Retirement Choice: 2012
Abstract
At their 15th year of service, military personnel who are eligible and intend to serve for 20 years must choose either: (1) the High-3 retirement plan, or (2) a reduced retirement (REDUX) and a $30,000 bonus paid at the 15th year of service. This paper is designed to help service members make that decision. We describe the REDUX/bonus option as an early, partial cash-out of the service member's retirement pension that the member pays back in the form of reduced retirement checks over his or her entire lifetime. We calculate how much the service member 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 retires at age 38 with 20 years of service is paying an implicit interest rate of 14.8% and would see his or her retired pay reduced by $381,203 if he or she lived to 79 years. Even if the service member received the bonus tax free, the repayment amount is over 12 times the amount of the loan ($30,000). If this service member lives to 85, the repayment amount would be $504,085.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2012
- Accession Number
- ADA563696
Entities
People
- Aline O. Quester
- Anita U. Hattiangadi
- Lewis G. Lee
- Robert W. Shuford
Organizations
- Center for Naval Analyses