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DINKS + Military Retirement + VA Comp = ER?
Old 11-15-2014, 12:31 PM   #1
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DINKS + Military Retirement + VA Comp = ER?

Greetings!

I am optimistically introducing myself as “THINKER”. Two Healthy Incomes, No Kids, Early Retirement. Sorry about the all caps. I am not yelling, although I feel like screaming for joy after discovering this board and realizing that we may be able to ER soon!

I am a 47 year old school teacher. My DH is a 46 year old military retiree / current government contractor. I could use some feedback on our situation about ER and look forward to being a part of this online community of like-minded folks.

Assets/ Liabilities:
1.5 M portfolio (65/35) mostly Vanguard indexes
50K in cash, CDs, savings, checking, etc.
Primary house paid for (worth 300K)
Much loved and frequently used vacation house 140K mortgage remaining (worth 300K)
No other debt

Projected Annual Income in ER:
50K DH’s military pension (taxed in our state – boo!)
17K DH’s VA compensation
10K (approx.) from non-reinvested CG and dividends from the non-retirement portion of our portfolio
Plus additional money (5K to 50K) from portfolio rebalancing not to exceed Safe Withdrawal Rate of 4% (the above CG and dividends included)

Additional Info:
Health care provided at low/no cost from military retirement / VA
Current expenses averaging 80K year
Current income from our jobs: 100K for DH. 40K for me.
FIRECalc checked out great!
I purposely did not consider our SS or my future teaching pension as they are both pretty iffy, IMHO.
Currently reading “Work Less, Live More”, have “Bogelheads’ Guide to Retirement Planning” on the nightstand ready to be read, and Nord’s “The Military Guide to Financial Independence and Retirement” on my Amazon Wishlist…to be read during my upcoming Thanksgiving break

The Plan:
Start paying off vacation home mortgage early with pending VA compensation “windfall” of 32K in backpay (due to the famous claim delays it took two years of waiting on DH’s claim)
Hubby retires in eight months, I keep working until vacation home is paid for (He dislikes his job, I love mine.)

The Dream:
Once we both retire, we plan on selling our primary home and use the proceeds to buy another house in a more desirable (and no income tax!) state…say Florida and also an Airstream to travel. Split our time between two houses…one (currently our vacation house) in the NW and the other in the SE. Travel in Airstream in between. Volunteer. Chill. Enjoy.

Concerns / Questions:
Mentally switching from saver to spender. Any tips? This is a biggie for me! We have been save, save, save and buy and hold for so long! Ugh!
Our Asset Allocation. Two conservative in light of the military pension? Too risky in light of the early retirement?
Withdrawal method and where to park the resulting cash. Admittedly totally clueless about this one. Help!

THINKER
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Old 11-15-2014, 12:33 PM   #2
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Welcome Thinker glad you found the forum!


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Old 11-15-2014, 02:22 PM   #3
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Can't speak to your teacher's retirement, but to totally disregard SS is a mistake. Well mistake may be the wrong word but certainly overly conservative. IMHO, at 47 you will get SS. I don't even think it will be reduced.

However, based on your assumptions, it appears you have all well in hand. For us changing from savings to spending was fairly simple. We set up constant withdrawals from accounts, along with money from pensions. We continued to track spending with Quicken, just to insure it was where we thought it would be.

We still save! By that I mean we don't spend out total income stream.

Make sure you know your expenses! For many this is the key to a peaceful retirement. With two houses and a camper, your 'unexpected' expenses could cause you problems. i.e. roofs leak, appliances break, cars need replacing etc.

Good luck, Welcome, and enjoy life!
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Old 11-15-2014, 04:38 PM   #4
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Thanks for the quick welcome!

You are right; to totally disregard SS is a mistake. Some fundamentals of military retirement and teacher's pension were changed (and restored, in some cases) in my working lifetime, so I think my tendency to ignore any future SS compensation is just plain old pessimism on my part. I guess any extra income will be most welcome!

