all the senior physicians who train the junior physicians and therefore the military no longer has a Graduate Medical Education program meaning they can't train any new physicians. So now we rely on the civilian programs to train them just when they are talking about cutting Medicare reimbursement which is directly tied to civilian residency funding. Therefore there are less civilian training spots available.

    Oops, now we have no way of training military physicians just when our members who are returning from war need us most.

    Not good, not good. I can tell you personally I will be getting out as soon as possible if this plan goes into effect. There just isn't a way for me to create a retirement fund that is worth anything if I stay in the military with this proposed plan.
     
  11. goaliedad

    goaliedad Parent

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    And experience like yours (specific for military medicine) doesn't get developed as well in the private sector.

    A scary thought just crossed my mind though. Once they see the rush for the exits, do they compound the first mistake with a second mistake called "stop loss"?
     
  12. aglages

    aglages Parent

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    Change the retirement program and THEN tell people they can't leave?:eek:
     
  13. kp2001

    kp2001 USMMA Alumnus

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    I can see this plan happening in the future. In my mind though for it to be implemented it will need to happen like other changes in recent history to the military retirement system.

    It will start with those now joining. Those already in will be "grandfathered" into the old system. I would also guess that they might offer those already in the option of either the old system or the new and we will have to make a choice that is irrevocable (is that even the proper word?).

    It sounds like the REDUX/TOP3/etc choice that some have.
     
  14. Pima

    Pima Parent

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    My prediction is that in yrs to come to stop the exodus the military will be forced to hand over insane bonuses to retain members, and in essence the cost saving issue becomes moot.

    Look at 98 for example. The economy was great, but the military was losing that 10-15 yr group because pay was lagging. There were some great pay raises back at that time, in double digits for yrs for certain grades/yrs. What will the govt have to do to keep them in that type of economy if they can walk with their 401K?
     
  15. bruno

    bruno Retired Staff Member

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    AJ Bacevich had a column on this today which I personally think is right on target.
    http://www.washingtonpost.com/opini...y-retirement/2011/08/16/gIQAk1IMQJ_story.html

    ..
     
  16. goaliedad

    goaliedad Parent

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  17. bruno

    bruno Retired Staff Member

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    In Tom Ricks blog foreignpolicy.com, Robert L. Goldich posts a pretty convincing rebuttal to the move to change Military retirement:

    http://ricks.foreignpolicy.com/
    I can't think of anything to add. The man belted this right out of the park.
     
  18. patentesq

    patentesq Parent

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    If anything, the senior NCO Corps should be the ones to decide which retirement system works best for them (weighing factors such as retention, budget, etc.). There is no reason that we can't have separate retirement systems for officers and enlisted, because as you point out, the interests aren't necessarily aligned.

    I agree with the blog post that it's not right that benefit issues tend to be, unfortunately, officer-centric. One of my peeves as an 0-1 was that I had a higher moving allowance than my platoon sergeant (E-7). As an O-1 fresh out of the officer basic course, I think all that I owned in the world was a car and the contents of a duffle bag. The E-7, in contrast, had over 15 years in service, a wife, three children, bicycles, furniture, etc. Didn't make sense to me at all.

    Couple of more thoughts:

    1. When my service obligation was complete, I recall having to confront the question of whether to pursue a long-term military career or whether to make my mark in the civilian sector. One of the key considerations was retirement. I recall thinking that staying in a few more years and saving some more money before graduate school would not help retirement, because to do that, I'd have to stay in for at least 20 years. So I decided to separate. But if I had known that I would be accruing retirement gradually each year, then I would have likely stayed in a little longer and saved more money. I suspect that under the proposed system, we will see fewer "five and dives" for this reason, swelling the O-3 ranks over the short term (I suppose this means more retention boards).

    2. If the purpose of this plan is to lure the folks with 5-15 years of service to separate, the benefits of these savings won't be realized until 9-19 years from now when the Class of 2015 and new enlistees reach that mark. Hopefully, by then, our budget issues will be under control! Also, if we see a brain-drain of mid-career officers and enlisted leaving the military 9-19 years from now, our future readiness will take a hit, and the military would be forced to provide financial incentives to maintain readiness levels (which can potentially negate any expected cost savings).
     
  19. bruno

    bruno Retired Staff Member

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    I think that it's important to be honest about the effect that the new retirement paradigm(to use his phrase) has had on civilian companies. There is no longer an expectation of long term employment in most companies. The reliance on the 401k and portability has spawned a transient workforce. That has some benefits to the organization and the individuals, but IMHO it is counterbalanced by the downsides for the organization and for the individuals. The individuals become highly disposable- and in good times reciprocate by walking for the first attractive offer they see that will increase their salary. So companies compete for in demand talent pretty fiercely and employees pit them against each other. That's ok if you can afford to have a company go under if they can't get the right talent, or if the required skill is easily lured from one organization to the other. But what organization does the Army go up against to lure in mid-grade NCOs (or officers) when they suddenly lose them at 12 years? You can't pick that up when you need them- in baseball terms - there is no draft where one team can go get an experienced pitcher from another when they have a hole in their lineup. You have to grow them and retain them within the organization. So the guys making the argument tha tthis is good are doing so becasue they see portability as good - and from some individual perspectives it might be good for them- but only if they leave. So adopting this is an incentive to leave just when you need them most.

