Early 30s military couple, 2028 FIRE goal!

[23isme]

You should run your own numbers on the SBP, but it seemed to me to be pretty expensive for what it provided (monthly premiums forever for 50% of pension to go to my spouse when I die). I felt I could cover the requirement with term insurance to about 65 then self-insure from there, at a lower cost and with more flexibility.
Plus, they way they pitch it in the AF rubbed me the wrong way, almost like a whole life presentation.

 

[king smoothie]

SBP

Hmm, good point. Just today DW and I signed 20-year life insurance policies, so these will overlap with our SGLI over the next 10 years but at least we have low rates locked in. Thinking about it now, though, with the points you made, it would've probably been smarter to opt for 30-year terms and for larger amounts. Perhaps we'll buy another one in a decade as a kind of life insurance ladder...

Why did you decide to opt out of SBP? This is the first I'm hearing about SBP so I'm not smart on the program.

Dual military as well, although I retired as an E7 when my wife (who was also an E7) started MECP to become a nurse and officer so that I wouldn't have to salute her. She is now an O3E. I have considered myself to be retired, semi-retired, or working for goals during various stages since military retirement. SBP is an option where you pay some out of your pension so that if you pass your spouse (or children who are dependents) can receive a portion of your payment. Many service members will compare this to term life insurance and decide it is too costly and opt out. But really it is an annuity it extends part of your retirement annuity for your spouse. Taking the children SBP is a no brainer if you have children that would be covered because it is so inexpensive. The other to me depends on many factors but worthy of consideration for many simply because once in place it is locked in and can't be screwed up due to unfortunate events and if someone lives to be over a hundred can be particularly rewarding. I often refer to SBP as a great "backstop" in case everything goes wrong. But in your case, you may want to pass for spouse coverage, although one can argue there is some value as longevity insurance. Here is a great article: http://www.katehorrell.com/considering-sbp/

 

[Red Badger]

Dual military as well, although I retired as an E7 when my wife (who was also an E7) started MECP to become a nurse and officer so that I wouldn't have to salute her. She is now an O3E. I have considered myself to be retired, semi-retired, or working for goals during various stages since military retirement. SBP is an option where you pay some out of your pension so that if you pass your spouse (or children who are dependents) can receive a portion of your payment. Many service members will compare this to term life insurance and decide it is too costly and opt out. But really it is an annuity it extends part of your retirement annuity for your spouse. Taking the children SBP is a no brainer if you have children that would be covered because it is so inexpensive. The other to me depends on many factors but worthy of consideration for many simply because once in place it is locked in and can't be screwed up due to unfortunate events and if someone lives to be over a hundred can be particularly rewarding. I often refer to SBP as a great "backstop" in case everything goes wrong. But in your case, you may want to pass for spouse coverage, although one can argue there is some value as longevity insurance. Here is a great article: http://www.katehorrell.com/considering-sbp/

I have a medical condition that makes me ineligible for commercial insurance products (except for an annuity, of course) . SBP was a "no brainer" for us. I'm glad it's there, and I'm glad we have it.

I've been at an elevated risk of dropping dead for a couple of decades (I do try to keep the Grim Reaper at bay through reasonable lifestyle choices). I started drawing retirement and paying SBP at 60 last year. Should I suddenly assume room temperature in the near future, I would be very satisfied having only paid in to SBP for couple of years, while my DW was to receive COLA'd payments for the rest of her life (but I'd still be disappointed with my particular status). If I were to live until SBP was paid up, yeah, it would be expensive, and probably wouldn't have to pay out for very long. That's a first world problem I would gladly accept.

One other cautionary note before opting out of SBP. Few remember what real UGLY inflation looks like, and it rears it's head regularly (it has been a long time since US has seen it). When it does (and it will), it can be the IED that hammers a traditional insurance policy. Anybody got a WIN button from the 70's? Just sayin...

 

[Nords]

If you're not familiar with Nords (long-time poster here, who now spends a lot of time on his blog, etc.)...he and his wife are retired military and he's got a website and book dedicated to the military and retirement.

Thanks, Omni!

I appreciate the other heads-up from JDarnell and others who contacted me.

