>>Reality Check
The proportion of Guard and Reserve troops serving in Iraq continues to grow.

Printable version

Email article

Troops who complete 15 years of service since 1999 face a new “cash vs. retirement” decision—and they don’t get a second chance. Unfortunately, the lure of a $30,000 bonus—and inadequate counseling on the long-term penalty for accepting it—fools far too many into sacrificing 10 or 20 times that much in lifetime retired pay.

The cause is a well-intended 1999 law aimed at easing the so-called Redux retirement penalty that cuts retirement benefits by 20 percent for members who entered service after Aug. 1, 1986. Re-dux provides only 40 percent of high three-year average basic pay for post-1986 entrants until age 62 and caps their colas below inflation for life.

When Redux helped fuel retention declines in the late 1990s, the Joint Chiefs joined MOAA in urging a fix.

Congress thought a simple repeal cost too much, so it authorized Redux-eligibles a choice at 15 years of service: Revert to the old retirement system (50 percent at 20 years and full colas), or take a $30,000 “career-retention bonus” and stay under Redux.

Everyone acknowledged that $30,000 doesn’t come close to offsetting the lost retirement value for the vast majority of bonus-takers. Only under the most optimistic investment assumptions might taking the bonus make up the difference.

Redux bonus-takers who invest $10,000 and spend the rest pay a steep price—between $300,000 and $600,000 in lifetime retired pay.
The assumption was that servicemembers would be educated on the relative value and would make informed decisions.

So why are half of enlisted members and one-quarter of officers taking the bonus and giving up so much retired pay? (See this chart)
It’s a shortfall of education—and plain old-fashioned leadership.

There is a statutory requirement for the retirement impact to be explained to the member. There are forms, facts sheets, and personal calculators on the DoD Web site. Maybe so much complicated data actually pushes them to the “feel good” option?

Many don’t understand that half of all retired pay for a 20-year retiree comes from annual colas. Giving up 20 percent off the top, plus another 1 percent per year of retirement, is definitely not small change. At age 60, a 20-year Redux retiree’s paycheck will be one-third lower.

Who’s making sure the troops understand the magnitude of this decision? Why is no standard “truth-in-lending” statement provided to every member, explaining that taking the bonus is not in most members’ long-term interest?

Why is there no greater leadership effort to make this a personal counseling issue? Paper and computer tools can’t replace advice from respected leaders who the troops know have their interests at heart. Perhaps the leaders need to be educated as much as the troops.

Years from now, thousands of Redux retirees will wonder how they got fooled into compromising their retirement and survivors’ benefits—and shame on those who aren’t warning them now.