Most military families are worried about defense cuts in Washington, driving a record demand for professional financial advice, according to information released this week by Fort Worth-based First Command Financial Services.
According to the July survey, 70 percent of military respondents felt anxious about reductions in defense spending, and more than half are concerned about their job security.
In addition, 27 percent of military families have started working with a financial adviser because of “sequestration.” That figure is up 11 points from the previous month, and it’s the highest since the questions were added to the survey in 2013.
Sequestration is an automatic across-the-board spending cut implemented by Congress in 2013 that occurs if there is no agreement on the annual budget. The military also faces budget caps as it phases down after the end of the Iraq war.
The survey questioned around 530 commissioned officers and senior noncommissioned officers with household incomes of at least $50,000.
The pocketbook issues affect thousands of military families that call North Texas home. According to the state comptroller’s office, Naval Air Station Fort Worth, which opened in 1994 after the closure of Carswell Air Force Base, is one of the region’s largest employers, with 10,000 active-duty military members, guardsmen, reservists and civilian employees. The comptroller said the base contributes $9.3 billion to the state economy.
Nine in 10 survey respondents said they are taking actions in their financial lives to prepare for possible defense cuts. Besides working with financial advisers, they are:
▪ Increasing the amount they are saving (46 percent)
▪ Cutting back on everyday spending (38 percent)
▪ Spending less on summer vacations (47 percent)
▪ Moving investments to cash (24 percent)
▪ Decreasing the aggressiveness of their investments (23 percent)
Only 11 percent said they were doing nothing to prepare for sequestration, a record low and down eight points from the previous month.
A larger survey, by Blue Star Families, showed that 75 percent of active-duty members are concerned about potential changes in military pay and benefits, including retirement, said Joseph Montanaro, a certified financial planner with USAA in San Antonio. The numbers were almost as high for veterans and military spouses.
“Historically, the military has offered a 20-year vesting pension,” Montanaro said. “Congress is looking at changing that, along with housing allowance rules.”
He tells his military clients to beef up their emergency funds.
“Building up that emergency fund to a robust stash of cash can benefit in all sorts of circumstances,” he said. “Not only if they lose their salary but if they move and their spouse has to find new employment.”
During the second quarter, First Command said military families that work with a financial adviser put more money into:
▪ Short-term savings (76 percent vs. 57 percent for those without an adviser). Monthly median contributions for the two groups were $475 and $315, respectively.
▪ Retirement savings (73 percent vs. 54 percent). Monthly median contributions for the two groups were $400 and $269, respectively.
▪ Long-term savings (68 percent vs. 34 percent). Monthly median contributions for the two groups were $400 and $200, respectively.
Planning for potential financial storms is key, and military members have access to good financial programs.
The military’s Thrift Savings Plan charges an annual expense ratio of just 0.029 percent of assets, much lower than the 1 or 2 percent in average annual fees and expenses for a 401(k), according to a July article in Forbes. For more information on the program, go to www.tsp.gov.
The Savings Deposit Program allows deployed service members to earn 10 percent annual interest, compounded quarterly. They can invest up to $10,000 in the program each time they are deployed. Go to www.dfas.mil for more information.
And service members receiving tax-free combat-zone pay can put money toward a Roth IRA tax-free, and contributions and earnings come out tax-free. Most nonmilitary contributions to a Roth IRA are not shielded from taxes.
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net
Military in Texas
▪ 15 installations
▪ Economic impact of almost $150 billion
▪ Six percent of the state’s economic activity
▪ More than 255,000 military and defense-related civilian personnel
Source: State comptroller’s office