Military Retiree Needing Advice!

[dburnsy12]

Hi, my name is Dave and I have a fairly complex situation in-which I am seeking some reasonable guidance.

Background: I am 47 years old and have been retired from the Army since the age of 37 with 20 years active service. I am also 80% disabled from the VA. Since retirement I have worked as a DOD Contractor with USAREC and served several years as a State Representative and Town Mayor. The last couple of years I have been retired fully caring for a father with full blown dementia who has since passed. Now caring for elderly Mom. I am married with 4 adult children, one in med school and the other three are all college grads with well established careers.

Situation: Planning on moving to Ft. Hood, TX area from Maine with wife and mother and taking up permanent residence.

Financial Situation: Selling two homes free and clear of any mortgages and based off of assessed values and market will probably gross between $580-$600K. Have entered into tentative contract on house in HH area near the base for $240K. So after moving expenses and new household purchases, We should be sitting on around $300K. My monthly income from retirement and disability is $3,300, My wife makes around $3,500 a moth after taxes and deductions. Mother makes $1,100 monthly from SS. Monthly household income is approx $6,900 NET. We have absolutely no debt even with a new house and new vehicles which we have paid cash for. Unfortunately we both do not have any IRA's or 401K's tho, but I am paying for SBP from my retirement in case I pass before my wife, she would still receive $1,100 monthly from my retirement pay. I don't know if she would receive anything from the VA.

Dilemma: With this excess cash, what should we do? Everywhere on the net you read about IRA's and their importance but I do not see it that way as we are kind of in a unique situation financially. But maybe I am wrong. I will automatically put around $50K in an emergency fund and around $30K in an everyday/slush fund leaving around $210K needing some purpose and direction! Wife is Korean, so she will refuse to stop working until she is either incapacitated or dead (LOL) but I am not so ambitious. Long-term growth of the money is just not as important as steady growth of it. But, I would also like to have some sort of access to it or most of it if ever need be. What should we do?!? Thanks in advance and I look forward to everyone's input......

 

[Brat]

Nords is the go-to guy for military retirees, perhaps he will find your posting and offer advise.

Are you fully funding your wife's IRA? Since she is working you may also qualify for a spousal IRA. Set them up at Vanguard or Fidelity.

You really need a balanced investment portfolio. The easy answer is Wellington Income Fund (a Vanguard fund). Keep in mind that earnings (dividends, capital gains) outside of an IRA is taxable income in the year earned so weight your investments in the IRAs toward the dividend type and those not in the IRAs toward growth.

 

[jimnjana]

what Brat said. Fund DW IRA, fund a spousal for you. Also if DW employer has 401k she should fund that as well, especially if they match contribution.

 

[ggbutcher]

I'm also taking military retirement, with half SBP (one of our less-well-thought-out decisions). I'm planning assuming that I'll pass before DW, and I don't want the hit in monthly income to adversely impact her, so I'm going to bank my SS so she can draw on it to make up the hit.

That, and the possibility of a long-term-care situation would compel me to buy some index funds with the excess cash and forget about it.

 

[Nords]

Welcome to the forum, Dave.

Financial Situation: Selling two homes free and clear of any mortgages and based off of assessed values and market will probably gross between $580-$600K. Have entered into tentative contract on house in HH area near the base for $240K. So after moving expenses and new household purchases, We should be sitting on around $300K. My monthly income from retirement and disability is $3,300, My wife makes around $3,500 a moth after taxes and deductions. Mother makes $1,100 monthly from SS. Monthly household income is approx $6,900 NET. We have absolutely no debt even with a new house and new vehicles which we have paid cash for. Unfortunately we both do not have any IRA's or 401K's tho, but I am paying for SBP from my retirement in case I pass before my wife, she would still receive $1,100 monthly from my retirement pay. I don't know if she would receive anything from the VA.

The first thing you should do is consult a tax CPA-- and it's best done before you move. While the gains on the sale of a primary residence might be exempt from taxation if you're rolling the profits over into your new primary residence, the second home is a different situation.

If you do end up paying capital gains taxes on either home, the size of the gain might push you into AMT territory (both federal and state) so your tax bill might be bigger and you might not clear as much as you'd expect.

