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.