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Just 10 more years (half way to military pension)
Old 02-07-2021, 11:16 AM   #1
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Just 10 more years (half way to military pension)

Hello everyone!

Finally started being smarter about finances last year when I (1) hit the halfway point to retirement from the military and (2) decided to get free of revolving debt.

One year later, I've eliminated $30k in credit card debt and have started contributing enough to max out my TSP account (previously just 5%, now 20%). TSP contributions are all Roth, and it's parked in the L2050 fund.

Should be able to hit the first retirement at 20yrs/42yo based on an O-5 salary, which should be ~$75k/yr plus healthcare for life. Not sure what I'll do when I get there, but it'll be nice to get to pick it myself for a change.

Current financial issues I'm thinking about are (1) what to do with the house I currently own (7yrs into a 30 fixed rate @3.25) and (2) how to handle distributions from an IRA my spouse inherited when her mother passed last year.

Spent a few hours reading the forum and look forward to absorbing as much as I can.
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Old 02-07-2021, 12:39 PM   #2
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Stick with it. Live below your means. Save as much as you can (with kids it's hard). I did 21 years in the Army and was able to FIRE at 54 thanks, in large part, to military retirement.
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Old 02-07-2021, 01:06 PM   #3
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Welcome to the forum!

Congrats on becoming financially aware and making changes.

Hard to advise you on inherited IRA without more info. You probably know you have 10 years to liquidate it, but equal payments are not required. So you can take none of it or all of it in a given year, for example. Or anything in between.

Provide more info and I'm sure some other folks will weigh in.

Again, congrats!
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Old 02-07-2021, 02:54 PM   #4
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Originally Posted by Lawrencewendall View Post
Stick with it. Live below your means. Save as much as you can (with kids it's hard). I did 21 years in the Army and was able to FIRE at 54 thanks, in large part, to military retirement.
The end-game benefits certainly seem to make up for the active duty struggles...

Oldest kid will be hitting college right around retirement time, just need to work the last set of orders to get into a good State and reap resident tuition!

Quote:
Originally Posted by Montecfo View Post
Welcome to the forum!

Congrats on becoming financially aware and making changes.

Hard to advise you on inherited IRA without more info. You probably know you have 10 years to liquidate it, but equal payments are not required. So you can take none of it or all of it in a given year, for example. Or anything in between.

Provide more info and I'm sure some other folks will weigh in.

Again, congrats!
The feeling of getting the millstone off my neck is too nice... never ever again with the stupid debt!

As for the IRA, you nailed my understanding of it. Federally, as regular income it's obviously taxable, but not sure if IN (where wife would be paying) taxes such income at the state level. There's currently ~$170k in the account, and I had been figuring on us taking enough each year to be at a zero balance after 10 years: 1/10 of current balance first year, 1/9 the next, 1/8, and so on. That should result in fairly equal disbursements each year, an ending balance of zero, and the minimum amount of loss to taxes. Notionally that would result in ~$238k over the 10 years with a modest return of 6%/yr.

With they way .mil pay and allowances work with taxes, a $17k disbursement in 2021 would increase overall tax rate by only 1.2%. So that seems reasonable.

The alternate strategy would be to let the IRA grow until year 10, when I would notionally be receiving .mil pension, and taking the whole of it with all the taxes associated. The same modest return from above puts that number at $300k of sudden income on top of $75k in pension... resulting in $73k in taxes that year (based on current brackets).

I suppose I need to drill down to expected pay every year with annual pay increases + promotions + returns on the IRA and figure out which option will net the most money over the next 10 years... a project to be continued.
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Old 02-07-2021, 04:32 PM   #5
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What is your kid situation? My wife and I had kids a little bit later, bit since we are both active duty we transferred them each 36 months of GI bill benefits.

My wife will retire in 2027 as an O5 @20, and I will retire in 2022 as an O4 with 23. If the market doesn't crash, we should be able to net $600k in equity off our San Diego home sale, which will go towards land purchases in North Carolina and Idaho.

Both of us have TSP. The most aggressive thing I am doing now is to try and accumulate a taxable investment portfolio that gets us $36k in dividend payments per year.
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Old 02-07-2021, 11:16 PM   #6
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Retired about 3.5 yrs ago after doing 20 in the Navy, took 6 months off, and have been working again for about the last 3 yrs. Living in an expensive suburb of a HCOL area, so needed some extra $$$, but with investments and the retirement pay, I'll be able to stop working before I hit 50.

Max out the TSP. I did so and have left it there (due to the low fees), and even without any matching, it's now worth over $900k.
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Old 02-08-2021, 05:07 AM   #7
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I thought only the enlisted were poor at managing their money. :-)

I got a talking too when I was gonna rent a house on Coronado, rented the house anyway and was good to go.
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Old 02-08-2021, 01:33 PM   #8
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The last 10 years of my mil career went by very, VERY fast...and I am very happy to have that pension (I call it wake up pay...as long as I wake up on the 1st of every month, I get paid!) and Tricare. It helped my retire quite young.
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Old 02-08-2021, 02:22 PM   #9
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Originally Posted by jurgs01 View Post
What is your kid situation? My wife and I had kids a little bit later, bit since we are both active duty we transferred them each 36 months of GI bill benefits.

My wife will retire in 2027 as an O5 @20, and I will retire in 2022 as an O4 with 23. If the market doesn't crash, we should be able to net $600k in equity off our San Diego home sale, which will go towards land purchases in North Carolina and Idaho.

Both of us have TSP. The most aggressive thing I am doing now is to try and accumulate a taxable investment portfolio that gets us $36k in dividend payments per year.
Single income, two kids. One is 9, the other is almost three. GI bill is already transferred to spouse and kids, so I can redistribute it as needed later on. Second income would be nice, but having my wife home to take care of the kids is better.

