So how much will military retirees lose if the current retirement system is replaced with what is basically a 401k? Well the Military Officer’s Association of America has done the analysis and it will be hundreds of thousands of dollars:
For example, critics of the current system say it’s unfair the 83 percent of entrants who leave before 20 years of service receive no retirement benefits. The commission’s hybrid retirement package with a vesting 401(k) and government match would be attractive to those who are uncertain of or do not intend to make the military a career.
However, we’ve got serious concerns whether this proposal will draw people to 20 years of service and our analysis shows these changes come at the price of reducing the overall pension value to those that stay beyond 20 years of service — and it only gets worse the longer you stay in service. Our conservative estimates show an E-7 retiring with 20 years of service under the new proposal could lose $262,000 in lifetime retirement value. However, if the same E-7 stays for 30 years and is promoted to E-9, the lifetime loss in retirement rises to $740,000. That’s assuming a 5-percent government match and a 5-percent rate of return in the Thrift Savings Plan. [MOAA]
You can read more at the link and remember this analysis is assuming growth in the servicemember’s retirement investment when they retire. What happens to those who retire during a financial crisis like we saw in 2008 and have their 401k hammered? Also this loss in retirement money would also come on top of other proposed cuts to health care and commissary benefits.
If these same cuts were recommended to for Social Security and Medicare there would be an absolute up roar.
