Fiscal Cliff Delay Leaves Military Families Bracing For Financial Blow

Editor's note: The following analysis comes from a First Command Financial Behaviors Index release.

While Americans are celebrating the last-minute deal to avoid the fiscal cliff of higher taxes, military families are bracing for the looming defense cuts that still lie ahead.

“The decision to delay sequestration by another two months gives lawmakers some breathing room, but it also extends the indeterminate financial state that has been hanging over military families since 2011,” said Scott Spiker, CEO of First Command Financial Services, Inc. “Regardless of the resolution of the approaching sequester, our men and women in uniform understand that major military cuts are coming.  The longer-term efforts to shrink the armed forces may well deliver a financial blow to many active-duty families. Military households are preparing for defense downsizing by making meaningful changes to their family finances.”

Related: Fiscal Cliff Means Major Cutbacks for Military Families

Recent survey results from the First Command Financial Behaviors Index reveal that middle-class military families (senior NCOs and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000) expect sequestration will affect their financial lives in a variety of ways. They anticipate defense downsizing will mean:

• Reduced retirement benefits (50 percent)
• Increased responsibility for healthcare costs (47 percent)
• Reduced personal expense benefits, such as housing, clothing and food (40 percent)
• Reduced education benefits (32 percent)
• Decreased discretionary income for non-essentials (31 percent)
• Reduced likelihood to be promoted (28 percent)
• Increased likelihood of early separation or not serving to full retirement (28 percent)
• Forced relocation due to Base Closure and Realignment  (21 percent) 

Active-duty families have been taking action to prepare for these changes. They have been shoring up their personal finances in a variety of ways, including:

• Cutting back on everyday spending (48 percent)
• Increasing the amount they are saving (28 percent)
• Decreasing the aggressiveness of their investments (20 percent)
• Moving investments to cash (9 percent).
• Starting to work with a financial planner (5 percent) 

Notably, these efforts are helping military families feel more optimistic about the months ahead. The Index reveals that 43 percent are extremely or very confident their own financial situation will improve in 2013. 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.”