Any middle class ER wannabe's?

[Nords]

Mommas, don't let your babies grow up to be...

I never ignored it and it's NO secret -- I earned it.

Good post, GD-ER. And for any young dreamers getting the impression that a military retirement is a slam-dunk deal, remember that you only hear about it from the survivors.

Joining the military for the money is even more messed up than those joining for the prospect of killing people & breaking things...

Case in point-- my scared-of-college nephew joined the Army when the Navy recruiter said he was too tall for submarines (?!?). The Army gave him a $5000 bonus for being able to write "Ranger" on his enlistment contract. By Nov 2001 (Happy Thanksgiving AND Birthday) he was on his way to Afghanistan. In June 2002 he was back for an encore (great 4th of July fireworks, and all the other workdays too). By Dec 2002 (Ho-ho-ho) he was in Iraq (yes, he was aware that the war wouldn't start for another three months). By May '03, West Point didn't seem like such a bad place after all.

Funny thing-- no one messed with him during Plebe Year. He's happier in his 2nd year, although he says that the only thing keeping down his Woop stress level is the Combat Weapons Team...

 

[Calgary_Girl]

Hubby and I are on the high side.....combined we will pull in $185,000 gross this year. The variable is hubby's bonus, which could be quite substantial in 2005. If so, that just gets us closer to ER.

The dilemma we face is when to pull the plug. We have both grown accustomed to traveling and I picture us spending ER in a warm climate during the winter months and the remaining months back home in Calgary. Also, no kids yet so we don't know how much they'll cost. I am torn between paring down our lifestyle and ER'ing ASAP or keep working for "the man" and saving saving saving in order to travel.

 

[wildcat]

ClRe: Any middle class ER wannabe's?

Calgary Girl -

Re: answer not if but when
I am not saying you didn't earn it but I imagine most people would rather be in your shoes around that time.

 

[Calgary_Girl]

wildcat: Yes, it's a nice "problem" to have.

 

[Hyperborea]

I never ignored it and it's NO secret -- I earned it. It was part of the compensation package. I accepted lower wages for 25 yrs to receive deferred compensation in the form of a pension.

Right, I understand that.  I made no claim that it was not earned.  However, your salary was effectively higher because of the deferred compensation - probably on the order of 10's of thousands extra per year.  What probably helps most too is that they have no choice about the extra compensation going towards the pension - if they did many would probably spend it every year instead.

For the "average joe" the corporate pension is mostly gone and what's not gone doesn't look too sound, making a high income is not possible for everyone, and winning the "lottery" takes a lot of luck.  The point was that perhaps the government employee pension is the best route to FIRE for most.

Although retirement programs have changed alot, since I enlisted -- they still can provide someone an ER<as HB mentioned>. IF they are willing to make all the sacrifices and accept the risks inherent with the duty. The extent of these sacrifices and risks are hard to predict and in retrospect -- I made a very good choice and my timing could have been alot worse...

Good points.  Pensions may have a lot of plusses for early retirement but they do come with restrictions.

ER is more about choices - I could have taken a 6 figure job after I retired and still collected my pension -- BUT I chose ER. NOT everyone can walk away from that kind of money. I could have stayed in for another 3+ years, earning nearly double my retired pay and a higher pension. It takes a desire to ER - Life is definitely more than money!

Another good point.  Once I get to my "quit" amount I too could stay another year.  Will I?  I don't think so but then I'm not there yet.  No matter if it's saving from a high income job or a pension it takes getting to the point that you have the financial wherewithall to support yourself before you can make that choice.

 

[wildcat]

OK quick question to people on a topic I am probably too young to know anything about. With regard to corporate pensions do you have to be an employee for so many years to qualify for the pension? If so doesn't that prevent people from moving around in search of better jobs/wages? Sorry but I don't know a thing about 'em.

 

[uncledrz]

OK quick question to people on a topic I am probably too young to know anything about.  With regard to corporate pensions do you have to be an employee for so many years to qualify for the pension?  If so doesn't that prevent people from moving around in search of better jobs/wages?  Sorry but I don't know a thing about 'em.

