Reserve Retirement Update

This guy looks too young to be retired...

This guy looks too young to be retired…

There’s some official word out for Reservists and the impact of the new “blended” retirement system now. Actually, it’s a month old, but I noticed it just the other day on the Navy Reserve Homeport site. Forgive my tardiness, but I hope I can at least provide some amplification.

They posted a very handy chart showing the basics of the program. There is nothing shocking, but I was anxious this summer to see if anything would come down because in all the initial press, only the Active Component was referenced – there was nothing specifically about how the Reserve Component would be affected. The Department of Defense has now rectified this shortfall.

My concern was this – since the baseline of military pay is so much lower for a Reservist than an active member, matching five percent TSP contributions are five percent of a much smaller number. It was conceivable things might work a bit differently for a Reservist, with that in mind. But it looks like the fundamentals remain the same: there is still a reduced annuity, matching contributions to the 401(k)-style system, and a bonus check at the 12-year mark.

So a few notes on each, in the order presented above:

Annuity

Here’s how the annuity calculation works. If you are a Reservist, you derive your years of service by adding up all the points you have and dividing by 360. Then you take that number, multiply it by 2.5, put a percent sign after the result, and multiply it by the average monthly pay of your last 36 months of service (using the active duty payscale). The new change is that the 2.5 becomes a 2.0, so the final result will be 20 percent smaller than before.

Let’s do a couple scenarios under the old system and new, using simple numbers for easy math. Let’s say someone earned 5,000 points in a career and ended his career with an average base pay of $6,000 a month (had he been on active duty).

LEGACY SYSTEM
5000 / 360 = 13.89 years of service
13.89 x 2.5 = 34.725 percent of base pay will be monthly annuity
34.725% x $6000 = $2083.50 monthly

BLENDED SYSTEM
5000 / 360 = 13.89 years of service
13.89 x 2.0 = 27.78 percent of base pay will be monthly annuity
27.78% x $6000 = $1666.80 monthly

The question is, can our member with 5,000 points make up a difference of $416.70 a month with contributions from a Reserve salary? That takes us to…

Thrift Savings Plan

So, it should go without saying that you should max out your contributions if your employer is willing to match them. If you don’t, you are voluntarily turning down a part of your compensation package – the money has already been set aside and all you have to do to get it is invest in yourself. If you don’t do anything and the military just does its obligatory one percent contribution, then, no you won’t make up that gap. So this section is not for you.

Simple math again. I’m going to assume a service member who makes $10,000 each year from Reserve service, including monthly drills and twelve days of Annual Training. Oddly, this member was never terribly junior but also never gets a raise over twenty years, so we’ll call her average. If this average member contributes five percent of that year’s pay, it equals $500, which the government matches for an even $1000.

So now we’ve got $1,000 a year going into the pot. Assuming an annual rate of return of three percent over twenty years, this will provide a hair over $27,000 at the time of retirement. But with Reservists being what they are, it’ll be another twenty years until our average members turns 60 and can draw from it. With that additional time and three percent annual returns, the member will have $49,000 to draw from.

But even then, it falls short. Under the contrived circumstances presented, estimated monthly income from the $49,000 saved would be around $267, which is about $150 short of where we’d like to be.

Lesson: Don’t do the minimum. Here’s how it looks for someone who spent four years on active duty plus two year-long mobilizations, with $40,000 in base pay each year. That’s an additional $4,000 in contributions each year, times six – an extra $24,000 in principle, and a more realistic profile for a great many Reservists. If this compounds at three percent until age 60, the member would hold $92,000!

And guess what – for this more realistic member, it not only meets but exceeds the threshold we established earlier, at over $500 a month.

Unintentionally or not, it looks like the blended retirement system is a way of tacitly motivating Reservists to participate more.

Bonus (Continuation Pay)

At the twelve-year mark, members under the blended system have the option to receive a small bonus if they elect to remain in service another four years. Not much to say about this, except that it would make some nice additional principle you can add to a retirement account (whether TSP or another one)… especially if you’re only doing the minimum Reserve commitment.

So what’s the bottom line?

First, my numbers are unrealistic in that they don’t account for inflation and reflect no known species of servicemember, and I agree. But neither were they made up out of thin air, and I believe still help tell the story. (And my calculations were done on bankrate.com, but I don’t where my business school notes are, and I wasn’t going to take the time to find them. So, there.)

Second, retirement from the Reserve will be more dependent upon what you put into the Reserve than before. If you are planning on this being a major source of support in your dotage, then don’t skimp on your efforts now. Max out your points every year and spend some decent time on active duty in order to build up some good TSP contributions.

Third, if you’re a Reservist hopefully you have some other form of work to occupy your time and pay the bills. Let that be your primary means of support. The benefits of being a Reservist provide a wonderful cushion and service opens many doors – but it is still just a part-time job. Ensure you plan for what you do on the outside to be enough to see you through.

