Source: MOAA analysis of 10th Quadrennial Review of Military Compensation
The red shaded area shows the current retired pay projection over time for a newly retiring E-7 at age 40 with 20 years of service. His/her retired pay of about $24,000 a year would grow using a 3% COLA factor. This chart carries the projection for the expected lifetime (age 85) of a current 40-year-old retiree.
The QRMC plan (blue shaded area on the chart) would reduce retired pay 5% for each year before age 57 (17 years x 5% = 85% reduction), yielding only $3,600 at age 40.
At age 60, the retiree would begin drawing money from a 401(K)-type plan. Using QRMC assumptions and projecting a 7% rate of return, the retiree would draw an additional $13,600 per year until age 85. To be able to draw money beyond age 85, the annual withdrawal amount would have to be reduced.
The Defense Business Board, a bureau of corporate executives and management consultants established by Donald Rumsfeld, has caused a furor in the military community by proposing to turn the traditional military pension system into a 401(k) plan. TPM noted that Defense Secretary Leon Panetta is considering the proposal. CBS reported what the changes mean for our vets:
Their plan, laid out in a 24-page presentation "Modernizing the Military Retirement System," would eliminate the familiar system under which anyone who serves 20 years is eligible for retirement at half their salary. Instead, they'd get a 401k-style plan with government contributions.
They'd have to wait until normal retirement age.
The Military Officers Association of America illustrates in stark terms how this proposal would cut hundreds of thousands of dollars out of military pay. Leaders from the MOAA met with White House officials about the problem, but the answers they received were not exactly encouraging:
White House officials couldn’t offer specifics about what pay and benefits might be sheltered from the worst-case situation of a federal default, but Ryan said, “They assured attendees they care about our communities and are aware of the challenges. They want to keep an open dialogue with us about the progress of raising the debt ceiling and the impact of any such legislation on our communities.”
Not exactly a rousing endorsement of good military pensions.
In 1986 military pensions were reformed far less dramatically than this. That pension cut had such a dramatic effect on retention, the Joint Chiefs pushed to repeal it. It was repealed.
No matter where you stand on the issue of cutting the Defense budget, it should be clear to everyone that career veterans should be the last ones to take it on the chin. There are plenty of places where there is a great deal of money to cut, especially in procurement, weapons systems and the excess number of bases we have around the world. If there is worry about coming up with the extra 12.5 billion to take care of our vets, I suggest a War Tax on the wealthy. I'm sure these patriotic Americans will be more than happy to see to it our vets are taken care of for their service.
Turning the military pension system over to Wall Street probably isn't the best message to send to troops deployed in hostile regions.
If you can attend a town hall with your local representative or senator, go there and let them know what you think about cutting military pensions. You might even recommend they reform the congressional pensions first:
The pension amount is determined by a formula that takes into account the years served and the average pay for the top three years in terms of payment. In 2002, the average pension payment ranged from $41,000 to $55,000. For example, a member of Congress who worked for 22 years and had a top three-year average salary of $153,900 would be eligible for a pension payment of $84,645 per year.
Let them take their own 85 percent cut in benefits.
11:26 AM PT: Anybody who thinks that "grandfathering" in all current service members from the changes is a good idea has got a screw loose. The way these pension to 401k conversions always go is to grandfather folks. That is how they get people to accept the change. "It wont affect my pension, so why should I care?"
Then, after a few years have passed, the pit the ungrandfathered against the grandfathered in order to demand more cuts to those who were grandfathered. The ungrandfathered say "hey...why does that guy get to live it up when I don't?"
That's how everyone gets screwed. There can only be one position: FULL PENSION past, present and future. No exceptions.