Paycheck Chronicles

Retirement Pay At Risk - Must Read!

Hi folks!  I apologize for the radio silence - I have the worst cold ever!  And there has been so much to report in the last few days.

The biggest thing is that Congress has hammered out an agreement that will seriously impact military retirees who are under the age of 62.  Under the Bipartisan Budget Act passed by the House of Representatives on Thursday, additional squestration-mandated automatic budget cuts would be avoided.  It would be paid for, in part, by reducing the Cost of Living Allowance (COLA) adjustments on working age military retirees.  Specifically, military retirees would have their retired pay COLA calculated at 1.0% less than the full COLA until they reach the age of 62.

There is some disagreement about how the math works out.  According to the Military Officer's Association of America (MOAA),

an E-7 retiring this year with 20 years of service would see an average loss of over $3,700 per year by the time he or she reaches age 62.  For an O-5, the average annual loss would be over $6,200.
Others think that the impact would be smaller.  Kevin Brancato is a defense analyst at Bloomberg Government.  He projects that retirees would see a roughly 10 percent decrease in retirement pay by age 61 and the cumulative effect of the cost-of-living adjustment would decline even more over time.  "You're talking about a small decrease in the total package for a retiree's lifetime," he said in a telephone interview. "It's between four and five percent."

I've done some serious Excel number crunching, using a variety of COLAs (from 1.5% to 5.0%), lengths of service, and ages at retirement.  I came up with numbers much closer to MOAA's figures.  I'd love to see Mr. Brancato's math and see how we came up with such different results.  The lowest numbers I could create produced a decrease in income in the 7% range, and that was for someone who served thirty years and therefore had fewer years of reduced COLA.

I've talked to a variety of people about this proposal, and the reactions are mixed.  I have been surprised at how many people are willing to sacrifice a portion of their retirement in order to support the overall good.  I'm a little more skeptical.  If I could ensure our government would use this money for positive purposes and not waste it on ridiculousness, I might feel more positively.

If you have an opinion on this issue, you can use the awesome MOAA-run emailing system to easily send a message to the President and your Senators.  This system allows you to write your own message or use their suggested message, and automatically figures out your Senators based upon your address.  It is super-simple.  Be sure to use the address where you are registered to vote to ensure that your message gets to the right people.

Regardless of how you feel about this particular proposal, the overall message is clear:  Military retirement pay is not protected.  This information may require you to change your long-range financial plans.  Be sure to keep up on this issue as it develops.

 

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