Hello, I'm ApeX from the MidWest -- military & need some guidance.

[ApeX]

Hi folks,

I've been lurking & reading threads on this site for quite some time, and would like some feedback & opinions on how to best proceed towards ER. If you can take the time to make some suggestions, I'd truly appreciate it.

Vitals:
32 y/o, never been married, no children. I do have a girlfriend but we're nowhere near considering marriage
Air Force medical officer (Major); I have spent 10.5 years active duty
College: BS, Masters, Doctorate completed & paid for
Hobbies: hunting, exercise, outdoors activities, reading, spending time with family & friends

Financial overview:

Home: purchased 2 years ago for $130K, owe $88K on 30-year fixed mortgage @ 6.5%
Debt: other than my home, none; I have a good reliable vehicle that is fairly new & paid for

Take-home pay after taxes: about $5100 per month (after TSP contribution)
Budget (excluding investments, including mortgage, insurance, etc): $1700/month
Savings: about $40K (USAA savings yield hovers around 5% for my amount)

Investments:
Manulife Financial -- Venture (John Hancock) -- $45K
Roth IRA (Washington Mutual American Funds) -- $34K
Thrift Savings Plan (9% of pre-taxed base pay, est. $425/month) -- $33K

I have a few questions.

1. What should I do with my $40K in savings? Buy land? Pay down my mortgage? Invest it? If so, where? I live very frugally, but I'm tempted by shiny sports cars & a cabin & land up in the mountains. I need to put it to better work for me. I chuck anywhere from $1k-1.5K per month at my mortgage principal. I built a custom deck in the back yard & landscaped last summer to add value.

2. Is the military retirement still a "good deal" in today's financial world? Especially since I already have 10.5 years towards the retirement? I'm tempted to get out quite often...but I realize there is BS to deal with in any job or corporation. A lot of folks tell me I can do much better on the outside with a "normal" 401K, and that military healthcare is not good for retirees.

My financial planner insists that it makes good sense to stay for another 9.5 years so I have the retirement income & health benefits.

3. Does my current portfolio makes sense? My TSP funds are allocated to the L2040 plan.

Any thoughts or suggestions are greatly appreciated!!

I look forward to my transition from a lurker to a poster. Thanks for the great forum!

 

[Niko]

What should I do with my $40K in savings? Buy land? Pay down my mortgage? Invest it? If so, where? I live very frugally, but I'm tempted by shiny sports cars & a cabin & land up in the mountains. I need to put it to better work for me. I chuck anywhere from $1k-1.5K per month at my mortgage principal. I built a custom deck in the back yard & landscaped last summer to add value.

Do you have an emergency reserve set up? Depending on the stability of your job, you should have anywhere from 3-6 months' of living expenses saved in a liquid account. If you have extra savings left over after your emergency fund, make sure your IRA and TSP are maxed out. After that, I would either save in a taxable account or pay down your mortgage, depending on your preferences.

Is the military retirement still a "good deal" in today's financial world? Especially since I already have 10.5 years towards the retirement? I'm tempted to get out quite often...but I realize there is BS to deal with in any job or corporation. A lot of folks tell me I can do much better on the outside with a "normal" 401K, and that military healthcare is not good for retirees.

I think so, but what do I know? -- I'm not in the military! To have your health care locked up at a young age is a huge benefit. Health care costs are rising fast, and I don't see any indication that the cost increases will slow down. Nords did the 20 yeards and FIRE route, so I'm sure he can add something.

Does my current portfolio makes sense? My TSP funds are allocated to the L2040 plan.

John Hancock is expensive. Can you get that money transferred to Vanguard? Same with your IRA. I can't really comment on your L2040 allocation without know how your other investments are allocated and what your target AA and risk tolerances are.


Welcome! You'll find a lot of good information here. I'm not one, but there are a lot of military folks here.

 

[mickeyd]

Hey ApeX,

Welcome here.

Is the military retirement still a "good deal" in today's financial world?

Probably one of the best due mainly because it starts after 20 years of service (or age 60 for reservists) and is COLAd. Retiree eligibility for Tricare is also a huge benefit that is often overlooked, but is greatly appreciated by all military retirees. Current annual cost of Tricare Prime is only $230.

 

[REWahoo]

Hey Current annual cost of Tricare Prime is only $230.

ApeX, to understand just what a great deal that is, I pay that much per month for $5,000 deductible coverage, and I'd be paying twice that much or more if I weren't in good health.

With 10+ years in, stay. You've got so much time invested it would be a shame to lose the pension and healthcare just to trade military bs for the civilian variety.

 

[ApeX]

ApeX, to understand just what a great deal that is, I pay that much per month for $5,000 deductible coverage, and I'd be paying twice that much or more if I weren't in good health.

With 10+ years in, stay. You've got so much time invested it would be a shame to lose the pension and healthcare just to trade military bs for the civilian variety.

