Will you benefit from Maxing Out TSP with new blended retirement plan?

I was looking at this post on reddit that really suggests you first contribute to your company retirement up to only your point of matching first, then max out later. I thought what if you do have the money to max out your TSP? Right now the limit is $18K, I have not found any clarification if the new 5% match counts as separate to this $18K limit or if it is included. I assumed it is separate and recalculated everything with this spreadsheet: What about maxing $18K with matching?

The new spreadsheet compares TSP with matching and a $18K annual max out of contribution to TSP on top. Yes the match will boost your earnings, but it is not enough to counter the losses from the 20% pension pay cut unless its over 4.5% return. When you hit 70 years of age you won’t want to be invested in anything returning 4.5% such as S, I, C, Funds as you will shift assets into the F or G Funds to protect yourself from losses. If you were in the Lifecycle funds it would of automatically shift all stocks to bonds at this point.

The spreadsheet allows you to enter the interest at retirement as well as during active duty years. Best case scenario you make 7.2% your entire Active Duty time and shift to 2% G fund in retirement, you notice you will start loosing out by year 16 of retirement.

Conclusion, final nail in coffin, you need at least 4.5% return while working and in retirement still to make the new blended retirement worth it. I hope we can put this to bed once and for all, that the new plan is not worth it, not a slam dunk big money maker. It however gives you something if you plan on leaving the military before your 20 years.

-Derp

BLUF: New Retirement Plan only worth it with 4.355% TSP Returns for newbies, not worth it for 2018 switch!

I had another O5 friend call in from Japan and brought up another interesting situation. I spent too much time mulling over how much is lost over the period of retirement from 60 to 80. I failed to account for the compounding interest of earnings while in service. While I know there must be a mathematical formula to compute this, I went ahead and just made a massive spreadsheet: What About Compounding TSP from day 1?

Also he mentioned that no one gets the match of 5% till 2018 which makes the last 6 years non matching for myself and for many of the people who joined after 2006. You will not have as much time to make the 5% match worth it. Unless of course they have a plan to backdate matching to year one which will never ever happen.

This new calculation accounts for the interest earned from the TSP match from day one compounding with the interest and matching every year for 30 years of service. So on your first day out after 30 years you get a pension of $78,319.44 with the new plan, but you got a sweet nest egg of $174,414.81. This may seem a lot more than the $97,899.30 with the old pension system, but over time the old system of 75% of base pay will pay a lot living till 80 years old. You would have to be making a constant 4.355% in TSP just to keep up. The below chart shows plugging in this magic number:

RETIREMENT Cumultive Loss Delta in TSP Match
61 -$19,579.86 $154,834.95
62 -$39,159.72 $142,850.85
63 -$58,739.58 $131,197.55
64 -$78,319.44 $119,889.45
65 -$97,899.30 $108,941.59
66 -$117,479.16 $98,369.65
67 -$137,059.02 $88,190.01
68 -$156,638.88 $78,419.74
69 -$176,218.74 $69,076.68
70 -$195,798.60 $60,179.44
71 -$215,378.46 $51,747.42
72 -$234,958.32 $43,800.90
73 -$254,538.18 $36,361.00
74 -$274,118.04 $29,449.80
75 -$293,697.90 $23,090.32
76 -$313,277.76 $17,306.59
77 -$332,857.62 $12,123.67
78 -$352,437.48 $7,567.75
79 -$372,017.34 $3,666.12
80 -$391,597.20 $447.27

Using the 2% G Fund rate we start seeing losses at Age 69 making us wish we had stuck with the old plan some 39 years earlier:

Age Cumulative Loss with new plan Offset with TSP
61 -$19,579.86 $131,520.89
62 -$39,159.72 $114,963.05
63 -$58,739.58 $98,465.64
64 -$78,319.44 $82,029.89
65 -$97,899.30 $65,657.02
66 -$117,479.16 $49,348.28
67 -$137,059.02 $33,104.97
68 -$156,638.88 $16,928.39
69 -$176,218.74 $819.88
70 -$195,798.60 -$15,219.21
71 -$215,378.46 -$31,187.48
72 -$234,958.32 -$47,083.52
73 -$254,538.18 -$62,905.89
74 -$274,118.04 -$78,653.10
75 -$293,697.90 -$94,323.66
76 -$313,277.76 -$109,916.04
77 -$332,857.62 -$125,428.66
78 -$352,437.48 -$140,859.95
79 -$372,017.34 -$156,208.25
80 -$391,597.20 -$171,471.93

