Office of the Secretary of Defense Retirement Options

Abstract

Abstract : This study analyzes whether the retirement reform proposal of the Office of the Secretary of Defense (OSD) provides more or less value for service members than the current retirement system. With the increase of government spending and discretionary government spending suffering heavy cuts, exploring ways to reduce government spending has become increasingly important. The single highest entity of discretionary spending is the allocation of military funds, and military compensation is a significant element of the military budget. The present value formula was used to determine the value added by OSD's retirement reform proposal and the current retirement system. Factoring the concept of time value of money, OSD's proposal increases the service members value of the retirement benefit. Next, comparisons were made to find the promotion and retention incentives associated with OSD's proposal and the impact on service members. When comparing an O-5 and O-6, the opportunity cost of not making the higher rank of O-6 can be significant. The data also show the limited incentives for service members to progress in their career or continue service at the same rank when close to retirement.