MILITARY RETIREMENT SYSTEM

What Are The Pro And Cons Of The New Proposed Military Retirement System



What Are The Pro And Cons Of The New Proposed Military Retirement System

Introduction

A new plan to renovate the military retirement system proposed by the Defense Business Board would completely reshape military retirement — abandoning the 20-year retirement system in favor of a civilian type system that would pay much less to those who make the military a career, while providing retirement cash to everyone, no matter how little time they spend in uniform (Asch et al, 1998). The proposed changes in military retirement system first have to be approved from the congress. But with the pressure on to cut the deficit - particularly entitlements, such as pensions - the mood on Capitol Hill is open to any plan that helps cut federal spending.

The dramatic, comprehensive proposal shifts money from the 17% of service members who actually serve 20 years or more, to the 83% of the listed members who do four, six or eight years and leave. Those already serving would have partly served under the old system, earning a mix of the old remuneration and the new ones, reducing the value of their potential retirement and the motivation for troops to serve to the 20-year mark. In fact, the shift would be so immense that the plan could change the military culture by restructuring the incentives that emphasize career choices (www.myfoxal.com). Many troops and at least one major advocacy group quickly reacted to reports of the new plan, which would slash the Pentagon's long-term budget by as much as $338 billion over 12 years. We would discuss the pros and cons related to the newly proposed military retirement plan in the paper.

Pros

The basic redistribution of retirement benefits would likely be welcomed by the majority of the enlisted force, which would be receiving benefits under the new system proposed but don't get a dime under the prevailing plan. Younger enlisted troops would be the biggest winners in the new proposed plan. They would begin accruing retirement savings immediately, at the rate of about 16.5 percent of basic pay per year, and would be fully bestowed in the plan after three to five years of service, according to the briefing prepared by the board. For example, an enlisted member who makes it to the E-3 pay grade and then quits after four or five years will leave the military with about $20,000 in retirement savings. If properly invested, that might grow to $100,000 or more by age 65.

A briefing prepared by the board said the money would be payable without penalty at “age 60 to 65 (or Social Security age),” indicating it would be moved into an individual retirement account or employer-sponsored 401(k) and some penalty would be charged if the amount is withdrawn early, except in certain specified circumstances, such as for education, health care or other selected emergencies (www.milpages.com). However, board members say an option can be to give troops access to the money ...