Thanks for the data point. I've done a bit of calling around for health insurance, and it's amazing how much high the quotes are, considering I'm in near-perfect health. (*knock on wood*)

I, too, feel I should probably stick it out. I'm finally at a decent-paying rank, and I'm only 9.5 years away from having some serious flexibility. I'm also starting to realize that 42 years old is, well, still young.

 

[bbbamI]

We have a friend that retired around three years ago from the army. He was a Major and a dentist. Unfortunately it's been a while since we've talked to him. I think he's busy traveling. Anywho, he's very happy with the decision he made years ago.

If you are not too unhappy, I'd suggest sticking with it. Nine and a half years will be gone before you know it.

By the way, glad we agree on Smoking Loon.

 

[JDARNELL]

1. What should I do with my $40K in savings? Buy land? Pay down my mortgage? Invest it? If so, where? I live very frugally, but I'm tempted by shiny sports cars & a cabin & land up in the mountains. I need to put it to better work for me. I chuck anywhere from $1k-1.5K per month at my mortgage principal. I built a custom deck in the back yard & landscaped last summer to add value.

2. Is the military retirement still a "good deal" in today's financial world? Especially since I already have 10.5 years towards the retirement? I'm tempted to get out quite often...but I realize there is BS to deal with in any job or corporation. A lot of folks tell me I can do much better on the outside with a "normal" 401K, and that military healthcare is not good for retirees.

My financial planner insists that it makes good sense to stay for another 9.5 years so I have the retirement income & health benefits.

Welcome to the board. I am an 0-4 myself with 17+ yrs counting my enlisted time.

I completely understand what you are saying about being tempted with land/cabin, etc. For me its a lake house. I go through this periodically and CINC house has got to the point that she says just buy it. Economist by education and I always talk myself out of it as I can argue 5 ways to Sunday why its a bad move. The value hasn't gotten there for me I guess but maybe once I retire and have more time it will be there. I think I am going to put a freeze on making any big purchases on my thought process for 12-18 months after I retire so I don't do anything irrational.

I think its important to plan your work and work your plan. What is your road map and where do you want to be? Do the things that get you there and not the other things. Of course there is more than one way to get there. My thoughts sometime stray off what I think the plan is then I pull it back out and get "re-blued" so to speak with the plan.

As for the B.S. level. I remember when I was enlisted and I would call home complaining by mom would always say there is B.S. everywhere just hang in there. I go through I am so ready to move on to staying also. I think it is just part of it. I have been very fortunate with my assignments. I think if I would have had a bad one at the right time I would have punched. When I looked up I had 13 yrs in and could see I was on the downhill side towards 20. It was not until this assignment that the assignment team really messed with me. As bad as this one has been I really landed in an ok situation given what happened. In the grand scheme of things its all good.

I can understand the extra uncertainty we now face. When the VSI/VSP came around all the CGOs that were eligible who worked for me came and discussed. They perceived it as a lack to comittment the AF has to them and what will happen in the future. Everyone took the money and ran. Of course they did not have 10+ yrs in.

Overall I think the retirement is a pretty good deal. At least I will have some p-nut butter money coming in so if things get real back I can knock around to pick up a little more pocket change and be fine. Medical care has been fine for us and they have really taken care of my son with some very specialized medical needs. Will the cost go up? You bet but it is better than what my peers on the outside are paying. Again all relative. If you goal is to retire early I think the military retirement plan really affords this opportunity. Steady money, healthcare, ability to use Space-A for travel etc.

TSP- I like TSP. My career field got a 40K bonus a few yrs ago over 4 yrs and I was able to put it all in TSP. Plus I now max it out every year. You get no matching, but with retirement and TSP I think we are in good shape.

Cash- CINC house is self-employeed so we have huge cash swings. To the point where we are very inefficient in return. Resolution this yr is to keep a certain amount in cash, Invest a certain amount, and everything else mortgage reduction. I recommend keep x amount and use the rest to get you towards your end goal. If you have 60 days leave saved and have use or lose every year anyway I think you have a good emergency fund. It gives you time to adjust spending if something comes up.

Would I recommend staying? That is your call. I always said that I would do this until it was not fun anymore. However as I get closer it became harder to leave and did go through a period where I was just treading water til some leadership changes happened. I now find myself in the "well maybe I will stay a little longer than I have to to retire."

I don't feel the pressure anymore to have to get promoted or have the move up job. For me that ended after all the blocks were checked and the PRF was written for my primary 0-5 board. Things have gotten more enjoyable. Of course things did after I made 0-4 also as I knew no matter what happened with 0-5 board I would be able to stay til 20 and retire. Any future promotion is gravy. We can make is just fine where we are at.

At the end of the day we have a geat life and are very blessed.

The grass is always greener. Again welcome!

