The military spending caps enacted by Congress in 2011 are unpopular among servicemembers and 80% think they should be repealed. Of those, half also think domestic spending caps should be done away with, according to the latest First Command Financial Behaviors Index, released in March.
Just 46% of civilian respondents agreed military spending caps passed as part of sequestration should be reversed. Of those, half agreed domestic caps should be repealed.
The Index surveys commissioned officers and senior noncommissioned officers with household incomes of at least $50,000.
It’s not surprising that servicemembers feel so strongly about cuts that will affect them so directly. Over three-quarters expect to be at least somewhat impacted by sequestration. Their biggest worry is over reductions in annual pay increases, a fear that's not unfounded. On Jan. 1, military pay raises were capped at 1% for the second year in a row, although some lawmakers had proposed a 1.8% raise, which would keep pace with the private sector. First Command noted in a statement that these are the smallest annual increases in over 40 years for the all-volunteer force.
A third of military families cited a reduction in retirement benefits or increased responsibility for health care costs as their top concern.
“Servicemembers and their families are dealing with a second year of reduced pay raises, but that’s not their only area of concern,” Scott Spiker, CEO of First Command Financial Services, said in a statement. “They value a broad range of benefits, and a growing number of them fear that military budget cuts will compel them to assume greater responsibility for these costs.”
However, the survey also found military respondents are optimistic that sequestration will be repealed. Forty-eight percent of military families said they believe Congress will reverse it before the full return to automatic budget cuts in fiscal year 2016. Just 17% of civilian respondents agreed.
Despite that optimism, they’re still actively preparing for sequester cuts. Half are cutting spending, and 45% are saving more. A quarter of respondents said they’ve changed their investments to be more conservative, and 12% have started working with an advisor.
“While many servicemembers and their spouses are optimistic that lawmakers will repeal the sequester cuts, they are not waiting on Washington before they get their own financial house in order,” Spiker said. “Military families are engaged in a variety of proactive behaviors, including seeking out professional help with their personal finances. Financial advisors are helping military families develop positive financial behaviors at a time of great concern about compensation and career security.”
The Military Compensation and Retirement Modernization Commission released in January a proposal to overhaul military compensation, including retirement and health care benefits, to be more similar to a defined contribution plan.
First Command found that following the release of that report, two-thirds of military respondents are at least somewhat familiar with the proposed changes. Regarding the proposed retirement changes, 61% said they find them at least somewhat favorable. Nevertheless, 67% still say they prefer to be grandfathered into the current system, which requires that servicemembers work 20 years before they’re eligible for retirement benefits.
Furthermore, 60% of military respondents said that even if the proposed changes are accepted, it won’t change their feelings about serving to full retirement.
--- Check out Financial Literacy Falling Among Military Families on ThinkAdvisor.