No Easy Day for Military Pensions

Abstract

The financial well-being of the nation's soldiers, sailors, airmen, and marines just suffered a devastating blow. In a surprise move, the budget deal negotiated by Rep. Ryan and Sen. Murray, and subsequently passed by the House and Senate, cut military pensions. We believe much of the subsequent clamor about this cut dramatically underestimates its gravity. Before this vote, it was reasonable to view military retirement benefits as equivalent to a particular kind of riskless Treasury bonds indexed to inflation Treasury Inflation Protected Securities, or TIPS. Both military pensions and TIPS were government guaranteed, and both offered full inflation protection. Under these twin assumptions, we estimate the current value of a military pension at about $1.7 million for typical officers and $970 thousand for typical enlisted members, both with 20 years of service. Today's low rates make these numbers quite large-military pensions are undeniably valuable. Knowing this, some servicemembers structured their lives around completing 20 years in the military.(Separating from military service before 20 years earns no pension at all.) They did so anticipating they would be "locking in" a generous inflation-adjusted pension.

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Document Details

Document Type
Technical Report
Publication Date
Jan 01, 2014
Accession Number
AD1015004

Entities

People

  • Brian C. Payne
  • William W. Jennings

Organizations

  • United States Air Force Academy

Tags

Communities of Interest

  • Human Systems

DTIC Thesaurus Topics

  • Air Force
  • Budgets
  • Clearances
  • Commerce
  • Governments
  • Health Care
  • Investments
  • Materials
  • Military Budgets
  • Security
  • Uncertainty
  • United States Air Force Academy

Readers

  • Economics
  • Government Contracting/Procurement.
  • Military History of the United States in the 20th Century.