Pentagon proposals to overhaul the military retirement system are gaining support among America’s career military families, according to results of the First Command Financial Behaviors Index®.
Almost half (46 percent) of middle-class military families (commissioned officers and senior NCOs in pay grades E-6 and above with household incomes of at least $50,000) are in favor of Department of Defense proposals that could feature smaller monthly retirement checks but also include a lump sum payment immediately upon retirement. This represents a dramatic rise in support from the 13 percent who initially favored the idea when the Pentagon announced it in March. The October survey showed that “yes” and “no” responses were equally split at 46 percent with only 8 percent of respondents unsure.
These findings align with results of a recent study from the non-profit RAND Corp. that suggests active-duty troops would support the proposed changes to the traditional military retirement system. RAND notes that the proposed changes would allow servicemembers to become vested sooner than the current 20 years, thereby extending benefits to more veterans. Only 34 percent of officers and 14 percent of the enlisted force serve long enough to receive lifetime benefits, according to the report.
The DoD proposal to overhaul the military retirement system has been a controversial one, drawing a mix of responses from lawmakers and the public. The Index reveals that relatively few members of the general population support the plan. Just 18 percent of October survey respondents favored changing military retirement benefits, down slightly from 23 percent in March. The proposal has been advanced as an option for cutting military spending and controlling long-term personnel expenses.
First Command’s ongoing research on the impact of sequestration on America’s career military – research that includes the Financial Behaviors Index as well as a June 2014 survey of 1,000 middle-class military families – has revealed notable support for alternate retirement benefit options. In the June survey, roughly seven out of ten respondents reacted favorably to scenarios that would mean smaller monthly retirement checks but include a lump sum transition payment immediately upon retirement. The survey revealed that 74 percent were attracted to a scenario featuring a monthly check “approximately 35 percent of high-three” and a lump sum transition payment of one-half or three-quarters of one year’s basic pay. And 72 percent were attracted to a plan featuring a “partial monthly payment of 25 percent of high-three” that would increase to 40 percent at age 62. That scenario also featured a lump sum transition payment of 2 ½ or three years of basic pay. Under the current system, those who separate at the 20-year mark receive half their final basic pay.
Survey respondents also reacted favorably to proposals that would offer retirement compensation earlier in their careers. Four out of five respondents (81 percent) expressed support for a proposal to “set up a Thrift Savings Plan account, and after two years of service contribute an annual direct deposit equal to 5 percent of basic play.” A proposal to offer “a retention incentive payment at mid-career milestone (12 years) equal to two months’ pay for enlisted troops and six months’ pay for officers” was rated somewhat to very appealing by 73 percent of respondents.
“The relative openness of career servicemembers to alternative retirement options is a good indication of their desire to seek solutions for an uncertain financial future,” said Scott Spiker, CEO of First Command Financial Services, Inc. “Sequestration is weighing heavily on these families. Four out of five are anxious about cuts to defense spending, and more than half are concerned about their job security over the coming months. Their only certainty is that the military as they have known it is changing. The goal of Pentagon leaders, lawmakers and those of us in the private sector must be to help these families bridge the gap between current uncertainties and future realities so they can successfully transition to the military of tomorrow.”
About the 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. www.firstcommand.com/research
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.
First Command Financial Services, Inc., is the parent of First Command Financial Planning, Inc. (Member SIPC, FINRA), First Command Insurance Services, Inc. and First Command Bank. Financial planning services and investment products, including securities, are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Insurance Services, Inc., in all states except Montana, where as required by law, insurance products and services are offered by First Command Financial Services, Inc. (a separate Montana domestic corporation). Banking products and services are offered by First Command Bank. In certain states, as required by law, First Command Insurance Services, Inc. does business as a separate domestic corporation. Securities products are not FDIC insured, have no bank guarantee and may lose value. A financial plan, by itself, cannot assure that retirement or other financial goals will be met. First Command Educational Foundation is a 501(c)(3) public charity. It is not affiliated with First Command Financial Services, Inc., or any of its affiliated entities. First Command is not affiliated with the RAND Corp.
