On July 21st, the Defense Business Board, an influential panel of advisors that reports to the Secretary of Defense, released a 24-page presentation titled “Modernizing the Military Retirement System.” The military community hasn’t stopped buzzing since. And that doesn’t surprise me given that the presentation proposes eliminating the military’s traditional retirement pension and replacing it with a system more closely resembling a corporate 401(k) plan.
Why are sweeping changes suddenly being recommended for a system that has been in place for generations? As with so many things in the the midst of this stubborn recession, it’s all about the money. Advocates of reforming the retired pay system say the proposed plan will save $250 billion over the next 20 years. They also assert that it will be fairer; ensuring that those who serve less than 20 years receive some retirement benefits. In the present system, 83% of those who serve will receive no retirement benefit.
But not everyone seems convinced that changing the traditional pension system is a good idea. Mike Hayden, deputy government affairs director for the Military Officers Association of America (MOAA), sees the proposed changes as “a threat” that is “a sure-fire way to change the success we’ve had.”And Virginia Congressman Bobby Scott has warned that making changes to weaken military compensation during times of strong enlistment and an anemic private job market will hurt the Pentagon’s ability to compete for qualified people when the economy recovers.
Who is right and who is wrong? Frankly, there are valid points worthy of consideration on both sides of the debate. But given the present emphasis on reducing government spending, no one should be surprised if some changes are ultimately made to the current retirement system. And I believe it’s important that service members plan accordingly.
The good news is that this important topic seems to already be on the radar of many military families. The latest findings of the First Command Financial Behaviors Index® reveal that two-thirds of military families making at least $50,000 a year are aware of the proposed changes.
The more unsettling news is that many of those active duty individuals and families who are aware of the proposed changes are worried about them. According to our most recent Financial Behaviors survey, more than a third are “extremely” or “very” nervous about the changes and another third are “somewhat nervous.”
If you’re among those who are nervous about possible changes in the military retirement system, I encourage you to channel those anxious feelings into positive action. This is not a time for putting your head in the sand and hoping for the best, or wringing your hands and lamenting the possibility of changes. It’s a time for staying abreast of the situation and, more importantly, for taking control of your own retirement planning.
The good news is that First Command is well equipped to help you do both. We have created a new online resource that will provide regular updates on the ongoing debate, video responses to the most frequently asked and relevant questions we receive and links to other websites and blogs that offer new information, informed opinions, or fresh perspectives on this story. I encourage you to visit and bookmark this new resource, and then to schedule a review of your retirement plan and a discussion of your retirement planning options with your First Command Financial Advisor.
This is not a time for knee-jerk reactions. We don’t yet know enough about the shape that the military retirement system will take to make well-informed decisions. But it is always a good idea to stay informed about possible changes in the financial landscape and to explore alternative options – and we are committed to helping you do that.
First Command Financial Services and its subsidiaries, including First Command Bank and First Command Financial Planning, assist American families in their efforts to build wealth, reduce debt and pursue their lifetime financial goals and dreams—focusing on consumer behavior as the first and most powerful determinant of results. Through knowledgeable advice and coaching of the financial behaviors conducive to success, First Command Financial Advisors have built trustworthy, lasting relationships with hundreds of thousands of client families since 1958. Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index® assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 4.3 percent with a 95 percent level of confidence. www.firstcommand.com/research Sentient Decision Science was commissioned by First Command to compile the Financial Behaviors Index®. SDS is a behavioral science and consumer psychology consulting firm with special vertical expertise within the financial services industry. SDS specializes in advanced research methods and statistical analysis of behavioral and attitudinal data. First Command Financial Services, Inc., is the parent of First Command Financial Planning, Inc. (Member SIPC, FINRA), First Command Insurance Services, Inc. and First Command Bank. Financial planning services and investment products, including securities, are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Insurance Services, Inc. in all states except Montana, where as required by law, insurance products and services are offered by First Command Financial Services, Inc. (a separate Montana domestic corporation). Banking products and services are offered by First Command Bank. Securities products are not FDIC insured, have no bank guarantee and may lose value. A financial plan, by itself, cannot assure that retirement or other financial goals will be met. In Europe, investment and insurance products and services are offered through First Command Europe Limited. First Command Europe Limited is a wholly owned subsidiary of First Command Financial Services, Inc. and is authorised and regulated by the Financial Services Authority. Certain products and services offered in the United States may not be available through First Command Europe Limited.