Update on Military Retirement, Commissaries, and Tricare

I’m getting a lot of questions about the latest changes to military entitlements and benefits, so let’s answer the mail here.

Repeal of the military pension COLA cutback

First, Congress has repealed the COLA cutback to military pensions. The COLA cutback amendment was part of a legislative compromise but was never debated by the armed services committees or subject to a separate vote. Both Houses were pressured to approve the compromise to avoid yet another government shutdown, so many members voted for the bipartisan bill in hopes of repealing the COLA cut later. The vote let the government stay in business but the military support organizations made it clear that military retirement COLAs are a hot issue during an election year. Congress was quickly hammered with over 200,000 “Keep Your Promise” e-mails and phone calls from veterans and families.

Today’s military pensions are out of danger (once again), but future military pensions are still jeopardized in two different ways. Current military retirees– and any retiring servicemember who joined the military before 2014– will still receive a full cost-of-living adjustment to their pension. Unfortunately anyone who joins the military after 2013 is still subject to the “CPI-1%” COLA cut in a military pension, but veteran’s groups and military support organizations are working to repeal that legislation too. It’s a problem that’s nearly two decades away, and there’s plenty of time to solve it. (It took 13 years to fix the original 1986 REDUX retirement system.) I think that Congress can eventually be persuaded to respond to public opinion (and declining military retention) but the fix may take a few years.

The COLA cut’s significance is the underhanded way it was rammed through Congress. It may have been legal, but its implementation was unethical and would have hurt both morale and retention. Financially, however, a COLA cut should not be allowed to derail a retiree’s plans. By the time the DoD and Congress decide how to pay a military pension 20 years from now, the Consumer Price Index will be completely different. Again, everyone’s plan for financial independence needs to be robust enough to handle a political surprise like a COLA cut– just like any other form of inflation.


A new military retirement system?

Second, the administration has delivered its 2015 budget proposal to Congress. DoD is under the gun to reduce military spending, and clearly they’ve decided to revive every drawdown idea in their archives. In addition to their 2015 budget, DoD has released its analysis of a new military retirement system.

The issue is that the cost of war lingers for over a century after the fighting stops. The U.S. is still paying survivor benefits to two children of Civil War veterans, nearly 150 years later. Benefits for WWII veterans and survivors didn’t peak until 1991 (almost five decades after the war ended) and the government still spends over $20 billion per year. Nearly 40 years after the Vietnam War, those servicemembers and families are receiving over $40B in annual benefits– more than twice the entire budget of the FBI. Even more significantly, veterans of the last 50 years of war have been poorly treated and undercompensated for Agent Orange exposure, Gulf War Syndrome, and PTSD. The actual spending should be much higher.

Although fewer veterans fought in Iraq and Afghanistan, many more have survived horrific injuries than previous wars. Medical technology will help them live longer, which is a very good thing– as long as America is willing to honor their sacrifice and pay for it. Veteran’s benefits for this group already cost over $12B/year ($50B since 2003) and the expenses will rise for decades. It’s possible that the two Gulf Wars will be the most costly conflicts of the last two centuries– and today’s accountants have much stricter requirements for funding the obligations.


The Veterans Administration is responsible for much of these post-war costs, but DoD still pays for servicemember pensions (and survivor benefits). The “traditional” military pension has been in place for over 50 years, and the 1986 REDUX change was a miserable retention-killing failure. DoD is facing hard financial numbers and very few choices, so they clearly feel that they have nothing to lose with their latest budget-cutting initiatives.

With that philosophy, DoD’s Personnel and Readiness Office has proposed a new retirement system. The white paper been released to Congress and the “Commission on Military Compensation and Retirement Modernization” for more analysis and discussion, although the retirement overhaul is not part of the 2015 budget. The Commission’s formal report is due in February 2015, and the debate will continue for months after that. All we need to know for now is that DoD intends to grandfather all those who are currently serving. The “new” system would award roughly the same lifetime benefit as the current system, although some pension payments could be awarded for as few as six years of service. Servicemembers would still fully retire at 20 years of service, but some “working age” compensation could be pushed back to their 60s. Some Reserve/Guard entitlements would be accelerated to the “gray area” years. I’m not even going to get into the proposal’s details (read those links), because they’re going to change many times before the “final” vote. (Remember the 2011 “Defense Business Board” proposal? Yeah, I didn’t either– and I wrote that post.) For the next few months I’m just going to monitor the debate.

If you’re in uniform, then how should you handle the new proposal? Well, it won’t affect your personal finances. Keep saving & investing for your financial independence, and assume that the pension you signed up for will still be paid by today’s rules. The latest proposals will only affect new recruits, and that won’t happen until at least 2016. My daughter is just starting her military career, and this blog’s existing posts on the retirement system will still be relevant to her own retention decisions.

