Skepticism for New Military Retirement Proposal

Pension, Pentagon,Pension experts have expressed their skepticism over claims that service members will get more lucrative and larger benefits after retirement. The report published by Military Compensation and Retirement Modernization Commission on January 29 asks for a 20 percent lesser pension for military careerists and the creation of 401(k) type contributions for the troops who exit army life before they complete the 20 year milestone.

Scott Spiker, the Chief Executive Officer of First Command Financial Planning, says that it is premature to decide whether it is good or bad due to the presence of a number of undefined variables. First Command Financial Planning is known for assisting military families to manage their financial resources. The company operates out of Texas.

Assumptions

The report revolves around a number of charts which contrast the present retirement system in the military with the “blended” system as proposed by the commission. The charts were well distributed and also prominently displayed when the commissioners testified on the Capitol Hill during early February. To give an example, the chart displays a hypothetical service member who reaches E-7 rank and then retires after 20 years. If one follows the present system, then that person will receive $201,282 in retirement benefits. If one follows the proposed system, the amount jumps to $248,000.

This difference, however, is dependent on a number of assumptions. Prominent among those assumptions is that service members will continue to contribute a portion of their income and make informed and better financial decisions. It is also assumed that the stock market will also give solid, positive returns. The plan made by the commission actually places the complete estimated benefits value of traditional military retirement at an amount which is much less than what was in the past.

Perception and reality

According to the Commissioners, the plan is centered on the perception that the military of today will prefer to have more choices when creating their menu of benefits. Critics, however, say that a much wider choice will be accompanied by risk in case the best longer-term decisions are not made by the service members.  It was accepted by commissioners that aa few military personnel may not be completely equipped for shouldering the responsibility inherent in the proposed retirement proposal. This is the reason the plan made by it includes the recommendation that the Pentagon budgets away $85 million every year for an education program to promote financial literacy.

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