Military retirement: alternate final pay and cost of living indexing
Trager, Joseph R.
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This paper analyzes military retirement reform; comparing the current retirement plan, HI-3 adjusted annually by CPI-W, to proposals that change base retirement pay and/or COLA indexing. The proposed changes to base retirement pay are a HI-4 or HI-5 plan and changes to COLA indexing are to use Chained CPI or CPI minus 1 percent. The plans were modeled to estimate the present value from the perspective of the government and retiree. By implementing HI-4 or HI-5 Chained CPI the government can save an estimated $0.3 to $1.7 billion per retiree cohort, respectively, and would result in an average loss to the present value to the retiree of $5,000 to $88,000. The government is indifferent if either Chained CPI or CPI minus 1 percent plan is implemented as either plan offers equal savings. The method used to adjust COLA effects officers and enlisted differently with officers preferring CPI minus 1 percent and Chained CPI preferred by enlisted retirees. However, Chained CPI has a lower loss of present value to the individual than CPI minus 1 percent when averaged over a retiree cohort.
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