Naval Officer looking to ER in 2016

[Sail Away]

New member to the site looking for some thoughts on my possible ER in 2017. Not sure that I want to totally quit working yet, but sure would like the option to be done. Just some background info:

- Naval officer (O-5) setting up for retirement in 2016 (possibly 2017) after 27 years of service - will be 50, wife will be 51
- Stay at home mom wife, previously a teacher
- 3 kids: 17, 16, 10
- Currently stationed in Germany but will probably move back to FL where we have a house
- Pension should be close to 70k per year
- Current net worth close to 1 mil

Assets include:
- 500k in retirement funds (TSP, IRAs, wife's 403B...) mostly in stock mutual funds,
- 80k in taxable stock mutual funds
- 150k in money market/bank accounts - have been saving to possibly pay off house, transition to retirement/bridge career, and fixing up our house that has been rented while we moved to other duty stations
- 80k in college savings (Educational IRAs, bonds...), expecting the kids to pay for some of their own college
- 180k in home equity with 133k remaining on mortgage

I have read Nord's book. I think we can almost live totally off my retirement pension, even if with our mortgage. College costs have me a little concerned, but believe I could get a part-time job to cover those if required. Appreciate any advice or thoughts on the possibility of ER given my situation.

Thanks

 

[robertf57]

Welcome to the forum and thank you for your service. As I was told on my initial post, you really need to know your expenses before you can answer the question of do you have enough. That pension is a great floor to work with, particularly since it will be cola'ed!

With 730K in financial assets, you can probably count on an addition 22K in inflation adjusted earnings to spend (I'm just estimating ~3%). Whether to count on social security or not is a matter of opinion. I am of the feeling that college expenses are secondary to the FIRE needs of the family. Smart choices on the school to attend and loans if necessary are fallback options.

If you have a reasonable handle on the expenses, I think you are good to go.

 

[surferLife]

$70,000/yr seems high, are you sure with that figure or is that calculating in disability? Also, are you high-3 or final pay? Are you calculating in SBP?

Still, congratulations, you've done quite well, enjoy the fruits of your labors!


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[eytonxav]

Thanks for your service. Depending on your expenses, you appear to be in good financial ship shape

 

[ChrisTexas]

Retired Naval Officer

Will you leave your 401K, TSP, IRA untouched until at least 59 1/2? I assume there would be an extra 10% tax penalty if you withdrawal early. How much do you live on now? Would you only live on 70K a year?

I retire from the state in 6 years to go along with my military pension. My goal is to have house paid off. I like the idea of paying off the house if the money is sitting in a money market account.

College expenses are high for sure. Lots of part time options for work.

The good news is you have great health care.

 

[Gumby]

Welcome aboard. Your numbers are looking good.

College costs have me a little concerned . . .

If you haven't used it up, you might look into transferring your GI Bill benefits.

Transfer Post-9/11 GI Bill to Spouse and Dependents - Education and Training

 

[friar1610]

Hi,

Welcome aboard! I retired from the Navy at 51, for good at 58. I was in roughly similar circumstances to yours. Only 2 kids and they had both graduated from college, so that was behind me. Slightly larger nest egg (at the time I retired for good; don't remember exactly what it was when I retired from the Navy). I worked for a couple of Beltway Bandits after the Navy for about 6 years and used it as a chance to sock away money. Didn't significantly increase my standard of living during those years because I didn't want to get used to it and get locked into working forever. I took a couple of multi-month breaks when I didn't work at all. One was right after retiring from the Navy and the other was between two civilian jobs. During those periods I was surprised that we were able to get along just fine financially on my USN pension alone. Since retiring for good we have rarely dipped into the nest egg and then only for extras like big trips. Most months we bank both SS checks although we occasionally use the lower value one to meet expenses, mostly for things like new tires, an unexpected car repair, etc.

Your experience may be different but my opinion is that with the nest egg you have, your pension and the medical benefits you will be fine as long as you keep your lifestyle expectations in check.