Wildcat
I'll take a shot at a response although its been a good 15 years since I have really worked through the pension issues. If this information needs update, anyone else please jump in.

Employee Retirement Income Secuity Act (ERISA) requires that pension vest after 5 years. That means if you work for a company under a covered pension from age 25-30, you have an interest in the pension, a right to receive the pension, which will not be lost if you change jobs.

Payment from the pension, under the terms of the pension, is a different matter. Although vested, the pension payment will probably not be available until age 55-65 or a set number of years of service (30 years is frequently used).

Pensions build in value (depending on the formula used) in the later years, so leaving after 5 years normally provides a very small pension.

Uncledrz

 

[Mr._johngalt]

The only COLA in our future is what we might mix in our rum

Here is a slightly different angle on this
"middle class ER wannabe" thing. I know what makes me tick, ER-wise and otherwise. And, got a pretty good
handle on DW after 4 years together. The point is,
do any of you couples have extremely diverse economic
backgrounds? We do. I grew up comfortably
middle class. My spouse grew up dirt poor. She and her sister were talking about how they both tend to overbuy and hoard stuff (clothes, food etc). It's an obvious result of having grown up with pretty much nothing. Anyway,
meshing different lifestyles from the past can be a trick
no matter how you do it.

JG

 

[unclemick]

SO was Catholic orphanage/foster home kid. I was hard core bluecollar lunchbucket. Think - the old William Bendix TV series 'The Life of Riley' - except in a lumbermill. Depression Era parents who thought stocks were poison.

Learned everything from the Public library and school of hard knocks - as to investing. Over thirty years made about every mistake in the book. Except perhaps commoditity futures.

 

[malakito]

The only COLA in our future is what we might mix in our rum

Here is a slightly different angle on this
"middle class ER wannabe" thing. I know what makes me tick, ER-wise and otherwise. And, got a pretty good
handle on DW after 4 years together. The point is,
do any of you couples have extremely diverse economic
backgrounds? We do. I grew up comfortably
middle class. My spouse grew up dirt poor. She and her sister were talking about how they both tend to overbuy and hoard stuff (clothes, food etc). It's an obvious result of having grown up with pretty much nothing. Anyway,
meshing different lifestyles from the past can be a trick
no matter how you do it.

JG

I grew up the son of a fairly prototypical "Millionaire Next Door" -- actually my dad was a doctor but he fortunately didn't live up to the doctor image of driving a fancy car and making dumb investments. My mother is of Scottish extraction; one of her famous (to me) quotes was "Like my outfit? I bought it all for less than a dollar at a garage sale!" (I still wonder to this day if that included her foundation wear. I hope not.) I tend to want to be frugal most of the time but will splurge and be irresponsible with money sometimes.

My wife grew up a PK whose mother married for love, but her maternal lineage going back several generations has often wanted and tried to have the finer things in life regardless of their actual financial situation. My wife, after 14 years being married to me is an interesting mix of frugal and spendthrift.

Overall I would say I have tended to be the more frugal and my wife tended to be the spender, but in recent years we have actually become more moderate. I will tend to spend more and she has tended to spend less. I'm not sure why but it's probably healthy in our case.

malakito

 

[Mr._johngalt]

I just thought of this. My parent's background was
similar to ours, i.e. my Dad grew up very poor
but my mother was solid middle class. Both went
through the Depression though and so they don't spend much. That's good because both are
quite unsophisticated about finances in general.

JG

 

[wildcat]

Thanks uncledrz!! But as many people have noted on the thread the corporate pension is crap compared to the good old days. Trying to consider all factors when I get outta school and bounce around from job to job. I was puzzled why so many people supported making a jump after 3-5 yrs with pension issues. I suppose most think they can do well w/o and would rather find a job with opportunities.

