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Retiring from the Military?
Old 09-15-2004, 01:28 PM   #1
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Retiring from the Military?

Hi. I'm looking for some advice ER's, especially those who retired with a military pension. I know that a COLA adjusted pension and access to healthcare is a big help when it comes to ER, but wondering how much we need to save in addition to that. We don't know anyone who has actually retired for good after leaving the military so some advice from people who have actually done that would be helpful.

My husband is currently an active duty officer who is eligible to retire in 13 years at age 44, but plans to stay in longer if possible because he loves his job. However, he also knows that at the 20 year mark he'll only be working for half his pay, so leaving the service will be mighty tempting and I want to be prepared for it. As for me, I'm a computer programmer who made a decent salary the first 3 years of our marriage and then took two years off for graduate school (I wouldn't have bothered but it was free and a great experience). Currently I'm only doing very part time freelance since we are in a remote duty station and jobs are scarce.

Siutation:

-We max out his TSP (401k equivalent) at 9% of base pay + 100% of combat pay.
-Since he is deployed to a combat zone we are also taking advantage of a special
tax free savings account that earns 10% interest on $10K.
-He gets no matching on TSP, but in 2006 the percentage limits are removed from the TSP
and we will have no problem contributing the full $15K/year.

-We currently have only about $50K in Roth IRAs and TSP, but also have no debt of any kind.
-My income will be uncertain for the next 15 years due to moves and the desire to start a family soon.

My biggest concern is that we have not been able to purchase a home due to our frequent moves. Our next duty station will be 3 years overseas, so not much chance of buying property then either. I know that home ownership is not mandatory for ER, but seems like it would be a big help to be mortgage free. My second biggest concern is college expenses for children.

Some portion of our retirement would likely be spent doing the perpetual traveller thing, since we both love foreign cultures and frugally travelling overseas. Retiring abroad is also a possibility, although we would probably want to return to the US and settle down at some point.

Anyway, I'm just wondering if its possible to actually *for real* retire on a military pension? How about while supporting a family? Also, wondering what's a reasonable amount to shoot for in terms of retirement savings. I keep seing numbers of $1 million and up from the major money mags, but this doesn't seem to take into account those who will be retiring with some sort of pension.

Any advice would be appreciated.
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Re: Retiring from the Military?
Old 09-15-2004, 01:39 PM   #2
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Re: Retiring from the Military?

I'm so jealous. I wish my wife wanted ER as bad as I do. Instead, she's driving her new VW Wagon atm. Long as she's happy :-/
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Re: Retiring from the Military?
Old 09-15-2004, 03:10 PM   #3
 
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Re: Retiring from the Military?

Quote:
Anyway, I'm just wondering if its possible to actually *for real* retire on a military pension? How about while supporting a family? Also, wondering what's a reasonable amount to shoot for in terms of retirement savings. I keep seing numbers of $1 million and up from the major money mags, but this doesn't seem to take into account those who will be retiring with some sort of pension.

I did it and I was just an E-7 with exactly 20 yrs. No family but then again no second freebie income

If the Old Man is an officer, assume he retires as an 0-5 at 20. Pension will be 37,612.8 per yr in todays dollars. With TriCare you're set better than at least 50% of Americans for doing nothing for another 50 or so yrs.

How much do you need to save? You should be gagging on cash unless you're like everybody else and just pissing it away. Just save! You'll have way more than enough unless you DO want to throw it away.
The reason most ret. military can't retire on their pensions and free medical policy (especially officers) is because they are like everybody else:

Mired in debt.

Need to have all the toys they see everybody else with

Think "work" is some sort of necessary "life affirming" thing that "defines a person" . That one must work to be a viable human being

The difference is they have ten tons more than most people.
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Re: Retiring from the Military?
Old 09-15-2004, 06:12 PM   #4
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Re: Retiring from the Military?

Hello Flowgirl,

Glad to see there are other military folks reading this board. Like Didit said retiring as an officer will be pretty good compared to many others. It will be nice to have that peanut butter money coming in.

I have always heard that after 20 you are working for half pay but this is a fallacy. Think about all the allowances that are tax free. And if you are like me being a resident of the great state of Texas no state income tax either.

