Military Dude looking to retire in 2013. Do I just call it quits like Nords?

[dsanders137]

Hello everyone. I've been lurking on the site for a while and am finally comfortable posting.

I'm a 43 soon to be 44 year old who's considering putting in my military retirement paperwork for the fall of 2013 at which time I'll have just turned 45. I'm married with a wife and an 8 year old son and am ready to try something new whether that's semi-retirement or a job in the civilian world I'm just not sure. I had to mention Nords as I just finished reading his book and really enjoyed it as not many books out there cover the military retiree. I've also read several other retirement books (Work Less, Live More, Happy, Wild & Free, Your $$$ or Your Life, Billy and Akaisha's book and website, etc.)

I'm torn between going into semi-retirement trying to find a job doing something I like part-time and going into a second career for the next 10-15 years and then calling it quits for good. My skill set and clearance pretty much guarantee employment in the civilian world in the $80-100K starting out (based on friends who have departed the military/retired from it and work in the same field as I do.) I'm not sure I want to continue down that path though and am looking at other options for employment doing something I truly enjoy (albeit potentially making less $$$) vice something I know will pay me well.

I'll receive approximately $53.5K+ in military retirement indexed to inflation and another $11K+ (or more) in tax free disability putting my gross retirement/disability around $65K. I figure net it will be about $50K.

I have approximately $71K in Roth IRAs split evenly between my wife and I, $16K in traditional IRAs split evenly, $55K in a joint account split between vanguard funds and stocks in blue chip companies, and $71K in my Thrift Savings Plan. This puts me at approximately $215K in retirement accounts. In addition, I have $56K in cash and am adding between $2-3K per month to that cash balance (projected $85-100K in cash at retirement.) Yep retiring from the only career I've ever really known makes me nervous so I want plenty of cash on hand for it. My wife is an occupational therapist and wants to continue to work part time until our son is gone of to college. Speaking of college I have transferred my G.I. bill to my son so he should be mostly set for college expenses in 10 years.

I currently fully fund a Roth IRA for my wife and for myself (10K a year) plus I put away $650 a month into my TSP account. I will continue to do this until I retire in October 2013. My math puts this at about another 16K in Roths (I'll fund for 2012 and 2013 prior to retirement) and another 11K in my TSP. In addition, I'll get a promotion in Sep 2012 that puts another $600 (before taxes) and another $100 in housing (tax free) in my pocket until retirement.

I have a home in Colorado with a military renter in it through June 2014 at which time I plan to sell it. The rent covers my mortgage, home equity loan, property taxes and insurance with only $1.50 a month out of my pocket. I plan to sell the house once the renter moves out. I currently have approximately $100K in equity which minus the projected realtor fee would leave me $80-85K if I don't sell it myself (like I did my last house.)

We are looking to move to the SE U.S. (GA, FL, SC, NC) haven't really decided where yet but I know the cost of living is lower as are the home prices in most locations we have looked at. The only real debt I have is <$25K on a vehicle loan that's financed at .9% so I'm in no hurry to pay it off.

One final thing, many books I've read talk about converting part of your retirement portfolio into an annuity at some point but since I receive almost $65,000 a year (indexed to inflation) in retirement/disabilty what does this equate to if I thought of it an an annuity? I guess what I'm saying is if the standard advice is 25 x $ amount needed in retirement what does my $64,500 a year in retirement equate to if I looked at this as putting money into an annuity? Also, am I smart to think of this $65K as my bonds which allows me to take more risk since in essence I have this "annuity."

Any advice/comments are appreciated.

[BigNick]

Welcome to the forum!

Quote:

Originally Posted by dsanders137 One final thing, many books I've read talk about converting part of your retirement portfolio into an annuity at some point but since I receive almost $65,000 a year (indexed to inflation) in retirement/disabilty what does this equate to if I thought of it an an annuity? I guess what I'm saying is if the standard advice is 25 x $ amount needed in retirement what does my $64,500 a year in retirement equate to if I looked at this as putting money into an annuity?

I asked this question recently in this thread. There doesn't seem to be a lot of research; my conclusion, based on a limited scan of some annuity sites, was that a fully COLAed, joint-life benefit annuity at ages 52/55 is worth between 30 and 50 times the annual amount.

Quote:

Originally Posted by dsanders137 Also, am I smart to think of this $65K as my bonds which allows me to take more risk since in essence I have this "annuity."

That's one way to look at it. Another - assuming that military pensions are about as rock-solid as they come - is to simply deduct the pension's value from your retirement calculations. So if you have $60K coming in from the pension and you want to spend $100K/year, just pretend you have no pension and you want to spend $40K/year. You need to make some adjustments to that (there's reduced risk because if your portfolio tanks totally, you'll still have $60K; on the other hand, you will probably be taxed at higher marginal rates on the $40K than if it were your whole income), but it's a possible model.