Quote:
Originally Posted by HawkeyeNFO View Post
Retired about 3.5 yrs ago after doing 20 in the Navy, took 6 months off, and have been working again for about the last 3 yrs. Living in an expensive suburb of a HCOL area, so needed some extra $$$, but with investments and the retirement pay, I'll be able to stop working before I hit 50.

Max out the TSP. I did so and have left it there (due to the low fees), and even without any matching, it's now worth over $900k.
We are looking at the Woodland Park, CO area after .mil... particularly being up in the mountains. Not the cheapest place either, but it's close enough to defense industry in Colorado Springs if it looks like we'll need extra money.

If I had been putting more into TSP till now, that would be less of a concern Seeing the difference between 5% investing and maxing TSP on the mil retirement calculator was a shocker.

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Originally Posted by ransil View Post
I thought only the enlisted were poor at managing their money. :-)

I got a talking too when I was gonna rent a house on Coronado, rented the house anyway and was good to go.
Hey now, may have built up some credit card debt, but I never got tempted by a 20%+ rate on a six-cylinder mustang/camaro/challenger :P

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Originally Posted by ExFlyBoy5 View Post
The last 10 years of my mil career went by very, VERY fast...and I am very happy to have that pension (I call it wake up pay...as long as I wake up on the 1st of every month, I get paid!) and Tricare. It helped my retire quite young.
Looking at the potential slates, I've got at least 3 moves coming up before getting out, all in different geo-locations... I imagine it'll feel like the blink of an eye. Won't help for building up equity in a home though.
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Old 02-08-2021, 02:56 PM   #10
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Hi,
I hope this finds you well.
I've known one individual whom's retired Armed services only to resign up to for another 20yrs @ a VA Hospital in the kitchens upper administrative services. FWIW.

Having assisted older VNAM vets I'd suggest refi the mtg.asap,its easy, and continue saving till you've excess FI assets!

Good luck & best wishes....
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Old 02-14-2021, 07:41 PM   #11
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Quote:
Originally Posted by pdsmith505 View Post
Finally started being smarter about finances last year when I (1) hit the halfway point to retirement from the military...
Should be able to hit the first retirement at 20yrs/42yo based on an O-5 salary, which should be ~$75k/yr plus healthcare for life. Not sure what I'll do when I get there, but it'll be nice to get to pick it myself for a change.
Quote:
Originally Posted by Lawrencewendall View Post
Stick with it. Live below your means. Save as much as you can (with kids it's hard). I did 21 years in the Army and was able to FIRE at 54 thanks, in large part, to military retirement.
Quote:
Originally Posted by pdsmith505 View Post
The end-game benefits certainly seem to make up for the active duty struggles...
Quote:
Originally Posted by ExFlyBoy5 View Post
The last 10 years of my mil career went by very, VERY fast...and I am very happy to have that pension (I call it wake up pay...as long as I wake up on the 1st of every month, I get paid!) and Tricare. It helped my retire quite young.
Welcome, PDSmith505.

I'd suggest that you stay on active duty as long as you're feeling challenged & fulfilled, but when the fun stops then it's time to consider going to the Reserves or National Guard. You can reach financial independence on a high(er) savings rate even without a military pension, and there's no reason to gut it out to 20 on active duty.

You have far too much human capital to take so much of a risk to your physical, mental, & emotional health.
https://the-military-guide.com/dont-...ational-guard/
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Old 02-22-2021, 08:03 PM   #12
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Welcome, PDSmith505.

I'd suggest that you stay on active duty as long as you're feeling challenged & fulfilled, but when the fun stops then it's time to consider going to the Reserves or National Guard. You can reach financial independence on a high(er) savings rate even without a military pension, and there's no reason to gut it out to 20 on active duty.

You have far too much human capital to take so much of a risk to your physical, mental, & emotional health.
https://the-military-guide.com/dont-...ational-guard/
Appreciate you popping in! I've caught a few of your discussions while looking over the other threads the forum has to offer.

I'm lucky... somehow I managed to fail in my initial military career, only to end up as an Engineering Duty Officer. No deployments (no bonuses either, but I think I came up on the good end of that deal based on the PM&E health you mentioned). I'm pretty happy with my work, and have a well-defined path to beyond 20 years. The tricky part is keeping my desire to bail out at high-3/O-5 under wraps so I can keep the community interested in giving me interesting jobs.

I've just recently got smart about money and it seems to be snowballing pretty rapidly... it's gone from "I could afford a payment of $x for my wife's new car" to "Yeah, we could outright buy a new car, but why?" in the matter of a little more than a year. But I still like the safety net of the high-3 pension and bargain-basement cheap healthcare for life (wife has pre-existing medical).

That being said, I've got two more years on this set of orders and love the job. Next gig is almost certainly Washington DC, which I think I'll love considerably less... but there's a sweet gig on the other side of that horizon too, which would land me near the full 20 years. Meanwhile I seem to have cracked the nut on maxing TSP contributions while storing up a reserve fund (which will transition into storing up investments next year).
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Old 02-25-2021, 09:26 AM   #13
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The tricky part is keeping my desire to bail out at high-3/O-5 under wraps so I can keep the community interested in giving me interesting jobs.
Well, the assignment officers are keenly aware of the implicit assumptions behind discussing your next set of orders when you're at 14-16 years of service. You're not keeping any secrets there.

They know all the statistics (from all the communities) of what happens when O-5s reach 20 years of service. That's tied into the federal laws requiring three years time-in-grade at O-5 and above. It's also part of the assignment process of giving newer O-5s the nasty unpopular jobs to see who's breaking out for O-6 selection.

That's why I suggest taking it one tour at a time and leaving active duty as soon as the fun stops. When you're saving for financial independence, you don't need the pension.
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