Army Retirement to True Retirement

[Trappist]

It feels a little taboo to talk about money in detail, but I guess that's what this place is for. I'm a 40 year old set to retire from the Army in Spring 2024. I'm married (also 40) with 4 kids (9, 7, 4, and a newborn - actually he'll be born next week ) and a geriatric German Shepherd with farts that can only be described as chemical warfare.

Financially, we're in a good place, but entering post-Army life has me a bit nervous and I'd really appreciate feedback from this community. The plan is to:

• retire from the Army at age 42
• have each kid's college expenses 80% financed thru 529s (the rest to be covered by my GI Bill distributed between the 4 of them, scholarships, grants, or loans)
• work my next job/career to full retirement no later than age 52 (earlier would be better )

Current Income:
$150,000 - Army W2
$5,000 - Wife's side hustle
$10,500 - Rental Property Income
$165,500 - Total

Income Age 42-52:
$50,000 - Army Pension
$10,000 - VA Disability (estimate)
$100,000 - New job (estimate - nothing more because I want a better work/life balance)
$40,000 - Rental Property Income (estimate to reach $200K/year)
$200,000 - Total

Considering the tax savings associated with military pay (housing allowances, language pays, etc are not taxed), I estimated that to maintain our current lifestyle and savings rates, we'll need a gross annual income of $200,000. We anticipate retiring in Texas, so no state income tax (not looking forward to that property tax though).

Expenses Age 42-52
($100,000) - Living expense
($10,000) - Medical (is this a realistic estimate with Tricare?)
($40,000) - Savings (Retirement, 529, emergency, rental prop, etc)
($150,000) - Total

Assets
$400,000 - Roth IRAs (mine and wifey's)
$500,000 - TSP (like a Traditional 401K)
$365,000 - Taxable Brokerage (has funds from a recently sold house [Rental Property #3] and will be used to buy new rentals)
$40,000 - Cash Savings
$120,000 - 529 (9 y/o) - no more contributions
$110,000 - 529 (7 y/o) - no more contributions
$65,000 - 529 (4 y/o) - contributions will be complete in Dec 2022
$300,000 - Rental Property #1 equity (will likely sell in 1031 exchange to purchase cash flow optimized properties)
$450,000 - Rental Property #2 equity (will likely sell to finance primary residence)
$2,350,000 - Total
$2,055,000 - Total for Retirement (removed 529 quantities)

As I leave the Army, I plan to only really need to continue to contribute to Kid #4's 529 and focus the rest on maximizing net worth. My goal is $3.5M in retirement assets to fund $140,000 ($200,000 minus $60,000 in pension/VA) annual income. There are a couple of margins of safety built in there - I don't account for social security, $200,000 income needs will decrease as kiddos head out to college/life and I'm no longer saving for retirement, food bill decreasing, etc.

Like I said, leaving the Army is a significant transition so I'm a little nervous that I'm overlooking something significant. Any advice or feedback - particularly from other military retirees - would be greatly appreciated.

Cheers!

[Jerry1]

Quote:

Originally Posted by Trappist and a geriatric German Shepherd with farts that can only be described as chemical warfare.

I didn’t look over your plan that well, but it looks like you’re doing an awesome job financially.

My one recommendation would be to spend a little more on quality food for your dog.

[aaronc879]

I think your plan is fine if you want to work another 10 years after Army retirement but I would just retire for good at 42. You would have $100K in income which is more than enough. Then you would have taxable accounts to cover any extra spending needs. I would stop contributing to 529s. You have $300K saved already. Who knows, college might be free by the time they are of age. Retiring completely at age 42 is an option if you want it to be. Just something to think about.

[Trappist]

I've wrestled with that thought too.

I think flipping the switch to "withdrawing" from "contributing" is going to be a big hurdle for me personally. Having a safety margin of $3-3.5M is going to give me some comfort. I plan on building out income streams with a few rental properties while working at least 3-5 years after the Army. Once a few variables are solidified (where we'll live, house expenses, utilities, health insurance costs, taxes, etc.) and the numbers actually start falling into place, I may just do that.

As for free colleges... like always, I'll hope for the best, expect the worst.

[pb4uski]

Quote:

Originally Posted by aaronc879 I think your plan is fine if you want to work another 10 years after Army retirement but I would just retire for good at 42. You would have $100K in income which is more than enough. Then you would have taxable accounts to cover any extra spending needs. I would stop contributing to 529s. You have $300K saved already. Who knows, college might be free by the time they are of age. Retiring completely at age 42 is an option if you want it to be. Just something to think about.

+1 You can focus some of your time on your property empire and still have a lot of free time to spare to spend it with your DW and those 4 young kids. Perhaps even do a little consulting in your field rather than risk getting sucked in to a megacorp job with a military contractor.

