Retirement Insecurity is Common Among Service Members

If you’ve served in the military, your retirement future may be on shaky ground. According to a survey published by Blue Star Families, an organization dedicated to exploring the issues impacting military families, roughly 40{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of active duty service members and their spouses feel financially insecure. USA today reports that 52{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of service members feel as though their future in the military is bleak.

In fact, pay and benefits top the list of military-related concerns according to the 2015 Annual Military Family Lifestyle Survey, particularly for post-9/11 service members nearing retirement. Savings for their later years, combined with difficulty of military employment and the unknowns common in military life (deployment, orders, etc) all contribute to high financial stress. Further insecurity comes from worries of being cut from the military and entering civilian life.

This seems strange, considering that 85{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of individuals joining military branches cited their reason for initially enlisting was financial security. However, recent vetoes of the annual defense budget bill make the promise of financial security. One in which  service men and women cannot rely on. This vetoes would supposedly increase retirement benefits and include military bonuses.

Further adding to financial insecurity is the most recent military pay increase – a paltry 1{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} in 2014. This marks the smallest pay increase in nearly 40 years. This is especially upsetting, as military branches have spent nearly $287 million for morale-boosting programs. This is since 2009 and seemingly have very little to show for their efforts.

Easing the Transition

If you are currently serving in the military. One way to ease financial stress is to learn how to transition from the military into retirement. A recent proposal to transform the military retirement system could help with this.  

The study, published by RAND Corp, found that service members would prefer to be given an end-of-career payout – a lump sum transition pay of about 2.5 years’ worth of their annual pay rather than smaller monthly checks during their retirement years. The study examines in-depth a retirement reform plan released by the Pentagon that cuts the current military retirement system of 20 year vested income payments in exchange for smaller monthly checks.

These smaller checks may be the key to lifting the financial strain military families feel surround their retirements. In fact, data suggests that many service members will embrace this change if it is done well. The plan’s base is on the idea that exiting service members value up-front cash more than smaller pay increments.

So why are service members on board for this new payout system?

To compensate career service members for the smaller payouts, the Department of Defense is offering a 401(k) contribution benefit to all troops in service for at least 6 years, a cash-retention bonus for service members who have served for roughly 12 years and a “transition pay” in the form of a lump sum (of up to three year’s basic pay) for service members separating after 20-plus years of service.

According to the study’s findings, the majority of those currently enlisted – with less than 20 years under their belts – would voluntarily opt for this retirement system; however, RAND Corp predicts that most officers who have served more than 5 years will most likely choose to stay with the current system.

Keep the transition pay is a key component to military members feeling financially secure. The Rand Corp also found that members that enlist would be less likely to opt for a proposal offering a modest transition pay but full monthly retirement checks later on.

Smart Spending Habits Now to Relieve Retirement Insecurity

If you’re a new recruit, now more than ever it is important to build smart spending habits.

Refer back to earlier in the article: roughly 85{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of service members enlist for financial stability. This means a steady paycheck, particularly for the younger newly that are not customary to having money  and who have little-to-no experience managing their finances.

We recommend that you build a solid financial budget now – and include retirement. Start by tracking your expenses and seeing where your money goes. By seeing on paper where you are spending, it will make it easier to cut down on certain non essentials.

After you’ve begun tracking your money for a few paychecks, decide what can go. Are you eating out a lot? Cut down to a few times a week and set the rest aside. If you have yet to establish a savings account, do so now. If you have established a savings account, start setting aside a portion of your budget for a 401(k) account.

Don ignore the fact that you can start saving for retirement on your own! Starting your own Roth, IRA or 401(k) can help you take steps toward smart financial decisions. This decisions will positively impact your future. They can leave with less financial strains when it comes the time for you to transition out of military life.