CNA Web-Based Calculator Helps Military Personnel Assess Retirement Choices

ALEXANDRIA, VIRGINIA — CNA Corporation (CNA) researchers have devised a web-based calculator that allows members of the military services to determine which Department of Defense retirement plan will best serve their needs as retirees—a decision that could amount to a difference in retirement benefits of hundreds of thousands of dollars.

The calculator, available at www.cna.org, allows future retirees to determine how much they would earn under two competing retirement plans and decide which is best for them. The differing plans affect service members who joined the military after July 31, 1986, and must choose between the High-3 plan, which bases retirement pay on the highest average basic pay for three years of a career, or the REDUX plan, which provides a $30,000 upfront bonus with smaller retirement checks over time.

Using the calculator, service members can plug in the year they entered military service, how many years they will have served when they retire, their tax rate, and other information, and receive an instant estimate of which plan will best serve their financial needs.

For example, the calculator, developed as part of CNA’s annual Retirement Choice study, would show that a service member who expects to retire as an E-7—a Chief Petty Officer in the Navy or a Platoon Sergeant in the Army—at age 38 after 20 years of service would ultimately earn $309,460 more in retirement benefits under the High-3 plan than if he or she chose the REDUX plan with its $30,000 bonus. This assumes the service member has a life expectancy of 79 years. If the service member lives to 90 years, the loss in retirement income would more than double, totaling $627,160.

The CNA researchers who developed the calculator explain that the $30,000 REDUX bonus effectively amounts to an early, partial cash-out of a service member’s retirement plan, which then translates to decreased future retirement income.

"The upfront bonus is very appealing, and is a great option for many people, but it’s important that the decision on which option to take is an informed one that lets people know what the short-term gain will cost them in long-term benefits," said CNA researcher Aline Quester.

The Retirement Choice study was carried out by CNA’s Resource Analysis Division, which focuses on such issues as housing, and personnel and resource management. The other CNA researchers on the project were Lewis G. Lee, Ian D. MacLeod, and Robert W. Shuford.

The report, which updates a 2004 study, concludes that military pensions are generous and that their provisions are matched only by select private companies. For more information on the study, visit: http://www.cna.org/nationalsecurity/rad/.