TDub, I suspect you’re going to be fine. Your posted numbers show that you’re earning more than $133K and spending only $77K, which means that you’re saving over 40%. At this rate you may reach FI before you reach your pensions.

I’d suggest taking your careers one obligation at a time. Stay on active duty if you’re feeling challenged & fulfilled, but if the fun stops (especially family issues) then be ready for at least one of you to leave active duty for the Reserve/Guard.
https://the-military-guide.com/dont-gut-20-leave-active-duty-reserves-national-guard/

If you learn about those options now then you won’t be under as much pressure when the unrefusable offer comes your way. As you promote and get to the pointy part of the promotion pyramid, your billet & collocation options will get more complicated. You only need one Reserve/Guard pension to be financially sound for the rest of your lives. One active-duty pension and a Reserve/Guard pension will be financial overkill. Two active-duty pensions... listen to Vanguard when he says that they have way more than enough.

You may decide that you don’t need the Survivor Benefit Plan, either. For spouses, you’ll have plenty of assets and might want to have that 6.5% to spend while you’re both alive. Part of that depends on whether you feel the need to insure your kids as well as your spouse. If a child will be a permanently disabled adult then SBP is essential to fund a Special Needs Trust (which keeps them eligible for other state/community benefits).

SBP becomes a complicated emotional and financial decision, and I recommend spending the money to read CFP Forrest Baumhover’s excellent analysis:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit-ebook/dp/B01EPB5H1Q/ref=sr_1_1

TSP. Stop or minimize. Going forward use taxable accounts. You will need access to that money from 42 until 59.5.

Bigdawg, I thought you knew about this.

There are plenty of ways to tap retirement accounts before age 59.5. All of them are penalty-free and most of them are tax-free:
https://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/

TDub, I’d keep maximizing your TSP and IRA contributions. When you reach FI (and enter lower tax brackets) then you’ll have a slew of Roth IRA conversions to occupy your time between your 40s and 59.5.

 

[HawkeyeNFO]

Welcome, you're receiving pretty good advice, but please ask more questions! We love to help each other out. I'll echo Nords on just about everything he says, including the TSP. Just do it, and max it out. It can be converted later, and can reduce your taxes.

The only other thing I disagree with is the "hit" you take in living overseas. I did my last 2.5 years in Germany, and even with traveling at least once a month for a few nights in a hotel or AirBnB, and a home in the DC area with negative cash flow, I found that we were saving substantial amounts of cash every month, thanks to the generous COLA and housing allowance I received.

 

[Bigdawg]

Bigdawg, I thought you knew about this.

There are plenty of ways to tap retirement accounts before age 59.5. All of them are penalty-free and most of them are tax-free:
https://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/

TDub, I’d keep maximizing your TSP and IRA contributions. When you reach FI (and enter lower tax brackets) then you’ll have a slew of Roth IRA conversions to occupy your time between your 40s and 59.5.

Sorry Nords. Yes that response was hasty. 72T is an option of course. Most of my dual military friends slow down on their TSP contributions as O-4's/O-5's because their balances are at 500-700K (on track to triple by 59.5). Most of those friends funnel money towards taxable and real estate at that point. So many tools. Also most of my dual military friends have kids and lots of deductions so aren't getting a huge boost from TSP tax savings. I know of a few folks who are very TSP heavy regarding their net worth. They wish they were more diversified with their nut.

 

[ohyouknow]

Welcome, you're receiving pretty good advice, but please ask more questions! We love to help each other out. I'll echo Nords on just about everything he says, including the TSP. Just do it, and max it out. It can be converted later, and can reduce your taxes.



The only other thing I disagree with is the "hit" you take in living overseas. I did my last 2.5 years in Germany, and even with traveling at least once a month for a few nights in a hotel or AirBnB, and a home in the DC area with negative cash flow, I found that we were saving substantial amounts of cash every month, thanks to the generous COLA and housing allowance I received.