Good luck!

 

[nash031]

$70,000/yr seems high, are you sure with that figure or is that calculating in disability? Also, are you high-3 or final pay? Are you calculating in SBP?

$67-70K is right for a 27 year O5 before taxes and SBP. SBP will hack 6.5% off of that if he chooses the full base, so that's not insignificant. Depending on disability and any other income, he's right on the border of the 15-25% tax brackets by pension alone. I'd assume 25% with any investment income, so you're looking at a take home of about $50K/year conservatively. Still a good floor.

OP - welcome! As others mentioned, get your expenses down. It might be tougher to do living in Germany, but you need good estimates maybe from old data to make sure you're good to go. I'm about to pin on O5 and have at least 4.5 left on active duty, so thinking along the same lines! The more I think about life after, the more I think I'll work for a little while in the civilian sector to build the buffer and enjoy some more luxuries in retirement since I'm young... but I've got a ways to go to get there yet.

Best of luck!

 

[Nords]

I have read Nord's book. I think we can almost live totally off my retirement pension, even if with our mortgage. College costs have me a little concerned, but believe I could get a part-time job to cover those if required. Appreciate any advice or thoughts on the possibility of ER given my situation.
Thanks

Thanks, Sail Away, and welcome to the forum!

If you haven't already done so, I'd strongly recommend attending TAP now-- and with your spouse if possible. This will give you a great chance to discuss all the topics together during the day, and you'll each pick up on different questions or issues.

As others have mentioned, your plan's success depends on your spending. It's hard to project your Florida spending from Germany, but do the best you can. For example your grocery bill may drop when the kids start college, but you'll add in the expenses of traveling to/from college. You'll hopefully spend less on "winter" too.

You could also decide whether to pay off the mortgage or to keep the money and invest it in your asset allocation plan. You have guaranteed pension income to cover the mortgage payment, and your pension will rise with its COLA while the mortgage payment will decay with inflation. But that decision also has a "sleep at night" emotional component.

With your $580K in tax-deferred and taxable accounts, you could add another $23K/year of spending to your $70K/year pension.

Unless your spouse has her own pension income (other than a 403(b) annuity) she'll want to take a good hard look at SBP. The federal government's premium subsidy makes it a better deal than almost any other insurance policy.

 

[alistair]

If you haven't already done so, I'd strongly recommend attending TAP now-- and with your spouse if possible.

I've generally heard that military personnel approaching retirement should take TAP at least twice; once about 2 years out, and one more time when you finally decide to pull the trigger (~9-12 months out).

Second time around, you won't necessarily need to go to every class (since you should have your certificate of attendance from the first time). The veterans benefit and health care sessions are probably worth doubling up, especially with spouse. You might have missed something the first time through.

That said, my boss took TAP about 8 months ago, thinking he might be retiring, but then he just took a new assignment. Thus he'll have initially taken TAP almost three years prior to retirement.

 

[surferLife]

With your $580K in tax-deferred and taxable accounts, you could add another $23K/year of spending to your $70K/year pension.

Where did the 23k come from and how did you come to that number?


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[Nords]

Assets include:
- 500k in retirement funds (TSP, IRAs, wife's 403B...) mostly in stock mutual funds,
- 80k in taxable stock mutual funds

Where did the 23k come from and how did you come to that number?

Sorry, didn't mean to be cryptic.

These two account balances are listed as assets, not intended to be used for paying off the mortgage or the college fund.

$500K + $80K = $580K, assuming a 4% withdrawal then x .04 = $23K/year.

We could get into the usual protracted and detailed discussion about the precision of that figure or the success rate of the withdrawal method, but it's close enough for financial independence-- especially with a military pension.

 

[ChainsBeGone]

I retired from the Army out of Germany in 2013 and returned stateside. Make sure you take advantage of the Benefits During Discharge (BDD) program out of the VA office at Landstuhl Regional Medical Center. The BDD program enables you to go through the VA disability evaluation exam while you are still in uniform in Germany. I went through the BDD program and my VA disability pay began one month after my retired pay started.

