This report discusses military retirement. Concerned about its ability to retain personnel, the Department of Defense (DOD) has proposed pay and retirement changes in its fiscal year 2000 budget. The pay proposal includes a 4.4 percent, across-the-board raise and pay table reform that will target increases to noncommissioned officers and mid-grade commissioned officers. The retirement change proposed by DOD is essentially a partial repeal of the 1986 Military Retirement Reform Act, which is commonly called "Redux." After providing background on the differences among the various military retirement systems and how those differences came into being, it will address (1) changes being proposed by DOD; (2) areas where we believe more information is needed; and (3) the opportunity to take a long-term, strategic view of the military compensation system. But first, it will summarize our observations regarding DOD's proposed changes to the military retirement system. Overall, we see no clear indication that the proposed change to the retirement system, which would cost an estimated $13 billion in increased costs and unfunded liabilities, will address the retention issue. While the recently reported downturn in retention rates is of concern, the nature of the retention problem is not clear. Is the problem widespread or is it concentrated in certain military occupations or year groups? Is it a transitory problem attributable to such factors as reduced accessions during the drawdown and the strong economy, or is it the beginning of a long-term problem that will affect the military for the foreseeable future? Understanding the nature of the retention problem is critical in choosing solutions-pockets of problems are best treated with targeted rather than across-the-board solutions, and transitory problems are best treated with actions that can be reversed or eliminated once the problem has receded.