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Is Career Status Bonus/REDUX right for you? (Speaking with Sailors).

Q: I'm an E-6 and have been in for almost 15 years. I've heard about this Career Status Bonus/REDUX retirement option, and I'm trying to figure out if it's the right choice for me. It sounds like a lot of money in my pocket now - but what do I stand to lose later?

A: Electing to receive $30,000 when offered the Career Status Bonus (CSB) and reverting to the REDUX retirement plan could mean the loss of hundreds of thousands of dollars in your future retirement pay.

That's why I recommend that Sailors and their families carefully weigh all the options and long-term consequences before they decide to take this retirement plan. It could mean the difference between actually retiring or working years beyond your anticipated retirement.

My fear is that Sailors might see this retirement option as an immediate solution to short-term needs. The "instant gratification" of the thought of paying off personal debt or getting that brand new car could cost a lot more in the long run.

A good example is an E-6 with 20 years of service at age 40. By selecting CSB and REDUX at 15 years, the Sailor is penalized 10.4 percent for the cash-out, and loses $193,630 in after-tax retirement income. This is assuming the Sailor lives to an average age of 79 years old.

The $30,000 bonus is treated like any other bonus payment for taxes. For someone in the 15 percent tax bracket, the payment is $25,500 after taxes. For those in a 28 percent tax bracket the payment plummets to $21,600.

Depending on pay grade and length of service at retirement, Sailors will lose not only thousands of dollars in retirement each year with REDUX, but any Cost of Living Allowance change is reduced by 1 percentage point.

Serious financial planning needs to be part of the equation when making the decision to elect to receive a CSB and revert to REDUX for retirement, or turn down the bonus and stay with the High-3 retirement system.

The bottom line is check the facts! Look, plan ahead and ask questions. Command career counselors, command financial advisors, command master chiefs and fleet and family service centers are standing by to assist in one of the most important decisions of anyone's financial life.

Additional help can be found on the DOD Web site, where there is a retirement pay calculator to directly compare retirement benefits between both High-3 and REDUX retirement plans.

Speaking with Sailors is a monthly column initiated by the Master Chief Petty Officer of the Navy as a way of reaching out to the men and women of the fleet, whether they are stationed just down the road or halfway around the world.
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Author:Scott, Terry D.
Publication:All Hands
Geographic Code:1USA
Date:Jun 1, 2002
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