Retirement

It's interesting how retirement goes.

I was reading on NPR recently how very few people in America actually save for retirement. Less than half of a polled group of a few thousand people do, and only half of those who do actually save anywhere near enough. It went on to mention surprising facts about how much money someone my age actually will end up needing just to live modestly after retirement -- which could be up to 30 years, or even longer. This isn't anything new, of course, but certainly helped remind me of a serious issue.
Considering the average life expectency now, as well as today's current emphasis on healthy lifestyles, corporate attempts at reduction in health care costs, and general higher education, technology, and awareness, there's a good chance most people of my generation will live into their late 80's or early 90's -- in a conservative guess. Knowing my luck, I'll retire at 70 and live to 110. And of course we all know Social Security will not be around when my generation retires.

So... how much do I need to retire?

Well the biggest problem is estimating how inflation, etc. will change costs of living over the next century. My dad used to talk about how, when he was a child in the early 60's, you could spend a quarter for a movie ticket, and still have money left over for drink and popcorn. That price has quite literally increased nearly a hudnred-fold throughout most of the nation in the last 50 years, with average movie ticket prices around $7-8 and drinks and popcorn nearly the same price.

Granted, movie theatres are a bit of an extreme case, but the fact is inflation is a bitch and points out an important fact: that $600k nest egg you need to save up to live modestly in retirement probably wont be enough money when a half century of inflation is factored in. I'm not saying we shouldn't save or that it's not worthwhile -- it's still very improtant, but one shouldn't rely solely on a small savings in your TSP or 401k.

That's where pensions come into play. I'm not trying to butter up the military because it certainly has numerous downfalls. But a retired Chief, although he may only make about $25k a year in today's money, will be happy to know that his pension will rise every time the military increases their basic pay (which tends to keep pace, more or less, with inflation).

Too many jobs are getting rid of pensions, and the above reasons, of course, are exactly why. 401ks are way cheaper in the long run, even including generously matched contributions because they know the bulk of money will come from interest accrued over time, not from a check the company will have to continue to write for the next 20 or 30 years after the employee retires.

Now, I'm in a position where, if I were to get out of the military, I could make a somewhat higher salary than I'm making now. Certainly, over time I'd eventually make more money if I switched to a federal job, where pensions are still guaranteed. The big issue is that the military's 50%-for-life pension sure sounds really tempting.

But do the math. The benefits of a 20-year E-6 with dependents, once you add in the housing and food allowances, sea/hazard/etc pay, medical & commissary benefits, etc. come up to around $68k a year (give or take $5k, depending on location, etc) -- more if you're stationed overseas. Not amazing, but certainly not a bad salary, especially considering our current hard times. However, retirement is based on BASIC PAY, which is only about $42k (closer to 50k for a Chief at 20 years). It is very difficult for an enlisted service member to have a retirement over $30k a year, in fact -- and retired officers will hardly make much more unless they make it to the flag level. It's definitely a very reliable and useful paycheck - a great "thank-you" for a very honorable and patriotic career, but not quite enough to support you on retirement.

The Civilian Side: Now lets say you do some time in the military, get out, and get a swanky fed job. Assuming it's the kind of higher-paying field I'm interested in (starting around GS-10 or GS-12, usually), it's very plausible that after 20 years of civil service you can be making around $115-120k a year -- 100% of which counts toward your ultimate retirement pay. At a very conservative 25% retirement, that pension is around $30k, which is already more than I'd make as a 20-year Chief. In addition to that, I would also have whatever I put into TSP.

TSP is not amazing, but it's very stable and has been handled exceedingly well. I kept a close watch the last few years, and although there were some hiccups when the economy crashed, the average values of most funds they invest in have actually gone up over the last 3 years, compared to some very dismal results in many other investment plans around the country. TSP tends toward conservative results, so although interest isn't always as high as other programs, it's lows aren't near as low either. Additionally, because it has the backing of America's largest eployer (the Federal Government), it is here to stay - a much lower risk of crashing, or being let go because the "company" goes bankrupt (if the government goes bankrupt, we have much bigger problems on our hands, and our major corporations are probably already fucked!). Besides, you get a great deal buying funds that go down in price because they are long-term, which means in a long-term investment, you have more to gain.

Now all that remains is to check out the job market, and see what it's like. Most likely, I'll remain on the safe path of the military (ironic, hu?) and, despite phsyical dangers, keep an assured pension. One possible advantage is that, when I do finish my 20 in the military, I'll be more likely to get a higher starting salary in a managerial position than I am now, due to significantly longer managerial experience.
If I go Federal, they count your active military time toward their own retirement, which is also a big plus, meaning I can forfeit a part (or all) of my military pension and get a higher percentage of civilian pay for retirement.
Of course, if I get out earlier, I'd have several years' head start in the civilian side, AND several extra years of matched TSP contributions, which means a larger nest egg.

I think for now, more reserach is required before I make a decision. This is a topic I'll be returning to in the future.