Big changes ahead for military retirement
America’s career military families are starting the new year with a big decision to make 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 Military 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. But 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 two thirds of career military families who say they are likely to serve to full retirement want to be grandfathered into the current retirement system.
Still, this dedication to the traditional pension system could evolve in the months to come as the services begin to roll out information resources on the new system. This month the Pentagon is expected to launch an “opt-in” course for service members who are eligible to make the switch.
In 2016 the services launched online training for leaders, and the previously-mentioned First Command survey reveals that about half of respondents have viewed that material. And three out of five say they are extremely or very likely to consult a financial advisor for help with decision.
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.
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 joined First Command Financial Services as a Financial Advisor in November 1993, and currently is First Command’s Vice President of Advisor Coordination.
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