No Easy Day for Military Pensions

The financial well-being of the nation's soldiers, sailors, airmen, and marines just suffered a devastating blow. In a surprise move, the budget deal negotiated by Rep. Ryan and Sen. Murray, and subsequently passed by the House and Senate, cut military pensions. We believe much of the subsequent clamor about this cut dramatically underestimates its gravity. Before this vote, it was reasonable to view military retirement benefits as equivalent to a particular kind of riskless Treasury bonds indexed to inflation Treasury Inflation Protected Securities, or TIPS. Both military pensions and TIPS were government guaranteed, and both offered full inflation protection. Under these twin assumptions, we estimate the current value of a military pension at about $1.7 million for typical officers and $970 thousand for typical enlisted members, both with 20 years of service. Today's low rates make these numbers quite large-military pensions are undeniably valuable. Knowing this, some servicemembers structured their lives around completing 20 years in the military.(Separating from military service before 20 years earns no pension at all.) They did so anticipating they would be locking in a generous inflation-adjusted pension. Air Force Times, 01 Jan 0001, 01 Jan 0001,