Tomcat98

 

[boilerman]

Hi folks,

I've been lurking & reading threads on this site for quite some time, and would like some feedback & opinions on how to best proceed towards ER. If you can take the time to make some suggestions, I'd truly appreciate it.

When do you plan to ER? How much income will you need at that time? When you project your expenses, are you considering the possibility of marriage and kids?

 

[militaryman]

I hear you on the pull to get out that sometimes arises --- I retired from Air National Guard after 20 ... We got alot of prior active duty that came into the Guard/reserve so they would get some benefit from their time in active duty... (although you do not get a chack until 60 y.o. you can retire after 20 years combined active and guard)

I rarely hear people that got out say how glad they are that they got out, Especially those that had more than a term in..... Commonly I hear " I kick myself for giving up .... I'd be retired by now and getting a check with medical!"

Two things,

1. You say you have 10.5 years in but really the question is when is your contract up.... If you cannot get out for a year then you are really talking about giving up after 11.5 years.

2. What can you have or do you have to move from the military to on the outside? What are we comparing staying to? Do you have an offer? If not then you are only speculating and it could be a good 6mos. to year to get established in a comparable or better job which again is time you could have been closer to retirement in the military... I'd say STAY until you have a SUBSTANTIALLY better offer on the table.

Oh and resist the urge to buy TOYS -- The glitz wears off really quickly and you'll kick yourself

 

[ApeX]

Welcome to the board. I am an 0-4 myself with 17+ yrs counting my enlisted time.

At the end of the day we have a geat life and are very blessed.

The grass is always greener. Again welcome!

Tomcat98

Thanks for the great post & the welcome, Tomcat98.

When do you plan to ER? How much income will you need at that time? When you project your expenses, are you considering the possibility of marriage and kids?

I'm looking at 50 for ER. I forecast about $70K/year as my "needed" income to maintain my current SOL.
I'm not accounting for marriage or kids. At 32, I'm starting to think it's probably not going to happen...especially considering the challenging dating pool where I currently reside.

1. You say you have 10.5 years in but really the question is when is your contract up.... If you cannot get out for a year then you are really talking about giving up after 11.5 years.

2. What can you have or do you have to move from the military to on the outside? What are we comparing staying to? Do you have an offer? If not then you are only speculating and it could be a good 6mos. to year to get established in a comparable or better job which again is time you could have been closer to retirement in the military... I'd say STAY until you have a SUBSTANTIALLY better offer on the table.

Oh and resist the urge to buy TOYS -- The glitz wears off really quickly and you'll kick yourself

My contract is up in August. After that, I'm assignment-to-assignment.

I would start around $120K on the outside and there is good potential for upwards growth. My degrees are from top-line establishments in my line of work, and I receive job offers on a weekly basis. However, I'd be treating entirely different patients.

My main reason to get out is so that I can live in the mountains. I fell in love with the west after 4 years in Colorado and 4 in northern California. I'd love to wake up each morning to a view of the mountains and be able to hunt big game in my local area. I'd also like to own a home that I know I won't have to move from every 3-4 years; I also lose out on the equity so many others are able to build & enjoy.

As far as toys go -- I have pretty good willpower. I buy only things that appreciate in value or maintain their value well (ie, guns, knives, etc). I found out the hard way that sports cars are not a good investment, but I know of far worse mistakes to make in one's 20s.

On a side note, I'd have a lot more money invested by now, but my investments in my 20s sat stagnant (without me realizing it) because my Merrill Lynch "friend of the family" advisor completely ignored them. I lost $12K in 5 years and she never looked at anything...long story, but I pulled the plug on her a few years back and have averaged about 15% return since.
What I'm trying to say here is that I'm very frugal, and my ignorance cost me a considerably larger egg at this point in my life. I don't want that to happen again.

Thanks for the ideas & input, everybody -- please, keep the comments coming.

 

[martyb]

I think you should be maxing your TSP to the IRS limit. Why not tax defer as much money as you can? I know you don't get matching money, neither do I but you still can defer $15,500 from taxes till you retire and start withdrawals. Seems like a no-brainer to me.

 

[NanoSour]

Welcome Apex

I've been watching this board since I retired as an O-4 back in 2002. I too struggled with staying in even up to the 17th year. I have to say that you can't buy the piece of mind that retirement buys. And if your purposeful and execute your plan, you will have tremendous flexibility when the time comes.

I took a year "family" sabbatical after I retired and it was more difficult than I thought. I had/have a very young family (and don't be surprised if you're in the same boat 10 years from now) of a wife and 3 kids. Although I had positioned myself to not have to work, I struggled with the example I was setting for the little ones. Others will have different opinions on that subject, but this was just my personal reality. So I found myself out in corporate america which is a completely different beast than being under that government umbrella. I miss that security that the military offered. It just doesn't exist out here in the civilian world.

