Would you choose Redux or High-3 for retirement?

RallyPoint Team — Fri, 03 Oct 2014 11:32:50 -0400

As an E-7, would you accept $30,000 today if that meant you’d miss out on $386,000 over your retirement? When it’s spelled out like that you’d rather go with the bigger pay over time, but many service members opt for the $30,000 and lose out on the bigger payout. That’s what can happen when you choose the “Redux” plan for retirement instead of the “High-3” retirement, if you don’t understand how to invest.

Last month, CNA Corporation released its latest retirement study, Retirement Choice 2014, encouraging service members to avoid the Redux option. The report delves into the retirement options for service members by breaking down the total payments service members would receive with each option. CAN shows those who elect Redux, retire at 20 years and live until age 79, E-6s among them will reduce lifetime retired pay by $335,529. E-7s will lose $391,600. CWO-3s will lose $451,303. An O-4, who presumably retires at age 44 rather than 38 for enlisted, would see lifetime pay cut by $382,522. You can see the report here: http://www.cna.org/research/2014/retirement-choice-2014

These numbers are even more shocking knowing that service members still choose Redux over High-3. What entices service members to go with the Redux plan is the immediate $30,000 paid at the 15th year of service, but don’t keep in mind the trade off for smaller retirement checks. The High-3 retirement plan pay is based on the highest average basic pay for 36 months of the service member’s career. As each year passes, the difference between Redux and High-3 retirement income increases.

The Redux option can be maximized if you invest the money wisely in the stock market. Overtime stock prices go up as the economy grows and improves. If you’re savvy with your finances, then getting the $30,000 immediately and investing it could be the right option for you.

Either way, understanding how to manage personal finances is very difficult for many service members. CAN has an online calculator for service members to compare lifetime values of Redux and High-3 here: http://www.cna.org/news/releases/2014-09-29

What retirement option works best for you? What can service members do to prepare for retirement and educate themselves on finances? Why do service members struggle with managing their finances?

Response by MSgt Guillermo Ybarra III (HVAC Recruiter) made Oct 3 at 2014 11:55 AM

MSgt Guillermo Ybarra III (HVAC Recruiter) — Fri, 03 Oct 2014 11:55:00 -0400

Everyone who has taken the 30K, that I know has regretted it. Or so they told me.

Response by MAJ Private RallyPoint Member made Oct 3 at 2014 11:58 AM

MAJ Private RallyPoint Member — Fri, 03 Oct 2014 11:58:31 -0400

Absolutely not. Unfrotunately many are in poor financial standing, so they bite the hook. It reminds me of payday or 30% interest rate car loans outside of military installations. If you have a decent lifespan it's a lot of lost money.

Response by SSG Trevor S. made Oct 3 at 2014 12:56 PM

SSG Trevor S. — Fri, 03 Oct 2014 12:56:47 -0400

I chose full retirement over redux, but I have had to fight to get the full 50% pay because it seems the default setting is redux calculations. DFAS and retirement services is working on it, but my suggestion for everyone is to check every RAS to ensure correctness.

Response by CW5 Sam R. Baker made Oct 3 at 2014 1:08 PM

CW5 Sam R. Baker — Fri, 03 Oct 2014 13:08:57 -0400

Only if you get out at 20! If you remain to serve until 30 you accumulate it back at 3.5% per year toward the 75% at 30 years versus 2.5%. I tried to take it in Afghanistan in 2002 ans to date wish I had gotten it done. It is free investment if you stay to 30....but most never choose that option, bail at 20 seems to be the mentality...

Response by MSgt Kristopher Cortes made Oct 3 at 2014 1:30 PM

MSgt Kristopher Cortes — Fri, 03 Oct 2014 13:30:07 -0400

Although I opted not to receive the Redux, I absolutely am against the High-3 program as well. It is shameful that we armed services members only receive 50% of our base pay based on the last three years of service (after 20 years of service).

Response by CPT Marcus Jeffries made Oct 3 at 2014 1:35 PM

CPT Marcus Jeffries — Fri, 03 Oct 2014 13:35:07 -0400

I would rather have the benefit of my full retirement pay. I think it's easy for some to take the REDUX because they are retiring at a relatively young age and they can still get another job and potentially retire from that job later too. I've noticed that since I have become an officer there is more of an emphasis on finances than when I was enlisted and since I am older I do tend to look at the long term picture a little more.

