I am retired military. There is probably a good way to accomplish this without harm. Privatizing military pensions might be a good way and might also provide more than the traditional does now. Even a modest gain over 20 years could give the retiree more in pocket.
Perhaps a lump sum is invested the first day of boot camp. That money vests fully over 20 years. If a person stays beyond 20 then more is added to the pot. Let the enlistee choose the investment mix. I bet it could probably be done with as little as 100 thousand at enlistment.
You might have a good idea, but they need to grandfather current active duty people.
“I bet it could probably be done with as little as 100 thousand at enlistment.”
At historical rates of return in the stock market, say 7% real rate of return, $100K would become nearly $400K in today’s dollars ($387K) by the time 20 years was done. Assuming an enlistment age of 18, a 48-year old could buy a lifetime annuity of $1885 monthly with no inflation protection or $1623 monthly with a 3% inflation rider.
I have no idea how these figures compare to the standard annuities given to military retirees, but if they waited until age 65 to collect it, it would grow to $1.2 million in today’s dollars. That amount could generate an annuity of $6,600 monthly without an inflation rider or $5,251 with a 3% rider. Again, I don’t know what the norm is, but these strike me as reasonably generous guaranteed retirement income amounts—especially if they also qualify for a Social Security benefit (do they? Sorry, I have no idea).
Anyway, your proposed amount could be adjusted as needed so that the results better matched whatever retirees now can count on from the system. What I like about pre-funding in the fashion proposed is that we could allow those who leave before 20 years to obtain a pro rata share of the amount vested. For example, if they retire after 10 years, they’d be entitled to half of the $100K plus whatever earnings had been generated to date. So even if the back end benefit were not quite as generous as it is today, I would assume this restructuring might be attractive since I believe military can’t collect their retirement until/unless they’ve served 20 years.
A long time ago, it was possible to have part of your military pay withheld by the Treasury, and kept at interest until discharge. Possibly it’s time to revive this?