Alaska Pays Us: What is the PFD?

You’ve heard rumors. “Alaska will pay you just to live there.” Maybe you’ve seen references to this. Well, I’m here to tell you, as an Alaskan, that it’s true. In Alaska, a PFD does not mean a life jacket (those we mainly just call “life jackets”). The PFD is the “Permanent Fund Dividend.” The Alaska Permanent Fund is an investment fund the state of Alaska voted to create in 1976 as the oil pipeline was just finishing up. The constitutional amendment created states: “At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments.” Basically, the state of Alaska saw that with the oil pipeline about to open, oil would become a big deal financially to the state for awhile. So, they set up a fund in which they put 25% of all profits. And every year, the interest produced from the fund is divvied up between all investors: every Alaskan man, woman, and child.

The calculation is based on a five-year average and an elaborate formula. In September, the dividend amount is announced by the governor (who ceremoniously opens the envelope like an awards show). So how much money are we talking? In 2012, it was $878, in 2013 it was $900 and last year it was $1884 (because it’s based on a 5 year average, the Great Recession of 2009 dropped off in 2014 so we’re on the up and up!). This dividend is a per person amount that is given to all eligible Alaskans. You have to live in Alaska for the entire calendar year prior to this event or be born in the state during that year. There are also rules as to how many days you are allowed to be out of the state per year and ties you maintain with other states. And you have to apply (which takes five minutes per person online). In October, there is a day referred to as “PFD day.” It’s an unofficial holiday around here. Imagine if there was one single day in which the entire United States received a direct deposited tax refund. It’s nuts. It’s a much larger shopping day than Black Friday. Businesses have special PFD sales and stores are crowded.

I always say that the PFD makes for a very interesting economic experiment. What if the government tried to actually spend the principle of the fund? Every single Alaska citizen has equal financial ties to that fund. If the principle goes down, the dividend goes down. Can you imagine the riots?

It’s fitting that it’s called a PFD because for many Alaskans, this could be a financial Personal Flotation Device. It is guaranteed money that isn’t part of the usual income. Unfortunately, for a lot of people, just like a tax refund, this money is used as “fun money.” Many are angry when they have to use their PFDs on lame things like necessary car repairs or to pay bills. For us, the PFD is a huge part of our plan to reach early retirement. As there are five of us in our family, we now receive five PFDs every October. I maintain a spreadsheet of PFD amounts my children have received and when they begin working in their teenage years, I plan to funnel those amounts into Roth IRAs for them. But for now, we use the full five PFDs towards paying off our mortgage and upping our investments. Yes, our children will miss out on some interest on their PFDs. We’ll call that a “parent tax.” 🙂 The PFD is certainly one of the many benefits of living in Alaska. Move on up, the water is warm (well, actually, it’s glacial…).

Just some glacial ice floating around below the glacier.

Just some glacial ice floating around below the glacier.

PFD

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13 Comments

  1. Wow. Free money just for living in a state?

    I talked it over with Mrs. RootofGood and she’s not willing to make a move. I guess it is a long way away from home here in North Carolina… 🙂 And she hates the cold.

    But with 5 of us in the family, that would be a sweet paycheck once a year. However I bet the higher COL would offset most of the PFD. :/

    • MaggieBanks

      We also don’t have income or sales tax. And this year’s PFD amount was just announced: $2072 – so we’re getting $10,000. It’s not too shabby!

    • MaggieBanks

      Might I also add, it’s a pleasure to see you in my corner of the internet, Justin. I’ve been a big fan for a long time.

  2. I had heard of this before and have actually perused around the PFD’s website…very intriguing stuff. We plan to visit Alaska in the next couple years and have even discussed the possibility of moving there permanently at some point. The PFD certainly makes the idea even more appealing, in addition to the gorgeous scenery, of course!

    Totally unrelated, but I’m really curious how you implemented the trackers for your investments and mortgage payoff along the right-hand side of your screen. Those are an awesome way to constantly keep the numbers in front of you…I like it!

    This is my first comment on your site and, as a new follower, I really look forward to reading more about life in Alaska. Have an awesome day!

    • MaggieBanks

      They’re just progress bar widgets in wordpress. And I wouldn’t get too gung-ho about moving up here right now. With the price of oil dropping out, things look really bad for Alaska right now. They’re talking about capping the PFD at $1000 and have it based on oil revenue instead of its current calculation based on investments. Others are talking about just using it all up or getting rid of it altogether. Should be an interesting few years up here. 🙂

      • While we aren’t basing our idea of moving there on that, that sounds terrible for so many Alaskans who I have no doubt heavily depend on it! According to afpc.org, the current value of the fund is $49.5 BILLION, and it appears to be heavily diversified across a wide range of investments…so that makes zero sense to me that they would consider doing such a thing. It’s not as if the fund is solely dependent on the price of oil; without combing through the financial statements, I would think that stock-investment dividends alone would provide for a nice padding of the portfolio value.

        I also must say that using it all up sounds like a horribly selfish idea. Besides, what would be done with that amount of money? Assuming every Alaskan qualifies for the dividend (approximately 737,000 people according to Google,) that would be a check for roughly $67,000 per citizen. That would make people happy for a about a day, until it’s gone and they realize that no more checks will ever arrive in the mail again.

        Capping the dividend seems reasonable to ensure that the principle investment isn’t diminished; but otherwise wiping out $49.5 billion dollars seems like a disservice to the generations of Alaskans to come.

        I really hope things continue going well for you and your family. It’s a pleasure speaking with you and I really look forward to following along with your family’s progress and hearing about life in Alaska!

        • MaggieBanks

          There is a huge deficit in the state budget because of the lack of oil revenue. Even if they fired all of the state employees, there will still be a huge gap in the budget. So, they’ll probably have to tap the PFD to cover that. They’re also talking about an income tax, which we currently don’t have… but it is still a great place and the salmon we eat weekly is a treat! 🙂

          • Okay now I understand how the oil ties in. That would likely drain the PFD in no time and then what are they going to do? That would be a huge hit to Alaskans for a short-term fix in order to stop the bleeding.

            Like our current state of South Dakota, the lack of a state income tax is one thing that draws me to Alaska so I hope that doesn’t happen either. Like you said in your prior comment, sounds like it’s gonna be an interesting next few years for you guys up there.

            While I’ve never been a big fish eater, I mainly blame that on my lack of experience cooking it. I would definitely be up for trying out some fresh Alaskan salmon though!

          • MaggieBanks

            It’s delicious! 🙂

  3. Britt

    This is such a unique experience – in many ways! It’s like if all America got their tax refund on the same day, and stores had Black Friday-ish sales to celebrate. I shudder to imagine the lines 😉

    A $10k boost! From the numbers you’ve shared, that is a 10+ % bump to your income each year – WOW!

  4. If only California and HAwaii did the same thing! Unfortunately, we pay a 10% “sun tax” to live here!

    I’ve proposed to our Treasurer and Mayor to have our taxes cut to 0% when the temperature gets below 60F. Only fair!

    Sam

    • MaggieBanks

      Well, they’ve capped it this year… so it’s not as great as it was, but still a definite perk!

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