Response by PO1 Private RallyPoint Member made Oct 3 at 2014 2:28 PM

PO1 Private RallyPoint Member — Fri, 03 Oct 2014 14:28:00 -0400

If it could have been avoided, I would most definitely NOT have chosen Redux. But when pay specialists screw up one's pay and give them (me) $13k in BAH that I was NOT entitled to, and they never fixed it, it puts financial stress on a family of 5. Add that an old per diem payment of $5k that was "taken care of", even though I cancelled my travel orders via my CoC, and notified the commmand APOC that I had cancelled my travel, I still got paid. And the money was NEVER taken back, despite calls to the Navy Region SE APOC, who repeatedly assured me over the course of a year that I was "good to go, this issue has been taken care of, you don't have to worry about anything".

So, $600/mo from the BAH fiasco (my CoC contacted my unit personnel dept. EVERY MONTH for 10 months) over 2 years, and then the per diem issue that had been "addressed" in 2008, I was paying out about $1k/mo in other people's eff-ups.

So, while I would DEFINITELY NOT recommend it, I will say that, if it comes down to it, and you have the option - and the NEED - to take it, at least it's an option that is there.

Response by Maj Chris Nelson made Oct 3 at 2014 3:41 PM

Maj Chris Nelson — Fri, 03 Oct 2014 15:41:08 -0400

Lets face it, when they dangle big cash like that, it seems like a great idea! On the back side, if you take it, you are hurting yourself if you get out at just about anything less then 30 years. We are not talking about hurting yourself a little bit, if I remember doing the numbers correctly, I would have been taking a fast $30k or so, and loosing out on hundreds of thousands over the next 20-30 years of retirement. At 30 years, you have earned it all back and will retire with 75%. My math may be off (as maybe my memory), but I would discourage accepting the Redux.

Response by SSG Private RallyPoint Member made Oct 3 at 2014 4:01 PM

SSG Private RallyPoint Member — Fri, 03 Oct 2014 16:01:44 -0400

My husband and I had this conversation not too long ago. We both agreed that I am going to do the redux and place the money directly into my retirement account (I will not touch one nickle). With the interest that I will make on the additional deposit quarterly, combined with the amount of time that the money will sit, it would be foolish of me to pass on the opportunity.

Response by SSG Private RallyPoint Member made Oct 3 at 2014 4:20 PM

SSG Private RallyPoint Member — Fri, 03 Oct 2014 16:20:16 -0400

the only way this works out is if you throw that 30,000 into an investment account ie... mutual fund.

Response by PO1 Private RallyPoint Member made Oct 3 at 2014 5:35 PM

PO1 Private RallyPoint Member — Fri, 03 Oct 2014 17:35:50 -0400

No.

Response by SFC Private RallyPoint Member made Oct 3 at 2014 7:08 PM

SFC Private RallyPoint Member — Fri, 03 Oct 2014 19:08:07 -0400

You make valid point on the value of money you lose, but if your thinking your going to make it on retirement pay...THINK AGAIN. I see that redux money as if you use it right you can make that in investments or hell what ever you want. You earned for all the sacarifice you have made for this country. Enjoy the money; at the same time preparing for life after the Army with a career that will make that 300K and add to your retirement. In reality the only thing retirement is good for is FREE MEDICAL FOR YOU AND YOUR SPOUSE. I took it and don't have one regret about it, because I've been planning my next chapter for years now and if you haven't I'm sorry it's never to late.

Response by SFC Private RallyPoint Member made Oct 3 at 2014 7:24 PM

SFC Private RallyPoint Member — Fri, 03 Oct 2014 19:24:03 -0400

One last response, We are quick to do the numbers on how much money we will lose for this redux. How much money are you losing by not taking advantage of that $4800 a year for lets say the past 20 yrs? Now thats the real question. When people are paying 300K at 20% intrest back in student loans but we wont take advantage of the free college. Masters should be what you get out with after 20 plus of service at $4800 a year.

Response by SGM Private RallyPoint Member made Oct 3 at 2014 8:53 PM

SGM Private RallyPoint Member — Fri, 03 Oct 2014 20:53:12 -0400

If one thing I have learned in my time in the military is that there is always a catch. Normally it does not benefit the Soldier in the long run.

Response by SFC Private RallyPoint Member made Oct 4 at 2014 5:41 PM

SFC Private RallyPoint Member — Sat, 04 Oct 2014 17:41:11 -0400

That was a great way to explain i feel smarter already.

Response by SSG Eddye Royal made Oct 4 at 2014 9:13 PM

SSG Eddye Royal — Sat, 04 Oct 2014 21:13:36 -0400

People, is currently looking at the fast BUCK, or being very Short sighted. Our military men and women, needs to look at their long term (life) goals.