Great points! Yes, we are tracking expenses through our online banking app. Very helpful and I will continue to do so after ER. Any unexpected expenses could cause major financial problems with two houses and a camper trailer. I think a set aside of funds for this purpose is in order.

Thanks again for the welcome and feedback! I am looking forward to more!
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Old 11-15-2014, 07:13 PM   #5
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Welcome and we are now SINKS, both Military (DW still in for 10.5 months), DW FERS Tech, and VA disabilities for both. I was laid off at the end of Dec 2013, but got good year long severance and other stuff and some contract IT work for them until next week, but some of the Executives are trying to start another business and want some contract time too, just can't seem to stop completely, maybe when DW is done.

One other thing to consider are taxes on income and property, until you move to a tax friendly place to eliminate state taxes.

Welcome again.
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Old 11-16-2014, 08:01 AM   #6
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Congrats on achieving this goal. Many many don't. One suggestion I would make, try to live on the retired pay for the next 8 months,

Ok 2 suggestions, use this time to figure tax in FIRE. With separate income sources, if they have withholding the it is normally at too low rate. Figure how you will cope with that, quarterly tax payments or over withhold from Army check, or whatever, but figure how much you need pretax so you have funds to pay da man.

Have fun planning for FIRE. I'm really enjoying it!!!
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Old 11-16-2014, 10:47 AM   #7
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Quote:
Originally Posted by THINKER View Post
Concerns / Questions:
Mentally switching from saver to spender. Any tips? This is a biggie for me! We have been save, save, save and buy and hold for so long! Ugh!
Our Asset Allocation. Two conservative in light of the military pension? Too risky in light of the early retirement?
Withdrawal method and where to park the resulting cash. Admittedly totally clueless about this one. Help!

THINKER
Welcome to the Early Retirement Forum!

Many of us seem to spend less than we could during our first year of retirement as we adjust from saver to spender. After a while, it begins to sink in - - no more need to save for retirement! It's great. One thing that is crucial is to figure out how much you will need to spend, and to make sure that your income can cover that amount in retirement.

Your asset allocation looks perfect to me, but then my financial planning tends to be more conservative than most.

The cash you withdraw for living expenses is going to be spent before long, so at today's miniscule interest rates I suspect that where you park it won't make a whole lot of difference.

Like you, I disregarded SS in my planning. Now that I have it, I can devote that money to discretionary purchases and fun.
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Old 11-17-2014, 09:57 AM   #8
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I am loving all this great feedback!

Taxes...ugh! We already pay quarterly estimated taxes as not to get dinged come April. We also have a little extra taken out of military retirement pay as a cushion. We usually still end up owning (a good thing, right?...no free loan to the government) but it should be manageable.

Property tax is high, especially with two houses. We get a small break with the VA Disability rating, but not much. Looking now (dream stage) at more tax friendly states.

Great point on not worrying about where to park our portfolio proceeds. I love this board!!!
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Old 11-18-2014, 10:26 AM   #9
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Welcome THINKER,

From a COLA DRINKER (Cost Of Living Adjusted Dual Retirement Income No Kids (at home) Early Retiree.

Keep in mind that states like FL may not have income tax, but property tax and property insurance can more than make up for it.
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Old 11-19-2014, 01:49 PM   #10
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Thanks for the welcome! You are right and we are doing our research now on the best mix in regards to income / property / sales tax.
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Old 11-19-2014, 02:25 PM   #11
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Welcome THINKER! I wish I'd thought of that, as we are very similar, just about ten years behind you guys. (DINKS + Mil pension coming + two incomes...). Not sure if we're permanently DINK, but we'll know by the time 2020 rolls around!

