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:
- Reduction in annual pay increases (46 percent)
- Reduction in retirement benefits (36 percent)
- Less likely to be promoted (30 percent)
- Reduction in personal expense benefits, such as housing, clothing and food (29 percent)
- Decrease in discretionary income for non-essentials (24 percent)
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.