Welcome to the forum, Hardatit. Dual-military retirees have some interesting financial considerations, and they're a little-known demographic even among veterans-- let alone financial advisors. But it's all good.
I retired from active duty over 13 years ago (at age 41) and my spouse is a retired Reservist. (She starts her pension in 2022.) I've also heard from a couple dozen dual-military retirees over the last 15 years. Based on our experience, here's some thoughts.
First, let's address those discouraging words about mortgages in retirement. It's true that lenders only care about income and they don't give a crap about assets. However you have options.
Your ability to get a mortgage after active duty will be based on your pension, your dividend/interest income from your investments, and your side-hustle income. That side-hustle income has to be documented by several years of tax returns, so make sure you're declaring it now (and paying taxes on it).
It'd be nice if you bought your retirement home a year before you retired, while you still have military income & allowances, but that decision has too many other risky factors which could make it a bad idea. (Besides you'd rather rent for a year or two in TN so that you can hunt down a house with a distressed seller or some other fixer-upper bargain. Or you might hate your chosen location and move somewhere else.) Instead, you're probably going to grow a down-payment fund that will cover your 20% down payment (or even more) and you're going to get a VA loan. It's true that you could put 0% down and borrow the whole price as a VA loan, but lenders will probably want a higher interest rate. The 20% down (and a mortgage broker) will help you get the best interest rate in addition to the VA's guarantee.
You can also tap up to $10K of your Roth IRAs for a first-time home purchase. I believe that's $10K from your Roth IRA and $10K from your spouse's Roth IRA, but I'm not a tax expert-- check that with a CPA or CFP.
Originally Posted by Hardatit
Emergency fund is padded
Saving around 40-45K a year right at 80% of my AF pay.
I'm not sure what emergencies you're padding for. You two are unlikely to encounter layoffs, you don't own a home, and you're largely insured against everything else. With an 80% savings rate you could whip out a credit card for just about any expense and pay it off the following month.
You could also consider the emergency fund a home down payment fund. If you wanted to chase some yield with no risk then you could put it into 3-5 year CDs, a TIPS fund, or even I bonds.
Once you've bought a home, you may choose to open a home equity line of credit based on your mortgage application. It'll be a small one (because you only have 20% equity) but it'll be another way to tap a short-term loan with a quick payoff from your next pension deposit.
Originally Posted by Hardatit
$280K invested in Vanguard Index funds and TSP 84/16 Stocks/Bonds
You don't mention how you chose your asset allocation but this looks a lot like the TSP's L2050 fund. Considering your inflation-adjusted military pensions and your side-hustle income, you could leave your asset allocation at least this aggressive for the rest of your life. Your pensions are the rough equivalent of the income from a pile of I bonds or TIPS, so from a financial perspective you could even go 100% equities with your investments.
Of course you still have to sleep comfortably at night despite the volatility of a high-equity portfolio, but no matter how badly the stock market melts down you'll still get a pension deposit next month. I've been through two recessions in retirement and the declines can be pretty discouraging, but the pension deposits arrive every month no matter how I feel.
Originally Posted by Hardatit
SBP if something happens to me (still unsure on this one)
You have options here, and they're somewhat controversial for dual-military couples. However you each have plenty of your own assets (plus military pensions, Tricare, and Social Security) and neither of you may care to insure the other.
For example, when your spouse retires awaiting pay ("gray area") from the Reserves then you could take the maximum SBP on her. (As her spouse, it's your decision.) You could choose a payout option that begins immediately upon her death or at the time when her Reserve pension would have started. The way the Reserve SBP is set up now, you'll pay nothing for this coverage while she's gray area. When she starts her pension then you could pay SBP premiums for two years (your obligation for insuring her during gray area) and cancel anytime during the third year. The reason I suggest canceling her SBP after two years of pension deposits is because (1) she's likely to outlive you, (2) there are cheaper ways to insure her income, and (3) by the time she starts her pension you may not want the insurance any more.
When you retire then she could choose maximum SBP on your pension. (It's her choice, not yours.) However you'd be paying 6.5% of your pension until you've paid for 30 years AND reached age 70. (In your case, 32 years of premiums.) Again, you guys have plenty of assets and she'll have her own pension income. You two might prefer to have that 6.5% income to either save/invest (and self-insure) or to spend on your entertainment budget.
A third option would be to buy cheap term policies on each other until you reach age 62 or 67 or 70-- whenever you'd start drawing Social Security benefits. If you have medical or disability issues then you may find it cheaper to convert your SGLI to VGLI rather than go through a civilian insurer's underwriting exams.
In general, when dual-military retirees reach their 60s they have more of a "green waste" problem than an income or asset problem. It's quite possible that by then you'll be living within your pension incomes and using your side-hustle income for fun & luxuries. You might not even be touching your IRA or TSP accounts, and the last thing you'll need is more annuitized income from SBP payouts.
When my spouse and I retired, we declined SBP on each other. We also decided that we had enough assets to self-insure, so we didn't even bother converting our SGLIs to VGLI or purchasing term insurance.
Notable exceptions to this would be if you have a lot of young kids (college funds) or a special-needs child who could be considered a disabled adult (SBP could be paid out to a special-needs trust). PM or e-mail me if you have questions on that.
Originally Posted by Hardatit
Will continue to add 40-45K yearly for the next 6 years till I retire from the AF. This will put total invested to $550,000 on retirement date not counting whatever interest it my draw from now till then.
$550K invested in Index funds not counting interest for past 6 years hopefully more
Wifes Reserve/self employment $10,000 and retirement pay at 60. $12K yr
There is quite the gap from 38-59.5 almost 22 years when I can start reaping the benefits of the money I worked so hard to put away now SS, TSP, Roth, and some taxable.
How do you guys bridge the gap between ER at 38 yrs old and drawing from investments, TSP, Roth IRA , SS if you can't technically touch if till you're 59.5?
It's surprisingly easy, but again you may not need to worry about tapping your Roth IRAs or your TSPs.
When you retire, you'll find a home and get a VA loan and start paying your mortgage. Your pension income and your side-hustle income will easily cover your non-discretionary expenses because you'll get a 30-year mortgage (with much lower fixed payments) and then you could choose to pay it off faster as your income (pension + side-hustle earnings) rises. You'll probably be tapping your taxable account, but if you chose to withdraw on the taxable account at a highly sustainable 4%/year then you'd have additional funds for discretionary expenses like extra mortgage payments or entertainment.
The reason you can be comfortable with a 30-year mortgage in retirement is because it's a fixed expense while your military pension is a highly-reliable inflation-adjusted annuity. After 13 years of retirement, and despite three years of 0% CPI inflation adjustments, my military pension has risen by over 27%.
Better still, your spouse's Reserve pension starts at age 60 and you'll both start Social Security during the decade afterward. Your taxable accounts probably only have to last until her pension starts. You could easily withdraw an extra $10K-$20K/year during the 20 years after you retire and never touch the Roth IRAs or TSPs.
If you need more funds before age 59.5 then you can also withdraw the contributions from both of your Roth IRAs, tax-free and penalty-free, at any time for any reason. This is in addition to the $10K you withdrew as first-time home buyers.
If you want to tap still even more funds before 59.5 then you could roll your Roth TSPs over to a Roth IRA, wait five tax years, and then start withdrawing the principal (but not the unrealized gains) of the amount you rolled over.
With your pension income and your investment assets, I doubt that you'll go further than tapping Roth IRA contributions. Frankly you might not even touch that if your side businesses take off.
Instead let's look at a new "problem": you may worry more about RMDs.
If you both have Roth IRAs and Roth TSPs then you don't need to worry about RMDs. But if either of you have a traditional TSP account (with tax-deferred contributions, not just tax-free pay from a combat zone) then let's look at income tax brackets.
Start with your spouse's Reserve pension. Because she'll "retire awaiting pay", then when her pension begins (age 60 unless she deployed to a combat zone after 27 Jan 08) her seniority in her retired rank will be calculated as though she was on active duty all the way up to age 60. This means that her pay column for her Reserve pension will effectively be the >30 column for her retired rank. It'll also be calculated at the pay tables in effect during the year she turns age 60, so her Reserve pension will be approximately adjusted for inflation in today's dollars.
Now let's take a look at your income tax bracket when she starts her pension:
calculate her Reserve pension using the >30 column of today's pay tables at her retired rank.
add in your pension (today's dollars)
add in your side hustle income(s)
add in taxable dividend/interest income.
That's your income-tax bracket when she turns age 60.
Compare that to your income-tax bracket on the day you retire, which is probably years before her Reserve pension starts. I suspect that you're in the 15% income-tax bracket now (active duty) and you'll be well into the 15% income-tax bracket when you're both retired (because she's receiving her Reserve pension). This means that when you start taking RMDs from your traditional TSP, you'll be paying taxes in the the 15% income-tax bracket.
But for the two decades after you retire (before her Reserve pension starts up), you'll probably be in the 10% income-tax bracket-- unless your side income really takes off. So you may determine that your income tax bracket will go UP when her pension starts. That's what's happening for my spouse and me. It happens to every other dual-military retiree couple I know, even if one of them has a Reserve pension.
This means that not only will you not be tapping your TSPs or your Roth IRAs before age 59.5, but you'll also have to consider converting your traditional TSP accounts to Roth IRAs before her pension starts. That's what my spouse and I are doing now.
We've covered a lot of ground here. You can find more details on the blog (search for keywords or check the titles in the archives) or you can probably find the book in your local public/base library.