 

[laurence]

The pension issue is real for me. I think I could make 10-20k more if I jumped, but if I stay on 3 more years (for 5 total) I qualify for the pension. They even have an online calculator that shows you what you'd get in today's dollars. IF I survive that long, it would be hundreds of thousands I would walk away from if I left before then. Then again, if the next company had a pension.....

 

[preben]

"My wife grew up a PK" Huh? Walther? PPK?

 

[Mr._johngalt]

"PK"? I thought it was "Princess, Kosher".
Or maybe not?

JG

 

[Jarhead*]

Re: Mommas, don't let your babies grow up to be...

Doesn't exactly take a genius to look at the pay charts for Os & Es and choose one...  However, the extra pay isn't free and I knew alot of Es, that wanted NO part of all the stuff that goes with being an O...  
Noticed some of those big bonuses for spec ops, etc... look tempting <NOT>... Wonder, if he'll actually end up with a short term paycut as a butter bar w/o those bonuses and tax bennies...  

I took a cut enterring service and probably didn't reach the break even point until I went over 20... It's all gravy now. 8)

GDER: One point that seems to always be overlooked when discussions about lower salary with a COLA"d pension, verses larger salary without same is TAXES.

I have tried to put this point across to my older daughter. She works for the state of Calif. At a certain point she will qualify for a COLA'D pension.
My youngest daughter is a Reg. Mgr for a large retail company. She has no pension, and no matching deferred comp. scheme.
My youngest daughter, because she makes far more money than my older daughter, pays a helluva lot more in taxes. That fact makes the differences in "after tax spendible", a little less attractive.
Added to that, is my youngest daughter spends her days in a highly competitive, cut-throat invironment, while my older daughter puts in her time with the state,
has regular hours, lots of paid holidays, and a comparatively "stress free environment".
All my older daughter sees is that her sister makes more money than her.
While I personally, while working, was in my younger daughters situation, I think by far, my daughter that works for the state has the best deal.
She'll figure that out later in life.

 

[laurence]

GD-ER, you are right, no peanut gallery about it. I guess there is a (possibly false) mental comfort of garanteed income streams. Even if I totally flop as an investor, I'll at least have a survivable income at 65. But I'm starting to see that it's not as big an incentive as it looks...

 

[Nords]

"My wife grew up a PK" Huh?

Preacher's kid.

 

[deserat]

Ahh yes - as an officer, you get to do 'extra duties'.

The thread on taxes is very important - while many of my active duty military friends moan about what they make in comparison to the civilian sector, I've explained to them that all of my salary is taxed with my only sheltering being the 403B and the various flexible spending accounts. The military has these wonderful allowances which aren't taxed - bottom line, it is what you get to keep not what you make---better cash flow in the military allowed me to save quite a bit in a short amount of time. Now that I'm back in civilian land, the cash flow is quite a bit less.

Bridget

 

[Jarhead*]

Re: Mommas, don't let your babies grow up to be...

I started to mention taxes, but there are so many variables and what will the tax code be 30 years from now?

The additional $10-20k currently gets taxed at highest applicable rate for individual/couple.
Investing the after tax portion and then paying tax as applicable on cap gains, dividends, etc. (currently at reduced rates) and then doing SWR withdrawals is a fairly complex problem with lots of variables.

{IF the additional salary<or part> could be invested deferred in a 401 or trad IRA, it is more analogous to a pension, in that it is taxed when it is received. A Roth<&401> is probably a better alternative depending on eligibility.}

I suppose 60 years from now you could add all the applicable taxes paid on the extra income, investment returns and compare it to cola'd pension taxes... To further complicate matters, when/if SS is received the pension could be taxed at a higher rate and/or result in more of the SS being taxed. The whole problem hurts my head thinking about it.

Sooo, you could get out your crystal ball on future tax codes and work through all the numbers... Personally NOT at all sure of the result.

Of course, if/when the additional salary is just used for more goodies -- the pension wins by default...

GDER: I guess I didn't make myself clear when I was talking about taxes.

