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Time to reform military retirement?

By Jennie L. Phipps · Bankrate.com
Wednesday, August 24, 2011
Posted: 11 am ET

The Defense Business Board, which advises the U.S. Department of Defense, mostly on matters of civilian contracting, will report in October on ways to cut costs and modernize military retirement plans.

A preliminary retirement planning report calling for reform has raised the hackles of a wide swath of military and other types who oppose any cuts, especially while we have soldiers at war. It's true that the timing isn't ideal, but the business board's report makes some good points. In calling for a 401(k)-type plan to replace the pension that military retirees get after 20 years of duty, it pointed out that 83 percent of military personnel don't get a pension at all because they don't make it 20 years.

The report said the current military retirement system is more than 100 years old and was designed when times were different:

  • Life spans were shorter.
  • Military pay wasn't competitive with civilian pay. (Current enlisted military pay is in the top quartile for high school graduates.)
  • Second careers were rare because military skills didn't transition to the private sector.

The board said that because military retirement benefits are received after 20 years, 76 percent of those who do qualify for retirement benefits leave the military at 20 years -- when they are in their 40s -- which makes retaining trained people difficult. The current retirement system also doesn't provide extra compensation for those who serve in combat areas.

Costs for today's plan are skyrocketing. Current liability is $1.3 trillion of which $385 billion is funded. By 2034, the military calculates that its liability will reach $2.7 trillion.

The board suggests substituting a 401(k)-like plan based on the government's Thrift Savings Plan with Department of Defense and military personnel contributing. Military personnel could access their plans without penalty at age 65 and the plans would be part of their estates. Fully disabled participants would qualify for an immediate pension. There would be no impact on existing retirees.

Is this kind of plan fair? I think so. The idea that you can retire in your 40s and receive 50 percent of your salary for the rest of your life isn't feasible in a world where people routinely live to be 85 and increasingly hit 100.

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28 Comments
Sam
October 19, 2011 at 8:32 pm

Our country is going deep in debt, that's the true. How will taking something that was EARNED, and give it to those that quit early will make things better. I served 6 years active duty, and then continue on as reserve. While I had sacrificed alot more than a ignorant civilian like yourself, Ms Phipps, I still believe that those that served 20 years or longer, should enjoy their retirement even if they live another 100 years after they retire. Those that feel excited to get some money by just doing half way, should be shame. And Like somebody suggested, you should give up your bonuses,retirements and then you are entitled to an opinion.

Bill
October 15, 2011 at 1:57 pm

Funny that Jennie thinks "reform" is a good idea. Maybe she should write an article about how bank execs should give up their bonuses and bailouts.

Jennie, you make me laugh.

Mike
October 04, 2011 at 11:20 am

Stephen and Steve,you hit it right on the head. I get so sick of hearing comparisons between the civilian world and the military. There is absolutely no correlation between them. Military compensation on par with the civilian world? Really? I suppose that is correct in some, when we have junior enlisted troops on WIC and other forms of assistance. But then again, they are working for their pay, unlike many on the civvie side. All the crying about how unfair it is for a service member to begin drawing retirement benefits in the late 30's to early 40's after 20 years is nothing but whining from those who have never served. My own father, who retired as a dock worker still makes more with his retirement than I ever did at the highest rank and pay while in boots! And while I loved serving, loved my Army, and my soldiers, the only reason I stayed for 20 plus was for that retirement and the safety net it provides those of us who did stay that long. No one in their right mind would stay and put up with all the sacrifice for 20 plus if there wasn't something to look forward to.

stephen durnin
October 04, 2011 at 6:57 am

Those who have never served have no idea what happens to the regular and reserve men and women and what they do or earn or suffer. The toll is in loss of friends, lives, divorce, addiction, nightmares, crippling injury suicide and most of the reserve forces have those problems as well as loss of promotions and raises in their civilian jobs. Many of us also lived in miserable conditions that would be illegal to PLACE CONVICTED CRIMINALS IN, voluntarily, in fear of our lives. When you don't know if you will ever come home to your kids alive, then you can business model how companies and the stock market can steal from our retirement plan (most civilians other than government employees and teachers have lost their pension, 401, and investment value of their homes). in fact the only thing that makes sense to me is to vest a pension benefit for all service immediately under 20 or not, Hell, congress is fully vested the day they are elected to a life in Fantasy Land not a combat zone (and all combat zones are not known or declared, some things are routinely done at the risk of life and limb in training alone). Have a nice day and do not expect to have a volunteer service member left when this happens, if you don't have my back I sure don't have yours. We who serve are different from you and up till now we thought it was an even deal but we are not stupid. Live up to our code of conduct or suffer the consequence. Obviously you have no decency left to even consider this theft, I should have known.

Robert Ciccolella
September 26, 2011 at 8:25 pm

Changing the Military retirement systems makes sense going into the future. The current system is great but I can see how financially it creates a problem for longer lifespans and growing numbers of retirees. The suggested new system that incorporates the thrift Savings Plan (TSP), and guarantees a retirement for all Soldiers at lower percentage rates and delayed receipt of the retirement will work for the Army going forward. This will reward all citizens who decide to serve our country. Currently 83% of those who serve do not make it to retirement.
Changing the system for Soldiers who have been in the Army over ten years will not incentivize them to stay in the Army. The retirement program encourages many Soldiers to continue to serve after their initial commitment and on to retirement because of the attractiveness of the retirement program. Those of us who have served more than 10 years have served under the old system and changing that would encourage them to take their chances in the civilian world to offset the difference in the old and new systems. Many have to think about the families they routinely leave at home for deployments, and make decision that will best support them in the future. I think it makes sense to grandfather a new system in, if there is going to be a changed.

Major Robert Ciccolella

Mario
September 24, 2011 at 9:34 am

Came back again, because I needed a good laugh.
This particular article always seems to provide it.

Thank you Jennie.

Steve
September 06, 2011 at 4:43 pm

The author of this article clearly has no clue on what it is like to serve in the armed forces and the hardships that it entails. I know many people who stay and spend years away from their families in dangerous situations every day. I spend 2 1/2 years of my first 4 years in the military away from my wife and kids getting shot at. Missed many birthdays, missed my kids start walking. Couldn't say I didn't see this coming though. Just ready for people like this to make some sacrifices their country so they truly understand how bad of and idea this is.