If the second home was used as a rental property then the IRS assumes that you've been depreciating the value of the structure. (They assume this-- and tax you accordingly-- whether you've actually been doing so or not.) When you sell a rental property you're going to have to pay depreciation recapture in federal taxes and possibly state taxes as well.

I don't know all the federal/state tax rules, but this is definitely a situation for seeking professional help.

Next, it seems as if you're saying that your monthly income exceeds your expenses. If that's the case then you should consider contributing to your spouse's 401(k) because some of her contributions may get a free match from the employer. (You could tell her that every working woman of Korean ancestry in Hawaii is contributing to her 401(k)!) At a minimum she should contribute enough every month to get the maximum employer match. You can access that money as early as age 55 (if she quits the employer) or age 59.5 (the IRS minimum for penalty-free distributions).

As Brat says, you should set up Roth IRAs for both yourself and your spouse and contribute as much as you're comfortable with-- I'd suggest that you try to maximize those contributions. The contributions that you make to a Roth IRA can be withdrawn anytime for any reason with no penalty, so you can max out both accounts if you want and then pull the contributions out anytime for an unexpected expense. (Some investors actually use their Roth IRAs for their emergency funds.) The gains on Roth IRAs are not taxed, and you're not required to take minimum distributions. The earliest you can usually tap the gains of a Roth IRA is age 59.5 but you don't have to worry about doing it earlier than that because you'd withdraw from the contributions first.

While you're setting up these accounts, figure out your asset allocation. Again as Brat says, the "easy button" answer is a balanced fund like Vanguard's Wellesley or Vanguard Wellington. You could tutor yourself on asset allocation at the Bogleheads Wiki (Bogleheads), and I recommend doing that because your knowledge will let you sleep more comfortably during bear markets. But you should also just keep things simple. You could dump all of your real estate profits into one of those two Vanguard funds, and you could do it in one huge lump sum. Even your spouse's 401(k) could be split between whatever low-expense stock index fund and low-expense bond index fund the 401(k) custodian offers.

If you're uncomfortable doing these things then find a fee-only CFP in your area and get help with the setup. You'd only need to pay for a few hours of advice and paperwork.

If you die before your spouse, she'll get your SBP. She'll have Tricare or Tricare For Life healthcare. She'll also get Dependents Indemnity Compensation from the Social Security Administration and eventually her own Social Security benefits. You'll get minor burial benefits from the VA but she won't get anything from the VA unless she chooses a VA clinic as her Tricare primary care manager.

Your spouse may also be eligible for some sort of survivor benefits from your DoD contractor employer, but you'd have to check with that employer or the tax CPA or the fee-only CFP.

Nords is the go-to guy for military retirees, perhaps he will find your posting and offer advise.

Thanks, Brat, I log in every week or so and search for the "Nords" and "military" keywords.

Except next weekend. I'm leaving tomorrow for USAA's "Social Exchange" conference (San Antonio) and I won't be back until the 9th!

 

[dburnsy12]

Thanks for your input Nords! Valuable info I can take to heart. I have consulted a CPA friend on the capital gains tax issue and he explained that since my mother is a 50% owner of the second home and currently lives in the house that after commissions and other associated fees and costs, it should be minimal pain on the tax front (I hope!!!) for me as the house was only purchased 5 yrs ago. The other issue that you also recommend is the 401k for my DW. Currently, her employer does not offer one or a 403b type opportunity. So what could be done as an offset?

 

[Brat]

An IRA and or a Roth IRA. The IRA is deductible but its withdrawals are taxable and the account is subject to minimum required distributions after age 72.5. Contributions to a Roth are not tax deductible, withdrawals are not taxable (there is a little hitch there on gains withdrawn within the first 5 years of establishing the account - easy to work around) and there are no required distributions. You need to run the numbers to see what works best for you.

 

[Nords]

Thanks for your input Nords! Valuable info I can take to heart. I have consulted a CPA friend on the capital gains tax issue and he explained that since my mother is a 50% owner of the second home and currently lives in the house that after commissions and other associated fees and costs, it should be minimal pain on the tax front (I hope!!!) for me as the house was only purchased 5 yrs ago. The other issue that you also recommend is the 401k for my DW. Currently, her employer does not offer one or a 403b type opportunity. So what could be done as an offset?