    Secondly, I believe that in many MOS's there is an equity issue. I would be all in favor of establishing a baseline for 20 year retirement by assigning a point value to MOS's with danger and physical demand placed on each MOS. The truth is that in an era of "jointness" we gloss over the reality that the immediate danger laevels of some jobs and the physical toll and capabilities required for some jobs are vastly different. We waive lots of flags when a unit comes home from deployment, but the time in theater for an AG soldier working in the APO is pretty different from the SSG Squad leader out on a COP in Kunar or Helmand or Fallujah. The one is in danger, and is literally beating his body to pieces every day humpng - the other is doing a job away from home. Both are necessary, but it isn't necessarily right that they are equally valued in terms of retirement, and equally as important: a 50 year old can work in an APO or in a personnel center and be a top performer. But the physical demands on those NCO's in direct combat units pretty much precludes a career longer than 30 years. In an Army or Marine Infantry Company or Battalion- you can not lead if you can not physically perform and it's the truly rare 50 year old who can carry as much for as long and as fast as well conditioned 18-20 year old. But that might not be true for an AF Senior personnel or logistics NCO. He's had a responsible and important career- but not one marked by physical danger or abuse and as he progresses he/she may in fact become more valuable- not more beat up. So- perhaps the 20 year mark isn't the point where we wish or should see them start to consider going.

    So the proposals for change would incent people to leave early in order to cash in on their peak earning potential on the outside, or will incent the organization to treat the personnel in the organization as simply disposable resources (which is absolutely what happens now with Civilian companies- "Have a bad quarter or forcasting one? No problem- let them go and we will hire temps or outsource the work if things ramp back up faste than expected."). The guys making these recommendations are the same guys who created the civilian systems over the years. They are absolutely only bottom line driven and generally they have done so with the expectation that not only the individual benefits, but the industry itself is portable. Shut it down/ move it/ outsource it are all options open to them and considerations like equity to employees and life and death resulting from employee competence aren't really considered. But is that really the template to follow for the US Military??

    Again- I'm a beneficiary of the system already- which btw allowed me to take a job at lower pay than my peers would have received in order to get into a company at mid career. It would have been significantly more difficult to have been hired if I had to command the same salary as my peers with 20 years of directly applicable experience would expect. While I had plenty of leadership experience- I had no experience with the things that my business counterparts had: profit and loss statements; product and market development, inventory turns or returns on investment. (Very few military officers do deal with the real fundamentals of business).But I had potential and experience in a fast paced world and I was a cheap hire for the company and I could afford to be because I had my military retired pay - which is the story of many of my retired military brethren. So without that- how likely is as the average mid grade NCO or Fieldgrade NCO to stay in? Deferring retirement pay until they are in their 60's make sit almost a requirement that get out to start getting directly marketable experience that will pay off while they are raising families, buying houses, saving for college. IMO I think that Mr Goldich is more right than not in this piece. This is a bad and fundamentally short sighted idea put together by bean counters who have given very little thought to the implications.
     
    Last edited: Sep 8, 2011
  20. bruno

    bruno Retired Staff Member

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    For those who really believe that this has any real positive elements to it- consider the last months in the stock market. Right now- my retirement check is going to be worth as much on Oct 1 as it was on July 1. But just imagine the uncertainty of the value of your retirement if it is indexed to the market. The Dow was trading at almost 12,800 2 months ago- after a summer of stupidity, it dropped an additional 390 points yesterday and is at 10733. It undoubtedly will stagger back over time- but it sure would be an issue if you expected to retire this summer only to discover that a significant chunk of your 401k is worth 20% less than it was.
    I really don't think that military people should be confused as to what this is. From a military members perspective- this is a definite constriction of a valuable benefit and all of the discussions about portability and equity for those who leave before 20 years is just smoke screen- just as much of the civilian world has discovered. An honest discussion of this would start by selling this not as a benefit to any segment of the military, but rather as a cost saving measure by a cash strapped government. People at that point can argue whether we are willing to remove one of the key personnel components of what is the most professional military establishment in the world. It may be that we as a nation are at the point economically where we have no choice (I think that there are some functions of government that should go before we radically hit the heart of the defense establishment, but that's the voters call) but I would like to hear that argument - not some disingenuous argument that calls this a benefit targeted at bringing "equity" to mid-grade officers and NCO's who leave before 20.
     

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