There have been many calls from progressives for the government to slash military retiree benefits and an independent commission's call for an integrated active and reserve retirement system would put an end to immediate retired pay for active duty members after 20 years.
Under the proposal, retired pay would begin at age 62 for those with 10 years of service, age 60 for those with 20 years, and age 57 for those with 30 years. "There are people who see military retirement, with its immediate annuity as very generous at a time when pensions are disappearing in the private sector" said a house aide, who asked not to be identified. (Army Times)
Let us take for an example an E-8 with 25 years of service from 1985-2010
In his last three years of service he earns $4499 (as an E-7), $4786, and $4948 in base pay. His high 3 average (which they use to calculate retirement) is $4744 and of that sum he takes home in retired pay 62.5% or $2965 a month, $35,889 a year. Sure seems like a lot, if he lives to the age of 75 the government will have paid him $1,076,400 over 30 years.
Suppose instead this upstanding young soldier had put $100 a month with 200% matching contributions (that's what my company does) for his first 10 years, $150/mo for his next 10 years, and $200/mo for his last five years. The average annual return from the S&P 500 from 1985-2010 was 12.43%. At the end of ten years, with $3600 a year invested, he has $65,000, increasing the contribution to $5400 at the end of twenty years he has $309065, and saving $7200 for the last five he ends with $601,348.
If he moves his portfolio into a more conservative investment earning 6% and is allowed to withdraw the equivalent of his retirement pay at age 45 ($35880/yr) he will still continue earning money on the principal. Withdrawing $35880 a year, he has over the course of time: 5-yr $590,342, 10-yr $575,612, 20-yr $529,525, and at the end of his life at 75 he leaves $446,974 to his heirs. Now if the government had done the same thing with the money it needed to pay for his retirement benefit, almost half a million dollars would go back in the fund. Some will die at 65 some will die at 90, it is these variations that allow the fund to cover everyone.
Effectively the military retirement system is the equivalent of a 401K without the employee contribution and without the age penalty restrictions. With military, federal, state, and other institutional pensions the same general equivalency can be made, the difference between a public and private pension is the government is the fund manager as opposed to a private company. What's sad is that for many years employees with the option to participate in government or private pension options chose the government because they trusted them more, today we see how far that trust was misplaced.
Bernie Madoff is Jealous
The federal, state, and local governments engaged in pension fund management practices that had they been civilian would have landed them in the cell next to Bernie Madoff, and today the progressives blame the retirees for being greedy. Little blame falls on the idolized political candymen who handed out unfunded or underfunded social programs like kibble. Politicians gambled and lost, now it is time to pay the piper and they are more than happy to throw their constituencies to the wolves.
Ask yourself...who's to blame? The retired Army Major, statehouse Secretary, Fireman, Schoolteacher? Or the politicians who played tricks with funding and money that would land them in jail if they worked for IBM? Our politicians pay off one credit card with another, and the Repo-man is catching up.