Don't discount the VA disability evaluation process. I didn't count on it for retirement, but I took the process seriously and, unexpectedly, now my tax free VA disability is enough to pay for my mortgage every month, and there is no offset to my retired pay (disability over 50%). Take the time to understand this process and to carefully document the medical changes that have occurred since you put on the uniform. There are deadlines you have to meet in order to start and finish BDD while in Germany, so find out what they are, TAP/ACAP is a good source to get updated information on the program.

 

[ChrisTexas]

SBP is too costly, I believe a healthy person will find a far superior Term life insurance policy for 30 years. I pay about $140 a month for 30 years of term, $600k. Far cheaper than the the SBP that goes up in cost as your pension increase. You owe it to yourself to see how much term you could get for the 6.5% they want to keep. I believe SBP is for those that didn't plan ahead and save for their future. Your retirement accounts have the ability to grow to a level that far exceeds 55% of your military pension.


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[Greg V]

ChrisT,
Another point of view on SBP...if your spouse is not interested or confident in managing an investment portfolio based upon financial security from a lump sum from life insurance, there is value in having a guaranteed, COLA'd source of lifetime income that financial sharks can't grab.

Secondly, retirement accounts have the ability to shrink as well as grow...the risk we all accept in our investing life. It is your assessment, and maybe a great one, that your projected account appreciation makes buying term insurance/investing the difference a better financial choice than SBP. However, it's not a guaranteed outcome.

Lastly, SBP is paid with pretax money (a small plus to be sure) and is no longer needed (you are the longer lived of the couple), you stop paying for it.

So...choosing SBP as part of one's overall strategy may not be the result of lack of planning, but a product of considering personal circumstances such as the ability/desire to manage investments (particularly as we age) and risk tolerance when crafting your financial plan. I take no issue with your choice, just the view that the opposite choice must be the result of little/no planning.

 

[HawkeyeNFO]

Perfect! I check out next month from the Pentagon, and PCS TO Germany, where I will retire in 2017 as an O-4. We will then be FI, and could RE if desired.

Plan is to then move back to the DC area due to friends and Mrs NFO's family nearby, plus we own a nice house here. 3 kids are now 11, 9, and 6, and we really like the area where we live.

Sure appreciate the notes about the VA stuff in Landstuhl, and also the notes regarding SBP. I know I need to look into both much more.

 

[friar1610]

I have posted something like this before, so forgive me if many of you have already seen it.

The decision to take SBP or not was the single hardest decision I had to make when I retired from the Navy. (I'll tell you at the end what I did.)

Something that really made an impression on me was a presentation we got from the then-president of Navy Mutual Aid Association (NMAA) at the retirement seminar I attended in DC almost 20 years ago. He was a retired rear admiral, if I recall correctly. He strongly advised to take SBP at its max value (55% of base). He also made available personalized computer-derived sheets that showed the value of SBP if you died the day after you retired and your spouse survived you for 10, 20, 30, etc. years. The numbers were quite impressive. Of course, I realize the odds are strongly against having such a short retirement, but he was doing it to make a point.

What I thought was particularly cogent was the fact that NMAA is, in effect, an insurance company, albeit different from the big commercial companies. So here is a guy who is telling you NOT to use life insurance as a substitute for SBP when his association would surely benefit if you opted to use an insurance policy from them. And here is also a guy who makes a pretty hefty pension saying that he willingly gave up 6.5% of it to protect his spouse's income when he could just as easily be saying that he bought an NMAA policy and you should too.

Also, I didn't see it mentioned in the posts above, but remember that SBP payments are inflation adjusted, just like military pensions.

I ended up taking SBP at 35% (rather than the full 55%) of my base. That was based on assumptions about portfolio growth that turned out not to be valid over the long term. My spouse will still be OK if I predecease her, but if I could walk that dog back, I would opt for the full SBP.

