Retiring to Olympia, Wa at the young age of 50.

[HowardL]

Greetings, I’ve been reading this board for a couple of weeks and have found it to be extremely useful; I hope to contribute in the future as we go down this early retirement path and adventure. I am retiring from the Army after 26 years. I have been planning for this moment for nearly ten years and my wife and I made the decision early this year that it was time. My last day on active duty will be September 30, 2014 and I will be 50 years old and my wife will be 49. My two older boys have graduated from college and are working on their careers and my youngest son will use my New GI Bill for his undergraduate degree.

In terms of retirement income, I estimate my monthly retirement income to be approximately $6,500 and my wife’s part-time school nurse job at $500 per month. We have lived frugally and fortunately have no other debt other than the mortgage.

Our home in Olympia, Washington, purchased in 2012, is valued at approximately 650K (it has acreage for our organic farm) and we currently have a balance of $275K financed at 4% for 30 years. We will have approximately 205K in cash savings by the time I retire; this will be used to refinance the current mortgage to a 90K mortgage and will leave us with an emergency fund of 20K. Our projected monthly fixed expenses, including the small mortgage (90K), federal tax and survivor benefit insurance to be approximately $4,000. Yes, we will deplete most of our current savings but we will be able to save a minimum of $1,500 per month upon retirement and will build it back up.

Here is the basic budget plan:

Projected Monthly Income:
Military Retirement Pay $6,500
DW part time employment $500
VA Disability 0 (TBD)
Other income 0 (placeholder for now)


Projected Monthly Fixed Expenses:
Fed Tax -550
Survivor Benefit Plan (6.5% of pay) -423
home insurance -100
90K Mortgage (15 yrs/3.5) -650
car ins/maint -50
Student Loan -150
Term life ins -100
utilities (elect, gas) -200
phone -35
garbage -25
Cable Internet/phone -75
gasoline -100
grocery -700
Home Maint -300
property tax -550

Total expenses/tax $4,000


Summary:
Estimate Monthly Income: $7,000
Estimated Monthly Expense: $4,000
Monthly “misc” expenses: 1,500 (used for unexpected expenses, recreation, hobby, extra mortgage payments, or even savings)
Monthly Savings: $1,500

Thanks again to the many great posts in this forum and I endeavor to be a contributor.

[MBAustin]

Welcome and thank you for your service! There are lots of helpful folks here and we even have a little fun as well, so jump right in!

[papadad111]

Great intro and info on budget. Very useful.

Is your family health insurance covered by VA etc?

Will you get into farming after retirement or what do you plan to do ?

[HowardL]

papadad111, you just highlighted the fact that I have no experience (or requirement) to pay for health insurance during my active duty time and did not factor this into the budget. My family insurance premium for military retirees will be around $460 annually and I can elect to get VA medical care if I choose at no additional cost.

As far as the "farm", it's more like a gentleman's farm and is primarily for self-sustainment and practicing permaculture. We are currently growing various vegetables, berries, fruits, and herbs, and have 7 chickens laying eggs with six more on the way, and two bee hives. I'm building a greenhouse in the fall to extend the growing season for some vegetables. Lots to do to keep us busy!

[wingfooted]

My only comment is that you need to have more liquidity in your personal balance sheet (cash, CD's, stocks, bonds) to insure you can take care of a lumpy spending profile. Farms / rural properties have many associated non recurring expenses and most of them don't come cheap - tractors, skid steers, major outbuildings, drainage projects, fencing, bulk fuel, et al. $20K emergency fund just doesn't seem enough.

Rather than pay down the mortgage, as emotionally attractive as that can be, I would look at retaining all the cash to increase flexibility and slowly whittle away the balance with your monthly income.

Can't beat a military retirement package !

[HowardL]

wingfooted, appreciate your comments and will re-look. Our home is on land that we are converting to a permaculture environment; it's not a "farm" exactly. Our main effort is self-sustainment as much a possible.

[Ed_The_Gypsy]

I hope you like rain.

[HowardL]

Quote:

Originally Posted by Ed_The_Gypsy I hope you like rain.

Yes, we like the rain I was born and raised in Tacoma, Washington and have always wanted to come back to this beautiful state after my Army career.

[Golden sunsets]

Hi HowardL; Thank you for your service. Your pension is significant and Cola'd I presume. But are you saying that your NW (not including house) is only $205,000? That's not much of a nest egg as wingfoot implied. Have you lived on your proposed budget yet? Have you considered working in the private sector for a period of time to beef up savings/retirement? Many would not feel comfortable retiring with so little savings. What about major expenditures, new roof, replacement vehicles, child related expenditures( teens are expensive) weddings and the endless list of off budget wants/needs. A military career is often followed by time in the private sector is it not? Or perhaps there is a TSP with significant funds you have not mentioned. If so scratch my concerns.

[ivinsfan]

Thanks for your service and enjoy retired life, although taking care of any type of acreage is not really retiring.

You might want to look up our poster Nords and read the many ideas he has about retired military life. You will find he put a lot of thought into mortgage or paid off house. At the very least, you might think about getting a 30 year and really lowering your payments, you can always make bigger payments when you want too. This would give more cash flow month to month.

A comment on the VA disability, when you are military retired there is an offset between the VA and the military pay...you might not actually get much more coming in monthly, the VA benefit is not considered taxable, which is nice. Also a certain percent disability often qualifies you for some benefits from your state.

Don't know if you read Nord's blog, you can link to it from his profile.

[HowardL]

Quote:

Originally Posted by Golden sunsets Hi HowardL; Thank you for your service. Your pension is significant and Cola'd I presume. But are you saying that your NW (not including house) is only $205,000? That's not much of a nest egg as wingfoot implied. Have you lived on your proposed budget yet? Have you considered working in the private sector for a period of time to beef up savings/retirement? Many would not feel comfortable retiring with so little savings. What about major expenditures, new roof, replacement vehicles, child related expenditures( teens are expensive) weddings and the endless list of off budget wants/needs. A military career is often followed by time in the private sector is it not? