February 13, 2013
FORT WORTH, Texas – News that Defense Secretary Leon Panetta will recommend limiting military pay in 2014 comes at a time when the majority of middle-class servicemembers and civilians agree that men and women in uniform are still underpaid compared to other U.S. workers.
Six out of 10 Americans with household incomes of at least $50,000 believe that military compensation, including base pay plus allowances, is lower than salaries for comparable jobs in the broader marketplace, according to the First Command Financial Behaviors Index®. This widely-held view of income disparity comes at a time of increasing government scrutiny regarding the impact of military pay on the federal budget. It flies in the face of findings by the Congressional Budget Office, which reports that military pay has outstripped inflation and private sector compensation by more than 25 percent during the past decade. The Department of Defense says that the average servicemember is now receiving $5,400 more in annual compensation than a comparable civilian.
The Pentagon was expected to include a 1.7 percent pay raise for servicemembers for 2014, but Panetta has said he will propose a 1 percent pay increase to cut overall costs, according to a recent story by Stars and Stripes. Previously the Pentagon had proposed slowing down or freezing pay increases beginning in FY 2015 for an estimated savings of $16.5 billion over the next five years.
The RAND Corporation has proposed several options for slowing the increase in military pay. Assuming some action is taken by the Defense department, First Command’s survey respondents say the best of the proposed choices would be:
• A four-year series of smaller raises set at the Employment Cost Index minus a half percentage point (44 percent of respondents).
• A single-year pay freeze, meaning no pay rate increase for one year (39 percent).
• A one-time increase in pay set at half a percent below the Employment Cost Index (17 percent).
By no means is a change in military pay a certainty. But as leaders in Washington continue to look for ways to trim federal spending, military pay will remain on the table – and military families will continue to worry about their futures.
“Servicemembers and their families are worried about how defense downsizing will affect their pay, benefits and career opportunities,” said Scott Spiker, CEO of First Command Financial Services. “Half of surveyed households anticipate a reduction in their military retirement benefits and increased responsibility for healthcare costs. Many believe they are less likely to be promoted and more likely to experience early separation. The result is an uncertain economic future for many military families.”
Military families are responding to this uncertainty through a variety of belt-tightening actions. Almost half are cutting back on everyday spending. Other changes cited by survey respondents include increasing the amount of savings (28 percent) and decreasing the aggressiveness of investments (20 percent).
Notably, these frugal behaviors are helping military families feel more optimistic about the uncertain period ahead. The Index reveals that 43 percent are extremely or very confident their financial situation will improve in the next year. This compares to just 26 percent of the general population.
“Military families are responding to an uncertain future by spending less, saving more and paying down debt,” Spiker said. “By
making positive changes in their financial lives these families are finding the peace of mind that comes from feeling more secure and confident in their financial future.”
About the First Command Financial Behaviors Index®
Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index® assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 4.3 percent with a 95 percent level of confidence. www.firstcommand.com/research
