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Active-duty military looking for information
Old 02-15-2008, 11:28 PM   #1
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Active-duty military looking for information

I am a Lt Col in the Air Force with approx 14 years active duty. I took the pilot bonus ($25K/year) up through 20 years of service. My commitment runs out in 2014. I do not think I will make Col. I have four kids (13, 11, 9, 5). I have maxed out the TSP and a ROTH IRA for my wife and I for the last five years. I have about $200K saved up. Unfortunately I bought a $240K house in 2005 and will struggle to sell it next year without losing my shirt.

I need some good advice on whether to stay in past twenty to increase the pension and provide money for the kids college. I will be 46 in 2014. It will be tempting to stay in a few more years because starting a new career at that age makes me tired just thinking about it. I want to retire early enough to play around a little while. I would also like to hear about whether other retirees took the SBP or not.

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Old 02-16-2008, 11:22 AM   #2
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Welcome to the board. AF 0-4 18yrs including enlisted time. Can ACP go into TSP?

Staying past 20 is an interesting proposition depending on what your other options are, your long term plan to work or not, if there is any incentive with another promotion, you have your bills taken care of, enjoy what you are doing, what the AF is doing to you, etc. I think the closer you get to 20 the less influence you have over your career. Assignment teams know this and I think they use it to their advantage. So I think the decision to stay x amount of time is situational dependent at that time. I know the closer I get I keep thinking maybe a little longer.

I am waiting for board results to be released this month and that might be the catalyst for me to stay past 20 to get the 0-5 pay averaged in under the high-3 retirement and average out those 0-4 months. But I have really planned and structured everything around my current rank in order to retire early. I have a pretty good spreadsheet built that shows the value of staying longer. If you want a copy send me a PM and I will get it to you and you can modify to fit your situation.

I see your comments about your house. What can you do? You have to have a place to live or you live on base and give up the housing allowance. We have always owned and never lived on base. This has allowed us to build up equity through some appreciation but mostly paying down the mortgage so when retirement time comes we will be better off than starting from scratch.

SBP- I am planning on taking it as I want to make sure CINC house is taken care of in the event I expire early. If she had a 20 yr military pension I would reconsider. I have a buddy that thinks he wants to buy life insurance instead. I think with the recent changes in SBP there is no comparable product for the money.

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Old 02-16-2008, 08:15 PM   #3
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Lt Col at 14? Wow, that's early - you don't think you'll make O-6? Hmmm.
So the $25 K bonus is per year for ten years (if I remember) and is for pilots. That's an extra $250K over your career. You've got 7 more years until you retire and you've maxed out the TSP for five years for both you and your wife - that's phenomenal.

Kid's college - I'm of the mind that helping is good, doing for them is not. The least expensive way is to use a community college for two years and then transfer to state school - could also look for scholarships, military and non-military - could also compete for military academies. If they are good in school, the state they are in may want to keep them and give them a tuition wavier (I had that in AZ along with the ROTC scholarship).

Does your wife work outside of home? If she worked for a university, your children would qualify for cheaper college/university expenses as well.

To stay or not to stay - as above, I'm surprised you don't think you will make O-6. However, it depends on you and your family - as a pilot, you will be flying and deploying....and PCSing. As a Lt Col with 20, you will get a nice retirement and if you can augment your savings with after tax savings, you could try and live on the after tax and your retired pay, and then when 59.5 and 62-67 come along you add 'pots' of money to draw from - your after tax is the initial 'pot' to be replaced with the others (tax deferred and SSN) as you age.

Other ideas - 529's for your kids as well as they contribute their working money. Perhaps enlisting and then getting tuition assistance - I was handed a HUGE book on tuition assistance, GI Bill and enlistment-re-enlistment bonuses for even my Reserve airman.

Tomcat is in a similar situation as you and probably has a great spreadsheet.

