Re: Here's a few ideas...
aimhigh said:
We're hoping to be able to retire when I'm between 47-53.
My military pay is modest but I've been able to put away about $7600 in my tsp(military 401k) and 12000 in our IRA's.
I'll be able to increase my yearly savings to a total of around $13000.
I'm hoping to buy a home in a few years once we're back stateside.
Is it even possible for me to retire at this age range? I would like to have around $50,000 a year in todays dollars at retirement.
If I put in the minimun of 20 years in the Air Force then I'll get around $21,000 (about $31000 if I stayed in for 26) in a yearly pension with inflation cola and health care.
Welcome, Aimhigh! I'm a retired submariner and we have at least one other USAF retiree, GD-ER, on the board. There are a dozen others like you at varying stages along the military ER path.
Your ER can be done in 21 years and it might be feasible in 15. If you're planning to spend $50K/year in retirement and your pension is $21K then you need to fund expenses of $29K/year. Withdrawing $29K/year as 4% of your portfolio means the retirement funds should total $725K.
You already have $19,600 in tax-deferred accounts that can conservatively appreciate at 7%. In 15 years that'll grow to about $55K. That leaves $670K to go.
Saving at an annual rate of $13K and an assumed return of 6% would give you a bit over $300K in 15 years. However you're going to be getting pay raises every year at the ECI, not the CPI, so you should be gaining on inflation more often than not. I'd say that $300K is a conservative compounding and $350K is achievable.
Making up the other $325K is the trick.
- One way to accomplish that would be to add in your Social Security earnings. You'd be spending down a big chunk of your savings-- perhaps above a 5% withdrawal rate-- from age 47 to 62. Then you'd be withdrawing an SS benefit of somewhere between $5K-$10K/year, but estimate your SS income from the earnings calculator at their website instead of your paper statement. Your portfolio would take a huge short-term hit but might survive in the long term.
- Another way is to retire as soon as you're eligible and let your working spouse support your profligate spending habits in the style to which you've become accustomed until your portfolio reaches the FI numbers. That strategy is working for several of us here.
- Another way would be to retire and take a part-time or a full-time job until you hit your numbers. You have to make your own decision here and avoid the brain-washing of the transition briefings.
- A riskier way would be to retire and start spending your portfolio at an unsustainable rate until your spouse starts collecting her own pension. The success of this tactic depends, of course, on whether or not your spouse vests in a pension plan.
I'm presuming that you entered the service after 1986 and are eligible for the REDUX bonus when you hit 15 years of service. Don't take it!! Your pension COLA will permanently lag the CPI by 1% and $30K is far less than the present value of what you're giving up in COLA. There are DoD REDUX briefings floating around your command's financial staff where you can check the math and satisfy yourself. Ask more questions if you don't understand this subject and we'll cover it in excruciating detail.
It's good that you're in the Thrift Savings Plan. Next month the salary percentage limit will be lifted and you can contribute as much as $15K/year. (My spouse won't get a penny from her Reserve paycheck in 2006-- it'll all be going into the TSP.) You might want to consider being able to put all of your $13K/year savings in the TSP (especially if its expense ratio is lower than Janus) or spreading out your asset allocation. And if you get bonus or special pay, it can go into the TSP above the $15K limit. You can adjust your contributions on the DFAS "MyPay" website and read more about the limits at TSP.gov.
Although 15 more years seems like a small price to pay for FIRE, the stress & family issues might be too much for you to go the distance. If I was doing it all over again I would have paid more attention to the Reserves and taken it one tour at a time. The military runs on the Reserves (some headquarters commands are 30% staffed by full-time Reservists) and you can work most of a year or cut back to the minimum drills. Mobilizations are far less painful than assignment officers who figure that they "own" you when you reach 15 years of service. So take the tours that make you happy, learn all you can from the Reservists you see at your commands, and don't sign any long-term contracts.
Home ownership is not all it's cracked up to be when you're paying high trading costs every few years. You could end up holding the hot potato when the music stops, and I think that the orchestra's final aria is warming up now. If you find your dream house in an area where you KNOW you'll be spending seven years or more then the stability of ownership is worth the risk (and the hassles), but if there's any possibility of becoming a remote landlord then it's far easier to pay rent than a mortgage. Some areas of CA are actually much cheaper to rent than to buy, as some high-equity landlords are learning to their chagrin, and I'm sure that other parts of the country are similarly inverted. So do your due diligence and rent in an area for 6-12 months instead of reflexively buying the weekend before you report to your new command. Not that there's anything wrong with that, but once we ended up holding the property for 12 years before we broke even...
Use this board's search tool to research some of the topics that you have questions on, or ask more detailed ones here. And if you want to keep an eye on military topics with small weekly doses, sign up for the e-mails from MOAA.org & military.com. So far I think they're the best of the bunch.