The changing terrain: financial readiness in the new retirement era
America’s career service members who will have the choice to opt in to the new blended retirement system in 2018 have questions about the changes. The latest results of the First Command Financial Behaviors Index® reveal that four out of five are expecting to seek professional help making the critical decision between opting in to the new system or sticking with the traditional pension.
For the group of service members who opt in and for the next generation of career service members, long-term financial security will depend on making careful savings and investment decisions at several key junctures of their careers. The blended retirement system, which goes into effect on Jan. 1, 2018, calls for a 20 percent reduction in retirement pay calculation in exchange for a defined benefit program of Automatic and Matching Thrift Savings Plan contributions, a mid-career continuation pay bonus and options to receive a portion of their pension in the form of a lump sum at retirement.
Proponents of the new structure say it 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. But among current service members, the argument in favor of the security provided by the current pension makes it the preferred option. Three out of four survey respondents who say they are likely to serve to full retirement want to be grandfathered into the current system.
Whichever decision service members make will affect their lifetime financial goals. While the choice doesn’t need to be made until 2018, two-thirds of service members who are already working with a financial advisor say they are extremely or very likely to ask their advisor for help with this decision.
Those eligible to opt in are encouraged to take DoD-sponsored training on the blended system. Leader training is already available for all to view via Joint Knowledge Online and Military OneSource, yet First Command’s survey revealed that only 30 percent had already viewed it, and 26 percent weren’t even aware of the online training. Although in-person DoD educational classes begin in Jan. 2017, only 50 percent of survey respondents were aware of this training.
*Commissioned officers and senior NCOs in pay grades E-5 and above with household incomes of at least $50,000.
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