Should I take the CSB REDUX $30,000?[ Edited ]
I am active duty Navy approachig my 15 year mark. I have an option of taking the CSB Redux which is $30,000. The only reason i am considering this is that I can use $5,000 to $7,000 to pay off all my debt and then invest the $20,000 or so left over in a long term investment. The thing is, losing that $400 roughly in retirement pay, is it worth it if i invest that $20,000 in a good solid investment plan? And if so, who can I talk to to really dig deep and find out what I need to do with the investment planning?
Just say no...I mean NO! It's not worth it.
Back in 2000 congress established the $30,000 Career Status Bonus (CSB) to make the REDUX retirement system a more attractive option for servicemembers. In my opinion, you give up a lot more than you get if you take the CSB and are stuck in REDUX. Selecting REDUX/CSB was a bad deal back in 2000 and because there's no inflation adjustment to the bonus it's getting to be a worse deal each year. If the bonus was adjusted for inflation it would be over $40,000 today...so again it's a bad deal that's getting worse. Why is it a bad deal?
First, with a 20-year retirement under the REDUX system your multiplier would be reduced from 50% to 40%. So someone who elects to take the $30,000 and the REDUX plan that comes with it is locked in to a retirement plan that will pay substantially less over the years. However, if you're covered by REDUX and serve 30 years your multiplier will start at 75%, just like with the High-3 system. Unfortunately, even serving 30 years will not allow you to overcome the shortfalls of CSB/REDUX.
Here's why. REDUX retirement comes with reduced inflation adjustments. Instead of adjustments equivalent to CPI like High-3, REDUX adjusts at CPI minus 1%. While this may seem minor, over decades it's really a big deal that could equate to tens or hundreds of thousands of dollars. And that's true despite the fact that there is a one time "reset" at age 62 (at that point the REDUX retirement pay is increased to what the high-3 is).
I analyzed retirement for an O-5 at 20 years to get a sense for the tradeoff--what would a someone be giving up for the $30,000 bonus at year 15 of their service. The numbers are eye-opening. If my hypothetical service member lives to age 80 he or she would forego over $800,000 for the privilege of getting that $30K. Granted, a dollar twenty or thirty years from now is not worth a dollar today, but even if we bring everything back in to today's dollars using a 5% discount factor CSB is still a really bad deal...$30,000 received vs. $238,000 given up.
So, go ahead and work on paying off your debt, buidling your savings and investing for retirement. Those are all great ideas and ideas that will help you build a solid financial future. However, don't do it by giving up a big chunk of one of the greatest retirement plans available by selecting CSB/REDUX.