If you’re concerned about DoD’s persistent efforts to reduce the military pay and benefits systems, then volunteer with a military support group. Let your Congressional representatives hear your opinions, and direct their attention to independent analysis of DoD’s proposals. Join a veteran’s advocacy organization and coordinate a campaign to educate our elected representatives. Both groups can really use the help.


The commissaries are not closing.

Several months ago, DeCA was asked by DoD to justify the impact of doing away with the commissary system. DeCA (and many other military advocacy groups) did a fine job of explaining that benefit to DoD, and there are no plans to close any stores.

However other commissary programs have continued to improve. The commissaries are now scanning military IDs at the checkout and cutting back on coupon abuse by offering more online discounts. If you have commissary access then do yourself a favor and sign up for the commissary rewards card. Today the commissary coupon website regularly has over 150 offers, and it’s saving our family several dollars per trip with no clipping or rebate hassles. If you know a military family using food stamps, they might not be aware of the military’s Family Subsistence Supplemental Allowance program.


More Tricare changes– or not.

Finally, DoD is asking Congress to replace Tricare with another healthcare system. This is part of the administration’s 2015 budget proposal and has not yet been reviewed by any Congressional committees– let alone by the military’s own commission on compensation. Although I anticipate plenty of alarming headlines during 2014, please keep in mind that Congress does not support eliminating Tricare. The new Tricare proposal will have to clearly demonstrate that it protects military benefits while saving money.

I’m not going to report breathless blow-by-blow updates of the legislature’s negotiations, but I’ll analyze the programs as they approach approval. I’ll also suggest ways to continue saving and investing your own money while minimizing the risk of benefits cuts.

While DoD and Congress negotiate the future of the military, please don’t obsess over the daily headlines. The media businesses have their own reasons to whip our emotions into a frenzy over entitlements and benefits, but there’s plenty of time for analysis and action (or repeals).  Journalists do a great job of informing us of the issues, but each alarming article sells newspapers to keep their bosses in business. They thrive on fear, crisis, and uncertainty. The real keys to preserving our benefits are the retention rates of today’s servicemembers, the military’s recruiting goals, and educating our elected representatives.

I’ll do my best to sort out the hype from the reality. In the meantime, servicemembers & families should continue to track their expenses, have a budget spending plan, minimize expenses, and boost their savings rates. You can reasonably expect to be grandfathered in to any major changes. We can all achieve financial independence without having to plan for political risk!


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Related articles:
Can I Count On A Military Pension?
Last December: Congress cuts military pensions
Two years ago: Congress changes military careers and retirements
Deja vu all over again: Military retirement: the latest overhaul
Update on TRICARE and Congress
40 miles for Tricare Prime — or maybe Tricare Standard
The RAO Bulletin on VA benefits, Medicare, and Medicaid
Over a decade later, REDUX still sucks


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  1. Thanks, Deserat!

    The statistic about Reserves costing 25% of active duty is all too easy to believe. It also explains why major commands like PACOM fill a third of their active-duty billets with Reservists, who sometimes have more experience at that billet than an active-duty servicemember.

    “Streams of income” is right. A Reserve deferred annuity makes it a lot easier to save for retirement, but I question its ability in a “new” retirement system to retain people on active duty. Like REDUX, I fear that in the next decade the DoD will decide to try out the new system to learn what effect it really has on retention.

    A commissary closure in Hawaii would be inconvenient, but we’d make it work. We could do a lot with local grocery store loyalty programs along with bulk buying at Costco. Farmer’s markets would take more time but less money, and we still have room in our backyard for a few more fruit trees…

  2. Doug – yet another great blog post. I’d like to add a stat I saw (I’m a Reservist with about 1.5 years to go to my retirement….and then will wait 9 years to receive my retirement). On average a Reservist/Guardsman costs 25% that of an active duty member over their lifetime….amazing stat to me. The deferral of the payment of retirement and the lower retirement pay are probably what make them so much cheaper…..if you ‘retire’ into the gray area at 20 years, then you will likely have 18-22 years to wait until to get recompensed in retiree pay…and it will be half to a third of an active duty pay on average……

    That’s why streams of income are even more important for a Reservist as the stream from the military will most likely be less than that of an active duty retirement. I know that my husband’s active duty retired pay at two ranks lower than mine will be more than what I receive….not much more, but still more.

    As for commissaries, we find that we save up to 30% on meats, dairy, frozen foods, and sundries (soap, etc). We go elsewhere for fresher veggies and fruits. Closing the commissary would most probably increase our food budget/spending.

    Comment? Question? What's on your mind?