Securing your future budget|
Commentary by Lt. Col. Michael O'Connor
Commander, 48th Flying Training Squadron
10/24/2011 - COLUMBUS AIR FORCE BASE, Miss. -- Recent debates by our political leaders regarding the need to reduce the federal budget deficit have raised a storm of controversy in the U.S. military regarding possible changes to military benefits and compensation. I'm not going to tread into the discussion minefield regarding the wisdom or likelihood of changes to the current retirement system. However, I think it's important for Airmen to be aware of the possible changes and to plan accordingly. This article will provide a big picture overview of the reasons our country needs to make changes to the federal budget and a few practical steps you can take with your personal finances.
The bottom line on why the U.S. government, and accordingly the U.S. military, is facing the prospect of tighter budgets in the future is our nation's enormous federal budget deficits and debt. The former chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, called our national debt the single biggest threat to our national security. These are very strong words from the former chairman and something for all military members to consider. As part of a discussion on the implications of reduced military budgets in the future, Adm. Mullen also stated that any changes to military retirement should be studied carefully and "grandfathered" to prevent the military from breaking faith with those in the service .
When planning for potential changes, every member of Team BLAZE can continue to be very thankful to be a part of a superb organization like our Air Force. The USAF has been through numerous periods of change and shrinking budgets, and while not perfect, handled those periods well. You can be confident the USAF will continue to be an innovative leader in forging a way forward in a new budgetary environment.
The impact of the federal debt on the current military compensation system is unknown. However, simply hoping that there won't be changes is probably not a good idea. Military members are in a unique position of being able to fund both a federal Thrift Savings Plan and an Individual Retirement Account. In 2011, the TSP allows military members to contribute $16,500 annually, while at the same time, most members are also eligible to contribute $5,000 annually to either a traditional or Roth IRA. IRAs, like the TSP, are financial instruments that allow your investments to grow either tax free or tax deferred until retirement. As a brand new 2nd Lt. in pilot training with an annual income under $14,000, I made my first IRA contribution, and I have been making annual contributions ever since. Simply contributing $2,000 annually, and letting it compound at five percent interest would net $74,745 after 20 years. Without making any further contributions, your savings at five percent interest would compound to $198,000 in another 20 years when most people will begin retiring. This bottom line number increases to $460,600 for members today who are able to contribute the maximum amount ($5,000) annually for the first 20 years. These savings go a long way towards augmenting a military retirement. The financial concept that allows this remarkable growth in savings is called compound interest. Compound interest is so effective that Albert Einstein referred to it as the "8th Wonder of the World." For the younger Airmen, this "Wonder" works most to your advantage because of the time you have to save. Take advantage of it!
The U.S. government is facing many difficult choices in a challenging budgetary environment, and these will likely impact the military budget. Fortunately, the Air Force has always been well adapted to change in achieving our service's mission in safeguarding our national security. Additionally, whether or not there will be changes to the military compensation system, all Airmen are well advised to save now for your future using the TSP and/or an IRA.