I was talking about "current" income taxes based on current income.
Daughter #1 makes less than Daughter#2.
Daughter #1 has cola'd pension. Daughter #2 has no pension.
Daughter #1 has phantom income that is not taxed, due to eventual cola'd retirement.

 

[lets-retire]

I grew up in an upper middle calss family, but received the bare minimum to live (clothes and such, had enough to eat), while watching the halfsiblings living it up. The wife had two familes one was dirt poor the other similar to mine.

Of course me and the wife made many mistakes while learning about money and investing, however now we are on the right track and save almost, 20% of our gross income. That number will go up substantially within the next 2-3 years.

I think the adage of government jobs/retirements stating "It'll let you live comfortably, but will not make you rich," is apropriate. Personally if I had to do it over I'd prolly go with the savings and screw the pension. The reason, my wife makes about 2x my salary. The comparasions of our experience is, she has a total of 7 years in her industry, no college, numerous promotion possibilities, and a strong work ethic. My experience is, 4 year degree, 14 years in my industry, no promotion potential, and a strong work ethic.

My opinion could be colored by my current station in life. I have everything I want/need and if I recieved a 100% increase in pay my wife and I would be sitting very nice and could retire five years earlier.

 

[Mr._johngalt]

I had a strong "work ethic" from Day One. Before I got
out of high school I had the following jobs:

Pin setter in a bowling alley (dated myself there)
Caught and sold catfish (probably illegal now)
Cleaned barber shops
Worked in a state park
Mowed/raked lawns
Worked on farms (baled hay, etc)
Worked in a grocery store/butcher shop

After high school (1962) I held multiple jobs/sources
of income almost continuously until about 1976, all the while almost 100% oblivious to ER possibilities. Never saved a dime.
Interesting to speculate about what could have been
accomplished had I been aware earlier.

JG

 

[haha]

Before I got
out of high school I had the following jobs:

Pin setter in a bowling alley (dated myself there)

I did this too. Only place in the town that was cool in summer. I don't remember what the pay was, but I got some tips so overall it was pretty good. I was 12-13 years old. Main thing I remember was getting the hell out of the way of flying pins, and being cool. Place was called "Dixie Bowl", and well run by a friendly blond named Vi.

Mikey

 

[Zipper]

You sound like me mikey.......and I bet you kept your weight in an acceptable range all your life!

 

[JonnyM]

$70,000 last year before tax. Spent about 32,000 after tax. I'm 52 this year and will probably work another year unless our reorg ticks me off too much. Spent everything I earned till about five years ago but had various positions with a company that has a good cola pension. Got to the point last year where pension will cover all expenses with some left over for fun. Will have income from a rental and a mortgage as well . Not awake yet have a week off.

Bruce

We are in very similar situation. Clearly I've learned from this board that ER is destined for the very few, even though the opportunity is there for many. I'm turning 50 this year which is the minimum age to get access to that COLA'd pension. I received my SS yearly estimate a couple weeks ago. It is always interesting to see one's working life represented by yearly income.

I doubt if many take medium income Government jobs because of the possible great pension benefit in the far future, they should, but in my examination of my coworkers, most never considered it. If anything the benefit that attracted them was the paid health plans. I got in 6 months before my Son was born, way-cool to have that potential devistating expense suddenly completely covered.

I would point out that one of the cool things about these types of pensions is that they especially reward those that are effective in promoting during their careers, as the calculation is based on your final salary, yet the withholding is based on your current salary. If you can end on a high note, and not get trapped into spending habits that chew up your salary as it slowly increases, you are In Like Flint. I'm going to work one more year, mostly because at that point I will be maxed out career/salary wise. The only advantage to staying after that for me would be the actuaries betting I'll die sooner, which is worth about 3k more per year worked. Not worth it to me, but overall Extremely worth it to 95% of my coworkers. ER is not for everybody. Yet I can barely contain my enthusiasm for it, while my peers scratch their heads and wonder why I'd "throw away" all that potential money.