Mixed plate: Tricare, “back pay” issues, early Reserve & Guard retirement

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I haven’t been doing many linkfest posts on financial independence, but some interesting news and events have piled up over the last few weeks. Instead of trickling them out one post at a time, I’ll summarize them here and turn you over to the sources.

Early Retirement Options for Reserves and National Guard

First, as noted by Military.com and Ryan Guina’s excellent Military Wallet analysis, Congress has added more early-retirement options for the Reserves and National Guard. The 2008 National Defense Authorization Act has been expanded with missions for national emergencies like hurricanes and earthquakes. (See those links for the applicable legal provisions.) Eligible servicemembers who serve 90 days per fiscal year on authorized missions can have their Reserve/Guard retirement date reduced by 90 days. Although retired pay can start before age 60, the rest of the retirement benefits (including Tricare) will not start until age 60. The provisions of this 2008 NDAA are still not retroactive back to 9/11, and the continuing drawdown means that DoD and Congress are unlikely to do so.

“Back pay” owed to some High Three military retirees

Next, if you’re a High Three military retiree with more than 20 years of service, you may have been shortchanged. There’s not much you can do to remedy the situation, and both DoD and Congress are trying to “fix the problem” by retroactively changing the rules, but we’ll track this issue. The short version is that those who served longer than 20 years may have had their pension miscalculated by DFAS.

The impact is “only” about $200/year per retiree– but that’s going to grow with inflation for the rest of your life and (if the Survivor Benefits Program is elected) your survivors. The error hinges on an oversight of a 1975 law called the Tower Amendment. (Senator Tower ensured that servicemembers weren’t penalized for deciding to stay on duty longer than their retirement eligibility.)

When a servicemember retires after more than 20 years, the law requires DFAS to recalculate their pension to ensure that they receive the benefits of COLAs that were added to military pensions while the servicemember chose to continue to serve. This only applies when the servicemember stayed for longer than 20 years of service, and only if that year’s retiree COLA was larger than that year’s military pay raise. If a retiree COLA (after 20 years) was higher than the annual pay raise, then when the servicemember finally retired their pension calculation was supposed to substitute that higher retiree COLA for that year’s military pay raise.

A recent audit showed that DFAS had overlooked the Tower Amendment, but nobody is sure how many retirees are affected. The auditors found the error in 13 out of 66 records that were sampled, but it’s possible that as many as 55,000 High Three retirees are losing out. However, the Tower Amendment was passed five years before the High Three retirement system went into effect, and it’s not clear that Congress even intended for it to apply to High Three. DoD doesn’t want to spend the money to audit the records of every High Three retiree with more than 20 years of service, and they’re also reluctant to spend the money to correct the oversight. A sympathetic House Armed Services Committee (sympathetic to DoD, not necessarily to their constituents) appears to be willing to “clarify” the law to state that the Tower Amendment is not applicable to High Three retirees.

If you stayed longer than 20 years (active duty, Reserve, or National Guard) then it’s worth comparing military pay raises to COLAs. You should check the pay tables to manually calculate the raises for your rank and your longevity, since some pay raises were targeted at particular ranks & years of service. I’m still searching for a good table of military retiree COLAs over the years (please post a link in the comments if you find one!) but here’s a similar chart from Social Security. Military support organizations will alert the full Congress to vote their support of High Three retirees, so if you’re affected by this DFAS mistake then you should also write your senator and representative.

Free PowerPoint presentation for basic financial management training

Last month I posted on ways to discuss financial independence with the troops. (I sent out a lot of copies of my seminar handout; please let me know if you’d like one too.) This effort snowballed far beyond my expectations when the subject of financial literacy arose over at Bogleheads.org. The readers started a military finances wiki last year, and now they’re expanding it as part of a new financial literacy wiki.

Better yet, Marine retiree Mark Hensen sent me a monster 70-slide Powerpoint presentation on the basics of financial management. He says:

I want to share the attached PPT brief. I used it last year in Okinawa when briefing a bunch of mostly junior Marines, although I think it is applicable to most ranks (and much of it to civilians as well).

I came across your website and book recently and have enjoyed both – I believe they helped validate that we’re on the right track regarding early retirement. In fact, I just started terminal leave a few days ago and have basically “early retired”. Initially, I’m planning to take some formal personal finance education and find volunteer capacities to help folks out one on one with their personal finances (this was basically a hobby of mine in the past).

Even though I didn’t figure out how to manage or invest money until my late 20s, and even then made numerous (and some big) mistakes for the next decade or so, fortunately my wife’s working outside the home, our relatively frugal lifestyle and some significant saving and (now) sound investing made up for the early errors – even with 3 kids, two of whom are still at home including a five-year-old.

I appreciate you taking the time to develop the book and website – hopefully more of those who need the information will get it. Thanks again.

His presentation is linked at the end of this post, and I’m also sharing it with Bogleheads to add to their wiki. I’m not suggesting that you plan your presentation around 70 slides– instead, you should pick & choose the minimum number of slides that work for you and give plenty of time for audience questions & participation. You’ll also want to update it for the latest contribution limits and any new changes to the Roth Thrift Savings Plan.

Tricare Western Region update and PPACA information

Earlier this month I posted on the problems with UnitedHealthcare’s takeover of the Tricare Western Region contract. Alert reader “Activist” responded with a new Facebook group intended to call more social-media attention to the issue. If you’re not happy with UHC then post your commentary there or on this blog, and please let us know how it works out.

And in unrelated news, shortly after that Facebook group went up MOAA announced that Tricare has now extended UHC’s waiver on obtaining referrals through 2 July. In other words, UHC still doesn’t have enough staff to handle the routine workload of arranging patient referrals to specialists… so we’re going to be trusted to do it on our own. The transition is going so badly that even Congress is starting to notice. In even more unrelated news, when our daughter is commissioned in May 2014 (and has her own health insurance) then we two remaining Tricare beneficiaries at Hale Nords may elect for Tricare Standard instead of Tricare Prime. But only if UHC has managed to qualify to take charge of their referrals by then…

Speaking of healthcare, another big contributor to “The Military Guide” passed along a YouTube video explaining how the Affordable Care Act’s health insurance exchanges are expected to work. (If the link changes on me, the title is “CMSHHSgov Training: Understanding the Health Insurance Marketplace”.) You may prefer to read written materials before watching videos, but the PPACA is so complicated (and so lengthy) that this time I’m happy to defer to a more visual learning method.

“How to Cope with Hawaii Duty”

On a lighter note, a couple of weeks ago Military.com’s Spouse Buzz blog ignited a small furor with a post from a military family member who’s not happy with Hawaii duty. Fellow blogger Rob Aeschbach was the first to alert me to the controversy, and Spouse Buzz agreed to publish my guest post.How to Love Hawaii Like a Local” won’t change anybody’s mind, but it offers ten tips for handling the transition.

And, no, that’s not me or my longboard at the top of Spouse Buzz’s guest post.  They went with a different photo but sadly it never even occurred to me to give them a copy of my blog header image. Ironically I was rushing to submit the guest post before I… went surfing.

Personal Financial Management Basics for U.S. Military  (This link downloads a PowerPoint file which you can then open on your own computer.)

Related articles:
Reader questions on Reserve retirement Tricare and points
Discussing financial independence with the troops
TRICARE Prime premiums and United Healthcare
The regulation for calculating an active-duty pension

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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