The Retirement Choice: FY 2005
Abstract
At their 15th year of service, military personnel who are eligible and intend to serve for 20 years must choose (1) High-3 retirement plan or (2) a reduced retirement (REDUX) and $30,000 bonus at the 15th year of service. This paper is designed to help servicemembers make that decision. We describe the bonus in the second choice as an early, partial cash-out of the servicemember's retirement pension, as the member with pay back the bonus in the form of reduced retirement checks over the entire lifetime. We calculate how much the servicemember will "pay back" (the reduction in pension benefits) and we calculate the implied APR or interest rate for this loan. For example, an E-7 who retired in 2005 at age 38 is paying an implied interest rate of 13.1% and would see retired pay reduced by $309,460 if he or she lived to 79 years. Even if the servicemember received the bonus tax free, the repayment amount is over 10 times the amount of the loan ($30,000). If the servicemember lives to 85, the repayment amount would be $409,215.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 01, 2005
- Accession Number
- ADA430318
Entities
People
- Aline O. Quester
- Ian D. Macleod
- Lewis G. Lee
- Robert W. Shuford
Organizations
- Center for Naval Analyses