The Military Officers Association of America is warning that the proposal to convert the military to a civilian-style retirement system under which full retired pay wouldn’t be paid until age 57-60 could have a much bigger impact than you think.
A recent MOAA article compares the long-term value of the current military retirement system to the proposed to reforms. The following is a summary of their findings:
Under the current system a newly retiring E-7 at age 40 with 20 years of service with retired pay of about $24K a year would see his or her retirement checks grow to over $80K a year by age 85.
Under the proposed “civilianized” 401(k) plan, a retiree would not begin drawing on his or her retirement until age 57-60. Assuming a 7% rate of return, MOAA is estimating the same retiree would draw $13,600 per year until age 85.
According to MOAA, this would mean a loss of $1.6M in cash benefits over the retired E-7’s lifetime.