Pensions and Intertemporal Choice: Evidence from the U.S. Military

Abstract

We study a choice made by over 20,000 U.S. military personnel annually between the High-3 and Redux retirement plans. Compared to High-3, Redux offers a $30,000 current lump sum payment in exchange for lower future annuity payments. Despite break-even discount rates between 10% and 25%, about 40% of individuals chose Redux. The likelihood of choosing Redux is decreasing with the break-even discount rate and is related to individual demographics. The implied personal discount rates from this choice are around 9.2%, much lower than found previously. Offering this choice has already saved the government over $2 billion in future retirement payments.

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Document Details

Document Type
Technical Report
Publication Date
Feb 01, 2014
Accession Number
ADA603845

Entities

People

  • Amilcar A. Menichini
  • Jesse M. Cunha

Organizations

  • Naval Postgraduate School

Tags

DTIC Thesaurus Topics

  • Air Force
  • Business Administration
  • Coast Guard
  • Commerce
  • Demography
  • Department Of Defense
  • Economics
  • Education
  • Enlisted Personnel
  • Governments
  • Military Personnel
  • Money
  • Public Policy
  • Security
  • Social Security
  • Statistics
  • Warfare

Fields of Study

  • Economics

Readers

  • Industrial Economics
  • Military Mobilization and Reserve Forces Studies.
  • Operations Research