YMM Reading List

Saturday, January 31, 2009

Dave Ramsey encourages military members to make costly mistake

I am a Dave Ramsey fan. His method of eliminating debt and accumulating wealth is virtually foolproof, and that's the appeal. I don't agree with everything he says, however. For example, on at least two occasions, Mr. Ramsey has encouraged military members to take the CSB/REDUX retirement option, trading reduced retirement benefits in return for a one-time $30,000 payment. If you've followed this blog for a while, you know that I think the REDUX is a terrible idea for military members. Read Tom Philpott's article on REDUX and you'll understand my concerns.

I actually e-mailed Mr. Ramsey and sent him this article, but apparently I didn't convince him. Military members need to research this option completely before making their decision. A great place to do this reseach is the Department of Defense Pay and Benefits web page.

Mr. Ramsey does make a point when he argues that military retirement benefits stop with the death of the retiree. Military members should consider a combination of the Survivor Benefit Plan and term life insurance to reduce the risk to their dependents.

1 comment:

matthew said...

If you take the redux bonus and apply it to debt, it's a losing deal.

However, if you take the redux bonus and invest it into a Roth IRA gaining an avg of 10%, which you'd have to do over the course of a few years of course because of the cap, you'll come out well on top after 25 years. Assuming you came into the service at 20 and takes the redux at 15 years you'd be 59 when your money crosses the line mentioned in the article for an E-7. Everything after that is gravy.

The articles calculation was clearly based on avg lifespan which I believe is about 77 now. That same 22,000 after taxes would be worth nearly 1.9 million after that 42 years and all the while, you're still getting your 40% retirement.

So... 309K vs 1.9M. I can at least see where Mr. Ramsey is coming from. Again, I want to reiterate that applying that money to debt or a down payment for a house would obviously nullify those gains and if that is your plan for the redux, find a better plan.