One could argue that virtually everything one does, and does not do, influences thinking and decisions, so where are the boundaries?
By Cyril Tuohy
With proposed cuts by the Pentagon, InsuranceNewsNet asked First Command Financial Services chief executive officer J. Scott Spiker about reaction in the marketplace and the need for financial advice among members of the armed services.
His emailed responses have been edited for length.
INN: Let's talk about retirement and changes to the pension system. What are service members concerned about most?
Spiker: In our March survey, we asked several questions about the Department of Defense’s proposed changes to military retirement benefits. We found 83 percent of respondents were familiar with the proposed changes — and 83 percent of that group said they were not in favor of them. Their primary concern is a reduction in the value of the lifetime benefits they expect to receive. Under the current system, retirees begin to receive lifetime pension income immediately upon leaving the military. So even seemingly small adjustments can result in significant dollar differences over the decades.
INN: In your travels, are you finding that service members talk about seeking the help of a financial advisor, or not so much?
Spiker: I regularly visit with the First Command financial advisors who serve in more than 170 offices, mostly located near the military communities where our clients live and work. Our financial advisors are seeing firsthand how issues ranging from sequestration to the restructuring of military pay and benefits to post-traumatic stress disorder (PTSD) are creating insecurity and crisis in the lives of military families. And they are seeing great demand for face-to-face service. Our Military Advisory Board, and our offices, tell us that the education on financial literacy provided by the various military bases is widely inconsistent, ranging from sparse to very good.
INN: Are service members better or less prepared for retirement than the general population?
Spiker: Our research has consistently revealed that middle-class military families save more and feel better financially than other middle-class Americans. And we see that difference reflected in how they feel about retirement. Service members are more likely than their civilian counterparts to report feeling extremely or very confident in their ability to retire comfortably (36 percent versus 30 percent of the general population). With that said, service members are concerned that their preparations will be impacted by potential changes to retirement benefits. Since September 2013, we’ve been asking military families to identify the ways they believe sequestration is impacting their families. Retirement is one of the top five concerns identified in the March 2014 survey.
We asked the question: “How is sequestration impacting you and your family?” Here are the answers:
INN: Frugal living seems to be in the offing with the coming cuts. What impact does that have on retirement assets?
Spiker: Frugal living is the big story in America’s career military. Our research shows that roughly two out of five middle-class military families are responding to sequestration by cutting back on spending. We are seeing an increase in savings. About one-third of survey respondents say they are increasing the amount they are saving. And they are putting considerable dollars into long-term savings and retirement accounts. A relatively small subset of middle-class service members (less than one in 10) is responding to sequestration by decreasing the aggressiveness of their investments or moving investments to cash.
INN: Would you recommend that service members reach out to advisors first, or that advisors reach out to service members?
Spiker: The initial contact between a prospective client and a financial advisor is typically the result of a referral from an existing client. Personal relationships are the key. Service members trust the recommendations of other service members. How do you leverage these relationships? You do it through social media, hanging out a shingle, working with a firm that is committed to serving the military marketplace. We believe that the best way to serve this market is through face-to-face relationships that provide financial coaching delivered through a financial plan.
INN: With cuts to the military, does the need for financial advice grow or does the need shrink as there are fewer overall service members to advise?
Spiker: The demand for knowledgeable financial coaching will only grow in the months and years ahead. America’s military families are struggling financially. More than a quarter carries $10,000 or more in credit card debt, less than half participate in the military’s Thrift Savings Plan and only one in four middle-income service members feels satisfied with their personal financial situation. Many of these families want face-to-face financial coaching, but they don’t seek it out because they assume it is out of their reach. We have responded by making face-to-face financial coaching available to all qualified service members.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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