I am eligible to retire in 5 yrs, 9 months, and 15 days but who is counting. I once said I would be in for 20 years and 20 minutes but no more. But now who knows. It will depend on several factors at that time. However, I am determined that financial will not be the main driver.

I truly believe the profession of arms is a noble calling. I find the longer I stay the more of a company man I become. But I fully recognize that this will come to an end and I will go on. I struggle with what I am going to do afterwards. Work, retire retire, or what. I change my mind everytime the wind changes directions. But that is ok for now at least I recognize it. There is a lot of job satisfaction with military service but at a cost. No matter how many times I tell myself to balance home and work I sometimes get tilted to one side. I will go along for a few months and all is well then I let myself get overloaded.

For example several nights the last two weeks I have only seen my kids in the bed in the morning and at night. I am taking my last day of use or loose leave this year tomorrow and going on a first grade field trip to look at bugs. I am in no way complaining. I could be deployed and not see my family for a year. The titles I am most proud of is not Major or Lt Col, but rather husband or Dad.

I have run the numbers every which way several times and truly believe we will have more income when I retire than now. It is hard to say how much extra you should be saving since you appear to not be in the minivan kids mode yet. Our kids are wonderful and we have been very blessed. My wife is able to stay home with them and enjoy being a parent. She has a PhD and does some consulting work plus a lot of charity things as well. We have a wonderful life.

When I was further out from retirement I used to say I wanted to make up the difference from what I was bringing home before retirement and in retirement from investment income. I now look more at the expense side. It is my goal to get my fixed costs as low as possible and get the disposable income as high as possible. Reading these type boards, listening to other peoples strategies has really helped.

My advice is simple plan you work and work you plan. Things will be ok..
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If military ER is so easy... (part 1 of 2)
Old 09-15-2004, 07:28 PM   #5
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If military ER is so easy... (part 1 of 2)

... why aren't there more of us?

Welcome to the club, FlowGirl! Awareness is the first step to ER salvation.

Although I have to admit that our fellow military don't seem to get it. GDER and I are both retired military, although he spends a lot of time in vacation condos and doesn't post much lately. There are very few other military ERs on this board and, I fear, in the world. Despite hundreds of shipmates I personally know of only TWO other military ERs, and even they occasionally lapse into PT work for luxuries.

I retired two-plus years ago and my spouse is a Naval Reservist. Her drill paychecks are about to end but in 2021 she'll haul her own weight, I mean collect her own pension. During my first couple years on this & other boards I relentlessly pestered the "veteran ERs" for the hidden flaw in ER. After 24 years and a dozen moves, I couldn't believe that I'd be able to stay active & interested for more than one duty cycle.

I'm happy to say that there doesn't seem to be a hidden flaw. The "worst" of it is that it's my own damn fault if I'm overcommitted & exhausted, because I can't blame that on work anymore. But judging from shipmates who can't wait to exchange working uniform for office uniform, we're in the very small minority.

I blame the military's "retirement transition" programs. They're not at all about retirement-- they're entirely about finding a job so that you don't embarrass your chain of command as another homeless veteran. The military's personal financial planning programs have greatly improved but you have to take matters into your own hands. I was driving myself crazy with self-assessment profiles and "marketing yourself for a second career" until my father asked whether we'd bothered to save any money over the last two decades. Hopefully you guys will make a smoother transition.

First, your spouse didn't join the military for the money and you presumably didn't marry for his pension. While he should stay on active duty as long as you're both happy, don't hesitate to punch out. As Tomcat has pointed out, family has a way of realigning every one of your priorities and making your work miserable. I probably stayed on active duty five years too long due to fear & ignorance and a misplaced desire to "provide for the family". My wife left active duty just short of 18 years and has never been happier in the Reserves. If we'd realized that a decade ago, I might never have made it to your point. After 15-18 years of service his assignment officers will stop asking for his preferences and start telling him his "choices". When that happens, remember that the Reserves can provide 20-40 weeks of work per year-- even full-time if desired-- and a great pension at age 60. The Reserves also provides plenty of opportunity for you to start your own career while he takes care of the kids.

