Many folks who never wore the uniform think those who did serve left the military with a robust monthly pension. In reality, fewer than 20% of service members ultimately qualify for that valuable, inflation-adjusted stream of income. That's why I wasn't particularly surprised when military-affiliated respondents who took part in the Employee Benefit Research Institute's 2024 Retirement Confidence Survey (RCS) wanted more from their retirement plans.
When asked how their workplace retirement plans could best be improved, almost 30% of the military respondents -- current military members, reservists and veterans -- suggested "more investment options designed for after you retire" and adding "a guaranteed lifetime income" option. Another 25% thought their plan should do a better job of showing how much income their savings will produce.
When it comes to retirement, much of the focus has always been on building a nest egg. However, if the new survey is any indicator, building a plan for the execution stage of retirement is clearly on the mind of the military community.
Here are five reasons why I think that's good:
1. More Income Streams, More Flexibility
In a perfect scenario, a single, guaranteed, inflation-adjusted stream of income would more than eclipse your needs. For most, a more realistic scenario includes several sources of income you can adjust based on market and economic conditions or changes to your personal situation. Naturally, you have greater control and options if you have more sources to leverage.
2. Taxes Can Be a Game Changer
Building a plan that includes sources of both taxable and tax-free income streams allows you to manage how much you pay in taxes. The tax code and tax brackets become your own personal playground as you make decisions to increase, decrease or eliminate various types of income. This flexibility is most easily created early in your accumulation journey with a tax-diversified approach to retirement investing. Roth conversions, municipal bonds, permanent life insurance and careful use of retirement plan and IRA distributions could all be part of the mix.
3. Guaranteed Income Streams Provide Peace of Mind
Safe, stable and reliable income is a beautiful thing. That's especially the case during turbulent times. We don't need a long memory to recall wild market swings, scary headlines and a lot of uncertainty. Times such as those highlight the benefits of income streams from Social Security, employer pensions, military retirement, certificates of deposit and immediate annuities. But "guaranteed" often comes with tradeoffs.
4. Inflation May Reduce the Value of Guaranteed Income
Unfortunately, many guaranteed streams of income don't account for inflation. Military retirement and Social Security are notable, and extremely valuable, exceptions, but most corporate pensions, government pensions and retail-purchased immediate annuity options don't include an inflation adjustment. If they do, it's an expensive add-on. Income sources from dividend-paying stocks, convertible securities and real-estate investments may all help on that front. Diving into the details is outside the scope of this article, but inflation clearly provides a solid rationale for diversifying your retirement income streams.
5. Even Social Security Requires Important Decisions
According to Social Security, about 90% of Americans over 65 receive income from this program. That makes it very likely that it will be part of your diversified retirement income plan. However, it's important to make smart choices on timing; to leverage retirement credits; and to understand survivor benefits to make the most of your own Social Security benefit.
When I evaluate the time, energy and resources devoted to planning for retirement, it's clear that a lot goes into the accumulation part of the puzzle compared to the income-planning aspect. Take the long view.
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