Optimal Army Officer Retirement

20 Pages Posted: 4 Jun 2014

See all articles by Andrew O. Hall

Andrew O. Hall

Department of Mathematical Sciences, USMA

Michael Fu

University of Maryland - College Park

Date Written: April 1, 2014

Abstract

We model an optimal stopping problem describing the decision of an individual officer to retire from the Army. Our model incorporates the High Three retirement system and current compensation. We solve the resulting Markov decision process model by dynamic programming and investigate model sensitivities. Previous results from similar models suggested that the due course officer would reach an optimal retirement state at 23 years if passed over for promotion to Colonel, and at 26 years if selected for promotion. Our results suggest that the change in compensation structures and the retirement system have shifted the first optimal retirement state for most officers to be as soon as vested in retirement benefits, currently at 20 years. We explore manpower planning and policy implications of shifting retirement behavior and sensitivity of our model to altering model assumptions.

Keywords: Markov Decision Processes, Dynamic Programming

JEL Classification: C44, C61, J26

Suggested Citation

Hall, Andrew O. and Fu, Michael, Optimal Army Officer Retirement (April 1, 2014). Robert H. Smith School Research Paper No. RHS 2445111. Available at SSRN: https://ssrn.com/abstract=2445111 or http://dx.doi.org/10.2139/ssrn.2445111

Andrew O. Hall (Contact Author)

Department of Mathematical Sciences, USMA ( email )

600 Thayer Rd
West Point, NY 10996
United States

Michael Fu

University of Maryland - College Park ( email )

College Park, MD 20742
United States

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