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

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