My husband is prior enlisted and has 22 years - he wants to go for 30, I don't want him to go past 26 :-) The way it's looking, I'm probably the one that will be in longer as a Reservist.....
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Old 02-17-2008, 09:45 AM   #4
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Welcome to the board, Dream. You're getting good advice from people who've been dealing with just these questions.

Quote:
Originally Posted by USAFDream View Post
I do not think I will make Col.
Well, you've read your OERs more than we have, but it's nice to see a poster with a realistic assessment of the "worst case" who's not depending on the higher rank. But TomCat's right-- as you hit 15-16 years the assignment officer is going to assume that you'll do anything to stay to 20. You will be expected to accept whatever comes your way. With four kids and a bonus obligation it looks like that's exactly what's going to happen.

Quote:
Originally Posted by USAFDream View Post
I have about $200K saved up. Unfortunately I bought a $240K house in 2005 and will struggle to sell it next year without losing my shirt.
Can't help much here. When we PCS'd into a down market we elected to keep our home and rent it out to reduce the hemhorrage-- but it still hurt. I know a lot of Navy aviators who kept their O-1 Florida homes for over 20 years in the expectation that they'd be back, but their situations & family changed so much that they never returned.

If you think there's a ghost of a chance that you'll return to the neighborhood then I'd keep the place and hope that a property manager doesn't bleed you too badly. If you're never coming back then I'd get the best help you could find with selling-- staging, marketing, taking back paper, whatever incentives you can find to get out with the least delay. Spending $10K up front for a fast below-market offer is way better than $20K of mortgage payments over the next 16 months.

As for the TSP and the IRA, keep maxing out the low-cost investments and letting them compound for as long as you can. If you decide to put money into college savings, then with four kids you're pretty assured that you're going to use a 529 for at least one of them. Just make sure you get the lowest-cost 529 you can find, unless your domicile state gives you a huge tax deduction. It'd be great if you could put those bonus checks into the TSP or the 529.

Quote:
Originally Posted by USAFDream View Post
I need some good advice on whether to stay in past twenty to increase the pension and provide money for the kids college.
Have you run your portfolio and your expenses through FIRECalc? In addition to the pension (what's left after SBP) you also have Social Security (use the advanced calculator and the military wage credits to come up with a good number). You may find that you only need your savings to last until age 62 (minimal SS) or even 70 (max SS). Both your pension and SS will be raised by a COLA. TRICARE will be the best deal in town for your family.

As for college, how much do you want to spend? This board is pretty mixed on that. One feeling is that kids are more motivated with their own skin in the game, but that having to combine college with a college job of 20-30 hours/week makes it pretty hard to study. One compromise would be to pay their way to Local Community College/State U as Deserat suggested and let them pay anything above that. Or see who's going ROTC/service academy and divide the college-money pool accordingly. Our kid is a high-school sophomore and this month she's pretty sure she's going NROTC. She'll take her first SAT in five-six months and find out how realistic her Stanford/Notre Dame aspirations are.

It's amazing how many military scholarships go begging. When a kid applies for five or six of them (with the same essay and a set of interview clothes) they start adding up pretty quickly. Other Ivy League schools are beginning to realize that they're pricing themselves above reach as their endowments reach truly homongous levels. Many on this board have successfully negotiated down tuitions with a combination of scholarships, aid, and loans.

The conventional wisdom is to not sacrifice your retirement for your kid's education. If you're slogging through a civilian job and a "Gotta do it for my kids" attitude, you may be pretty ticked off if they struggle with college angst-- or even drop out to find out what's right for them.

Quote:
Originally Posted by USAFDream View Post
It will be tempting to stay in a few more years because starting a new career at that age makes me tired just thinking about it.
Then there's the fact that if you're not excited about working to begin with, you're placing a serious mental/physical health risk on your body. Of course you have to match that civilian-career frustration against the possibility of getting your active-duty assets shot off, dealing with training accidents, or being stationed in Korea. Or even worse-- you could end up standing midwatches in the Pentagon. Does the thought of going to 22-24 years fill you with curiousity & interest, or have you had enough?