This is a subject on which there can be honest disagreement and a case can be made for either approach. Just thrown' in my 2 cents.

 

[ChainsBeGone]

The decision to take SBP or not was the single hardest decision I had to make when I retired from the Navy. (I'll tell you at the end what I did.)

This was also a very contemplative decision for me. While still on active duty overseas I was assigned as a casualty assistance officer to the spouse of a deceased colonel/O6 who had retired in Europe and stayed to work as a contractor. He stayed long after he had any return rights (U.S. gov't would no longer fund a move back to the States). He also turned down the SBP. When he passed, his wife had to pay to ship every pound of their household goods that she wanted to keep back to the States, at about a dollar per pound. She also was entitled to absolutely nothing from the colonel's pension. They really didn't have what I would consider substantial savings set aside. Very sad.

I tend to lean on the conservative side when it comes to planning for my DW's future if I depart early. She was a stay at home mom throughout our military years so she doesn't have a career to fall back on. I took out the 55% SBP benefit and I took out a sizable 30 year term life insurance policy even though we have respectable investments.

The SBP premium only increases in equal proportion to COLA pay increases, and is paid in pre-tax dollars. The term life premium is fixed, so as time goes by it is a smaller portion of my annual paycheck due to inflation and COLA increases to retirement pay.

I hope I haven't digressed too much from the OP's intent, but this is a huge decision for anyone retiring from the military. I sleep better at night knowing that DW is well taken care in the event that my future isn't so bright after all.

 

[Nords]

SBP is too costly, I believe a healthy person will find a far superior Term life insurance policy for 30 years. I pay about $140 a month for 30 years of term, $600k. Far cheaper than the the SBP that goes up in cost as your pension increase. You owe it to yourself to see how much term you could get for the 6.5% they want to keep. I believe SBP is for those that didn't plan ahead and save for their future. Your retirement accounts have the ability to grow to a level that far exceeds 55% of your military pension.

I think it's fair to compare apples to apples.

If you're trying to buy a survivor lifetime annuity, then the SBP is cheaper than any other product sold by any other insurance company.

If you're trying to buy life insurance for a specific number of years then term is a lot cheaper than any other type of insurance product.

But term insurance and SBP are completely different products.

Yes, everyone with a military pension has the ability to grow their own assets to self-insure... provided that the couple had enough savings or that the pensioner collects enough pension to build the assets. As we know all too well, people are human and behavioral psychology says that most of us don't place a high-enough value on the future to start saving for it right now.

As for myself and my spouse, we each have sufficient assets and pension income for the rest of our lives. She turned down SBP on my active-duty pension, and in a few years I'll turn down SBP on her Reserve pension. Couples who feel that they also have enough assets (including annuitized income) can probably elect to spend the 6.5% on themselves while they're alive.

 

[martyb]

SBP for federal retirees works the same as SBP for military retirees (at least for CSRS folks anyway). My spouse will receive 55% from both my CSRS and USAF Reserve retirements when I croak. If she goes first, the monthly monthly deductions for the SBP's stop and I begin receiving the full amounts of the pensions. Not crazy about the cost, but I sleep well at night l knowing she's protected.

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[nash031]

Not crazy about the cost, but I sleep well at night l knowing she's protected.

This is kind of how I feel. Even though DW has a good career and we will have enough savings to be FI by my retirement age (if things continue to progress with modest growth), we did a lot of math based on forecasts and we couldn't rationalize not spending the 6.5% for SBP. She will not have any DB income other than my pension, thus if I kick at a young age, she's working a lot longer to build savings to account for the pension which will likely account for 40-50% of our spending in retirement, and that's even with our NMAA term benefit. That's a big chunk that goes away with me... I'll sleep better at night knowing that when I do, and even if it's at a young age, she'll probably be OK.

I suspect at some point in the far off future we might have enough in savings that the SBP becomes somewhat insignificant, and in that case we won't care about the 6.5% at that point either. Before then, we'll cancel our term life insurance.