Still on the fence about this one as I can’t tell if I can make 4.355% on TSP! Is it even a risk worth taking? I went ahead and shifted everything around to compensate for my late arrival into the game in 2018 when I would of lost 6 years of matching at this point, and then I plan on getting out at 25, we assume I can make the 4.355% earnings on TSP:

Age Cumiltive Loss TSP Worth Delta
56 -$16,268.04 $141,946.93 $125,678.89
57 -$32,536.08 $148,128.72 $115,592.64
58 -$48,804.12 $154,310.51 $105,506.39
59 -$65,072.16 $160,492.30 $95,420.14
60 -$81,340.20 $166,674.09 $85,333.89
61 -$97,608.24 $172,855.88 $75,247.64
62 -$113,876.28 $179,037.67 $65,161.39
63 -$130,144.32 $185,219.46 $55,075.14
64 -$146,412.36 $191,401.24 $44,988.88
65 -$162,680.40 $197,583.03 $34,902.63
66 -$178,948.44 $203,764.82 $24,816.38
67 -$195,216.48 $209,946.61 $14,730.13
68 -$211,484.52 $216,128.40 $4,643.88
69 -$227,752.56 $222,310.19 -$5,442.37
70 -$244,020.60 $228,491.98 -$15,528.62
71 -$260,288.64 $234,673.77 -$25,614.87
72 -$276,556.68 $240,855.55 -$35,701.13
73 -$292,824.72 $247,037.34 -$45,787.38
74 -$309,092.76 $253,219.13 -$55,873.63
75 -$325,360.80 $259,400.92 -$65,959.88
76 -$341,628.84 $265,582.71 -$76,046.13
77 -$357,896.88 $271,764.50 -$86,132.38
78 -$374,164.92 $277,946.29 -$96,218.63
79 -$390,432.96 $277,946.29 -$112,486.67
80 -$406,701.00 $277,946.29 -$128,754.71

So things don’t go red until 69 even at 4.355% which kind of sucks because if I’m not dead by then I would of made more money on the old retirement. When making your decision in 2018 make sure you account for how many good years you got to have for matching. In most cases you will not have enough contributions matching at 5% to make up for your 20% pay cut! Now what if you live way past 80? Then you would of been better off with the old system.

Remember they did this to save money so it is hard to think you can make any more money with this new deal.

-Derp

New Retirement Plan From The Senior Officer Prospective

Navy’s birthday cake is cut by the most senior and the most junior sailor at the same time. The tradition is said to represent passing knowledge and experience from one generation to the next

Navy’s birthday cake is cut by the most senior and the most junior sailor at the same time. The tradition is said to represent passing knowledge and experience from one generation to the next

With the taxes done and filed this week, we have naturally been talking about finances and inevitably about retirement and what we should be doing about it. As you know those who joined the military after 2006 need to decide about opting into the new retirement plan with 5% matching TSP along with 20% cut of pension. Those new baby LTs are really confounded on what to do, so like a good junior officer I went to the senior officers and asked what they would do. Keep in mind these old timers have no skin in the game and are on there way to their traditional retirement of 50%+ base pay of their last highest 36 months of base pay. So I asked a retired O6 Captain that did 30 years making 75% of base in pension, and an O5 on active duty who has done 15 years. They both brought a very interesting perspectives that company grade officers never look at.

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My 20 Year Plan

This is a follow up data post to my casual analysis of the new retirement plan that service members who joined after 2006 have a chance to switch to in 2018. Those who join the military after 2018 will be forced into this new blended plan with mandatory 3% base pay contributions to their TSP.

I went ahead and did the calculations for some one considering doing 20 years in the service starting at 30 years old entering as an O-3 and assuming you progress to O-6 for 5 years and do a total of 20 years. I obtained the pay information from DFAS and I just made some guesses on what is normally expected time in each rank in my calc tsp vs pay spreadsheet. I also assumed the average life expectancy of 79 for males reported in 2011.

 Plan Pension Monthly Year From 50 to 79
O-6 Pay $9,240.80 $110,889.60 N/A
New blend (40%) $3,696.32 $44,355.84 $1,286,319.36
Old Hi36 (50%) $4,620.40 $55,444.80 $1,607,899.20
Delta $924.08 $11,088.96 $321,579.84

As you can see its about a $321K loss over your retirement with the new plan, this was made to save the government money so this should be of no surprise that the new plan would make less money for you at your full 20. Now on the flip side, for those who know for sure they would never do 20 years, I went ahead and calculated the cumulative expected matching TSP at each exit year:

Matching Cumulative Year you leave
$0 1
$0 2
$1,490.40 3
$2,072.30 4
$6,135.91 5
$10,199.52 6
$14,495.76 7
$18,792.00 8
$23,337.94 9
$28,216.73 10
$33,336.14 11
$38,455.56 12
$43,751.88 13
$49,048.20 14
$54,572.83 15
$60,448.90 16
$66,883.54 17
$73,318.18 18
$80,080.92 19
$86,843.66 20

You must do 2 years to be fully vested to even get the 1% base pay TSP contribution. As you can see this is far better than the $0 the old plan would of given you after 2 years, and also note that if you do less than 4 years the matching 5% does not kick in yet. So for all those that don’t do their 20 full years theres something for you all as well. Its time to start thinking about which one you will do, you got till 01 Jan 2018 to make the choice (I think)!

-Derp

EDIT: Looks like is only up to 5% matching, not 6%, check here with the new calculations.

Decision 2018: 50% Base Pay @ 20 years or matching 5% TSP now?

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If you are a service member in the active and reserve components who entered the military after Jan. 1, 2006 you get to make an educated guess in 2018 on how long you are going to serve. In 2018 you must decide on choosing the traditional retirement or the new retirement of a matching TSP blended with a 80% reduced pension. If you joined after 2018 your fate to matching TSP with reduced pension has already been decided.

The traditional retirement means doing at least 20 years and get your 50% of base pay of your last 36 months of service (refusing the $30k CSB @ 15 years and taking HIGH 36 option). After 2018 you will still get a pension after 20 years but its been reduced by 20%. The new system is an automatic contribution by the govt of 1% of base pay in your TSP. You are then forced to put in 3% of base pay into your TSP or be subjected to re-education if you opt out.  Then you can put up to $18,000 per year into your TSP which the military will match up to 5% of base pay after 4 years of service. After only serving two years you will be fully vested and can keep these matching 1% funds. You must choose what fund you want this money invested in TSP and there is no promise that it will make any money at all. You could always roll it over to another IRA, but don’t because you can’t beat TSPs low expense ratios.

It’s a no brainer if you are not planning to do 20 years to take the new system as you will get $0 from the government for retirement otherwise. Your retirement income would come from your new job and funds invested into TSP yourself without any matching in the old system. By knowing you wont do 20 means you get 6% matching at least!

On the flip side If you did exactly 20 years and took HIGH 36 instead of CSB/REDUX assuming you promoted to O-6 and stayed in rank for 3 years, you can expect the base pay for an O-6 with over 18 years is $9,392.70 a month. Half of that is $4,696.35 making $56,356.20 a year!

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Now those who made it to 20, and reached O-6 for 3 years who stupidly opted in during the one time option offered in 2018 or those who joined after 2018 with the new blended system will get a 20% pay cut we get $3,757.08 a month ($45,085 a year) along with the 6% match to TSP.  These figures are somewhat inaccurate as these rates will increase in the next 15 years for my retirement. We will just pretend you got your retirement in 2016 at this rate.

So this new system is lucrative to those who will not do 20 years. Its actually quite similar to the CSB where service members could take a lump sum of $30,000 at 15 years by robbing themselves of 20% of there pension in the future (never worth it). Just keep in mind this new system is made for those who stay in for much less than 20 years apparently this was 50% of officers and 93% of enlisted, so for many its better than the old system of 20 years or nothing!

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Direct flights from Naha to MCAS Iwakuni on ANA @ $98 each way

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Double good news today! Experience Japan Fares have been extended till October 29, 2016, and there is no longer a layover in HND for those that need to fly to Iwakuni from Okinawa. Thanks to our visiting Iwakuni friends, I learned a whole new route departing from the one gate passenger terminal located on MCAS Iwakuni:

NH 1267 departs daily at 11:00 from Iwakuni (IWK) to Naha (OKA) arriving at 13:00

NH 1268 departs daily at 13:45 from Naha (OKA) to Iwakuni (IWK) arriving at 15:35

Keep in mind that Hiroshima is connected to Iwakuni via JR train where you pass by the sacred island of Miyajima with its floating tori gate. No need to hang out all weekend in Iwakuni, you can actually hit three of the most beautiful sites in Japan over a single long weekend.

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Best to fly into Iwakuni, check out the Kintai bridge, Iwakuni Castle then head over to Miyajima on the JR train, spend the night so you can check out the Floating Torii gate at Itsukushima during high and low tide. You will have the island to your self as no one really spends the night, and you can walk out to the gate at low tide. Next day head to Hiroshima and take the loop bus that will bring you from the JR station to Hiroshima Castle and Peace Park. They have a Sheridan at the Hiroshima JR train station that honors the government rate don’t bother using points on this one as its about $186.55 for club level, put it on your SPG AmEx card for some sweet 5x points per dollar spent. Then next day take the bus from the train station to catch:

NH 1861 departs daily at 11:35 from Hiroshima to Naha arriving at 13:30

the reverse flight is:

NH 1862 departs daily at 15:35 from Naha to Hiroshima arriving at 17:20 if you wanted to do this whole thing backwards.