I probably should have been more specific when I said an overseas tour is a financial hit....it probably depends on where you would be stationed if you weren’t overseas, what the dollar=euro is doing, and almost certainly on whether you are dual-mil. In our case we were in the DC area for 4 years, earning ~$5600 in BAH and paying ~$3000 for a large/nice 4 bedroom house on base (we were required to live on base.) We moved to Germany (again required to live on base) and both of us had to give up our housing allowances completely. Base housing here isn’t as nice and we live in a small duplex. At the time we moved, the euro and dollar almost got to even. COLA was relatively insignificant, mine was a few hundred month. My husband has our kids as dependents so his was a little more but overall maybe $1000/month. COLA fluctuates and now it is a little better, but it’s still not nearly what we pocketed in DC. Also we spend more since the euro-to-dollar isn’t very good... it is expensive to travel, eat out, and shop on the economy because the dollar doesn’t go very far.
In a few months we are PCS’ing back to DC where our BAH will be $6050. For the first time since 2011 we have the opportunity to live off-base, but looking at houses the DC area we could either pocket about $3000/month tax free or live in a pretty nice house. Granted, I won’t be able to go to Italy for the weekend which is priceless! So I concede your point

 

[TDub]

TDub,
- We maxed all our tax-advantaged accounts...TSPs and Roth IRAs...and contributed to our taxable accounts as well, during our active duty days...and we still contribute to our taxable accounts. I especially liked maxing TSP up to the Annual Addition Limit while deployed to a combat zone (CTZE)...was $50,000 limit back in 2012.VG23

I appreciate the warm fuzzy that we can both max our TSPs and Roths and not have to worry about accidentally bumping ourselves into a higher tax bracket. Someone mentioned this to me recently and I started to doubt all over again whether or not we should be maxing both these accounts for 15+ years.

- Even though DW and I could've retired at the same time (our 20-year marks were within 2 weeks of each other), DW served another 2 years and it was the best decision for us, financially. Allowed us to "test run" our plan to FIRE with just one "income" (less all the associated allowances). This gave us the confidence that we were "on the objective"VG23

Yes! This is definitely my plan. I already called dibs on retiring first

- Someone already suggested reading Nords' blog (a treasure trove of info)...he advocates (and I agree) being aggressive with your investments even after you retire as you have your pension and possible VA Disability as reliable streams of income. I think his asset allocation is something like 90/10 (Equities/Fixed Income)...I keep ours at 80/20.

Those 10 years would go by quick. Good luck!VG23

This idea really started to make sense after reading his book and the discussion on the pension acting as a bond of sorts. I love knowing I can stay aggressive with our investments even after we retire, thanks to those pensions (fingers crossed). I'll remember to keep this up...and yeah I think we'll probably keep an 80/20 kind of portfolio, too.

Also, thank you for your service and congrats on the retirement! Eager to be in your shoes, although I am determined to enjoy myself as much as possible these next 10 years.

 

[Van-Guard23]

I appreciate the warm fuzzy that we can both max our TSPs and Roths and not have to worry about accidentally bumping ourselves into a higher tax bracket. Someone mentioned this to me recently and I started to doubt all over again whether or not we should be maxing both these accounts for 15+ years.

TDub,
One caveat, with your combined incomes, you will probably have to deal with Roth IRA contribution limits, if not altogether phased out...precluding you from contributing directly to your Roth IRAs (lest you run afoul of IRS guidelines and have to deal with that on your income tax return - don’t ask me how I know[emoji1]). Make sure to familiarize yourself with backdoor Roth IRAs when the time comes.

The “issue” with bumping yourself into a higher tax bracket would probably surface if you have large RMDs from your TSP accounts (even Roth TSP is subject to RMDs) at 70.5 years old...but as Nords suggested, you can avoid that by slowly rolling over/converting your TSP to Roth IRAs.

VG23

 

[TDub]

Dual military as well, although I retired as an E7 when my wife (who was also an E7) started MECP to become a nurse and officer so that I wouldn't have to salute her.

Taking the children SBP is a no brainer if you have children that would be covered because it is so inexpensive. The other to me depends on many factors but worthy of consideration for many simply because once in place it is locked in and can't be screwed up due to unfortunate events and if someone lives to be over a hundred can be particularly rewarding. I often refer to SBP as a great "backstop" in case everything goes wrong. But in your case, you may want to pass for spouse coverage, although one can argue there is some value as longevity insurance. Here is a great article: http://www.katehorrell.com/considering-sbp/

Thank you for this resource! Sooo happy you guys have made me aware of this option early on in my planning stage. One less thing to make me feel overwhelmed during my last year on AD.

