Should the Military stick with its retirement program, or move to a 401K style retirement system?

SSG Gerhard S. — Thu, 06 Feb 2014 07:41:19 -0500

<p>It seems that the current system leads to a dead-end for many service members who don't serve 20 years.  This includes the majority of military personnel.  So after 10, or even 15 years of service a service member could leave the service, or in a downsizing environment be encouraged, or forced to leave, and end up with nothing.  A 401K type system would allow for contributions throughout one's career, long, or short, and can be taken with the service member whenever he/she leaves the service. </p><p> </p><p> I understand there is the issue of defined benefit vs defined contribution, but the crux of the issue lies in the fact that the majority of those who serve leave with very little as far as retirement goes.  It's also important to note that the earlier one starts saving for retirement, the greater the benefit, and a 401K system would get new enlistees and officers on the right track of saving for retirement whether they decide to make the military their lifelong career, or as a spring-board toward future civilian careers.</p>

Response by SFC James Baber made Feb 6 at 2014 8:52 AM

SFC James Baber — Thu, 06 Feb 2014 08:52:49 -0500

I think that could be feasible as long as the grandfathering was in place for the prior SMs that had already retired. Although I am a little biased on the fact that I did 27 and don't feel that anyone who fails to do at least 20 with the exception to medical should really be entitled to any type of retirement whether it be traditional or 401k as the main purpose is for making a career out of the military not doing 5,10,15 and then getting out. You receive special or extra benefits for dedicating your life to the service, pension, medical, access to commissary/PX/BX/NEX, discounted things on post, etc., So again I am a little biased in that aspect.

Response by SSG Andrew Dydasco made Feb 6 at 2014 10:06 AM

SSG Andrew Dydasco — Thu, 06 Feb 2014 10:06:01 -0500

SSG, the TSP is vitrually a 401(k). As a matter of fact, it's BETTER than a 401(k). And I was under the impression that contributions made to the TSP may be transfered to another retirement plan upon separation from federal employ.

So, what I'm saying is, you can still serve only 10 years, and have the contributions you've made to the TSP (which is the federal government's version of a 401(k)) transfered over to a 401(k) once you find a new job that is non-federal.

Response by Capt Whitney Davis made Feb 6 at 2014 10:44 AM

Capt Whitney Davis — Thu, 06 Feb 2014 10:44:54 -0500

I think you are asking an excellent, and very important, question here SSG. The current military retirement system is extremely expensive and leads to some perverse incentives when combined with the "tenure" policy that kicks in when service members reach certain ranks. For example after a Marine is promoted to Major at 12-16 years of service the retirement program encourages him/her to stay until 20 years whether or not their performance is up to par (Let me be very clear here, this is an intentionally vague example, and is not meant to disparage or characterize anyone who serves or has served 20 years).<div><br></div><div>The military pension system is the most generous system for any employees that I can find. More generous than any private company. More generous than fire fighters and police officers as well. I can go on, but I think everyone gets the idea. It can be said that our service members deserve this, but the fact is our country can no longer afford it. Continuing to demand pension benefits that an employer can no longer afford is partly what led to our government having to bail GM out and could very easily lead to a loss of all benefits when the country's love for her troops fade as does memory of our last 2 wars.</div><div><br></div><div>Additionally, it is important to keep in mind that 73% of the military never sees 20 years. That means that the vast majority of our warfighters see no benefit from our retirement program.</div><div><br></div><div>A 401(K) would go a long way to fixing both of these issues. First, the government could match a very generous percentage of every individuals' contributions and still not spend nearly as much as they currently do on retirement. Second, a 401(K) that starts on day one and is vested immediately would ensure that every service member has a nest egg, if they desire it, when they leave the service. </div><div><br></div><div>Obviously, current retired pensioners should maintain their benefits and I would argue that a one time government contribution to current service members' 401(K) accounts could be made to make up for any service given prior to the change. A formula based on number of years served, deployments, and overseas posts could be used to determine what size of payment needs to be made.</div><div><br></div><div>This system would be more equitable to all service members and cheaper for the government. Even better, it would be portable to future career opportunities.</div>

Response by SFC Jason Porter made Feb 6 at 2014 12:57 PM

SFC Jason Porter — Thu, 06 Feb 2014 12:57:28 -0500

As Long as the retired personnel and current Americans that are still serving are grandfathered in! My worries is that they yank it like they did with the retirement cola not using the grandfather clause. In my opinion the 401K is garbage and is only as good as the market! This would be just another slap in the face in the dwindling benefits the military is dealing with for career service members. But if they choose this route will it be worth the 20? or will Americans serve less? We shall see

Response by SFC Stephen P. made Feb 6 at 2014 2:48 PM

SFC Stephen P. — Thu, 06 Feb 2014 14:48:11 -0500

Someone who serves 3-5 years on active duty early in their life has sufficient time to reintegrate into the private sector without a whole lot of lost earning potential. Beyond that, your marketability grows at a slower pace compared to civilians.

A 401k, as with most retirement savings accounts, has special penalties if withdrawals begin prior to the generally expected retirement age (around 60 or so).

Since I will qualify for retirement at the age of 38, and the likelihood of securing a comparable salary is remote (11B and 79V don't translate enough to the private sector), I would need to dramatically adjust my lifestyle without the current pension system. Even if I serve until RCP, I would need to wait 15 1/2 years before I could collect on a 401k without penalty.

Additionally, market investment based retirement plans carry a good deal of risk. I am reluctant to subject long time service members to that sort of uncertainty.

