Savers in the U.S. military

Which branch of the military saves the most? The Navy. And the least? The Army. The Washington Post reports on the “success” of the six-year old Thrift Savings Plan for soldiers. Although only about 36 percent of active-duty military personnel have enrolled in the tax-deferred contribution plan, which means there is plenty of room for improvement.

As of April, 52 percent of Navy active-duty personnel were making contributions, along with 35.7 percent of the Marine Corps, 33.8 percent of the Air Force and 26.4 percent of the Army.

The Navy’s high contribution rate is most likely due to aggressive encouragement. An April report says that the Army “doesn’t encourage” TSP participation, while the Navy does. Overall, service member participation still lags average participation rates at employers with contribution plans, and among their civilian counterparts (86 percent of civilians with TSP accounts take advantage of them). What explains this gap? Does soldiers’ uncertainty about their future make them less inclined to save? This logic may be behind laws that do not require the Pentagon to contribute to TSP accounts of soldiers. The Pentagon can match contributions voluntarily if it believes the incentives will help with recruitment. The Post reports:

The issue comes up for debate from time to time, but many Defense officials think the troops would rather receive cash bonuses than tax-deferred money subject to restrictions on when it can be withdrawn.

That troops would discount the future more than the average American seems reasonable given the nature of their jobs. Retirement is no guarantee, after all. Still, some Pentagon data on the subject would be welcome. It seems equally plausible that troops with spouses and children might take advantage of military matches, even if they are not able to use that money themselves. Of uniformed service men and women who do participate in TSP, 11 percent contribute at least 20 percent of their pay compared to 4 percent of civilian employees, according to a 2006-2007 federal survey conducted for the Federal Retirement Investment Thrift Board. And median and main contribution rates, in percentages and absolute dollars are higher for military personnel than for civilian employees.

The survey indicates that the investing appetite of soldiers differs from civilians. Almost half of service members describe their approach to investing as “high risk” or “moderate risk” compared to 36 percent of civilians, although it is not clear how much of this difference is due to age is unclear. When asked what changes to the system would lead them to save more, service members cited matching contributions and automatic enrollment as their top two choices. Almost two-thirds of them agreed that automatic enrollment was a good idea. Hopefully, the Pentagon will do an about-face.

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