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First Command Reports: Career military worried about more changes to new retirement plan

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FORT WORTH, Texas – A Pentagon proposal to make changes to the military retirement overhaul passed just last year is gaining the attention of America’s career military. And they don’t like what they see.

The First Command Financial Behaviors Index® reveals that half of middle‐class military families (commissioned officers and senior NCOs in pay grades E–5 and above with household incomes of at least $50,000) are aware of the changes unveiled in February as part of the proposed Defense budget for fiscal 2017. While the recommendations include some potentially positive changes, the negative ones are clearly of the greatest concern. Eighty two percent of survey respondents feel anxious about the proposal.

“This proposal is understandably challenging for our men and women in uniform,” said Scott Spiker, CEO of First Command Financial Services, Inc. “Career military families are still trying to sort out how the recent overhaul of the military retirement system may affect their financial futures. The new military retirement reduces the size of the traditional 20‐year pension, cutting monthly retired pay by 20 percent. That’s a big change. Not surprisingly, three out of four say they prefer to be grandfathered into the traditional system. Now the Pentagon is seeking to make even more changes. Service member families are feeling overwhelmed by the pace of change, and their anxiety stems from that fact.”

The Pentagon’s 2017 budget proposal recommends four changes to the new military retirement system that was approved in November as part of the 2016 National Defense Authorization Act. Those changes are:

  • Extending the government’s matching contributions to an individual service member's actual retirement date. The 2016 law cuts off government matching contributions at 26 years of service. This is a positive change for the small percentage of military members who serve beyond 26 years.
  • Raising the cap on government contributions to the Thrift Savings Plan (TSP) to 6 percent of basic pay. That’s up from 5 percent in the 2016 law.
  • Delaying the start of TSP matching contributions to the fifth year of military service. The 2016 law begins matching contributions at the third year of service.
  • Removing the new retirement system’s mandatory minimum continuation pay for all troops reaching 12 years of service, and giving each of the services flexibility to set continuation pay based on their individual needs. The 2016 law ensures that all troops reaching 12 years of service receive continuation pay equal to a multiple of their basic pay (ranging from 2.5 months to 15.5 months as determined by their service department).

How does retirement income look at the 20‐year mark if career military members make their full TSP contributions to earn the extra government match, matching does not begin until the fifth year of service, but continuation pay is zero? The additional 1 percent available TSP match, delayed starting at the fifth year of service, can net a greater TSP balance than that included in the 2016 law. However, it does not make up for the loss caused by eliminating the minimum 2.5 months of continuation pay. Based on a detailed analysis of the future finances of two hypothetical career military members (one enlisted, one officer) who retire after 20 years, First Command projects that monthly retired pay under the 2017 proposal could fall roughly 5 percent short of that under the 2016 law. Assuming a maximum 15.5 months of continuation pay, the shortfall would be even larger.

Perhaps the most notable impact of delaying the start of matching contributions to the fifth year of service would be felt among those who do not make a career of the military.

“One stated intention of retirement reform is to provide benefits to those who do not stay until retirement,” Spiker said. “Delaying the match until the start of the fifth year of service essentially eliminates the possibility of matching contributions to anyone who joins the military and stays for a first term of four years or less. Those service members would receive only the 1 percent automatic contribution that starts after 60 days of service. This is in direct conflict with one of the intentions of retirement reform.”

About First Command Financial Behaviors Index®

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. Financial Behaviors Index

About Sentient Decision Science, Inc.

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.

About First Command

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.


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