I would have stopped contributing to the 529s long ago... in fact, not a big fan of 529s. What if your kids follow in your footsteps and go military or get full boat scholarships so those college funds are not needed?

Question: Is your $50k military pension fixed or is it adjusted for inflation?

I ran through FIRECalc 100k spending, $2,055k portfolio, 58 year time horizon, 25% stocks and $50k inflation-adjusted pension starting in 2023 and it reported that safe spending of over $100k... if I change the pension to fixed it drops to $75k... so you probably have enough to retire sooner rather than later.

[Closet_Gamer]

Amazingly well done at age 42 and ahead on many of the big topics.

I think the 529s are a real strength in the plan. I would finish them and then check the box on college, don't look back. To aaronc's point, if you feel like you're getting too much concentrated into a single purpose, illiiquid structure you can just open another brokerage account, stash the money there and draw a circle around it labeled college. We did this and it wound up being a good idea.

Given a young retirement of 52, I might also pressure test the $3.5M target. If I read your post correctly you're aiming for a 4% withdrawal rate ($140k/$3.5M). That's a little punchy for a long term plan IMO.

Well done.

[perez99]

I think your plan is golden. I too would be hesitant to fully retire, particularly if you can find the job that will give you work/life balance.
Suggest you doing FireCalc using the "investigative" tabs to better understand potential concerns based on investment performance.

[rwdflynavy]

I think your plan looks great!

Fellow military retiree (Navy) who basically fully retired at 49 when I retired from the Navy. I've taken a very part time gig for fun and to keep funding my Roth (neither pension or VA disability can be used to contribute to IRAs). We live on my pension and VA disability.

My one suggestion is to work very hard on your VA medical info. Scour your medical record and document everything. Now is not the time to tough it out. You did that for 20 years. Every illness, injury, pain etc, document it!! Use a Veterans Service Officer (they are free, provided by Legion, VFW etc, you don't have to be a member).

If you go over 50%, concurrent receipt is pretty sweet.

Enjoy your first retirement and thanks to you and your family for your service to our great nation!

[skyking1]

Echoing what was said above, you could go now. I also get that anxiety of no longer contributing to the funds.
The time with the kids is priceless. Perhaps you can seek out the perfect gig that does not eat so much time, but keeps you from doing any withdrawals for those 10 years. If I were you with what I know now, that is what I would do. Find that gig that lets you take off almost whenever, and still come back to it. It does not need to be 100K to keep you out of the accounts.

[Trappist]

Quote:

Originally Posted by Closet_Gamer I think the 529s are a real strength in the plan... Given a young retirement of 52, I might also pressure test the $3.5M target. If I read your post correctly you're aiming for a 4% withdrawal rate ($140k/$3.5M). That's a little punchy for a long term plan IMO.

Thanks. I think 529s are partially great for education, but I also just like using them in my favorite game "Keeping the government's filthy, dirty hands off my hard earned cash." More eloquently I guess it's a useful wealth transition vehicle.

You're right about the 4% calculation. What do you advocate as a safer figure for a long term withdrawal rate? 3%? I was under the impression that a 4% rate was good in something like 85% of scenarios. And for those it's not, you can adjust expenses to compensate. Out of curiosity, what rate do/did you use for your calculations and estimates?

[pb4uski]

Quote:

Originally Posted by Trappist Thanks. I think 529s are partially great for education, but I also just like using them in my favorite game "Keeping the government's filthy, dirty hands off my hard earned cash." More eloquently I guess it's a useful wealth transition vehicle. ...

But there are better ways of playing that game than 529s IMO. Roth's and HSAs come to mind but I suspect that with TriCare that HSAs are not a option for you, but you can still contribute to a Roth.

Many people are unaware that qualified dividends and long-term capital gaisn are tax-free if your income is low enough.... ~$109k for a married couple filing jointly... so it looks like you have some headroom for tax-free qualified dividends or LTCG once you retire.

[maxq]

+1 on the recommendation above to be proactive on your medical records and documentation. The VA seems to be getting better at making timely determinations, but its up to you to provide the documentation. For me, the VFW VSO found stuff in my record that I didn't even know were disabilities--some things that seem like part of normal aging are compensable in the VA world. Joint and muscle injuries from humping gear and body armor, jumping out of perfectly good airplanes, etc etc are real. You can learn a lot just perusing the forums at vetbenefits dot net. Be sure to get an electronic or paper copy of your medical and dental records. The VA has temporarily misplaced my file 2 times I know of. The last time, they asked me for copies. If you do get a 50% or higher VA rating, Texas has some benefits worth looking into: If 100% permanent, property tax is zero or close to it (slight exemptions for other rating levels); discounted set of car tags; free parking in airport garages (I assume length varies by site); discounted or waived tolls on the tollways; free hunting/fishing license, etc.



If you entered the service from Texas or had Texas as your home of record on entry, be sure to check out the possible tuition benefits under the Hazlewood Act.


