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…).