To your question about asset allocation, I believe 65/35 is too conservative with your "guaranteed" income streams. We are 85/15, but we're still five years left in our accumulation (to a similar target amount as you have). I have not yet decided if we will shift to a 60/40 or remain 85/15, but I am leaning towards remaining 85/15 because we'll have a stable income of $55k in 2020 from my pension.

Regarding withdrawals, I am not retired (obviously) but plan to keep ~three years of discretionary spending out of investments altogether. This money needs to be stable in order to ensure we can survive market downturns. In other words, if we need $100K, and we know $55K is there from pension, we'll need $45K/yr and thus will have $135K in something like a savings account or CD ladder to ensure we don't have to sell in a downturn. That's our notional plan, but we're still five years out and there's a lot of variables that can change.

Again, welcome! You're not alone!
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Old 11-19-2014, 02:43 PM   #12
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Quote:
Originally Posted by THINKER View Post
we plan on selling our primary home and use the proceeds to buy another house in a more desirable (and no income tax!) state
As I'm sure you realize, state tax considerations are very complex.

For example, in my state the income tax is sort of average, with a top rate of over 5%. But a big part of our income is my military retired pay, which is completely exempt. So I have to consider that.

Also, property tax varies quite a bit, not only by county but by school district within counties.

Then once you have that thought out, the question of sales tax arises, which also varies by county and/or city.

My advice would be to narrow your choices down to maybe five specific locations, and then compare the tax bite between them.
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Old 11-19-2014, 08:57 PM   #13
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Our income tax, including military retirement, is almost 9%! Yikes! So crazy!
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Old 11-22-2014, 10:47 AM   #14
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Welcome to the forums, Thinker.
Quote:
Originally Posted by THINKER View Post
Concerns / Questions:
Mentally switching from saver to spender. Any tips? This is a biggie for me!
You'll start out with a deathgrip on the purse strings, but after the first couple years you'll learn to loosen up.

One method that helps is a complete review of your spending: insurance coverage and premiums, retiree discounts, utility bills (especially cable), and both of your spending when your spouse retires. For example, he has more time to shop for bargains and cook meals instead of buying retail and doing fast food.

After a couple years you'll feel that you have a handle on your expenses (your investment portfolio will probably be rising because you'll be spending less than your income) and you'll relax.

Quote:
Originally Posted by THINKER View Post
Our Asset Allocation. Two conservative in light of the military pension?
Yes. You have over three-quarters of your income from COLA'd annuities. (I'm assuming that the $17K/year VA disability income does not reduce your spouse's $50K/year military pension to $33K/year.) You could put all of your investment portfolio in equities and still be way overweighted in bond-like income.

However there's also the comfort factor. If you're happy with your current asset allocation then there's no need to mess with it. But if you feel that you could take more risk (and live with the volatility) then you can do so.

A compromise may be to put your 35% bond AA in an equity dividend index fund. You'll have a steady stream of dividends (rising at least with inflation, if not faster) and you won't have to care about the share price because you're holding for the dividends.

Quote:
Originally Posted by THINKER View Post
Withdrawal method and where to park the resulting cash. Admittedly totally clueless about this one. Help!
Put one year of spending in CDs and another year of spending in a money-market account.

This way you have two years' expenses in cash, which will see you through most bear markets. At the end of the first year (your money-market account is empty) if the market is up then sell whatever you need to replenish the money market fund. If the market is down then cash in CDs as needed.

These posts go into the excessively gory details:
How much cash in a retirement portfolio? - Military Guide
How Should I Invest During Retirement? - Military Guide

I think you may find that you'll put two years' expenses in cash, and then they'll just sit there because you're not spending as much as you projected. This is a good problem to have.

The blog's first six months of posts generally follow the text of the book (with a few digressions). If you want to look up a specific topic then you can search the blog for keywords or scroll through the post titles by month:
Post titles by month - Military Guide

Let me know if you have any questions about the book!
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Old 12-02-2014, 09:53 PM   #15
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Thanks so much for the very detailed and thorough feedback! :-)
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