Research for Retirement Choice

Syndicate content
Retirement Choice: 2010
March 1, 2010

At their 15th year of service, military personnel who are eligible and intend to serve for 20 years must choose either: (1) 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 servicemembers make that decision. We describe the REDUX/bonus option as an early, partial cash-out of the servicemember’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 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 retires at age 38 with 20 years of service is paying an implicit interest rate of 14.5% and would see his or her retired pay reduced by $370,030 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 $489,310. For virtually all servicemembers, choosing REDUX/bonus is a bad (and costly) decision. (Click here to access CNA's 2010 Retirement Choice Calculator)

Read More | Download Report
Retirement Choice: 2009
January 1, 2009

At their 15th year of service, military personnel who are eligible and intend to serve for 20 years must choose either: (1) 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 servicemembers make that decision. We describe the REDUX/bonus option as an early, partial cash-out of the servicemember’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 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 retires at age 38 with 20 years of service is paying an implied interest rate of 14.3% and would see his or her retired pay reduced by $357,860 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 $473,216. For virtually all servicemembers, choosing REDUX/bonus is a bad (and costly) decision.

View the CNA Retirement Choice Calculator

Read More | Download Report
Retirement Choice: 2008
December 1, 2007

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 2006 at age 38 is paying an implied interest rate of 14.0% and would see retired pay reduced by $344,434 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 $455,463.

Read More | Download Report
Retirement Choice: 2007
January 1, 2007
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 2006 at age 38 is paying an implied interest rate of 13.6% and would see retired pay reduced by $331,316 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 $438,116.
Read More
Get Paid Now or Get Paid Later: What Are Sailors Deciding?
November 1, 2005
Service members now choose between the High-3 retirement and a bonus at 15 years of service with a reduced (REDUX) retirement. Sailors’ take rates for the bonus/REDUX have declined since the choice was first offered in August 2001. The paper estimates 2 models (economic model of competing interest rates and information learning curve model) to explain the choice, suggesting that the learning curve model is more plausible. Personal characteristics also play a role in these choices. We find substantially lower take rates for bonus/REDUX for female, better educated, and single Sailors without dependents and higher take rates for black Sailors, those who have more dependents, and Sailors moving from the enlisted to the officer ranks.
Read More
The Retirement Choice: FY2006
October 1, 2005
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.
Read More