Research for Military Retirement Plan

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Retirement Choice 2010
March 1, 2010

Military personnel who entered service after 31 July 1986 and who are eligible and intend to serve for 20 years must choose between two retirement plans at their 15th year of service.2 Once the final selection is made, the choice is irrevocable. The two options are:

1. High-3 retirement plan: Retirement pay is based on the highest average basic pay for 36 months of a servicemember’s career. These are usually the last 3 years.

2. REDUX retirement plan plus a $30,000 bonus paid at the 15th year of service: In return for accepting the bonus, REDUX provides smaller retirement checks.

How should Marines, Sailors, Airmen, and Soldiers decide which option to take? The Department of Defense (DoD) has a website that provides information and examples to help servicemembers.3 We have used a different approach that many have found useful in evaluating these retirement choices.4 Here, we update that work for those making the retirement choice in 2010
 

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Comparing Military and Civilian Compensation Packages
March 1, 2008

A standard method of comparing military and civilian compensation is to focus on the cash portion of the compensation package. Studies have shown that on average, Regular Military Compensation (RMC) compares favorably with the earned income of the 70th percentile full-time civilians of similar education levels. However, looking only at cash ignores differences in the relative value of military and civilian non-cash benefits, and is akin to assuming they are equal. We show that military benefits are more valuable using 2005 data to estimate the differences in the relative values of three important benefits: the State and FICA military tax advantages, the health care benefit, and the retirement benefit. We add these differences in values to military cash compensation to form a more accurate “benefits-equal” comparison of military and civilian compensation packages. The top line dollar amount estimated by this method is called Military Annual Compensation (MAC), and compares favorably with the 80th percentile earned income for comparable civilians. Our analysis finds that the annual values of the military benefits are greater by amounts ranging from roughly $3,700 to $28,000, depending upon rank and length of service. Future comparisons of military and civilian compensation packages should include non-cash benefits

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