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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?
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?
Posted in these groups: 
Retirement
Command Post
Retirement Command Post
Edited >1 y ago
Posted >1 y ago
Responses: 35
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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.
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MAJ Jeff Coulter
How true! I made the mistake of taking the REDUX bonus at 15 years. I paid some bills and bought two new vehicles, and it was gone. At the time, I was perfectly willing to serve three additional years to get back to 50%. I'm now over 19 years, and I can't go anymore. I've decided to suck up my mistake and take 40% just so I can say goodbye to the Army. I don't want to think about how much I'll be losing over time.
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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.
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Lt Col (Join to see)
Do NOT do the REDUX. Just don't. It will cost you hundreds of thousands of dollars.
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SSG (Join to see)
In today's Army! I would definitely take the high 3.. Only because if you were/are fortunate enough to reach retirement, you may not be able to continue your service to earn back the Redux.
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COL Vincent Stoneking
It's worth noting that the linked article was penned by LCDR Doug Nordman
And he's right. For everyone who manages to actually "invest it and come out ahead", I would be willing to bet that there are 25 who bought [some stuff they can't remember now] and have to work more than they want in "retirement".
And he's right. For everyone who manages to actually "invest it and come out ahead", I would be willing to bet that there are 25 who bought [some stuff they can't remember now] and have to work more than they want in "retirement".
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LCDR Doug Nordman
Thanks, everyone!
"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."
Um, no. The author appears to be equating stock-market returns to the deferred gratification of the world's most reliable government pension with a built-in guaranteed cost-of-living adjustment. You might earn more in the stock market by taking a greater risk, but your excess returns are derived from taking excessive risks for which there are no guarantees. The real value of the military pension is in its zero-risk inflation adjustment, and that's what you're giving up.
The author's investing logic is equivalent to suggesting that the $30K is a better deal when you invest wisely in Powerball tickets. Or in starting your own business. Or in buying a collectible Ford F150 with custom rims.
DoD's own REDUX website manages to show that REDUX is a better deal for the E-9 who stays on active duty for (at least) 30 years. However I think it's impossible to expect that anyone with 15 years of service can cheerfully take $30K in the expectation of making E-9 and staying for another 15 years. DoD's suggestive math borders on unethical.
From the perspective of a conspiracy theorist: if REDUX is such a good deal, then why is Congress giving you cash up front? And why has the $30K bonus been allowed to lose to inflation for over a decade instead of tying it to the CPI?
"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."
Um, no. The author appears to be equating stock-market returns to the deferred gratification of the world's most reliable government pension with a built-in guaranteed cost-of-living adjustment. You might earn more in the stock market by taking a greater risk, but your excess returns are derived from taking excessive risks for which there are no guarantees. The real value of the military pension is in its zero-risk inflation adjustment, and that's what you're giving up.
The author's investing logic is equivalent to suggesting that the $30K is a better deal when you invest wisely in Powerball tickets. Or in starting your own business. Or in buying a collectible Ford F150 with custom rims.
DoD's own REDUX website manages to show that REDUX is a better deal for the E-9 who stays on active duty for (at least) 30 years. However I think it's impossible to expect that anyone with 15 years of service can cheerfully take $30K in the expectation of making E-9 and staying for another 15 years. DoD's suggestive math borders on unethical.
From the perspective of a conspiracy theorist: if REDUX is such a good deal, then why is Congress giving you cash up front? And why has the $30K bonus been allowed to lose to inflation for over a decade instead of tying it to the CPI?
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