I don't know if this is any consolation, but after 20 years of hearing that you're barely capable of handling your current job you'll be pleasantly surprised to see how highly you're valued by civilian employers. The headhunters (like Lucas Group) know how to handle the transition if you know what you want to do, and I can attest that the job offers will come whether you're looking or not. Civil-service and contracting jobs are plentiful at your retired rank, although some may require a six-month delay for the ethics rules. If you decide that working is the best choice then you can easily go part-time as suggested in Bob Clyatt's "Work Less, Live More". If you decide that you need "only" $40K/year part time then you'll be astounded how little work that involves.

Your first step is to crunch the money numbers and figure out whether or not you need the paychecks or whether you can do it on the pension check. If you want to go part-time, SamClem is a wellspring of contracting knowledge and should be along shortly.

Quote:
Originally Posted by USAFDream View Post
I want to retire early enough to play around a little while.
Whether the money number-crunching works or it's borderline, in my opinion you should do exactly that. Retire when you're ready, even if that's 20 years of service, and take some time off to clarify your thinking/planning. Frankly it's only when you STOP going to work that you can recover from chronic fatigue, have those important spouse/family discussions, take a look around you, get comfortable with the spending, and decide what you want to do. As you approach your final 30 days, too, the unsolicited job offers will come crawling out of the woodwork and there'll be another round of phone calls/e-mails at the six-months-retired point. The skills that employers want will not perish, and your contacts will not go cold. I'm six years into ER and I'm still getting the "So, are you bored yet?" phone calls.

Another option that you haven't mentioned is retiring from active duty and going into the AF Reserve. (I can't believe that I'm actually jealous of your service for offering this option.) It's the ultimate part-time employment, and TomCat & Deserat can tell you the nitty-gritty details. If you decide to work part-time then this may be the perfect combination of employment & leisure. No Pentagon midwatches, either.

Quote:
Originally Posted by USAFDream View Post
I would also like to hear about whether other retirees took the SBP or not.
Sorry, no help here. Spouse will get her own Reserve pension (bigger than mine, too) and we don't carry any life insurance.

The govt subsidy underlying SBP is far better than any civilian equivalent. If you decide that life insurance is appropriate, then do SBP before you do anything else. Unless spouse is planning to start her own career and get her own pension, then SBP is probably an appropriate plan. Especially if you go AF Reserve...
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Old 02-19-2008, 09:29 AM   #5
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Quote:
Originally Posted by USAFDream View Post
I am a Lt Col in the Air Force with approx 14 years active duty. I took the pilot bonus ($25K/year) up through 20 years of service. My commitment runs out in 2014. I do not think I will make Col. I have four kids (13, 11, 9, 5). I have maxed out the TSP and a ROTH IRA for my wife and I for the last five years. I have about $200K saved up. Unfortunately I bought a $240K house in 2005 and will struggle to sell it next year without losing my shirt.

I need some good advice on whether to stay in past twenty to increase the pension and provide money for the kids college. I will be 46 in 2014. It will be tempting to stay in a few more years because starting a new career at that age makes me tired just thinking about it. I want to retire early enough to play around a little while. I would also like to hear about whether other retirees took the SBP or not.

USAFDream
I am a retired naval officer and I went through the thought process, from both a financial and personal standpoint, a number of years ago. My experience is outlined below.

Background:
  • I felt I was competitive for O-6 (selection board met at about the 21 year point).
  • I had one daughter in college and one in her junior year of HS at the time I was being looked at. I was pretty sure that being selected would result in a move away from DC, something I preferred not to do for no other reason than I wanted my younger daughter to graduated from HS without having to move.
  • I was in the DC area at the time, living in a house I had bought as a senior O-3 and had rented out while I was stationed elsewhere. I had been back in DC for about 4 years at the time (two different assignments). My mortgage payment was very low.
  • As an O-5 retiree, I would have been able to get a job with a "Beltway Bandit" pretty easily and the O-5 pension plus the Bandit salary would have exceeded my O-5 active duty pay.