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Flags Large and Small

Two centuries of inspiration, and counting

Two centuries of inspiration, and counting

On this weekend I am enjoying my first weekend in 11 months as a drilling Reservist, attending a class in Baltimore. I am at the Navy Operational Support Center (NOSC) located just outside the gates of Fort McHenry, former home of the original Star-Spangled Banner.

Of course my thoughts are on another such flag on this day.

Will future generations remember?

Will future generations remember?

September 11, 2001, was my fourth day in the Navy, assuming you count ROTC — and, as I was aboard a Navy base for orientation week and I hadn’t actually started college yet, for these purposes I do. For better or worse, the terror attacks of that day have affected every single day since and have had immense impact on the course of countless lives, including my own. As I drill in this NOSC that is now well-defended on account of 9/11’s series of sequels, its effects right here at home are crystal clear.

It is a mark of progress, I suppose, that 15 years on, 9/11 is more or less just another day in America, if slightly more somber than those adjacent. But as the first world event to greet me as I entered adulthood, I will never be fully comfortable with that.

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Philadelphia – More than Rocky and Cheesesteaks

Terminal leave continues to march along. On Friday I will officially have my last day on active duty – that sure arrived quickly. After that I return to a drilling status and, eventually, a paying job. I’d like a bit more time before that starts. For decompression, you know.

What that means is we’ve done some family travel to places accessible from the National Capitol Region, including the fair city of Philadelphia. For purposes of this blog, Philly is most notable for being home to USS Olympia, commissioned in 1895 as the sixth steel cruiser in the U.S. Navy. I visited several years ago and attempted to take the tour, but was denied due to air conditioning issues on a very hot day. This week, the weather was temperate and I was permitted to embark, which was basically like Christmas in September for this very eager SWO.

Some pictures and thoughts follow.

First, here’s a view of the ship from the river side, so you know what we’re talking about (courtesy of Wikipedia):USS_Olympia_2

In this picture, the bow is to the left and the stern on the right – the design is such that a novice might not be able to tell. Olympia is 344 feet long and displaces 5,870 tons, putting the 1890s cruiser about 200 feet shorter and 4,000 tons lighter than today’s Ticonderoga-class cruisers. Built in San Francisco, Olympia led the U.S. squadron at the 1898 Battle of Manila Bay, in which the Spanish fleet in the Philippines was sunk and Spanish influence in the Pacific essentially ended. You may agree there is at least a trifle of historic value in this vessel. (Bonus historic points: The battle gave us the namesakes of two current Navy destroyers, USS Dewey and USS Gridley)

When boarding this steel ship, the first thing to strike a visitor is, “Wow, that’s a lot of wood.” Welcome to Officers’ Country (though I’m not sure if that’s what they called it at the time). The very wide corridor aft of the wardroom is lined with officers’ staterooms.

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Forward of the staterooms is the wardroom, placed roughly amidships on what today we would call the main or first deck. Warships of the time were lined with medium-caliber weapons, and even the wardroom, where officers dined and entertained, played its part:

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But apparently even in the 1890s ensigns could be a rowdy lot, so if their seniors decided to banish them to the kids’ table, they had a place for that, too:

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In comparison, here is enlisted berthing:

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One of many random curiosities along the way is a brief narrative of what they did before Oscar came along:

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Moving on, the coal-fired steam plant is not on exhibit, but you can at least glance down into it and admire the ability of Olympia’s firemen to conduct wipers. Wow, that plant is clean (it helps to be a museum).

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Something we thankfully haven’t dealt with since the transition to oil is disposal of solid combustion byproducts: ash (now we just dump it all directly into the atmosphere – much easier). So at several locations throughout the ship are ash hoists, available for pulling ash out of the burners and keeping the boilers clean.

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What then? Don’t show this to your Environmental Readiness Officer…

Would this count as oily discharge?

Would this count as oily discharge?

The tour then leads to the superstructure and gun deck, on what today we’d call the 01-level. Here’s the breech of a five-inch gun:

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The gun deck was also a crew living space. So they could sleep securely.

This is the admiral’s cabin, which, all in all, looks pretty nice. Just to the right of the frame, with a couple components visible, is his own five-inch gun. I’m sure the carpet was there to prevent dings in the deck when it ejected spent powder cartridges.

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Pretty sure the flatscreen TV is not an artifact of the period

Near the admiral’s and captain’s cabins was a Marine stateroom, in which this helmet was visible. Did people actually wear these outside of the Reich? This helmet might be the only thing in the tour I had truly never seen nor heard of before.

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Of course, eventually you can get yourself topside, where my native Northern California self could find some pride.

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Tourists cannot step onto the bow or get very near the eight-inch guns, but this is a good view of how the forecastle and turret are set up. A five-inch gun is visible at bottom.

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That view was from the starboard bridge wing, but it was near the starboard engine order telegraph where history was made:

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So, yeah, go see these guys:

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No 121-year-old steel warship will continue to float in saltwater indefinitely. Visit before it rusts out!

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