Reserve Retirement Reform

More intensive use of the reserve components in national defense in recent years has resulted in greater attention being paid to the adequacy and efficiency of the reserve compensation system. Four bills are pending in Congress to reduce the age when reservists can begin to receive retirement benefits. One would allow reservists to begin receiving retirement pay immediately upon completing 20 years of creditable service, with the last six years as a member of a reserve component. Two related proposals would lower the retirement annuity age to 55. Another would set the retirement age on a sliding scale that depended on years of service (YOS); those with more YOS can retire earlier, as early as age 54. This report provides input regarding these proposals and the broader issues surrounding reserve retirement reform. The authors found that the per-capita cost of the current retirement system is dramatically less than the per-capita cost under the immediate annuity and age-55 proposals. The per-capita cost of the sliding-age alternative is the least expensive of the three alternatives, reflecting the low prevalence of new retirees below age 60 with sufficient YOS to qualify for retirement at ages below 60. Although it is important to recognize that deferring some portion of compensation can be cost-effective, the results argue in favor of providing compensation on a current basis rather than on a deferred basis.