Greetings ER Community! Long-time lurker, first-time introduction. I learned about the forum from Nords book (The Military Guide to Financial Independence and Retirement)...
Thanks!
Expected military pension: 50k/yr after-tax (high-three, and slightly under-estimated on purpose)
Yes, of course, the budget. We spend under 50k/yr.
No further questions. Who's next in line, please?
Seriously, though, you have more of a "green waste problem" than a portfolio survival issue. You're not likely to suffer from lifestyle expansion, and your spouse might bring in some substantial income. You're probably going to keep tracking your spending in retirement (if for no other reason than to check the new baseline) so keep saving the excess in CDs for your house fund. If you're going to keep living within your pension (which is highly likely) then your only large expenses on the horizon would be paying off the mortgage (at your pace) and possibly some community/state college bills.
You don't specifically say one way or another, but your spouse's SBP decision will affect up to 6.5% of your pension.
I have looked at the disability schedule and plan on having around a 30-50% disability rating, and since that process is so complex, I don't have any idea how much that will affect my pay other than knowing it will increase it. The above 50k/yr figure does not reflect this assumption.
When you choose where to live, taxes should be less of a concern because of your military pension and VA offset/compensation. If that happens to be California (warm-water surf) then don't let the tax issues drive your location. You're already far ahead on taxes.
I'd also suggest starting your VA claim as part of your retirement physical. Start workign with a VSO at the same time that you start your retirement physical. You can get all of the referrals and special exams/tests done on active duty (instead of through the VA system) and by the time you retire you should have the fabled "fully developed claim".
We are currently renting in the states and it's frustrating not being able to build equity in a home; we will be moving again in a few years, location unknown. We are aggressively saving so that we can purchase a home outright at retirement.
You're making the right decision, so the best way to deal with the frustration would be to change your attitude toward home ownership.
Lots of people in most of the country felt the same way you did about "building equity" in 2007... just before the Great Recession. Most Hawaii residents felt the same way in 1991 as real estate slid into a decade-long recession. I noticed the other day on Zillow that some Minnesota homes are actually appreciating at less than the rate of inflation.
You're not losing anything by renting. Over the long term across the nation, real estate appreciates at about the rate of inflation. In the meantime you're actually saving hundreds of thousands of dollars (that would be tied up in "dead equity") and investing it in your TSP, IRAs, and taxable accounts to grow faster than inflation.
I'll take it a step further: your pension will be annuitized inflation-adjusted income. Instead of exchanging a large chunk of your investments for land and a depreciating structure, get a 30-year fixed-rate mortgage (after a down payment of at least 20%). You'll be paying off a cheap loan (in fixed, declining dollars) with inflation-adjusted annuity income. You can keep a larger portion of your assets in equities and earn more than inflation, let alone build equity.
This thread has been running for over a decade, including the Great Recession. The equities are far ahead of the mortgage, even at 5% interest:
http://www.early-retirement.org/for...rtgage-without-losing-your-ass-ets-15237.html
I'll pay off my mortgage just before my 80th birthday... unless I can refinance at a rate lower than our current 3.625%.
I wouldn't recommend trying this mortgage arbitrage in a portfolio that has 4% SWR withdrawals or any bond assets. You also have to sleep comfortably at night, so only do it if you appreciate the compounding math and don't worry about carrying the debt. With an inflation-adjusted annuity, though, the math and the statistics are on your side.
Another tactic with large potential gains is to continue renting after you retire, but start visiting open houses 2-3 weekends per month. Learn the neighborhoods (and schools) and start tracking your targets. Eventually something will go on sale at a substantial discount and you'll be ready to buy with cash and no financing contingencies. The 15% discount will make up for a lot of years of saving that liquidity in CDs.
An intermediate option would be taking out a loan to build a second residence on your acres of land, and then use that for aging family or rental income.
