by Scott Spiker, Chairman/CEO of First Command Financial Services, Inc.
Four decades ago, corporate America discovered a new way to cut the cost of an old expense. They traded the defined benefits of pensions for the defined contributions of 401(k) plans. Certainly it was a rewarding exchange for many employers, who effectively transferred the risk of future retirement preparedness from their balance sheets to the individuals themselves.
But for workers, the trade hasn’t worked nearly as well. Savings rates are low, retirement fears are on the rise and feelings of confidence and security continue to sink.
Today we are preparing to make the same trade with our military.
The Pentagon’s new Blended Retirement System (BRS) represents one of the most significant changes to military benefits in 70 years.
Starting January 1, the traditional military retirement of the 20-year “cliff vesting” pension system will morph into a new program of bonuses and matching fund contributions – paid for through a 20% cut in the size of the regular checks that come from a military pension.
Our federal government is taking a page from corporate America’s financial playbook. We are transferring the uncertainty of long-term financial risk from our public balance sheet to the family finances of the service members who are committed to defending our nation.
The story of the failure of 401(k) plans as a replacement for pensions is painfully clear.
In 2016, Pew Charitable Trusts found those nearing retirement age have a median account balance of a mere $76,000. And, we know those with lower incomes are at greatest risk of not saving adequately for retirement. Vanguard’s “How America Saves 2014” report found the median income of those who were eligible for 401(k) plans but did not participate was $48,000 – roughly equal to basic pay plus allowances for active-duty service members at an E-5 pay grade with 4 years of service.
How likely are our young service members to adequately save for their financial futures? Will they develop the necessary financial behaviors to succeed where so many other middle-class Americans have failed? The odds are not in their favor.
BRS comes at a time when military families are already challenged by multiple combat deployments since 9/11 and the uncertainties generated by military cuts under sequestration. Financial stress is further compounded by frequent relocations that limit opportunities for building home equity and the challenges of securing meaningful employment for spouses.
The Blended Retirement System is a particularly important issue in the lives of military spouses.
Their unique experience is often one of shouldering the primary responsibility for household budgeting and savings. They must manage family finances during those times when the active duty spouse is deployed for extended periods and face unique challenges in finding and maintaining meaningful employment because of frequent moves.
They carry the burden of knowing that they will face these responsibilities alone in the event of a combat death.
And at the end of active duty service, military spouses play a critical role in navigating the financial complexities of the family’s transition to civilian life.
To improve the odds of success, military families will need knowledgeable, professional help. Financial coaching is already playing a vital role in the financial lives of many service members.
First Command’s consumer surveys consistently reveal that middle-class military families who work with a financial advisor are significantly more likely to contribute to retirement accounts – and contribute more dollars – than families who don’t work with an advisor.
Three out of five career military families say they are extremely or very likely to consult a financial advisor for help in making BRS-related decisions.
And yet, many continue to report that they do not currently work with a financial advisor.
What is holding them back? In a word: Access —specifically, access to effective financial education and training that highlights the benefits of financial coaching and that is delivered by expert financial advisory firms.
Our military service members have significantly less access to professional financial guidance than their civilian peers do. Their options are limited by rules and regulations that benefit a limited number of financial industry providers by effectively shutting the door on the vast majority of their competitors.
It’s time for a change.
The people who protect us deserve to have access to the financial counsel and products that are available to every other American. With Blended Retirement System set to go into effect in January, now is the time to implement a strategy that will reward our military families for their service by helping them develop the disciplined financial behaviors necessary for executing a successful retirement savings plan.
Starting with effective financial education and training, this strategy should offer service members on-installation instruction by expert financial advisory firms and extol the benefits of the type of financial coaching that is already helping many career military families in their long-term pursuit of financial security.
J. Scott Spiker joined First Command Financial Services in September 2007, becoming the first Chief Executive Officer recruited from outside the company. Effective January 2017, the company’s Board of Directors also elected him as Chairman/CEO. In this dual role, Scott focuses on the continued development of the strategic direction of First Command, reaffirming and strengthening the company’s historic commitment to serving our nation’s career military families in their pursuit of financial security.
A 1977 graduate of the U.S. Naval Academy, Scott holds an MBA in Marketing and Finance from the University of Chicago Booth Graduate School of Business. He is married and has two daughters.
© 2017. First Command Financial Services, Inc. parent of First Command Financial Planning, Inc. (Member SIPC, FINRA), First Command Advisory Services, Inc., First Command Insurance Services, Inc. and First Command Bank. Securities and brokerage services are offered by First Command Financial Planning, Inc., a broker-dealer. Financial planning and investment advisory services are offered by First Command Advisory Services, Inc., an investment adviser.
Insurance products and services are offered by First Command Insurance Services, Inc. in all states except Montana, where as required by law, insurance products and services are offered by First Command Financial Services, Inc. (a separate Montana domestic corporation). Banking products and services are offered by First Command Bank.
Securities products are not FDIC insured, have no bank guarantee and may lose value. A financial plan, by itself, cannot assure that retirement or other financial goals will be met.
First Command Financial Services, Inc. and its related entities are not affiliated with, authorized to sell or represent on behalf of or otherwise endorsed by: any federal employee benefits