[jclarksnakes]

Welcome to the forum and thanks for your service. With that pension you have lots of options. You could even move to a low cost area and live a simpler life and never have to work again. Millions of Americans are living on less than your pension. If your wife works parttime she may not be happy with you being completely retired so you need to take that into consideration. I could have become a totally retired stay at home husband when I retired from the army in 1993 but DW who is a teacher would not have been happy with that.

[ejw93]

Dsanders -

Thanks for your service and congratulations on achieving 20 years active duty.

Your'e ahead of the game if you have read through Nords' book. The Terhorst and Kaderli books are great, but IMHO you have to throw most of their advice out the window if you have kids.

I'm Navy Reserve (not yet at 20 yrs) and am working a 'bridge' career. It's not pretty- I'm just buying time at this bridge job until there's enough savings to retire and make it to age 60 (when my NR and FERS pensions start).

My $.02 -
1) Your baseline is $65K a year, guaranteed to rise with inflation, H/C included. Not a bad place to start. With only 1 kid and living in the southeast, you should be able to live comfortably, unless you purchase a McMansion in Atlanta/Buckhead or on the beach in Miami.

2) Investment firms are providing a lot of boilerplate advice on 'annuitizing' part of your portfolio in retirement. You're already there as a military retiree and don't need to purcahse a 3rd party annuity. Let the other investments (IRA/Roth/Brokerage) grow for later. According to the TSP annuity calculator (age 45, single, inflation adustments annually) your pension is worth over $3M!

3) My wife is an OT, and she literally gets job offers mailed to her everyday. Many of these job offers are in the SE, so it's possible the HC industry is desperate for OT's in the SE. Wife should have no problem landing a part- of full time gig if she is willing and able to work.

4) Bottom Line: You have earned your retirement. Live off of $65K per year (you'll be able to keep most of this after taxes). Go in to 'full' retirement mode or semi-retirement doing something you enjoy. Wifey can work part- or full time as an OT for 'gravy' on top of your $65k per year.

[Nords]

Welcome to the board, DS. I guess you already know my vote on "calling it quits"!

Quote:

Originally Posted by dsanders137 I had to mention Nords as I just finished reading his book and really enjoyed it as not many books out there cover the military retiree. I've also read several other retirement books (Work Less, Live More, Happy, Wild & Free, Your $$$ or Your Life, Billy and Akaisha's book and website, etc.)

Thanks! Looks like you've completed the retirement reading list.

We're collecting stories for the 2nd edition, and you're one of the latest to make the transition. I'd especially appreciate your commentary on the TAP process and anything else that you'd like to pass on to those separating or retiring.

Quote:

Originally Posted by dsanders137 I'm torn between going into semi-retirement trying to find a job doing something I like part-time and going into a second career for the next 10-15 years and then calling it quits for good. My skill set and clearance pretty much guarantee employment in the civilian world in the $80-100K starting out (based on friends who have departed the military/retired from it and work in the same field as I do.) I'm not sure I want to continue down that path though and am looking at other options for employment doing something I truly enjoy (albeit potentially making less $$$) vice something I know will pay me well. I'll receive approximately $53.5K+ in military retirement indexed to inflation and another $11K+ (or more) in tax free disability putting my gross retirement/disability around $65K. I figure net it will be about $50K.

Hypothetically there's plenty of "self-assessment" and "discovery" tools at TAP. They didn't work well for me 12 years ago but you may find something in there to spark a thought.

Getting “the job call” | Military Retirement & Financial Independence
During retirement: The inevitable job offers | Military Retirement & Financial Independence

You've presented plenty of info on your assets, but you also need to compare those to your retirement expenses. FIRECalc will help you decide the finances of either cold-turkey total ER, or semi-ER, or a bridge career. Many would happily retire on $50K/year. A few couldn't possibly consider the notion on less than six figures.

You might already have enough assets to handle a 4% SWR or Bob Clyatt's 4%/95% system:
How much will military veterans leave on the table? | Military Retirement & Financial Independence
Is the 4% withdrawal rate really safe? | Military Retirement & Financial Independence

On the lifestyle side, you could also use your terminal leave (or the first few months of retirement) to test-drive ER. Employers won't mind if you "take a few months off to re-acquaint yourself with family" or "take some time to get settled in".
Retirement: don’t recreate your old environment | Military Retirement & Financial Independence

If you haven't already done so, there's a statement for eligibility to classified materials that can be place in your record and used on your resume. It says something like "Eligible for access to TOP SECRET material under.... investigation dated..." IIRC, it speeds up your employer's ability to grant you access. Maybe another veteran poster can chime in with the paperwork that you need to have on active duty before applying for a classified bridge career.

Quote:

Originally Posted by dsanders137 In addition, I'll get a promotion in Sep 2012 that puts another $600 (before taxes) and another $100 in housing (tax free) in my pocket until retirement.

