29 years old military officer with decisions to make.

[exos]

Good morning all.

I am a married 29 year old male who has some big decisions coming up that will largely affect my ability to achieve financial independence.
Quick numbers background:

Me: 29
Wife: 26
No kids.
Total combined after tax take home: $106,000.
Roth IRA: $41,000
TSP 401(k): $16,500
Taxable Brokerage: $16,500
All investments are 100% invested in index funds.

We own our home $280,000 valuation, $270,00 owed on 30 yr at 3.15%.
We own both our vehicles 100%.

Other than our house we do not have any credit or loans.

We are now currently maxing out our Roth IRA, 401(k), and saving $18,000 a year in our taxable brokerage account. That also leaves about a $1,500-$2,000 a month saved as cash.

Our yearly expenses including spending typically works to around $55,200.

I am looking to retire early... preferably as early as 50. For a location... we are undecided but we like the idea of world travel prior to settling down somewhere. Additionally... I have always used a number of $100,000/yr retirement income in today's dollars as a planning number. We are not opposed to spending time somewhere like Belize in order to avoid taxes....

Question time. Due to my job in the military, I reenlist in 10 year blocks. I am coming up to the end of my first 10 year block and now debating on whether or not to decide to make another 10 year commitment which will afford me a pension when I am 43. Or... would it be better for me to leave the military, take what would likely be a 150% raise in pay and then adjust my retirement date accordingly.

Additionally... in order to support my early retirement, I am basically planning two retirement savings... a traditional one and then another that will hold me over until I can access my retirement funds without penalty. One idea was instead of holding my $18,000+ a year in a taxable brokerage, I would instead use the money to purchase an investment/rental property with the goal of paying off the investment as to allow the rental income to supplement my non-traditional early retirement prior to withdrawing funds penalty free. Yes... it is a bit riskier, however... only using inflation as the growth on the property and 3% increase in rent a year would provide a significantly better return than an index fund investment over the same period of time.

Anyways... this is where my current state of mind is. Thank you for any guidance you can provide. The FIRE calc is a bit different that I am used to in retirement calculators so I am still trying to figure it out. If anyone has a user guide they could point me to, it would be much appreciated.

Thanks!

Ryan

 

[eta2020]

I would stay if I was officer O1...O6, but not as NCO E5...E9.

I will not go and elaborate why.

 

[exos]

I would retire as an O-4 through O-6 depending. With that... my pension would be between $66,600-$120,000 with COLA depending on the rank I would finish with.

 

[DFA]

Thank you for your service, one thing I have learned is a military (COLA'd) pension if great and since most companies I have worked at don't offer one that only makes it better.

World traveling is great I did a lot of it on Uncle's dime which provided me with a list of place I want to go back to as a tourist and some I don't need to see again.

A couple of things on expenses that you may need to add to your spending are healthcare if you get out of the service now; the military health benefits saves a lot of money in the long run with TriCare and the VA. Taxes, going to Belize will not help avoid taxes since you are taxed by the IRS even if you don't live here, that is one thing I have found out since planning to move to Ireland when DW retires next year, we would still pay taxes on military retirement pension and SS. Capital gains on investments taxes would be paid to Ireland. Unless you renounce your US citizenship the IRS will want it cut of any income you earn and even then there is a tax at the time of your renouncing.

The rest of your questions will be answered by others more informed on the subject and welcome the forum there are a lot of great people here that have a wide knowledge base.

 

[eta2020]

I would retire as an O-4 through O-6 depending. With that... my pension would be between $66,600-$120,000 with COLA depending on the rank I would finish with.

I would stay because NOBODY will even sell you COLA annuity at AGE 43.
Such pension at such young age has huge value.

It is very different to buy such annuity at age 75

 

[davismills]

You're on the right path. I speak with experience as a retired O4. 21 years of service followed by 12 years with MegaDefense Corp. Keeping saving saving saving.

 

[Senator]

You have already worked 10 years there. If another 10 is not bad, consider what the extra 10 years is worth.

COLA Pension at 43, as others have stated, it is worth a lot. Factor in a NPV and divide by 10. That is what you are actually making.

Healthcare the rest of your life. And a pretty good plan. That is worth a lot too.

 

[aaronc879]

Lets say you finish your 20 and get a pension of $75,000/yr COLA'd which is at the bottom end of you estimate. That's approx 40 years of a very solid income for only working 20 years. I would not even consider quitting now when you're already half way there. That's $3,000,000 of guaranteed income not counting the COLA. You should never have to work again when you start getting your pension. That doesn't mean you shouldn't work, it just means you can do what you enjoy without worrying about the money.

 

[RetireBy90]

Being a retired CW3 and DW retired SFC/E7, I love the retired COLA checks every month. Not the $75-100K mentioned, but any one who can get protected pension loves it. We asked the same question at 9 yrs service. It is worth much discussion and thought. However, we have never looked back.

