Common Assumptions

These cases were built with a common set of assumptions. The future will no doubt unfold differently and actual results will differ correspondingly. Remember these comparisons are not guaranteed. They are merely estimates based on a set of assumptions that appear as valid as any other.

Scenario assumptions:

• All individuals in the various cases are currently in their 15th Year of Service.
• The members predict their likely retirement grade and Years of Service for the determining the retirement income streams.
• The "starting" retirement pay is based on projecting the July 2001 pay table an appropriate number of years into the future. For example, cases in which the individual retires at 20 Years of Service have a retirement pay based on a projected active duty pay table for 5 years from July 2001. The active duty pay is increased by 3.5% annually, a mildly conservative assumption.

Service Member Assumptions:

• Officers joined at age 22.
• Enlisted members joined at age 18.
• Warrant officers joined at age 20.
• Individuals retire with exact Years of Service. For example, a person who retires at 20 years of service is assumed to have 20 years and 0 months.
• To determine the final three-year average pay, the pay rates during the member's 17th, 18th and 19th years are used assuming the member is in the retirement grade for all three years.
• The July 2001 pay table is used for all pay calculations.

Economic Assumptions:

• Consumer Price Index (CPI) is 3.5% during the member's entire retirement.
• Members will invest the entire $30,000 bonus less projected taxes.
• The Thrift Savings Plan (TSP) is implemented with a maximum contribution limit of $10,500 and the member chooses to place $10,500 of the career bonus into this account less a percent of basic pay for the year. Officer examples place 3% of basic pay into the TSP; warrant officers place 2%; and enlisted members place 1%.
• Money placed into the TSP and all accumulated earnings are tax-deferred until withdrawn.
• The member chooses to invest the remainder in a Mutual Fund. Both this portion of the bonus and its earnings are taxable.
• Earnings from the TSP are 8% and earnings from the mutual fund are 8%.
• Tax rate is 28% for all cases.
• State taxes are not considered.