If you're promoted in Sep 12 and retiring in Sep 13, you may not be able to obtain a time-in-grade waiver to retire at the higher rank. You'll still be able to use the higher pay in your High Three retirement pay calculation, but you won't have the higher rank on your DD-214. Of course that may not be a concern.

Quote:

Originally Posted by dsanders137 I have a home in Colorado with a military renter in it through June 2014 at which time I plan to sell it. The rent covers my mortgage, home equity loan, property taxes and insurance with only $1.50 a month out of my pocket. I plan to sell the house once the renter moves out. I currently have approximately $100K in equity which minus the projected realtor fee would leave me $80-85K if I don't sell it myself (like I did my last house.)

What kind of house buyer do you want?

If your tenant's interested in buying then you could put them on a "rent to own" contract. Landlords love those because if the tenant changes their mind, the landlord usually gets to keep the extra money that was being deposited on the home purchase.

If an investor buys your home then they'd be delighted to have a tenant. In that case you might want to sell when the tenant still has at least six months left on their lease, or sign a new lease with a clause regarding change of ownership. You could motivate the tenant to cooperate with the listing & showings by giving them a month or two of free rent.

If you don't want to try either of the above then you could still list the house while the tenant's in it. That's a judgment call, though, because some tenants are more disorganized than others. If the house is cluttered then it won't show well. If the house needed interior paint or carpet then it's probably better to wait until the tenant's gone.

Quote:

Originally Posted by dsanders137 One final thing, many books I've read talk about converting part of your retirement portfolio into an annuity at some point but since I receive almost $65,000 a year (indexed to inflation) in retirement/disabilty what does this equate to if I thought of it an an annuity? I guess what I'm saying is if the standard advice is 25 x $ amount needed in retirement what does my $64,500 a year in retirement equate to if I looked at this as putting money into an annuity? Also, am I smart to think of this $65K as my bonds which allows me to take more risk since in essence I have this "annuity."

A military pension is the world's best annuity from the world's most reliable insurance company.

You're right, you could think of it as the equivalent of an income stream thrown off from I bonds, although those only have a term of 30 years.

The annuity/bonds comparison is mostly for a discussion about asset allocation. With your military pension (and a COLA, and survivor benefits) and your real estate, you're right again-- you could decide to boost your remaining asset allocation to more equities. No need for bonds or REITs, and probably not even for commodities.

Here's more than you probably care to know on the subject:
Asset allocation considerations for a military pension (part 3 of 3) | Military Retirement & Financial Independence
“Present value” estimate of a military pension | Military Retirement & Financial Independence

However you mentioned 25x$ needed in retirement. That's not an annuity comparison, that's a discussion about a spending gap. If your retirement budget is less than your retirement income (especially with that COLA) then you don't need to worry about 25x$. If your retirement budget is greater than your retirement income then you only need to fund the gap.

For example, if your retirement budget (after taxes) is $60K/year and your retirement income (after taxes) is $50K/year, then your funding gap is only $10K/year. You only need 25x$10K = $250K in retirement savings to cover that gap.

Here's one example, although you're not exactly "low savings":
Military retirement with low savings | Military Retirement & Financial Independence

Of course although your disability benefits are not taxed, I'm not sure whether they'll be adjusted to inflation. Your spouse will probably also want you to sign up for maximum Survivor Benefit Plan protection, which will reduce your pension by about 6.5%-- plus a little more for your kid's survivor benefits.

This is one of the best SBP briefs I've seen:
More SBP details | Military Retirement & Financial Independence

Here's some other helpful commentary & links (at the bottom of the posts):
Pension pitfalls | Military Retirement & Financial Independence
Building the ultimate investment portfolio | Military Retirement & Financial Independence

I think I've hammered this hard enough for now. Let me know if you have more questions...

[Parr0thead98]

You've definitely found the right place to come for advice! This forum helped me make my decision to retire next Oct as well--I'll have 25 yrs in by then.

Somewhat similar to you, I too, will have a similar retirement pay, my wife is an RN w/ a Bachelors of Science in Nursing degree, we are definitely moving to the SE to NC, have 2 young 'uns.

I also share your same thoughts, with my background, Acquisitions Certifications, clearance, I should have no trouble finding a "real job" if I choose. However, after getting out of the AF 13 years ago when our son was born, my wife wants to re-ignite her Nursing career, so I will become Domestic Daddy! I am committed to taking at least a full year off after I retire and learn some hands-on skills like putting in a patio/finishing the attic/installing crown molding/etc.

Since Jan, we have been living off my estimated retired pay and banking the rest for the down payment on our house we're building this Fall. I figure, if we can live off my retired pay, then we can bank my wife's income once she enters the workforce.

Exciting times ahead for you. Looks like you already made the hardest decision, and that's when is it time to hang up the uniform--congrats!