Consequently, he says, it is not surprising that such families are anxious at the mere talk of a change in retirement benefits for the military. “It’s an added uncertainty” for retiring military personnel, who typically have endured more lifestyle hardship and exhibit higher unemployment rates than the general population.
As Old as WWII
On the table are potential plans to phase out the traditional military retirement program, which has not changed significantly since the 1940s.
Under existing rules, service members of any rank who have served at least 20 years are fully vested, even if they leave the military at age 38. Soldiers with fewer than 20 years of service receive no retirement benefits.
For qualified personnel, the benefits are generous. They include pensions that pay half of their salaries for the rest of their lives, indexed for inflation, and lifetime health insurance under Tricare, the military’s HMO-style plan. The typical recipient, a retired noncommissioned officer, receives an average pension of $26,000.
The cost of Tricare to cover a retiree’s family was $460 per year from 1996 to 2011, when it was increased to $520. It is not uncommon for military retirees to retain their healthcare benefits even after beginning a second career.
The cost of pensions and health care for active and retired troops continues to expand, draining more than $100 billion a year from the Pentagon budget and the national debt, which together fund the programs. If left unchanged, military retirement costs are expected to grow to $217 billion by 2034, according to the Defense Times.
On the other hand, there is a concern that any substantive change to those benefits would hamper the military’s recruitment efforts, which some observers say are strongly dependent on the appeal of those benefits.
“This isn’t an equity business,” says Steven P. Strobridge, director of government relations at the Military Officers Association of America in Washington, adding that military families have “legitimate fears” regarding the proposed changes.
“Retirement is the primary reason people stay in the military,” he says, but the military “doesn’t want everyone to serve more than 20 years."
Critics say the value of the current retirement system is overblown.
“Most military people are not going to retire [in the military],” says Lawrence J. Korb, a senior fellow at the Center for American Progress, who served as assistant secretary of defense under President Ronald Reagan. “Only 17 percent of current service members will stay 20 years.”
While Korb acknowledges the unusual hardships that military personnel endure, he says most young enlistees are focused on base pay and free housing, not retirement.
Fighting For a 401(k)
A just-released study by Korb and his colleagues recommends a hybrid program that gives current military personnel and retirees a 401(k) option.
This week, subcommittees of the House Armed Services Committee will continue its final draft of the fiscal 2013 National Defense Authorization Bill they began last week. key subcommittee has already recommended no changes in health care premiums.
Meanwhile, President Barack Obama, who has been carefully crafting a centrist position on the military this presidential election year, is likely to play down the debate over military retirement benefits in coming months, despite implicitly supporting Panetta’s proposal.
As First Command’s Spiker points out, the military retirement system, to some degree, is facing the same demographic problem as many civilian plans.
“When this program was first put together [in the 1940s], people didn’t live into their mid-80s and mid-90s,“ he says.