Hi Nords, I feel a little bit like a celebrity has answered my post.
Thanks! I get a lot of material for blog posts (and books) from the forums.
When I first started researching the two retirement systems, everyone told me that it was a Big Life Decision(!). I ran some very preliminary numbers, and got pretty puzzled. REDUX was obviously a terrible idea. But when I mentioned that REDUX was terrible during an investment training, I got another round of Big Life Decision with lots of handwaving. The Decision Brigade were so widespread and adamant, that I got worried. Maybe I'd misinterpreted something...?
I usually hear justifications like:
- "I'll pay off all my debt" or
- "I'll start my business and be earning profits by the time I retire" or
- "Pfft, I can invest that in the stock market and beat my High Three pension any day!" or
- "Yeah, but I'm stayin' for 30 and making E-9 anyway."
My answers:
- You have to change the habits that got you into debt.
- If you need $30K to start your business, why did you wait for the CSB? You could have taken out a personal loan from a bank for a much lower rate.
- (They're not listening to me anyway.)
- Seriously? You already know at 15 years that you're going to make E-9?
It turns out that CSB/REDUX math works well for an E-9>30... as long as they make E-9. And stay for 30. I wouldn't expect anyone with 15 years of service to be able to make that decision.
Anyway, the articles you linked made me feel sane again. Thanks very much. I've attached a basis spreadsheet for High Three vs REDUX. Take a look and critique mistakes if you've got an interest. I stopped at my 62nd year, because some COL magic happens that I don't understand yet. But unless the COL adjustment really is magic, the math clearly supports High Three.
A couple of tweaks:
- The $30K is taxed. DFAS will probably withhold 20% that you might get back on your tax return (or might not) but you'll want to start with the after-tax amount instead of $30K.
- Yes, the COLA is magic. DFAS presumably keeps a table of COLA history (and I wish they'd make it a public table!). When you reach age 62, they recompute your starting REDUX pension amount (from the day you retired) by applying the full retiree COLAs (instead of the "COLA minus a percentage point") and they reset your pension to that new higher amount. But then the following year your COLA reverts to COLA-1%, so the erosion starts all over again.
If you really want to geek out on the spreadsheet details, at O-5>22 you'd use the >22 longevity column from the pay tables. As you've noted, though, REDUX still lags the High Three pension.
As an aside, for years I've been hoping to hear from a REDUX military retiree who can explain how REDUX turned out to be a better deal for them. I've heard plenty of retiree regrets, but no success stories. Well, I guess the success stories are actually happening at DFAS, where DoD got out of decades of future pension obligations for just $30K.
Also, thanks for the info about ACL surgery. I'm proceeding with great caution and no one is pushing surgery. In fact, they push the fact that surgery is optional, and requires 6 month of PT and recovery before consideration. Great PT's in NAVSTA Bremerton. Very happy. Smile while they torture.
That sounds outstanding. That sounds like a big philosophical change from 10 years ago, too. Good to see.
If you work really hard at the PT then they'll "let" you start using weights for the squats & lunges... but it took me nearly two years to feel comfortable doing a full squat. The good news is that the sweat equity is eventually rewarded, and today I'm fine with squatting two Gs on a surfboard.