Good, then you won't have "tax shock". Since she's an owner and probably over 55 years of age, she gets a big exemption on her capital gains from the sale. Every time I run the numbers on the taxes for selling my rental property, we end up deciding to keep it for a while longer. I think our exit strategy is "probate".

Talk to your CPA friend about IRMAA for your mother's Medicare Part B (and possibly Part D) premiums. Although she won't be taxed on most of the capital gains from selling the house (if she's taxed on them at all), unfortunately during the following year her Medicare premiums may go up for one year. Michael Kitces has an excellent (yet highly technical) explanation here:
Income Thresholds For Medicare Part B And Part D Premiums – An Indirect Marginal Tax? | Kitces.com
I made this mistake last year when I rebalanced my Dad's investments and ended up paying $2000 more in Medicare expenses. The rebalancing had to be done and it was done in the right manner at the right time, but it still cost $2000 more than I expected.

If your spouse's employer does not offer a 401(k) or any other tax-deferred retirement plan then I'd max out the Roth IRA contributions (in both of your Roth IRAs) and put the rest of your savings in a taxable account. Both the Roth IRAs and the taxable account can be invested in Vanguard's Wellesley or Wellington. It's simplistic, but it's very low effort and you'll sleep well at night. If her employer offers a pension (instead of defined contribution plan) then that's just a bonus.

Your spouse's employer could be encouraged to start up a SIMPLE IRA (SIMPLE IRA Plan) but it's also another layer of complexity in your life. Your tax bill is already low (especially with your VA disability compensation and being able to roll over your home sale capital gains) so you won't get much return out of complicating your investments and your tax shelters.

 

[Brat]

Given the fact that less than 60 days remain in this tax year I would focus on what can be accomplished in that time frame. Fill out the paperwork for both types of IRAs for each of you so that you can execute your plan quickly.

 

[World Traveler]

You might also look into rental properties. I am a Af retiree and own several rental properties in Denton,TX. interest rates are low and depending on the area you may find some quality properties at descent price. It is another income stream not dependent on the stock market.

 

[Brat]

Or buy Realty Income Corporation ("O") and not worry about tenants or maintenance. Another real estate investment would be either of the top two real estate funds: Best Real Estate Mutual Funds | US News Best Funds Always make sure you getting companies that invest in properties, not real estate financial assets.

Full disclosure: I have O in my IRA and reinvest its dividends, withdrawing my minimum required distribution in late December. It has worked very well for me. Dividend yield at current price is 4.77%.

 

[dburnsy12]

I have actually been considering some real estate investments as I have been trying to figure on the best ways to grow this money. FULL DISCLOSURE!!!: The reason why I am asking for advice is that we (Me & DW) basically pissed away a 1/2 Million $'s over the last couple of years that she won on a "Tax Free" scratch ticket!! paid maybe $60K in actual taxes and used the rest to payoff mortgages on two houses, credit cards, vehicle loans and home upgrades... I guess "pissing away" may be inappropriate term to use because we are absolutely debt free but I feel guilty that there's nothing really left and I would like to do things right this time while holding/saving/vesting the monies responsibly. Thanks again to all who have answered and those that may add additional input going forward.......

 

[bad_LNIP]

I wouldn't describe paying off mortgages pissing away money, per se. Probably not the wisest move from an interest rate/liability/opportunity cost standpoint, but there are certainly worse things you can do.

Just a recommendation, but you probably want to stop playing scratch off's. Quit while you are ahead, and you are WAY ahead.

IRA/401k's are nice because they are tax advantaged and exempt from creditors, so it is very safe money and can grow faster than most other investment accounts.

If you have no other investments, buying some index funds/etf's wouldn't be bad. I am an income investor, so I like dividends, but that is just my personal bias.

You have a lot of the basics covered, such as medical, a military pension, etc... so I think it really depends on what you want to do in life. It sounds like you feel security having a lot of money on hand. Understand, that is risky as well. If the IRS confuses you with someone else or has a beef, they'll just take your money and sort it out later.