The considerations for me:
  • I didn't really want to work for a Beltway Bandit. I saw a military career/pension as a springboard to doing something completely different for a second career.
  • I really wanted to see if I would make O-6.
  • I ran the numbers and saw that by retiring as an O-6 with 26 - 30 years vs. an O-5 with 21 - 22 years I would earn a significantly higher pension - about 65 - 70% more. I would also have my younger daughter through college, marking the end of most of my financial obligations toward my kids.
  • There was still a hope, unlikely though it was, that I could milk DC for another year or two.

I ended up being selected for O-6 and being offered "an assignment I couldn't refuse" as the CO of a base in Maine. At the time, I figured I'd do that assignment, retire from it and remain in New England (where I'm from originally) as a civilian. It was traumatic to move my daughter for her senior year, although she survived quite nicely and, in spite of the move, is a normal, well-adjusted woman now.

Things that didn't go according to plan:
  • At the time I was winding down my Maine tour (1992) the recession was particularly acute in New England. I figured that it didn't make sense trying to get a job competing with people who had more relevant experience than I did in the business/public sector world but had been laid off during the recession.
  • So I took another assignment back in the Maryland/DC area and ended up spending 5 more years on active duty, bringing me to 28 years upon retirement.
  • I did work for Beltway Bandits (as well as for a university for a couple of years). The pay was excellent and I socked away as much as I could toward retirement. I ended up with a 6 year "second career" before I retired for good at the age of 58.
  • I was a tad short of my portfolio goal at the time I retired for good, but I was ready.
  • Two years later, we finally made the move back to New England.

Looking back:
  • I'm glad I put in the extra years in the Navy. Had I not, I'm sure those years would have been spent working for Beltway Bandits and I liked the Navy a lot more.
  • Financially speaking, I could have retired for good earlier. I've hardly touched the portfolio, living very well primarily on my O-6 pension. I just started getting Social Security (early, age 62) in May and most months I just bank the check.
  • TRICARE Standard has turned out to be an excellent health plan for us. I have the MOAA supplement in case there is a catastrophic situation, but most years my TRICARE useage is such that I don't get anything back from MOAA.
  • I took SBP at a level that, combined with other assets, would provide my wife a comfortble living. (That is, I took it lower than the max - enough to give her $20K per year at the time I retired; it's since increased with COL adjustments).

More:
  • At the time I retired, I started doing volunteer work in an area that interests me. I've continued that here in New England. I would not be happy if I didn't have some regularity in my schedule but I certainly don't want every minute scheduled like it was when I worked.
  • In my vicinity, there are no Exchanges or Commisaries. You learn to live without them, although it would be nice if we had a place to go to once a month to stock up. (Plattsburg Air Force Base was the last facility within striking distance of Vermont.)
  • TSP wasn't available when I was on active duty. I maxed out 401K/403B plans with my employers and invested a bunch on top of that in index funds.

If you have any more specific questions, please ask I will be happy to tell you how it worked for me.
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Old 03-21-2008, 12:25 PM   #6
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The above posts have so much wisdom - I hope the OP read them. If not, others in a similar situation (such as myself) will benefit. Thanks for taking the time.
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Old 04-13-2008, 04:24 PM   #7
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USAF E-3 here. Thank you all for taking the time out to share your experience with us. I'm nearing my 2year mark with the USAF, and I'm already planning out my retirement LOL.
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Old 04-13-2008, 11:07 PM   #8
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As a pilot, you might consider bailing out at 20 & then getting a job flying for the feds as a second career.

Just a thought.
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Old 04-14-2008, 02:59 PM   #9
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USAF E-3 here. Thank you all for taking the time out to share your experience with us. I'm nearing my 2year mark with the USAF, and I'm already planning out my retirement LOL.
Thanks for your service. The best investment is a college education - look at the difference in the pay tables. Good luck!
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