You also need to think about what you want, many many things are more important than money. If you can both be happy with the life, drive on. I haven't found the same purpose driven work since we retired. If DW is not happy, well....

I like rentals, in good areas. We have owned in 3 different areas, it can make all the difference. You will need to find good management to collect rent and make repairs, and also visit every year or two. Rentals will give you some diversification.

If after contemplation, and soul searching both of you, you are good with the plan, then I would say drive on, you seem to have a good plan that will get you where you want. One worry is continue to live below your means like you are now. That creep of spending can be a bear.

Best of luck with your journey and thanks for your service!!!

 

[exos]

Thanks for the advice. I will need to digest it a bit more, however I wanted to clarify something. The pension range I provided of $66,600-$120,000 was in 2028 dollars, the year I would exit the service. In today's dollars the range would be $41,100-$61,400.

 

[aaronc879]

Thanks for the advice. I will need to digest it a bit more, however I wanted to clarify something. The pension range I provided of $66,600-$120,000 was in 2028 dollars, the year I would exit the service. In today's dollars the range would be $41,100-$61,400.

I thought that seemed a bit high but it's still a large pension that shouldn't be underrated or under-appreciated. It reduces the amount of money you need to save by about $2,000,000.

 

[Greg V]

The Military Retirement benefits package is hard to beat. The pension, COLA'd with the option of a 55% Survivors Benefit, and TRICARE coverage to plug the healthcare gap between retirement and Medicare would provide you and your spouse excellent foundation for early retirement or another career. You are wise in planning to maximize all your tax advantaged retirement investment opportunities as well.

 

[ExFlyBoy5]

10 years is a long time, but it can certainly go by quite fast. The one thing I would worry about is the large cuts that have been happening...lots of good people are being let go and that can put a hamper on the best laid plan of guaranteed pension!

Sent from my mobile device so please excuse grammatical errors.

 

[jimnjana]

If you enjoy what you are doing, I would stay in. Never heard of an officer re-enlisting. Public Health Svcs? 10 yrs go by fast, basically a couple more PCS moves til your final assignment. If you decide to leave active duty, you are definitely at the point where going into the Reserves makes much economic sense.

 

[kitesurfer2]

all the millions of dollars in the world will not replace the smile on your face that a child will bring...you're 29...stop having sex or you will know what I'm talking about

 

[NanoSour]

Hello Exos and welcome to the community. First, I'm a little confused about how you only have 10 years left, but have to wait till you are 43 to begin getting the 20 year pension. I'm a retired O4 and my pension started as soon as I left service. Also, 29 is a bit young to have been an officer for 10 years.

At 29, you have a lot of life's twists and turns ahead of you; most of which you won't see coming. The big one is children. This would change your financial situation very quickly if 2 or 3 children enter the picture. I speak from experience as I still have 3 in the house with college bills pending.

As for the question to stay in or not, I can unequivocally state that staying for 20 was one the best decision I've ever made. I had the opportunity to jump at 17 years for a pretty lucrative civilian gig and fortunately my DF talked me out of it.

In your situation, you're going to have to save hard for the next 20 years if you want to leave the workforce with 100K/year spending money. I'll go with the worst case of an O4 retirement. That would provide you a military pension of roughly 41K/year, leaving 59K to come from investments. Even at a risky 5% withdrawal rate, you're looking at needing a 1.2M portfolio to survive before SS kicks in. Doable, but you'll have to continue to live WBYM for the next 20 years.

Bottom line I guess is that staying in the military is a very good deal given the current pension benefits. Without knowing what career you would be entering on the outside, it's hard to compare the two options. Good luck with your decision.

Nano

 

[38Chevy454]

I work with many AF officers, some still active duty and some retired. STAY until you reach the 20 years, you will never have as good or generous retirement benefits as you currently do. Think total compensation package, not just base salary. I understand some military rules and assignments are not always great, and moving every few years can get old. But use the military PCS to check out new living areas, keep up the promotions to become O-4 to O-6 upon retirement. At 43, you can still work for some years to cover expenses, while banking your pension which starts at 43. You will be great shape financially. Kids may slow down your current savings rate, but stay in military to get the pension and other retirement benefits.

The other problem is leaving part way through you get nothing, it is 20 year and great retirement, less than 20 and no retirement. So use your current time and add to get that total to 20. Of course if they offer some early-out package, consider it carefully.

 

[exos]

I am a pilot and I do not actually have 10 years left... I have 13-ish. However, due to the way certain career paths work, I will need to make the decision shortly as I put packages in to certain follow on orders. If accepted, I basically make the decision to stay in now.

And to Jimnjana... doesn't matter whether you're an officer or enlisted the general term reenlist applies for both. It's just the decision to extend your stay with the military.

 

[ggbutcher]

+1 on staying till 20. I'm a 20yr/coupla-hr retiree, plenty of time for a 2nd career w/another pension and aggressive savings. Health care is a big factor in ER flexibility, most of my civilian peers have to work to 65 for Medicare or pay through the nose, even with ACA.

