Be Prepared to Pay More Up Front If Changes Come to Military Retirement

This article about military retirements hits on one of the main reasons for the current system that I have highlighted in the past, military retirement is basically receiving the second half of your pay in the military:

To an outsider, military pensions sound ridiculous; you can put in 20 years starting in your late teens or early 20s and “retire” at the time when most people are hitting their peak earning years. Obviously, that’s a very expensive benefit for the government to provide. Should we ratchet up the retirement age? Some economists think we should.

People supporting the status quo will probably argue that the military is more physically demanding than most jobs, and therefore you have to expect people to retire earlier. But the pension is available to everyone in the military, not just infantrymen. Moreover, it is disproportionately used by officers, not enlisted men, and by the time they have 20 years in, officers are spending a lot less time hauling heavy things and running around in the mud.

But there’s another problem with rejiggering the Army’s pension schedule, and that’s the way it interacts with the “up or out” system that the military uses for officers’ careers. Basically, officers who don’t get selected for promotion get fired.

The military is not the only institution that uses this method. It’s also popular with consultancies, law firms and investment banks. That system is archaic and barbaric, and whatever it gains you in reduced payroll costs, it loses you in accumulated human capital, and it also earns you a backstabbing corporate culture.

Of course, no one asked me, and I expect that those sorts of firms will continue to use up-or-out pyramids for the foreseeable future. But what do all these firms have in common with each other, and not with the military?

They pay really well. The senior people who survived the tournament get paid even better, of course. But even the entry-level jobs pay better than most of the alternatives.

The opposite is true in the military. It pays badly in the beginning and it pays badly at the end, relative to what those folks could have been making if they’d been steadily moving up through the ranks in a normal industry.  [Bloomberg]

You can read more at the link, but the article goes on to discuss other issues such as constant moves and spouses being unable to start careers which is very different from civilian counterparts.  The article than says that if the government wants to do away with the defined benefit pension than it needs to be prepared to pay more up front or watch the quality of military careerists decline.