Contact: Connie Custer
Vice President, Communications and Public Affairs
Alexandria, Va. — Today, CNA released an updated version of its web-based calculator that allows military Service members to determine which Department of Defense retirement plan will best serve their needs—a decision that could cost them hundreds of thousands of dollars in retirement benefits.
The calculator, developed by CNA as part of its annual Retirement Choice study, allows future retirees to determine how much they would earn under two competing retirement plans and decide which one is right for them. The two 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 career status bonus with smaller retirement checks over time.
To use the calculator, Service members type in the year they entered military service, the number of years they will have served when they retire, their tax rate, their pay grade at retirement, and their anticipated life expectancy. The calculator then generates an estimate of which plan will best meet their financial needs.
CNA’s latest retirement study report, Retirement Choice: 2011, finds that the REDUX retirement plan plus a $30,000 bonus paid at the 15th year of service is a bad choice for almost all Service members, significantly reducing their retirement income. "The higher the grade, the lower the years of service at retirement, and the longer the Service member lives, the greater the reduction," the report concludes. "Even if Service members invest the bonus, the required interest rates make it virtually impossible for them to break even."
"The REDUX bonus effectively amounts to an early, partial cash-out of a Srvice member's retirement plan, which translates into less future retirement income," said Aline Quester, Vice President of CNA’s Resource Analysis Division and a co-author of the report. "The bonus may seem appealing—particularly in today’s tough economic climate—but it’s important to understand the cost of that short-term gain in terms of lost long-term benefits."
To access CNA’s Retirement Choice Calculator, click here: Retirement Choice Calculator.
To view CNA’s latest retirement study report, click here Retirement Choice: 2011.
CNA’s Resource Analysis Division also focuses on such issues as infrastructure and readiness, cost and acquisition, workforce training and education, and energy and the environment.
CNA is a not-for-profit company which serves the public interest by providing in-depth analysis and results-oriented solutions to help government leaders choose the best course of action in setting policy and managing operations. CNA: Nobody gets closer — to the people, to the data, to the problem. www.cna.org