The most difficult decision for service members used to be whether to stay in the military until retirement. Soon, however, a more difficult choice could be the selection between retirement plans.
After 31 July 2001, men and women nearing 15 years of service will make one of the biggest financial decisions of their lives: whether to switch to the High-3 retirement plan, which pays 50% of basic pay after 20 years and provides full inflation protection, or stay with lower annuities and smaller costof-living adjustments under the Redux plan, sweetened by an immediate $30,000 cash bonus.
Given the natural allure of lump-sum amounts, the decision will not be easy. Military pay officials say, in general, officers would be better off under High-3. But it is a closer call for enlisted. If an E-7 retiring after 20 years could earn an average of 10% annually on the $30,000 bonus, assuming $10,000 is sheltered from taxes in a military thrift savings plan (TSP), then lifetime benefits could exceed High-3 by more than $370,000, by one service estimate.