Obama Wants Federal Pay Freeze

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President Obama is calling for a two year federal employee pay freeze, which is estimated to save the country 60 billion dollars over the next decade.  60 billion dollars is not going to save the US from our future debt problems, but what is significant here is the precedent that is being set.

Austerity is a word that has gained traction in many of the European nations who have made the fiscal decisions necessary to stabilize their countries finances.  In contrast, the US has been stuck in political bickering and demagoguery, each party eager to appease it’s constituents.  No matter what path is taken, hard decisions need to be made.

By calling for this pay freeze, Obama is signaling his willingness to cut spending.  Unlike other countries, where the government has the power to enact unpopular legislation, the US system is designed for gridlock.  Passing any new measure requires the house, the senate, and the president to agree, and with such a bitterly divided two party system, this is no easy task.

There are few places I can think of that would be better suited for this baby-step of fiscal policy.  Federal workers in the US enjoy good pay, great benefits, and almost no job accountability.  Most government workers cannot be fired for anything short of treason, and many can retire with quarter benefits in 20 years, half benefits in 25 years, and full benefits in 30 years.  Beginning your career at the age of 24, by 54 you can retire with full lifetime benefits.  This is unheard of in the private sector.  Many employees take their pension and then get jobs as consultants, collecting both their government benefits and a full-time paycheck.  A wage freeze is the first step in bringing their compensation into line with industry averages.

The real victory here is not financial but psychological.  Obama is telling the US, “I need to make some tough choices, but I’m doing them for the good of this country.”  Hopefully this time my fellow Americans will listen.

Photo Credit: Darren Hunter

I'm a dividend growth investor who is aiming to retire early in 5 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!


  1. Regarding federal retirement, at 30 years federal are entitled to 58 % of their salary, with no social security payments, not 100% as your article implies. Before you write articles please get your facts correct.

    • Ron,
      I’m sorry that I did not publish my sources in the article. According to the “Federal Employee Retirement System Benefit Overview” that can be found at this link http://www.opm.gov/forms/pdfimage/RI90-1.pdf, federal employees are allowed retirement benefits from their basic benefit plan after 30 years of service, as long as the reach the minimum retirement age, which is 57 for someone born in 1970 or later.

      The plan also states that “special employees” receive unreduced benefits at age 50 with 20 years of service, or after 25 years of service regardless of age. Special employees include firefighters, police men, and air traffic controllers.

      Also, according to this study (http://www.heritage.org/research/reports/2010/07/inflated-federal-pay-how-americans-are-overtaxed-to-overpay-the-civil-service) published by The Heritage Foundation in July of 2010, “Employees in the defined-benefit pension with 30 years of experience may retire at the age of 56 with a full pension.” The study goes on to say “Unlike Social Security, federal employees may collect their pensions while working in a non-federal job. This allows federal employees to retire in their late 50s and take a job in the private sector while collecting pension benefits from the government.”

      If these studies are mistaken then I do apologize. Otherwise I would love to see where you get your figures from so I can compare.