Troops Worry About Retirement

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BOSTON (MainStreet) -- Military families are more concerned about their retirement prospects than economic conditions, inflation, debt and health insurance.

That's the upshot of recent survey results from First Command Financial Services. It found that 71% of middle-class military families (those with household incomes of at least $50,000) cited government cuts to military retirement benefits as the financial issue that concerns them the most. The economy came in second at 54%, followed by the cost of gas at 51%.

Just 35% of respondents say they are "extremely" or "very confident" in their ability to retire comfortably.

"These findings are a dramatic indicator of the growing level of concern in active-duty families regarding their long-term financial futures," Scott Spiker, CEO of First Command, says in a statement. "While the continuing economic turmoil weighs heavily on many middle-class families, the proposed overhaul of the military retirement system has become an even more critical financial concern of our men and women in uniform."

The top 10 financial worries cited by survey respondents were: government cuts to military retirement benefits (71%); the state of the economy (54%); cost of gas (51%); ability to retire comfortably (50%); cost of everyday goods (40%); value of real estate (38%); personal debt (37%); ability to send kids to college (31%); stock market (30%); unemployment/job security; and cost of health insurance (21% each).

The survey found that 37% of families have changed their financial behavior as a result of proposed military retirement cutbacks, reporting that they are saving more (59%) and paying more on debt (51%).

"We expect saving more and paying down debt will be among the key money strategies on display in active-duty households in 2012," Spiker says.

For more than a year, the Department of Defense has considered proposals that would scrap the current plan for servicemen and servicewomen, replacing it with a model similar to the Thrift Savings Plan offered to federal employees and the 401(k) plans used by civilians.

According to Modernizing the Military Retirement System, a Defense Business Board report requested by the Secretary of Defense, the current system is based on a 20-year "cliff vesting structure": Those who serve less than 20 years get no benefit, while those who serve for 20 years earn a lifetime benefit of 50% of base pay. Those who serve for 35 years earn a lifetime benefit of 87.5% of base pay. Both tiers are regularly adjusted for inflation.

"For those serving more than 20 years, the retirement contribution is approximately 10 times greater than the private sector," claims the report by the Defense Business Board, an advisory group made up of private-sector corporate leaders. "Whereas average private-sector pension contributions range from 4% to 12% percent per year, military retirement benefits equate to an approximate contribution of 75% of annual pay per year."

Annual military retirement payments are forecast to increase from $52.2 billion in 2011 to $116.9 billion in 2035. The total life cycle program costs will grow from $1.3 trillion, of which only $385 billion is funded, to $2.8 trillion by Fiscal Year 2034, the report says.

Beyond cost considerations, the task force cited other perceived drawbacks. Among them was an issue of fairness as 83% of those serving in the military will get no retirement benefit, including "the majority of troops who have engaged and will engage in combat."

"The current military retirement system is inflexible and has disadvantages with regard to force shaping," the report adds. "The binary nature of the 20-year cliff vesting requirement creates a strong incentive for personnel to leave shortly after 20 years."

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