 

[TDub]

Thanks, Omni!

I appreciate the other heads-up from JDarnell and others who contacted me.

TDub, I suspect you’re going to be fine. Your posted numbers show that you’re earning more than $133K and spending only $77K, which means that you’re saving over 40%. At this rate you may reach FI before you reach your pensions.

I’d suggest taking your careers one obligation at a time. Stay on active duty if you’re feeling challenged & fulfilled, but if the fun stops (especially family issues) then be ready for at least one of you to leave active duty for the Reserve/Guard.
https://the-military-guide.com/dont-gut-20-leave-active-duty-reserves-national-guard/

If you learn about those options now then you won’t be under as much pressure when the unrefusable offer comes your way. As you promote and get to the pointy part of the promotion pyramid, your billet & collocation options will get more complicated. You only need one Reserve/Guard pension to be financially sound for the rest of your lives. One active-duty pension and a Reserve/Guard pension will be financial overkill. Two active-duty pensions... listen to Vanguard when he says that they have way more than enough.

You may decide that you don’t need the Survivor Benefit Plan, either. For spouses, you’ll have plenty of assets and might want to have that 6.5% to spend while you’re both alive. Part of that depends on whether you feel the need to insure your kids as well as your spouse. If a child will be a permanently disabled adult then SBP is essential to fund a Special Needs Trust (which keeps them eligible for other state/community benefits).

SBP becomes a complicated emotional and financial decision, and I recommend spending the money to read CFP Forrest Baumhover’s excellent analysis:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit-ebook/dp/B01EPB5H1Q/ref=sr_1_1
......
TDub, I’d keep maximizing your TSP and IRA contributions. When you reach FI (and enter lower tax brackets) then you’ll have a slew of Roth IRA conversions to occupy your time between your 40s and 59.5.

Thank you, Nords! I've seriously received so much good advice and nuggets from this thread alone... Penguins don't always stay on the iceberg as long as I'd like them to so I'll be referring back to this back-and-forth over the next 10 years.

You all are awesome!

 

[TDub]

Update:

Hoping to record EOY changes and seek your input. My specific questions are at the bottom.

We recently changed our AA and invested w*rk bonuses. The bonuses were a part of contracts that will take us to 19 and 20 years time in service, respectively. Thus, pending unexpected medical retirements, we’re committed to the long haul. Only 10 w*rking years remaining!

Now our assets...

High Yield Savings: 40K. (Only getting 1.98%. Need to find somewhere else to park this!)
CDs: 100K (for the purchase of a home in 2020)

Roths: 138.6K (target retirement fund)
TSP: 244.6K (target retirement fund)

Brokerage: 253K (70/30)
---43% Total Stock Market Index (VTSAX)
---30% Total Bond Market Index (VBTLX)
---15% Foreign Developed (VTMGX)
---8% Emerging Markets (VEMAX)
---4% REIT (VGSLX)


Questions for you:

1. Is it worth it to move from target retirement funds to a simple mix of index funds for the lower fees? I plan to rebalance annually moving forward anyway, so I don't see why not.

2. How do we set a savings goal when our FIRE years will consist of vastly different life stages and expenses (kids at home, kids in college, empty nest)?

 

[HI Bill]

That's what my FIRE parents tell me, but even after running the numbers, I have such a hard time believing it. Also, it would feel strange to stop saving. (I don't think I have the b@lls for it). We live below our means but we don't feel deprived at all, so maybe we'll just keep doing that and not worry about it.

Now we just need life to go exactly as planned for the next 10 years...

Sounds like your current projections will be satisfied by your government retirement, BUT...maybe you'd like a better standard of living than you're currently projecting? Maybe you'd like to buy a better house, or a better location, or travel, or take up an expensive hobby like air plane racing or helicopter flying?

I always recommend "balance in everything", so if I were in your shoes, I'd balance today's needs/wants, with your future's needs/wants. They might end up being pretty differnt! Having extra $ gives one security and flexibility...! Best wishes!

 

[HI Bill]

1. Is it worth it to move from target retirement funds to a simple mix of index funds for the lower fees? I plan to rebalance annually moving forward anyway, so I don't see why not.

