This week’s congressional budget deal included a provision to reduce cost-of-living adjustments by 1 percent for military retirees younger than 62, starting in 2016. Disabled veterans will be exempt from the cut. The Military Officers Association of America, or MOAA, estimated that the typical soldier who retires after 20 years at age 40 will lose $83,000 over 20 years. The typical retired officer will get $124,000 less over 20 years. In all, the cuts are expected to save the government $6 billion over the next decade.

The military is outraged over these cuts to promised retirement plans and several groups, including MOAA and the Veterans of Foreign Wars, the VFW, have vowed to seek repeal.

In the meantime, J. Scott Spiker, CEO of First Command Financial Services, financial planners specializing in helping members and veterans of the military manage their money, says, “Military people understand that the sanctity of their retirement benefits have been violated. The government has stepped into prospective retiree benefits and said, ‘We’re willing to tinker.’ These benefits have been inviolate for a long time and people are very worried.”

Spiker says only about one-sixth of the people who initially enlist in the military stay for the minimum 20 years and earn retirement benefits. After 20 years of service, a retiree gets 50 percent of his final base pay for life, plus cost of living or COLA adjustments. If he stays 30 years, he gets 75 percent of his base pay for life plus the COLA.

Spiker says that in today’s competitive military, making the 20-year mark isn’t easy and certainly isn’t a given. In previous years, an experienced noncommissioned officer could expect automatic promotions, he says. Today, “If you have a single blemish on your service record, they are going to say you aren’t eligible to re-enlist or ask you to resign.

“In areas where there is a surplus of personnel, they make random cuts and they do it to people at a stage where there are no retirement benefits. If you are at the 14-, 15-, 16-year point, they may say to you, ‘We’ll give you retirement, but it will be a fraction of what you would have gotten if you had made it to 20.'”

For anybody choosing a military career today, Spiker says what all this boils down to is the need to start retirement planning early. He tells his clients to put three things in place the moment they enlist. What  he has to say is good advice for non-military workers as well because if military retirements can be trimmed, can Social Security be far behind? Spiker says:

  • Have a contingency plan for what sort of alternative career you would pursue if your military service ended abruptly.
  • Open a military thrift savings account and fund it regularly. Thrift accounts are like 401(k)s. There are both regular and Roth versions, but there is no government match. Members of the military who don’t qualify for military retirement must build their nest eggs without help.
  • Watch your spending. The military provides benefits beyond salary that can reduce the amount of cash its members need to live. When these benefits disappear, it can be a shock, so members of the military need to be prepared for that eventuality.

Spiker thinks that a further overhaul of the military retirement system is likely — one that will take into account today’s structure. “I think we are going to get to a point where the military is going to have to put incentives in place to get people to overlook uncertainty,” Spiker says.

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