03 October 2014

Would You Choose Redux or High-3 for Retirement?


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, CAN 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.

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.

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?

Comment below or start the conversation here and connect within the military community.

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