2. How do we set a savings goal when our FIRE years will consist of vastly different life stages and expenses (kids at home, kids in college, empty nest)?

1) If the $ are in taxable accounts, and you can sell the target date funds and exchange them for a simple mix of index funds (such as BND and VTI) without incurring a huge tax burden, then given your retirement horizon, I'd do it! That way, you can also adjust the balance as you see fit. However, given a 10-year horizon, and your projected benefits, I personally wouldn't have a dime in bonds at this time (maybe 3-5 years prior).

2) I would create a budget spreadsheet for the different scenarios, with colums for:

1. Working
2. Retired, Kids at Home
3. Retired, Kids in College
4. Retired, Empty Nest
5. Retired, No-Go Years

I would just make each budget with the assumption that the $ are today's $, but do increase health care costs in the No-Go Years Column.

For what it's worth, my budget spreadsheet includes:

1. Working
2. Retired, Living Overseas
3. Retired, Hawaii Condo
4. Retired, Hawaii House
5. Retired, House & No-Go Years
6. Retired, Spouse Survives Me

 

[TDub]

HNL Bill, I like that approach. I’ll give it a go. Thanks!

 

[rwdflynavy]

Welcome and congrats on your situation!

I just retired as an 06 with 28 years (50 years old) in a relatively LCOL area. Married with 2 kids still at home.

Tricare fees will go up for you to about $3K per year for the family, so very doable.

Another option that I'm taking advantage of is the VA. We live one town over from a major VA medical center and I applied and was accepted for the VA to be my PCM, so that makes my medical care free. I've been happy with the quality of care and overall responsiveness.

Keep track of all your medical stuff and spend the time with a Veteran Service Officer to put together a solid disability compensation claim. I was pleasantly surprised my % went over 50% allowing concurrent receipt of my mil pension and VA payment. (If this is all gobbly gook to you now, don't worry)

I started the FIRE journey later than you, so I didn't have as much invested as I should have. Our plan is that we have about half our investments in Traditional IRAs and half in TSP. We started a Roth ladder a few years ago for the TIRA to allow us to supplement pensions until we reach "retirement age" and intend to leave the TSP money until mandatory withdrawal time at 70.5.

Make sure you take the E-TAP/E-GPS/whatever they call it this week at least twice. I took mine 4 years before retirement and 1 year before retirement. Much of it won't apply if you don't intend to work after retirement, but the VA lecture and lots of the other stuff will be of great use to you both.

As others have said, make sure you transfer GI benefits to your kids, an amazing benefit.

Congrats again, and feel free to hit me up with a PM or questions here as well.

 

[TDub]

Another option that I'm taking advantage of is the VA. We live one town over from a major VA medical center and I applied and was accepted for the VA to be my PCM, so that makes my medical care free. I've been happy with the quality of care and overall responsiveness.

It’s refreshing to hear positive reviews of the VA as one’s PCM. Proximity to a VA medical center will definitely be a factor in our consideration of where to settle. (My gut tells me we will “settle” somewhere multiple times.)

Make sure you take the E-TAP/E-GPS/whatever they call it this week at least twice. I took mine 4 years before retirement and 1 year before retirement. Much of it won't apply if you don't intend to work after retirement, but the VA lecture and lots of the other stuff will be of great use to you both.

Smart. This is a CBT?

Congrats again, and feel free to hit me up with a PM or questions here as well.

Congrats to you, too! And thank you. We’re excited about the road ahead. I know I’ll be reaching out as we get closer to the finish line.

 

[Nords]

I was pleasantly surprised my % went over 50% allowing concurrent receipt of my mil pension and VA payment.

I've never figured out whether to offer congratulations for the financial win or condolences for the physical condition, but either way you've earned it and already paid for it-- so it's nice to have the additional compensation.
https://themilitarywallet.com/concurrent-receipt-military-retirement-pay/

Smart. This is a CBT?

Sort of, but it's far better to attend in person.
https://www.dodtap.mil/virtual_curriculum.html

For those who are married, it's even better to have both of you go through it together... each of you will hear different aspects of the same presentations and have many thoughtful discussions about life plans.