When I thought of seriously jumping ship at 17 years my wise dad said he'd wring my neck if I did. Thankfully I got the picture.

Good Luck to you


Nano

 

[Nords]

Welcome to the board, Ape. I retired nearly six years ago as a submarine O-4 and I feel that life is too good to waste it on paid employment.

1. What should I do with my $40K in savings? Buy land? Pay down my mortgage? Invest it? If so, where?

A few things to think about.

First, conventional wisdom is to have 3-6 months' emergency cash. However your employment continuity is pretty high (about 100%!) and you're likely to be able to cover emergencies with credit cards and pay it off with salary cashflow. In a real crisis you'd slash spending anyway, so you can keep your savings as low as you feel would enable you to resist [-]toys[/-] temptation. If you're only spending $5K/month now then in a crisis you could probably handle six months with as little as $20K.

Second, you should leave the money where it is until you feel comfortable with a decision. Read Bernstein's "Four Pillars of Investing" book or the Boglehead's Guide or Bob Clyatt's "Work Less, Live More" or other investment books, and come up with an asset allocation that you feel comfortable with. You may decide to buy land and commodities and individual stocks, but you'll probably find that you'd rather dump your money into a low-expense index fund with Fidelity or Vanguard.

Finally, if paying down the mortgage makes you sleep better at night then pay it down. If you'd rather keep the money in the stock market and try to beat the 6.5% drag then try that approach. (We're doing that at 5.375%.) Or split the difference.

2. Is the military retirement still a "good deal" in today's financial world? Especially since I already have 10.5 years towards the retirement? I'm tempted to get out quite often...but I realize there is BS to deal with in any job or corporation. A lot of folks tell me I can do much better on the outside with a "normal" 401K, and that military healthcare is not good for retirees.

Your military career is a "sunk cost" in exchange for a lifetime pension. You've put so much time & effort into getting to this point that surely the rest won't hurt so bad!

Yet it was exactly this point in my career where the fun stopped. I made it to 20 (for what at the time seemed to be very good reasons) but if I had today's knowledge I probably would've been out the door to the Reserves at the first sign of [-]another jerk boss[/-] adversity.

So stay on active duty if you haven't found anything else to do that's absolutely compelling and so fascinating that you'd do it for free (because that's what you might end up doing). But if you find something that you'd much rather be doing then you should seriously consider leaving active duty for the Reserves. The catch is making sure that you don't leap over the fence for that greener grass... and find yourself standing in a cesspool.

You might want to consult Dr. Rich_In_Tampa (his name, not his net worth) about civilian medical malpractice insurance costs. His situation isn't that bad, but it might make your military liability coverage look awful good.

I don't know who these "folks" are that you're getting the 401(k) & healthcare advice from, but from what they're telling you I'd suggest that you need to find a new set of folks.

The TSP is one of the nation's largest 401(k)s, if not the largest, and it has an expense ratio of 0.03%. That's three cents for every hundred dollars, and that's a fraction of even Vanguard's cheapest ER. You cannot beat this index's low fees anywhere else. In fact you should be maxing your TSP contribution to the 2008 limit of $15,500 and you should be investing it as aggressively as you feel comfortable with... like splitting it between the "S" & "I" funds. But I'm a bit bitter as the TSP came along too late in my career to make a difference.

As for military healthcare, any attempt on your part to describe its poor quality will be quickly countered with at least 20 examples of civilian healthcare that's even worse and 10x the cost. They're right, and what civilians have to put up with make any complaints about the quality of military healthcare look like sniveling. It's almost (but not quite) enough to make REWahoo! wish he'd stayed in the service.

Having said all that, military healthcare is constantly under corrosive attack as an out-of-control benefit. TRICARE is eating DoD's budget like Medicare is eating the national budget. So both will be under attack for decades to come, and my money is on TRICARE getting hurt less than any civilian plan.

My financial planner insists that it makes good sense to stay for another 9.5 years so I have the retirement income & health benefits.

I wonder how many years of active duty your financial planner has. And how many deployments, combat insignia, and Purple Hearts.

Financially the military makes great sense for the survivors, especially that habit of killing off two or three out of every hundred. So if you're one of the survivors, with not too much disability, then you're golden. But I bet your financial advisor gets the same stinkeye from firefighters, EMTs, and police officers.

3. Does my current portfolio makes sense? My TSP funds are allocated to the L2040 plan.

For your current level of interest & knowledge, yes.

As you educate yourself, you may wish to be more aggressive. You could think of your military pension (with a COLA!) as one of the world's most reliable annuities. If you can sleep at night despite stock-market volatility, and especially if you can live off your pension, then you can take much more risk with your remaining investments.

But your asset allocation has to work for you, and if you're not comfortable with it then investor psychology suggests that most will bail at the first sign of negative volatility.