Military prepares for overhaul in retirement benefits

Hanson says the military’s general financial literacy effort will be expanded starting early next year to cover the new plan.

“We have a somewhat vulnerable population, so we cover many areas of financial knowledge to help give service members better financial acumen,” he says.

But Spiker is unimpressed with the efforts to date.

“The financial literacy efforts in place now are a joke,” he says. “The retirement component essentially is an unfunded mandate; it needs to be much more robust.”

An annual survey testing financial readiness conducted by the firm points to the need for greater financial training. Military respondents were significantly more likely than their general population peers to say they completed a financial education program (39 percent versus 21 percent), but the benefits of those programs were not reflected in test scores. In fact, 63% of military personnel who completed financial education programs failed First Command’s financial literacy test, compared with 56% of test-takers who had not received financial education training.

On the plus side: the new system uses the TSP–arguably the nation’s best defined contribution system. It features very low costs, a short and easy-to-understand set of investment choices, and options to convert savings into an annuity stream at retirement via a third-party insurance company.

Moreover, if predominantly younger, noncareer military personnel can be convinced to save, that will be a win, since compounding over time will be their friend. So will portability: after their military service ends, veterans can either leave their accounts in the TSP or roll them over to new private sector employers.

Says Hanson: “For people who leave after two, four, or eight years, we now have a more portable benefit.”

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