I think a good alternative would be to restructure the continuum of service to make non-regular retirement the new norm. We could impose restrictions on the length and frequency of active duty tours (e.g. a 3 year tour every 10 years) so service members will need to maintain some kind of civilian employment.

This would reduce the impact of sudden of adjustment to the private sector upon military retirement, while at the same time significantly reducing the cost to the government.

Of course the main problem with retirement in both the public and private sector is the the inflationary monetary policy which makes it impossible to save a sufficient sum to provide for your own retirement.

Response by SFC Gary (Bigsarge) Portier USARMY RET. made Mar 12 at 2014 8:17 PM

SFC Gary (Bigsarge) Portier USARMY RET. — Wed, 12 Mar 2014 20:17:20 -0400

I have a 401k (TSP) and I say stay the same. I have not done well with 401k. You get out of 401k what you put in plus any match if any and what the stock market don't take. if you start early your chances of winning at 401k is better @ 25% or more of your pay for say 30 years.

Response by LTC Private RallyPoint Member made Nov 17 at 2014 7:34 AM

LTC Private RallyPoint Member — Mon, 17 Nov 2014 07:34:50 -0500

I think this discussion is flawed if the edict is that we MUST change the retirement system. The Rand study needs to show us that this area is the area that is easiest to modify with the greatest amount of savings.

Are we wisely spending money procuring equipment for wars that we may never fight? Are we being efficient with costs to equip the force with new uniforms (for operations and training in garrison or PT)? Has there been analysis to determine if it is cost effective to analyze and change ARs and our doctrine so frequently? Is there a study that determines what other costs/pay/benefits COULD also be on the table that could save/reduce our personnel costs.

Retirees made it -- one could say that they are able to get into another career, that they can do this and that...but retirees invested the time and ASSUMED THE RISK. They completed their end of the bargain. Reward them. The thanks alone for a CAREER of service to military retirees who complete 20 years or more should not be trivialized by percentages, which as I stated above, really don't compare to other costs in the big picture. One less ship? A few less fighters? Less tanks (what tank force are we going to fight and where)?

While I am a retiree now, my beliefs in honoring and supporting are careerists has remained constant. I'm not interested in attacking an area in isolation -- compare the impacts on this benefit with other potential cost savings and let's see what makes the most sense then.

Response by SFC Pete Meyer made Nov 17 at 2014 1:08 PM

SFC Pete Meyer — Mon, 17 Nov 2014 13:08:37 -0500

Hell these guys sound like they should be running for office...

Response by LTC Paul Labrador made Nov 17 at 2014 6:32 PM

LTC Paul Labrador — Mon, 17 Nov 2014 18:32:19 -0500

One thing to remember, though, is that a military "pension" is not really a pension, in the sense of a retirement fund like a 401(K), it's really more of a retainer fee. When you retire, you don't really leave military. You merely move to the retired roles and are subject to recall at any time.

Response by Lt Col Private RallyPoint Member made Nov 21 at 2014 8:50 AM

Lt Col Private RallyPoint Member — Fri, 21 Nov 2014 08:50:47 -0500

I think it would be good to give people leaving early than 20 years something better than a pat on the back.

Response by SPC Jack Hunt, JR made Nov 21 at 2014 11:52 AM

SPC Jack Hunt, JR — Fri, 21 Nov 2014 11:52:15 -0500

I have no opinion on this subject and it doesn't effect me, so I would like to add that the first step I feel should be taken is to educate service members on finance and investment. If I had known about Roth IRAs and compound intrest I wouldn't of had to depend on a pension of any kind.

Response by SFC Private RallyPoint Member made Feb 24 at 2015 10:27 PM

SFC Private RallyPoint Member — Tue, 24 Feb 2015 22:27:35 -0500

I would leave the retirement system as is. I think if you change to a 401K type system if it going to effect the retention rates.

Response by MSgt Keith Hebert made Feb 25 at 2015 3:59 PM

MSgt Keith Hebert — Wed, 25 Feb 2015 15:59:41 -0500

Great points
I was in the army guard and coming up on 9 years in and trying to decide whether to reenlist or get out.
So I did what ever shoulder does , when the and talked to the Shirt. Here was his advice.
"If you are below 10 years TIS then go ahead and get out but if you are at 10 yrs or more TIS stick it out and get the retirement. "
I took his advice and ended up doin another 16 years.
I guess I said all this to make one point.
Yes the retirement system is expensive, but when you considering the small amount of military that actually retire, not that expensive.
And then even you really want to get in the weeds, the guard retirement is really jacked up.
I retired at 44 years old and have to wait until I am 60 to start drawing money.
Well my rant is done

Response by SPC Jan Allbright, M.Sc., R.S. made May 1 at 2015 9:34 AM

SPC Jan Allbright, M.Sc., R.S. — Fri, 01 May 2015 09:34:36 -0400

Here is some late breaking "news"

Just for a comparison .. my 401K lost about 40% of its value during the last recession.
Do you lifers want that?

http://www.militarytimes.com/story/military/pentagon/2015/04/30/dod-rejects-tricare-reform-does-not-oppose-retirement-changes/26638471/

DoD rejects Tricare reform, does not oppose military retirement changes

The Pentagon for the first time has offered a detailed response to a slate of proposed military pay and benefits reforms, flatly rejecting the idea

Response by CW4 Craig Urban made Aug 21 at 2019 10:53 PM

CW4 Craig Urban — Wed, 21 Aug 2019 22:53:28 -0400

401K is good but believe me if the market crashes or we go into a recession 401K's will be worthless