 

[Greg V]

Reenlisting for the enlisted force is a commitment in writing to serve for a specific period of years and is not tied to a new assignment. In your case, an Active Duty Service Commitment to the AF only occurs as a result of PCS moves or formal training that incurs that "debt" of time in service. Whether you get an ADSC depends on your assignments and formal training schools. Once any ADSC is completed, you can separate from the AF prior to retirement.

I bring this up for a reason. I encourage you not to look at this decision as setting you on an irrevocable 13 year path in the AF until you retire. It doesn't. You don't know what non-AF career opportunities may arise for you or your spouse. There may be family issues that are exacerbated by many moves and/or multiple deployments. You may find a location that you'd really regret leaving. Conversely, you may decide that more than 20 years is the right choice. Continually reevaluate your options as you progress through your career to be sure you're doing what is personally and fiscally best for you and your family.

An all active duty career is not the only route. There are many people who finished careers and got the military retirement benefits package as Guardsmen and/or Reservists, either full-time or part-time in conjunction with a civilian career. In fact, if you decide to leave the active duty AF now, serving in the Guard or Reserve allows you to use the time you've already invested in your military career and gives you a backup plan in case your civilian career has some bumps along the way. IMO, it's worth your consideration as you do your analysis.

Best of luck on your decision

 

[NanoSour]

If you're a pilot, I would stay in for the 20 years. As I'm sure you know, the pilot career field is quite unstable on the outside. Unfortunately, the golden days of aviation are long gone for both passenger and crew. I for one don't expect them to return. But that's a different subject.

If you stay till 43, you'll still have time to start a second aviation career should you decide to go that route. But it won't be easy.

 

[JDARNELL]

Retired in 2011 with over 21 yrs as an 0-5. 4 yrs were enlisted. Looking back had I had a bad boss around the 10 yr point I might have bailed. But with a good boss an assignment I liked the next time I looked up I had 12 yrs. At about the 16 yr point the assignment gurus came knocking. I remember thinking would I want my bosses job? Of course that is exactly what I got and hated it but you do what you have to do. Family separations, deployments, etc added to the mix.

And coming out at after 21 yrs I walked into a high paying bridge career which will be ending soon. 3 yrs is enough. I was FI before I left AD and just wanted to see the other side. Been there done that. Multiple income streams and FI makes my BS meter set pretty low.

As a flyer your carer path is going to be pretty set with meeting your gates, etc. Is it something you want to continue? Would you want your bosses job? What about that flying bonus? You adding it to your TSP? I had tenants last year who the wife stayed home with the kids and the husband was on a remote. Upon his return 2 50K vehicles were purchased. I am guessing FI is not in their future. They felt the cars were owed to them since there was a year of family separation.

I say stay until you have had enough and then think about other options ie reserves, etc. Family does change things and being in the check of the month club is nice. But make no doubt about it as its not free. The military is very demanding on an individual so go into it eyes wide open. I dont keep u with what is occurring now and have no interest. Military helped me sharpen my skills however that chapter of my life is closed.

JDARNELL

 

[THINKER]

My DH and I had this discussion at the outside bar at the Hale Koa when we were 29 and his initial training commitment was coming to a close. Airlines were going crazy hiring at the time. Folks thought we were nuts, but we decided to stay. We have never regretted the decision. We are now enjoying a lifetime of benefits...pension, medical care, VA comp, tax breaks, discounts, free prescriptions! Plus access to all base amenities and services for life. Stay in!

 

[nash031]

I thought that seemed a bit high but it's still a large pension that shouldn't be underrated or under-appreciated. It reduces the amount of money you need to save by about $2,000,000.

When I did the math last year for an equivalent O5 pension after 20 years (starting at roughly $55,000 in 2020), I came out with $2.2M additional savings (either via principal or accrued interest/gains) to close the pension gap. Now at 15, obviously I'm staying, but I gave consideration earlier. The pension makes retirement at 42 a possibility. Without it, I'd be hard-pressed to retire by 50. Could be that the pension just makes our living standard much higher (if we continue to work), or it could be that we get out a lot earlier. Either way, it's tough to turn down once you're on the downhill side.

 

[nash031]

And coming out at after 21 yrs I walked into a high paying bridge career which will be ending soon. 3 yrs is enough. I was FI before I left AD and just wanted to see the other side. Been there done that. Multiple income streams and FI makes my BS meter set pretty low.

Thanks for sharing this. I'm surprised by the number of retired military officers who work for long durations after military retirement, though I'm not sure how many are due to need and how many are due to enjoying what they're doing. It's good to read about someone who was FI before leaving AD (including the pension) and how they handled it. I can see a very similar situation on the horizon for me... hopefully we hit our "number" before I punch. It would open up a world of options for us.