Big Changes Ahead for Military Retirement

Paul Soderlund served a 27-year career in the United States Army, enlisting in 1967 and retiring as a colonel. During his time in the Army, Paul served two tours in Vietnam, commanded Task Force Hawk in Panama, and finished his career as a Senior J-7 representative to the Joint Staff National Military Command Center. He began his career as First Command Financial Advisor upon his retirement in 1994 and currently is First Command’s Vice President of Advisor Coordination.

America’s career military families are facing a big decision about their retirement benefits: Hang onto their traditional pensions or switch to a new system designed for the next generation of service members.

The new Blended Retirement System calls for a 20 percent reduction in current retirement pay in exchange for a defined contribution program of automatic and matching Thrift Savings Plan contributions, a mid-career continuation pay bonus and options to receive a portion of retirement as a lump sum. Everyone who joins the military on or after Jan. 1, 2018, will be automatically enrolled in the new plan. But many current service members – specifically those who will have fewer than 12 years of service by Dec. 31, 2017 – will have the opportunity to opt in to the new program.

Proponents say the new structure will offer greater financial flexibility and pave the way for a higher percentage of service members to leave the military with at least some retirement savings.

Among current service members, the argument in favor of lifetime financial security is making the traditional pension the preferred option. Recent survey results from the First Command Financial Behaviors Index® reveal that 56% of career military families who say they are likely to serve to full retirement want to be grandfathered into the current retirement system.

However, support for the military’s Blended Retirement System is strengthening among America’s career service members as the services begin to roll out information resources on the new system.

In a February press release, First Command’s CEO Scott Spiker urged service members to think long and hard about what they may be giving up:

“While the cash contributions and other benefits may seem appealing on the surface, this new system is no reward for current service members who expect to serve out their career and earn the traditional retirement benefit,” Spiker said. “There are no new dollars. The bonuses and contributions are being paid for through a 20 percent cut in the size of monthly pension checks, which today begin arriving immediately upon retirement and grow in size through annual cost of living adjustments that continue for the life of the retiree. In essence, the long-term financial security of our service member families will be built on a cash buy-out. The guarantees and lifetime financial security offered by the traditional military pension make it a powerful choice for the vast majority of current service members.”

As military retirement benefits get more complicated and less guaranteed, we expect to see many career service members consult with financial advisors for help making critical savings and investment decisions in their pursuit of long-term financial security. Perhaps the most important decision is the opt-in choice. It’s no surprise that the majority of career service members expect to consult with a financial advisor on this vital issue.

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