Response by SFC Bob Bennett made Oct 4 at 2014 10:43 PM

SFC Bob Bennett — Sat, 04 Oct 2014 22:43:31 -0400

Either way you get shorted. It should be at least 50% as it was years ago. Congress needs to stop trying to scale the budget on the backs of veterans.

Response by CPT Kit Lancaster made Oct 15 at 2014 5:53 PM

CPT Kit Lancaster — Wed, 15 Oct 2014 17:53:50 -0400

I can't believe the military even offers this as an option. They need to get rid of this option. In the military you are paid a fair wage. Nothing high, nothing low, but as a career military individual / family. You earn the pension. Your household will most likely only have one career focused individual. One person typically has to sacrifice or limit their career options to live the military life style. For that reason, I feel the pension (which is pretty amazing as time of writing) shouldn't have a option that is of mass determent to a military member. Anyone taking the Redux should consult with a qualified financial professional before pulling the trigger. There is too much to lose.

Response by PO2 Rocky Kleeger made Oct 18 at 2014 1:50 AM

PO2 Rocky Kleeger — Sat, 18 Oct 2014 01:50:45 -0400

I, personally, chose the High-3. However, had I needed the money at the time, I would have gone for Redux

Response by SFC Private RallyPoint Member made Oct 18 at 2014 10:00 AM

SFC Private RallyPoint Member — Sat, 18 Oct 2014 10:00:51 -0400

I can't see myself opting for the redux. I don't plan on doing over 20 at this point in my career, so I don't think it would be a wise choice.

Response by SFC Michael Hasbun made Oct 18 at 2014 2:08 PM

SFC Michael Hasbun — Sat, 18 Oct 2014 14:08:49 -0400

http://the-military-guide.com/2012/08/16/over-a-decade-later-redux-still-sucks/

Response by SFC Dr. Joseph Finck, BS, MA, DSS made Oct 18 at 2014 3:21 PM

SFC Dr. Joseph Finck, BS, MA, DSS — Sat, 18 Oct 2014 15:21:54 -0400

RallyPoint Team ,

I would not / did not do the redux. High three is a more stable option. There are success stories out there of service members who invested, paid off the right bills, and or remained in service long enough to make up the difference, but for me the stability of long term quantifiable income is more important.

I preface that opinion with I am not a financial smart person, an investment guru, or a banking expert.

SFC Joseph M. Finck USA (Ret)

Response by SSG Private RallyPoint Member made Oct 18 at 2014 6:07 PM

SSG Private RallyPoint Member — Sat, 18 Oct 2014 18:07:33 -0400

I took the Redux in order to get my things straight for my family so that when it is time for me to get out at 20 receiving only the 40 percent isn't going to hurt me. I already know that I am going to be working another job when I retire from the Army anyways so the Army can keep their 10 percent. I'm still going to get disability on top of my retirement anyways. With the 40 percent I'm just looking for it to pay my mortgage anyways. I'll only be 38 when I retire anyways so still lots of working life in me.

Response by SGM Private RallyPoint Member made Oct 18 at 2014 6:52 PM

SGM Private RallyPoint Member — Sat, 18 Oct 2014 18:52:48 -0400

Great article, everyone needs to see this, I had been planning on taking it in a few years until this came out.

Response by LTC Private RallyPoint Member made Oct 18 at 2014 11:08 PM

LTC Private RallyPoint Member — Sat, 18 Oct 2014 23:08:11 -0400

All these pro Redux posts make me sad. The only way Redux is a good deal is if you know you will do 30 years and the market does well.

Response by SMSgt Private RallyPoint Member made Oct 18 at 2014 11:36 PM

SMSgt Private RallyPoint Member — Sat, 18 Oct 2014 23:36:29 -0400

My wife took REDUX and I opted for High-3……as most have already stated, do your homework and choose what best works for you.

Response by CW2 Jonathan Kantor made Oct 19 at 2014 9:21 AM

CW2 Jonathan Kantor — Sun, 19 Oct 2014 09:21:50 -0400

I was deployed to Iraq when this issue came up and my wife crunched the numbers. If I live to be 80, we would lose just over $1,000,000 over the course of my life if we went with the redux. Not even remotely worth it.

Response by MSgt Private RallyPoint Member made Oct 19 at 2014 11:26 AM

MSgt Private RallyPoint Member — Sun, 19 Oct 2014 11:26:18 -0400

I have had several people ask me if REDUX is a good idea or not.
What I tell them is just like anything it depends on your situation.

For example: it could be an ok deal if it will keep you from bankruptcy and you know you are going to stay in for 30 years. But who can guarantee that nowadays?

The bottom line is it probably is a BAD deal for 90% of the people that take it.