Best part is they honor the ANA Experience Japan Fare on all of these flights, so don’t be a sucker and pay full fare, use you international ticket and gajin passport to pay only $98 each segment! Also be sure to use your United Airlines number for sweet 150% segments and miles.

-Derp

Visit China without a Visa for 144 hours (6 days)

The new 144 hr transit stamp

The new 144 hr transit stamp

We made it to Shanghai from Okinawa without spending $140 and waiting 4 days for a visa.  Our flight from Oki was 2 hours and upon arrival I showed my onward ticket to Thailand and my reservation at a local hotel. This process took over 30 mins at the airport transit area in Shanghai when they called the hotel and airline to verify that we were just passing by. The stamp is now good for 6 days (144 hours) with the time starting the day you arrive, so I arrived at 5:30 pm so that counts as if I had arrived at 12:01 am the same day.

The 10 year Visa is the norm and you will not have an issue coming in to China. This transit visa deal is kind of met with a certain confusion and suspicion. Even when I checked into the hotel, they had said they have never seen some one without a full page $140 visa. However if your dumb like me and never got your Chinese visa when you were home for the holidays then this is really your only option if you cant find time to get a proper visa.

A few things I wish I knew before I left, GMAIL and Google maps are all blocked, so sign up for a service like Express VPN to get access. Another thing you can do is download maps on google maps and trip advisor on your phone so you don’t even need internet access to navigate. Lastly if your wondering what hotel to use your RC upgrade cert on, the Portman Ritz is just okay, feels more like a Marriott, so look into the Pudong Ritz which is much closer to the action.

-Derp

 

How to Stay at the Ritz Tokyo with Points

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The 49th floor of the Ritz-Carlton Tokyo

I am convinced that no one in their right mind would pay $1,250 for a night at a hotel, but I’m sure if a company is trying to impress a client they will pay that. You can get in on this kind of corporate love by waiting for key weekends to redeem points. in this case, the first bloom of cherry blossoms, the start of school, and the beginning of the fiscal year make April 1 to 3, 2016 a super popular weekend to visit Tokyo. The prices for hotels reflect this demand by charging upwards of 140,000 yen a night and they would not make any reservations less than 3 nights. To get two nights, book three, then call to drop a night later and look for an Air BnB for $75, especially if you arrive super late and can’t take advantage of a full day stay. With early check in given by gold status, you can maximize points, and for a busy weekend you will get the best redemption as the points redemption remains unchanged despite the room costing more.

Midtown Tower is 248.1 meters (814 ft), tallest building in Tokyo!

The Ritz Tokyo is on top of Midtown Tower which is 248.1 meters (814 ft), tallest building in Tokyo!

The Ritz Tokyo is a tier 5 hotel which demands 70,000 Marriott/Ritz points per night. We got all of these Marriott points by staying and paying cash at Marriott/Ritz Locations. With the Gold Membership Level from The RC Credit card or *A Gold from United you get 10 points per dollar spent on room rate as well as a 25% bonus. So when I spent $500 on 3 nights in Vietnam I ended up with 6,250 Ritz Points. Then added to that are the 5x points (2,500) by putting it on the Chase Ritz card which makes a total of 8,750 points with $500 spend at any Marriott for just the room rate alone. A Whopping 17.5 Marriott/RC points per dollar spent, assuming 2 cents per point, you get a 35% return on dollar spent while gold status with the Ritz Card form Chase well justifying the $395 annual fee. Which is actually a $95 annual fee if the $300 flight incidental credit is used up correctly.

The peak of Sakura is early April in MidTOwn

The peak of Sakura is early April in MidTown

The rest of the points came from 50k Chase Marriott Credit Card and then Ultimate reward Points from Chase ink and Sapphire. The website will let you book by points and you call in later to settle the balance once the points are transferred to your account. Be careful if your cutting it close since they will charge you the $1,000 a night if you don’t get the points within a week of your stay!! Since my spouse and I share the same mailing address there was no limit to how many we could transfer to my account. Additionally I had time to transfer points 1:1 from my Chase Ultimate Rewards from Ink and Sapphire. I tried to keep this at a minimum as I feel you get better redemption with UR points with Hyatt.

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