Someone hacks your info, and the money is gone, although you can get it back, I don't personally like arguing with people about getting my money back after the fact. 80k in cash sitting around is a LOT of money. I'd probably just go with 30k and call it a day.

Another scenario, say you get sued for something. Right, wrong, or whatever, you have 80k in assets that can be grabbed (even worse if you have it all stuck in an illiquid asset like real estate). I would be very careful about doing that in the future.

Ideas? Commercial real estate, investing in boring dividend paying stocks, buying a business.

I have actually been considering some real estate investments as I have been trying to figure on the best ways to grow this money

I would take it really, really, REALLY slow before investing in something. The things you are saying are a bit conflicting. You can't say the above statement and then also say what you say below.
Long-term growth of the money is just not as important as steady growth of it.

Trying to grow steady growth, but not long term....I'd be super confused as far as targeting an asset class/investment. What is your investment experience/education level with investments? Ever think of taking some investment analysis/personal finance classes before investing?

 

[World Traveler]

I have actually been considering some real estate investments as I have been trying to figure on the best ways to grow this money. FULL DISCLOSURE!!!: The reason why I am asking for advice is that we (Me & DW) basically pissed away a 1/2 Million $'s over the last couple of years that she won on a "Tax Free" scratch ticket!! paid maybe $60K in actual taxes and used the rest to payoff mortgages on two houses, credit cards, vehicle loans and home upgrades... I guess "pissing away" may be inappropriate term to use because we are absolutely debt free but I feel guilty that there's nothing really left and I would like to do things right this time while holding/saving/vesting the monies responsibly. Thanks again to all who have answered and those that may add additional input going forward.......

Not wasted if you got your financial house in order and had some fun along the way IMHO. No debt is great. This is an excellent web-site to see how others are achieving their goals. I would say figure out what your goals are for ER then educate yourself on the best way to achieve them. Some good advise from the previous posts.

 

[LOL!]

IRAs (Roth, traditional) can be opened and funded up to April 2015 for tax year 2014.

 

[dburnsy12]

[/I]I would take it really, really, REALLY slow before investing in something. The things you are saying are a bit conflicting. You can't say the above statement and then also say what you say below.
Long-term growth of the money is just not as important as steady growth of it.

Trying to grow steady growth, but not long term....I'd be super confused as far as targeting an asset class/investment. What is your investment experience/education level with investments? Ever think of taking some investment analysis/personal finance classes before investing?

I have absolutely null for experience! I wonder, for someone as green me, if it would just better to "Hire" someone to handle the money and trust they are doing the right thing for my family. And if that is to be the case, in your opinions, who or which firms are best suited to help an individual as inexperienced as me?

 

[Brat]

No one will look out for you and your family as well you can once you are committed to learn. I think you need a CPA to help you work through the tax stuff but beyond that it isn't rocket science.

Frankly I don't trust investment 'advisors'. My HS best friend is a physician, his son is an Certified Financial Planner. Does he use his son's services? No, because "he is too expensive". My friend just puts his money in Vanguard index funds and rebalances annually.

Buy Nords book, for a start.

One question I would ask is how do you envision spending your time in retirement. Notice an earlier exchange about investing in real estate. Do you want to rent and maintain your own property or would you rather buy stock in a company that does that?

 

[dburnsy12]

One question I would ask is how do you envision spending your time in retirement. Notice an earlier exchange about investing in real estate. Do you want to rent and maintain your own property or would you rather buy stock in a company that does that?

Brat, I would prefer to be fishing and golfing rather than changing light-bulbs for tenants I guess. Stock would probably be my preference. I have been retired a few years already, so I am hoping to do things right so I can STAY retired!!!!! LOL

 

[Brat]

Me too!!

 

[HawkeyeNFO]

Hi, my name is Dave and I have a fairly complex situation in-which I am seeking some reasonable guidance.

Background: I am 47 years old and have been retired from the Army since the age of 37 with 20 years active service. I am also 80% disabled from the VA. Since retirement I have worked as a DOD Contractor with USAREC and served several years as a State Representative and Town Mayor. The last couple of years I have been retired fully caring for a father with full blown dementia who has since passed. Now caring for elderly Mom. I am married with 4 adult children, one in med school and the other three are all college grads with well established careers.

