Editor's note: The following analysis comes from a First Command Financial Behaviors Index release.
As the year-end fiscal cliff deadline approaches, military personnel are increasingly worried about their financial futures – and they are taking actions to shore up their household finances.
The First Command Financial Behaviors Index reveals that two thirds of middle-class military families (senior NCOs and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000) are not confident that Washington will be able to avert the automatic tax hikes and spending cuts known as the fiscal cliff that kick in on Jan. 1 unless Congress intervenes.
“The fiscal cliff is a major concern for service members and their families,” said Scott Spiker, CEO of First Command Financial Services, Inc. “Roughly seven in ten believe that a failure to resolve the fiscal cliff stalemate will mean an increase in their taxes and a slowdown in job growth. Two thirds of survey respondents fear the U.S. economy might slip back into recession.”
Concerns are also running high regarding the federal budget cuts known as sequestration, with men and women in uniform expecting to see their family finances impacted in a number of ways. Half of households anticipate a reduction in their military retirement benefits and increased responsibility for healthcare costs. They expect to see cuts in:
- · Personal expense benefits for housing, clothing and food (40 percent).
- · Educational benefits (32 percent).
- · Discretionary income for non-essentials (31 percent).
Career concerns are high, too. Almost three out of ten military families (28 percent) believe that sequestration will mean they are less likely to be promoted and more likely to experience early separation. An early forced exit from the armed forces is seen as a serious financial threat, with almost nine out of ten survey respondents hoping to qualify for a traditional military retirement by completing at least 20 years of service.
“While the looming fiscal cliff deadline has been making the headlines, military families may be even more troubled by the spending reductions that are already in process,” Spiker said. “Defense downsizing will affect one-sixth of the military, impacting retirement pay and benefits. Promotion rates will decline. The result is an uncertain future for many military families.”
Notably, military families are responding to the fiscal cliff and sequestration with a variety of belt-tightening actions. Almost half are cutting back on everyday spending. Other changes include:
- · Increasing the amount of savings (28 percent).
- · Decreasing the aggressiveness of investments (20 percent).
- · Moving investments to cash (9 percent).
- · Starting to work with a financial planner (5 percent).
“Working with a financial planner is a particularly smart move,” Spiker said. “Families who work with a financial coach are more likely to spend less, save more and pay down debt in their pursuit of financial security. And they feel better about their finances than those without a planner. Our research consistently indicates that military families who work with a financial coach are more likely to feel financially secure and confident in their ability to retire comfortably. We anticipate increasing demand from military families for financial planning assistance over the coming year.”