Breaking the New Military Retirement code
This month marks the 74th anniversary of The Battle of Midway, a decisive battle in the Pacific during WWII wherein United States Naval Forces prevented Japan from securing dominance in the region. The Americans were able to rebuff Japan’s air attacks on the U.S. military base at Midway Atoll 1,300 miles northwest of Oahu and in the process exact devastating damage upon four Japanese aircraft carriers.
Information ingeniously pieced together by U.S. code breakers alerted the Americans to the attack well in advance. Being forewarned and forearmed enabled the U.S. Navy to stop the expansion of Japan in the Pacific and establish a foothold for the United States to dismantle the Japanese empire and ultimately turn the tide of war to the Allies favor.
The Battle of Midway demonstrates just how true the old saying “Knowledge is Power” proves to be. As we enter the era of the New Military Retirement System, it is critical that we give our military men and women the information they need to “break the code” and understand the decision points they will face that will significantly affect their retirement income. This infographic is a start: http://bit.ly/NewMilitaryRetirementInfographic.
The new system, which goes into effect on Jan. 1, 2018, calls for a 20 percent reduction in retirement pay in exchange for automatic and matching Thrift Savings Plan (TSP) contributions, a mid-career continuation pay bonus and options to receive a portion of retirement as a lump sum.
Proponents say the new structure will offer greater financial flexibility to young service members and point to the fact that a much higher percentage of service members will leave the military with at least some retirement savings. Look a bit deeper, though, and you’ll find that this enhanced flexibility comes at the cost of significantly less financial certainty for the next generation of retiring service members, whose success in the new system will depend – far more than ever before – on making prudent financial decisions at several key junctures during their careers.
The DoD is beginning to educate servicemembers now, and no doubt much will likely be done to help our active-duty military make the transition successfully. The reality though, if one looks at the general trend in guaranteed pensions being replaced by do-it-yourself investment strategies, is that retirement income security is in decline, and if left to its own, will worsen. Most people today do not save aggressively enough or know how to invest wisely for their desired retirement lifestyles tomorrow.
Servicemembers will have to work harder to secure their financial future. DoD and those of us who work to support the financial well-being of America’s military will have to remember that this isn’t a “once and done” education effort. We must provide continuous reminders, information and support to help our military men and women routinely make the right decisions throughout their careers — and prevent them from following in the footsteps of too many in the general population. Financial security can still be the destination for military families if they develop an informed financial plan and remain disciplined. But most will need help breaking the code.
JT Thorp served a 24-year career in the U.S. Navy, entering the U.S. Naval Academy in July 1989 and retiring in 2014. During his time in the Navy, JT operated in the Arabian Gulf, Indian Ocean, Mediterranean and North Atlantic theaters, and logged more than 3,000 mishap-free flight hours piloting fleet and training command aircraft. He joined First Command Financial Services as a Financial Advisor in October 2001 and is currently First Command’s Vice President and Director, Client Services.
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