Situation: Planning on moving to Ft. Hood, TX area from Maine with wife and mother and taking up permanent residence.

Financial Situation: Selling two homes free and clear of any mortgages and based off of assessed values and market will probably gross between $580-$600K. Have entered into tentative contract on house in HH area near the base for $240K. So after moving expenses and new household purchases, We should be sitting on around $300K. My monthly income from retirement and disability is $3,300, My wife makes around $3,500 a moth after taxes and deductions. Mother makes $1,100 monthly from SS. Monthly household income is approx $6,900 NET. We have absolutely no debt even with a new house and new vehicles which we have paid cash for. Unfortunately we both do not have any IRA's or 401K's tho, but I am paying for SBP from my retirement in case I pass before my wife, she would still receive $1,100 monthly from my retirement pay. I don't know if she would receive anything from the VA.

Dilemma: With this excess cash, what should we do? Everywhere on the net you read about IRA's and their importance but I do not see it that way as we are kind of in a unique situation financially. But maybe I am wrong. I will automatically put around $50K in an emergency fund and around $30K in an everyday/slush fund leaving around $210K needing some purpose and direction! Wife is Korean, so she will refuse to stop working until she is either incapacitated or dead (LOL) but I am not so ambitious. Long-term growth of the money is just not as important as steady growth of it. But, I would also like to have some sort of access to it or most of it if ever need be. What should we do?!? Thanks in advance and I look forward to everyone's input......

Dave? is this you?

http://en.wikipedia.org/wiki/David_R._Burns

http://votesmart.org/candidate/biography/121100/david-burns

 

[dburnsy12]

Yes it is. Not going to hide it from anyone who asks. I honestly mismanaged my campaign fund account and mixed funds with personal then wrongfully tried to cover it up. My conscience would not let me live with my self, so I made a call to the audit department to let them know what I did and humbly took my punishment because I was wrong. I did not fight it as I too would want justice for anyone else daring enough to do something as stupid as I did. Could I have gotten off with a slap on the wrist, as many others do you see at local and national levels? Probably, but it would not be right! I blame no-one or the "system" at all. It was all on my shoulders and I hope others that do what I did, take their medicine too. I have a long and proud history of service and kindness before that debacle and will continue to going forward! It didn't take long for many in my district to get behind me to make a run again after all was said and done. But how could they even consider or better yet, my own-self conscience, ever consider serving again in that capacity?! Politics indeed, such a strange world.......

 

[World Traveler]

You made a mistake served your time. Now it is time to concentrate on the future. If you have time educate yourself with the suggestions on these forums. There are a lot of good books out there. Vanguard website is very good.


Sent from my iPhone using Early Retirement Forum

 

[HawkeyeNFO]

Dave, your honesty is sincerely appreciated here. Election rules and regulations are like a rat's nest, and tough to comply with.

Anyways, you've found a collection here of sharp people who have helped me a great deal over the years. Nords always has sound advice.

 

[World Traveler]

Dave, your honesty is sincerely appreciated here. Election rules and regulations are like a rat's nest, and tough to comply with.

Anyways, you've found a collection here of sharp people who have helped me a great deal over the years. Nords always has sound advice.

I second that ^^^^

 

[Walt34]

I have actually been considering some real estate investments as I have been trying to figure on the best ways to grow this money.

I'd recommend several books: The Millionaire Next Door (the numbers are a bit dated but the principles are not) The Millionaire Teacher, How a Second Grader Beat Wall Street, The Four Pillars of Investing, A Random Walk Down Wall Street, Your Money and Your Brain, Predictably Irrational, and Thinking, Fast and Slow.

The last three are only peripherally about money, but they are about the psychology of why so many people have a hard time with saving/investing. But if you don't understand what's going on in your head you'll have a hard time of it too.

Read those books - slowly, there's a lot to absorb but it does come easily but slowly - and you will do better than 90% of professional money managers. It isn't rocket science, it's actually pretty simple.