SASEBO NAVAL BASE, Japan — When the Navy announced the REDUX retirement plan and Career Status Bonus, or CSB, a number of sailors jumped at the opportunity to receive $30,000 in a lump sum.
However, retirees who accepted the CSB receive significantly less retirement money per year.
“I’ve seen people … as soon as the CSB came out, they were right on it and already had the money spent. We had to calm them down and lay out all the information,” explained Chief Petty Officer Christopher Alford, Navy Career Counselor for Amphibious Group 1 operating from Sasebo.
Figures recently announced by the Navy Personnel Command indicate that some sailors have learned to overcome the impulse, and think in terms of their financial needs after leaving the service.
Nonetheless, almost 45 percent of eligible enlisted sailors and 11.3 percent of eligible officers opted for CSB/REDUX in fiscal year 2003. However, a total of 3.8 percent fewer enlisted sailors and .9 percent fewer officers chose the plans than did in FY 2002.
Under the High-Three Year Average retirement plan, sailors who began service after Sept. 8, 1980, receive a percentage of the average amount of their highest 36 months of basic pay, beginning at 50 percent of basic pay for 20 years of service.
The CSB/REDUX plan applies to those who entered service on or after Aug. 1, 1986, and who elect to receive the $30,000 bonus at their 15th year of service. In addition, REDUX reduces the 20-year retirement benefit from 50 percent of basic pay to 40 percent.
“When it [REDUX] came out, a lot of people were claiming that it wasn’t fair for servicemembers’ retirement money to be cut, so the bonus plan was announced as something to supposedly offset the cuts,” Alford added.
Under the High-3 retirement program, pay increases equal to the consumer price index annually through a cost-of-living allowance, or COLA. Under REDUX, the annual COLA is equal to the same index, less 1 percent, widening the net loss between the two plans.
Sailors who entered service on or after Aug. 1, 1986, must choose either High-3 or the CSB/REDUX system at their 15th year of service, Alford said. This choice is irrevocable.
“For some, like chiefs who know they will make senior chief, or master chief, and then can stay in the Navy for 30 years, it could be a good thing to take the bonus, because they will still get the 40 percent. But they will lose that 1 percent of COLA,” Alford said.
REDUX has a catch-up increase at age 62 that brings the retired pay back to the same amount paid under the High-3 Year Average System, but the COLA reduction continues thereafter.
According to a study by the Center for Naval Analyses, the bonus amounts to a loan paid back later by smaller retirement checks. “This so-called loan, given at 15 years of service, is paid back over the entire servicemember’s retired lifetime,” the study concludes.
Chief of Naval Personnel Vice Adm. Gerry Hoewing recommends, in the report, a cautious approach. “The CSB option may meet the short-term needs of some, but many will find that taking it yields significantly lower monthly retirement income.”
Career counselors such as Alford say the crucial thing is to make an informed decision.
“For a 2nd Class coming up on 15 years, and who plans to retire at 20, it might not be such a smart thing to do. They need to resist the impulse to get the $30,000 (about $23,000 after taxes) to pay some bills, buy a car or a house.”