For Tricare retiree costs, I always had the MOAA supplement to cover things Tricare didn't--deductibles, cost shares, etc. I've lost track of the details, but 5 years ago it was very affordable and and very beneficial as my wife fought breast cancer. Retiree dental coverage has gone away, but you can get similar through the Federal employee systems. If you're near a military base with medical services, you can get free care Space-A, and free meds.

[cnocmmz]

Quote:

Originally Posted by Trappist I've wrestled with that thought too. I think flipping the switch to "withdrawing" from "contributing" is going to be a big hurdle for me personally. Having a safety margin of $3-3.5M is going to give me some comfort. I plan on building out income streams with a few rental properties while working at least 3-5 years after the Army. Once a few variables are solidified (where we'll live, house expenses, utilities, health insurance costs, taxes, etc.) and the numbers actually start falling into place, I may just do that. As for free colleges... like always, I'll hope for the best, expect the worst.

First and foremost, congrats Soldier. I retired in Texas also after 26 years of service, and yes, property taxes are high but depending on your disability level some tax will will be mitigated. WRT living on your retirement of 100k, that’s higher than most here. We live on about 130k annually until I take SS here in the next few years with plenty left over to travel and hobbies. Your biggest challenge will be staying busy and it sounds easy but Good luck to ya and thank you for your service to this nation.

[pacergal]

Congratulations and thank you for your service.
Your finances look to be in good shape.

There is a member here, Nords, who is also former military and has written much info re: military retirement. You can read some of his here in the FAQs or PM him.
I have found his information helpful, even though not military, but have a govt pension.

[Nords]

Quote:

Originally Posted by pacergal There is a member here, Nords, who is also former military and has written much info re: military retirement. You can read some of his here in the FAQs or PM him.

Thanks, @Pacergal!

Welcome, @Trappist, and congratulations on retirement!

If you're planning for a bridge career then I'd suggest (among all the usual advice about TAP and Linkedin and networking) joining the Linkedin group Veteran Mentor Network:
https://www.linkedin.com/groups/4466143/
And reading a library copy of The 2-Hour Job Search to get your foundation laid in.

Quote:

Originally Posted by Trappist There are a couple of margins of safety built in there - I don't account for social security, $200,000 income needs will decrease as kiddos head out to college/life and I'm no longer saving for retirement, food bill decreasing, etc.

Here's the thing: the 4% Safe Withdrawal Rate is a worst-case scenario with all the margins you'll need. In 80% of the scenarios of the 4% SWR, you die with more money than you needed. In 10% of those scenarios you had way more. The failure modes of the 4% SWR are countered by Social Security and (in your case) by your inflation-fighting pension and cheap healthcare. Even if there's a failure mode rearing its ugly head, you'll see it from months away and you'll be able to take action to avoid running out of assets.

If you keep padding your budget with more self-inflicted margins of safety then you'll spend more time in the workforce than necessary.

Like active duty, feel free to enjoy working in your bridge career as long as you're challenged & fulfilled.

As you live your life after military you'll dial in your expenses to a more realistic number based on your new lifestyle. When you get to assets of 25x annual spending then you're financially independent. For most people it's a tripwire to consider making the transition. For people with inflation-adjusted income and cheap healthcare, it's more than a tripwire-- you don't need to keep working for money.

Your inflation-adjusted annuities (military pension, VA disability compensation, and eventually Social Security) mean that each year your income will maintain its spending power. In the last 20 years of my retirement, my pension has risen over 50%-- including three years of zero COLAs.

Better yet, during your military retirement years you'll optimize your expenses where you see the value, and you'll cut out the waste. You'll also enjoy the benefits of the retirement spending smile, although the more time you spend in the workforce then the less time you have to enjoy the rest of your life.

If you're working longer than that then you have to be willing to pay the price in missed opportunities. Instead of controlling your FI life and freedom on your terms, the emotions behind sticking around for Just One More Year mean you're risking external impacts like layoffs, family crises, or even a health emergency. Those last two are far easier to handle if you've already stopped working a full-time job when you no longer need the money.

Quote:

Originally Posted by Trappist I don't account for social security

This is unreasonable.

If you want to be conservative then you could look up your SS account and add in the apocalyptic forecast of receiving 75% of your age 62 amount. But again you'd better be working for challenge & fulfillment, because this assumption is still overly cautious.

The adjustments to the stability of the future of Social Security are relatively straightforward and easily implemented. However the issue is still at least a decade away and nobody currently in Congress has any reason to start working on it. I predict that action will be taken (by the incumbents) a few weeks earlier than it has to be taken, and even then it might be retroactive.

You can read more about FI and the military transition on the blog (MilitaryFinancialIndependence) or borrow The Military Guide from your military base library or local public library.

And please post more questions on this forum or contact me.