First Command News & Media


First Command Reports: Retirement reform clouds future for career military

First Command white paper reveals that service members who fail to invest pay and bonuses in the military’s new retirement system will be at risk of receiving less retired pay than under the current pension system

Print-friendly PDF

FORT WORTH, Texas – Look for the new military retirement system to bring considerable financial uncertainty to the next generation of career military, with many service members and their families facing a potential future of smaller monthly retirement checks than under the current traditional pension program, according to a new white paper by First Command Financial Services, Inc.

Titled “Military retirement reform and its impact on America’s career military families,” the white paper offers a fact-based foundation for understanding the financial rewards and risks that will face career service members who enter military service on or after Jan. 1, 2018. That’s the starting date for a new military retirement system that replaces the traditional 20-year pension – a benefit that has defined military careers for generations – with a blended program that includes a reduced pension in exchange for a lump sum bonus and a new matching funds program through the government’s Thrift Savings Plan (TSP).

Based on a detailed analysis of the future finances of two hypothetical career military members (one enlisted, one officer), the white paper projects that service members who fail to save a sufficient portion of their basic pay and all of their lump sum bonus – and invest both in recommended fund offerings through the TSP – are at risk of receiving monthly retired pay that could be considerably smaller than the size of monthly paychecks under the current 20-year pension.

How much smaller? In one example, First Command projects that a service member who does not take the necessary actions to earn matching contributions and save the lump sum bonus is at risk of receiving monthly retired pay that could fall 18 percent short of what it does under the current pension system. Overly conservative investment choices and lower-than-anticipated stock market performance are among additional factors that could reduce the size of monthly retired paychecks.

“The matching funds and lump sum bonuses of the new military retirement system offer valuable and portable benefits to our non-career service members, but those who expect to serve out a 20-year career face a more clouded future,” said Scott Spiker, CEO of First Command. “Our next generation of career service members will receive fewer government guarantees, namely smaller pensions. That means they face a future that will require greater reliance on long-term investment growth as well as their own savings behaviors and investing acumen. Success will depend on adopting the types of strong personal financial choices and behaviors that often run counter to the temptations of our instant-gratification society. Our analysis clearly demonstrates the importance of service member contributions in the new retirement system. Earning matching funds and saving continuation pay is critical to success. If a service member does not participate in the TSP, then they forego matching contributions made by the defense department. And without those matching contributions, they accept a less valuable retirement plan. Our conclusion is that any behavior by the service member that is less than ideal will result in reduced retired pay.”

In the white paper First Command notes that the new retirement system features financial education as an important element of preparing service members to take a stronger role in pursuing their financial security in retirement. But the company also stresses the critical role that professional financial advice can play in shaping the savings and investing behaviors of service members.

“Our marketplace studies have consistently shown that partnering with a financial advisor has a positive relationship with confidence in one’s ability to retire comfortably,” Spiker said. “Financial education and professional financial advice represent two different but complimentary approaches that can help America’s career military families make the most of their government benefits. Both approaches will be critical to helping these families take responsibility for and successfully pursue their own paths to long-term financial security.”


Hiring Our Heroes Project Sanctuary First Command Educational Foundation Army FPA Alliance