What Every American Should Know About Military Pensions

The United States military is a popular institution.  The American people are incredibly supportive of their troops.  When surveys are taken asking “what profession do you admire most?” the military typically scores at, or near the very top.

Yet despite its popularity, the military is not a popular career choice.  Only about 1% of Americans serve in the military.  Talk about it a dinner party sometime and you’ll eventually hear people say things like “I could never do it; I could never live that way.”

This disconnect is easy to explain.  The military life, while rewarding, fulfilling, and important, is also very difficult.  The obvious dissuader from joining the military is war, but even beyond that obvious disincentive, the military lifestyle creates unique challenges that most people aren’t interested in.

For example, the military rules and regulations are limitations on personal liberty and most Americans have no interest in living under those restrictions.  The military is an extremely difficult lifestyle for families – and it goes beyond the obvious stress of deployments.  Military members are ordered to move every 3 years, creating huge stresses on their families.  All that movement means you can never put equity in a home, your kids are constantly switching schools (for example my son who is a junior in high school in his seventh different school system), you are constantly packing and unpacking, you have real challenges developing meaningful community ties, and with each move you get the joy of navigating the new DMV rules of the state you are residing in.  Lastly, the military work is tough; rewarding yes, but tough.

Ask a military member, “Do you work a 40 hour week?” He or she will answer, “only if I take leave Thursday through Saturday.”  The average workweek for military members, especially senior officers and senior non-commissioned officers, is 60 – 70 hours a week.  They are usually working 6am to 6pm and then sneaking in on the weekend to catch up on something.

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I happen to be a fan of free market economics.  If the free market were presented with recruiting people to work in the military with its challenging workload, that involves fighting in wars, long hours, family separation, limits on individual freedom – the free market would respond by creating incentives.  The number one incentive would be salary – a huge salary to get people to do this difficult military job.

Congress, however, is not a free market.  They created a different plan.  The military pay plan that has been in place for decades is this:

Pay military members as low a salary as we can get away with and incentivize military service with earned benefits (like pensions).

Why?  Because Washington D.C. knows that only 17% of military members will serve 20 years in the military and earn a pension.  The other 83% get nothing when they separate from the military.  Think about that for a minute.  Do you know of any industry where you can work for 15 years and earn zero retirement benefits?  Only the military system has that kind of all or nothing retirement plan.  I worked with an officer who was told by the military that he was no longer needed after 16 years – he wasn’t a bad guy; not in trouble – he just got cut during personnel reductions.  He left with nothing; no retirement plan; at age 38 after 16 years and multiple deployments to the Middle East.

It is critical to understand, this system was designed to keep people in the military.  The military uses the all or nothing retirement system to keep experienced, talented people in the ranks.  If the military had a portable retirement system where members could leave after 5 years and take retirement benefits with them, the military would lose a huge retention tool.  By dangling a 20 year pension, the military is able to pay low salaries and retain talent because for example, after 8 years military members think “well if I serve 12 more years and reach 20, I can get that pension.”  Remember, the government avoids paying retirement benefits of ANY kind to the vast majority of service members who will not serve 20 years on active duty.

Simply put, the military pension system is really deferred salary.  The congress is saying to the troops, “sure, we won’t pay you a salary commensurate with your skills, duties, and work-associated dangers now – but after 20 years of service we will pay you a pension.”  It limits the upfront salary costs for the Department of Defense.  The truly ingenious part of the system is the knowledge that 83% of military members getting paid low salaries today will never earn a pension tomorrow.

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This week, in a bipartisan deal, congress decided to cut the pensions of retired military members.  What do you think congress would do if GM unilaterally reduced pensions on the United Auto Workers?  I think we all know there would be lots of grandstanding, hearings, and calls for fairness.

Leaving that aside, here’s a handy guide on military pensions for decision-makers – since I know everyone loves “talking points”:

1.  Military Pensions are an earned benefit not an “entitlement program.”  Pensions are not a hand-out.  This is not charity or welfare.  Every penny of a pension is an earned benefit.  It was designed by congress to recruit and retain people into the military.  Only 17% of military personnel are able to earn this benefit by serving for 20 years.  Any congressman comparing an earned benefit to welfare or charity probably hasn’t done his homework.  It is an incredible insult to boot.

2. Military pensions are deferred salary:   The military salaries are intentionally low.  The pension system is a recruiting and retention tool to get qualified talented Americans to serve in the military.  If congress cuts this deferred salary plan, we will have only bad choices:  A. Significantly raise real salaries to off-set the lower pension.  B. Draft citizens into the military and treat them like indentured servants.  C.  Watch talented people leave the military.

In other words, the pension system is the most palatable and cost-effective recruiting tool we have. (Instead, this week congress cut pensions while offering no pay raise at all for the troops).

3.  Military Pensions are an all or nothing system:  There will be lots of chatter about military members who join at age 18, serve 20 years, and retire at age 38.  What you won’t hear about is the guy who joins at 18, serves 10 years and separates with absolutely zero retirement benefits at age 28.  You won’t hear about the officer who serves 12 years after college and separates from the military at age 35 with nothing in terms of retirement planning.

The fact is, military members continue to work when they leave the service.  The pension system, while an attractive payment of deferred salary, does not allow the vast majority of military retirees a life of leisure.  It is a supplement to a second career.

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There is a tendency by elected leaders and others to try to compare military service to any other job.  I’ve heard a congressman say, “if someone is 42 years old, they can still work,” as an argument in favor of cutting military pensions.  True, a 42-year-old can still work.  But you will have precious few 42-year-old military members on active duty congressman, because they will not commit to a military career if they are not compensated for their service.

As a military we desperately need the 28 – 40 year old service members.  This is the heart and soul of the organization, and they are underpaid.  The pension system, while not perfect, represents an acknowledgement that 20 years of military service at a low salary is not an attractive option for young Americans.  It isn’t an entitlement; it isn’t a handout.

Military pensions are simply deferred payment of salary for a job well-done.

-cj cheetham

Copyright © 2013 cjcheetham