It pains me to say this but it's true.
Just look at it this way. If the Gov is offering you any type of trade on benefits or pay I PROMISE you that the trade is always going to benefit them more than you.
Otherwise they wouldn't offer it.

Response by PO1 G. Leslie /Stiltner made Oct 19 at 2014 4:03 PM

PO1 G. Leslie /Stiltner — Sun, 19 Oct 2014 16:03:16 -0400

Not sure what REDUX or High 3 is, but I can tell you this you will not be able to live of any retirement and will most likely have to get a job!! My husband retired in 2003 as an E-7 his retirement pay is about $1500 a month and is taxed, also out of that come dental and his SGLI life insurance. So lets say he gets about $1000 after all is said and done. Unless you are living in the woods in a secluded cabin you are not going to make it on that. So no matter which one you take make sure you also have a good savings plan going on now if you intend not to work after the service.

Response by PO1 Charles Birkby made Oct 25 at 2014 9:51 PM

PO1 Charles Birkby — Sat, 25 Oct 2014 21:51:40 -0400

Rephrasing the question slightly, if I had to do it all over again, would I choose Redux?

Absolutely not!

Getting that $30,000 up front (actually, closer to $15,000-$20,000 after taxes) might seem great, but you stand to lose 10 times that over your lifetime. If you need the money that badly, you'd be better off with a personal (not payday) loan.

"Overtime [sic] stock prices go up as the economy grows and improves. If you’re savvy with your finances, then getting the $30,000 immediately and investing it could be the right option for you."

Okay, but our economy has been languishing for six years. And stocks, while one of the safest forms of investment, are still a gamble. You can easily lose $30,000 in the market.

And how many of us know at 15 years that we will go to 30? I would have liked to, but the overwhelming lack of E7 billets in my soon-to-be former rate means I'm forced out at 20.

Not to mention, when Redux first came out, the government was really trying to sell it. That in itself made me extremely suspicious.

(Edited to fix a typo.)

Response by COL Private RallyPoint Member made Dec 20 at 2014 7:43 PM

COL Private RallyPoint Member — Sat, 20 Dec 2014 19:43:11 -0500

I have less than 5 years before I even consider retirement. I think I am going to stay in as long as they let me!

Response by LTC Paul Heinlein made Dec 21 at 2014 8:51 PM

LTC Paul Heinlein — Sun, 21 Dec 2014 20:51:51 -0500

As soon as the REDUX versus High Three option came out, it was obvious that it was a bad deal to choose REDUX...cause whether you were a SGT thru MAJ you were going to get the same 15 year payout...does not makes sense based on the differences in the pay scales.

Response by CMSgt Private RallyPoint Member made Jan 18 at 2015 12:30 AM

CMSgt Private RallyPoint Member — Sun, 18 Jan 2015 00:30:18 -0500

I took the simplistic approach to deciding to take Redux.....first I was deployed at the time so I received the whole amount....second I invested in my kids education and my retirement account.....the simplistic part is third.....the AF "told" me I would receive 40% if I retired at 20 when I joined in '92.....then they tell me they would give me $30K to still retire at 40%... ..ok, twist my arm....lol....I do understand I would have been able to retire at 50% at 20 if I wouldn't have taken it but hey, I will have to continue working after retirement anyhow so putting it in. Y retirement account was the way to go.....I had also planned on staying in until being forced out and am currently at 22 years so almost back up to 50%.......

Response by SGM Private RallyPoint Member made Jan 18 at 2015 9:40 AM

SGM Private RallyPoint Member — Sun, 18 Jan 2015 09:40:05 -0500

This is a much more complex issue than what you have completely laid out. The REDUX is predominately beneficial if take in a tax free zone. If you take it while not tax free then the 30,000 is actually only about 22500 after taxes. Also is the number of years that you are planning on staying in. Specifically past 20. If you take the REDUX, you earn and additional 3.5 percent for every year you stay beyond 20 versus the 2.5% every year after 20 without the REDUX. If you can get it tax free and plan on staying well past 20 then the REDUX isn't really as bad as the report states. I do concur that you must do something positive and productive with your REDUX. Pay bills, invest, something that puts/keeps you in the green versus just spending your money. Not an easy decision at all, but if done with the proper due diligence, both decisions are made much easier. Good Luck.

Response by SSG Private RallyPoint Member made Jan 22 at 2015 5:10 PM

SSG Private RallyPoint Member — Thu, 22 Jan 2015 17:10:48 -0500

This option has not helped the Soldiers that have accepted it. It is a sad fact that most that take the option use it pay for something they think they need or pay off debt.