But if he makes it to 20 without literally getting his assets shot off, then he's not working for half pay. It's more like one-third pay or, in a combat zone, one-fourth. A Navy submarine O-4 earns approximately $110K-$125K per year with sea-duty & nuclear bonus pay. My pension is $33K/year. If he's having fun after 20, then stay a year or two. But I hope your definition of "fun" includes "Pentagon". Don't overstay your welcome for some arbitrary longevity or financial goal.

20 is also a well-defined time for you to start your own career and turn the home fires over to his hands. It's a great way for him to keep his skills in by managing a small command (CINCHouse) while you get to follow your own desire. I know one officer who did his 20 and happily retired. His spouse spent the first 20 taking care of the family but was always taking a college course or writing a thesis (she actually went into labor during her master's thesis presentation). She got her doctorate before he retired and was quickly hired as a GS-13. She still teaches on the side and he happily gets in 18 holes while the kids are at school.

If you know how to live on his current paycheck then continue to save every longevity raise, annual raise, & promotion pay. You'll quickly get to ER by saving like an O-5 and spending like an O-3. For the rest of his career, you should continue to keep dumping the max into the TSP. Follow that up with a pair of Roth IRAs or conventional IRAs. Follow THAT up with taxable accounts of low-cost mutual funds or ETFs. You'll save more than enough for college by putting away $100/week per kid, depending on how much of the college experience you want to subsidize and how much you feel they should contribute. Just $50/month per kid may be enough. I wouldn't go with a 529 because of the higher expenses & limited choices but Coverdells look like a good deal and I bonds can also be saved tax-free for education.

Since his pension includes full healthcare and a COLA from presumably the nation's most trustworthy corporation, you may want to carry a very high stock allocation in your TSP, IRA, and retirement portfolios. Spouse & I are just over 90% with two years' living expenses in cash. The returns are higher but the volatility can be breathtaking, so do enough bonds to enable you to sleep at night.

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If military ER is so easy (part 2 of 2)
Old 09-15-2004, 07:29 PM   #6
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If military ER is so easy (part 2 of 2)

It takes a special person to own real estate while you're in the military. Some would call that person STUPID, others would say entrepreneurial. We've generally benefited from rising markets but we've been more lucky than smart and we've had our share of notable exceptions. The worst part is being an absentee landlord from several time zones away. The second-worst part is transferring only 12-18 months after closing. If you just itch with desire to own a home and perhaps be forced by a transfer into being a landlord despite all the months of negative cashflow, then try it while you're young enough to recover from the risks. If you're ambivalent about home ownership then relax and hold off indefinitely. You're not missing any profits and you'll certainly escape a lot of headaches. You may find that your retirement lifestyle works just fine by renting until the kids fly the nest and you can start traveling. Today's sky-high real estate will inevitably become tomorrow's fire-sale foreclosure, and after retirement you'll have all the time in the world to do your research and pick the bargains.

Finally, $1M is certainly great to have but it's too high and right now that could even be discouraging. Your spouse will presumably qualify for a pension of (at a minimum) O-4/20 years. With today's high-three pension system that's approximately $33,500/year. (If you're under Redux, then don't take the $30K.) In Hawaii with a kid our annual expenses are ~$45K plus a $25K mortgage. If you achieve similar expenses then you'll have to fund a cashflow deficit of approx $12K plus another $15-20K rent/mortgage expenses. (We have a big mortgage.) You'll want to limit your retirement portfolio's annual withdrawal rate to 4% or less, so for the "worst-case" spending of $32K/year above your pension you'll need $800K. At Social Security you'll need less. If you find a cheaper cost of living, cheaper housing, a promotion to O-5/6, more than 20 years of service, or a career of your own then your cashflow deficit will be lower and so will your portfolio requirements. $500K is not unreasonable.

Social Security for military ERs is a whole 'nother thread. Let's just say that a successful military ER is doomed to max out SS at about $10K/year.

Keep an eye on your budget, keep reading this board, and run your numbers through FIRECALC. Focus on the savings. The portfolio will grow on its own.

TRICARE Retired has been hassle-free. Retiree pension COLA raises are a good deal, but of course neither of those was the reason that you guys ended up in the military in the first place...
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Re: Retiring from the Military?
Old 09-15-2004, 08:39 PM   #7
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Re: Retiring from the Military?

Nords,

Thanks for some great advice.

You are definitely right about not being in this for the money. My husband was accepted at a top law school the year before he joined up for the service ( and in the Marine Corps Infantry no less), and I had a well paying computer job and a lot more stability.

Still, I'm pretty happy with the life so far, and my husband absolutely loves going to work every day. After seeing him completely miserable with his previous work, 7 years of very high job satisfaction is absolutely priceless. He's happy to stay in forever, but I'm more realistic and want to make retirement after 20 a viable option in case things stop being fun for him (or me!)

I definitely appreciate the perspective on real estate. Although I have some desire to own a home, I know it won't feel very homey to have move out 2 years later. We also have little desire to be long distance landlords. We have friends who have gotten lucky with property and duty stations and made a bundle, and of course it would be nice to bank that BAH, but not sure it makes sense for us until after retirement. Although I do worry about being priced out of the market years from now.

Your estimate of $500K is very close to my own, although of course its hard to predict expenses this far out and with no children yet. We live pretty frugally, save, and try to avoid debt, but also try to balance that with enjoying ourselves today. I don't think saving this kind of dough will be a struggle, but it will require conscious effort.
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Re: Retiring from the Military?
Old 09-15-2004, 08:54 PM   #8
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Re: Retiring from the Military?

Quote:


How much do you need to save? You should be gagging on cash unless you're like everybody else and just pissing it away. Just save! You'll have way more than enough unless you DO want to throw it away.
The reason most ret. military can't retire on their pensions and free medical policy (especially officers) is because they are like everybody else:

Mired in debt.

Need to have all the toys they see everybody else with

I know what you mean. This past year was the first time I have ever lived on base. I used to look up and down the street at the new BMWs and SUVs and the new furniture coming in and out during moves and wonder what the heck we were doing wrong (up until this year I drove the same car I bought as a sophomore in college 9 years ago).

It wasn't until I started talking to people that I realized most of the cars are leased, most of the furniture on credit cards, and very few take advantage of things like TSP.
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Re: Retiring from the Military?
Old 09-16-2004, 07:28 AM   #9
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Re: Retiring from the Military?

I like the comment about either being stupid or entrepenural when it comes to real estate being in the military. Not sure where we fall along that spectrum. We own our current home and two rentals all in the area we currently live in. Home will be paid off in less than 4 years and one of the rentals could be paid off before I retire if we pushed it.

We only bought in an area that we would be willing to stay in when we retire. I don't think I would buy in a place that is just a touch and go on an assignment unless I knew I was willing to rent it for a few years til I could sell it. There is a possibility we might have to be long distance landlords in the next year or so and I do think about that. Would not be my first choice but you do what you have to do.

I have a buddy 0-3 type that has 5 rentals. He is leveraged to the hilt but making money at least on paper. Our approach is completely different. I want the income in 6 years and he wants his in 20.

Flowgirl you mentioned the 500K number as an estimate for savings. Depending on your withdraw strategy the number can vary alot. For example I estimate between 350k-750k using different approaches. I would like the SWR around 2.75 percent but if I crank it up it works also. Plus if I am willing to shorten the time line on what I call the living pool or include the income from the rentals I can go real low. For us we really want to make sure we protect the years after I first retire because we will have 2 young teenagers at home. We have a strong desire to spend a lot of time with them before they go off to college. However, they may not want to spend time with us

I have a couple of spreadsheets that take into account portfolio value, living pool buffer, military retirement, cola, etc and by adjusting the variables gives me pretty good confidence that all will be well. There is more than one way to skin this cat.



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Re: Retiring from the Military?
Old 09-16-2004, 04:54 PM   #10
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Re: Retiring from the Military?

Flowgirl,
- You've already gotten tons of very good advice from Nords, GDER and the others--they've helped me, too. I submited my retirement paperwork a few months ago, and I'll be out in a couple of months, basically on a little more than O-5 at 22 yr retirement pay. A few small points to add on to/amplify the previous comments:
- Hubby loves his job now--most of us did for the decade or so. I think it isn't us that changed, but the nature of the work. Still, I've had a very rewarding career and will remember some wonderful work-and especially the people.
- We saved approx 20% of our pay to start, and bumped it up by about 50% of each longevity/grade increase. It added up. I hope the stock market is good to you in the coming 10 years, unfortunately most folks are betting against number like what we've seen.
- Spend little. We've never bought a new car, etc. I think in some civilian fields there's a legitimate argument for "looking successful" to attract more success (promotions, clients, etc). In the military you don't have to do any of that--your "status" is as clear as can be, and your pay is a matter of public record. So take advantage of that--you don't have to keep up with the Jones's.
- The pension is worth a lot. A defined benefit plan that is indexed for inflation and comes with a good medical plan--it is a valuable benefit. And, as you are probably realizing while your husband is away (in a combat zone, no less) --he (and your family) will earn every nickel of it. It probably isn't too inaccurate to simply think of it as deferred overtime pay. Don't forget that you'll probably sign up for the Survivor's Benefit Plan ( a good deal by most accounts, but it will reduce your takehome pay by a couple of hundred bucks). You might also want the Long Term Care insurance to cover both of you--another 100 bucks per month. And, possibly taxes. So, your takehome pay won't even be the 50% of the base pay from the pay tables. Still, it will go a long way toward helping you realize your ER dreams, but only if you keep living below your means.
- Real Estate: It's very seldom worth it to buy when you'll be moving every few years. And, in most officer MOSs, you will be moving frequently--more frequently as your husband is promoted. We did buy houses and never really got soaked, but many folks do. You''ll be under time constraints to buy and when you sell--finding a bargain is tough in those circumstances. If you DO buy--buy "below your means."
- Is it possible to ER at 20 if you save regularly and have your pension? Yes, but . . . Our family is nearly there--but our child's college bills are looming and I just don't think I'll be able to entirely retire--and that's about the only reason. Still--I can take a FUN job (if I can find one) without trying to scratch and claw for the last buck. Stay tuned--I'll let you know how things turn out.

Best of luck to both you and your husband!

samclem
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Re: Retiring from the Military?
Old 09-16-2004, 09:27 PM   #11
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Re: Retiring from the Military?

Thanks for all the advice - especially the reality check on real estate. I've been feeling behind the curve because we don't own a home, but after hearing from those who lived the military life for 20+ years I now feel a lot more comfortable about renting until we retire. Although I will definitely keep an eye open for good opportunities. Frankly though, I think renting fits a lot better with our current goals and lifestyle anyway - we're currently headed for a 3 year overseas tour starting next year (spending time abroad is one of our major goals) and our lack of encumbrances made it very easy to say "yes" to the assignment. And although I'm not a big fan of living on base, it was an absolute godsend this year while the husband was gearing up for deployment - a 5 minute commute, and home for lunch every day really took the edge off the long hours at the office and in the field.


I very much like the idea of bumping up the savings steadily each year. One idea I've been toying with is to start saving at least 25% of base pay this year, and then increase that by 2% each year until retirement so that we're saving 50% of base pay by the 20 year mark. By the final year we'd be living on only half of base pay and thus have a pretty good idea of whether we could actually survive on the pension amount (assuming that a 4% or less SWR from TSP and IRAs would make up the loss of BAH and other allowances). The plan would also be for any income I bring in over the next 13-15 years to go towards retirement or kid's college fund, rather than inflating our lifestyle beyond what our retirement income could support.

Might be ambitious but probably worth a shot.
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Re: Retiring from the Military?
Old 09-17-2004, 08:08 AM   #12
 
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Re: Retiring from the Military?

Dear Flowgirl,
You might want to check out the "Tightwad Gazette", available through libraries or at Amazon. The author's husbank retired from army and they planned for ER and did it even though they have 6 or so kids. Even though a lot of the prices and numbers of the book are outdated now, it shows how ER could be done if you plan well and are willing to make your choices.
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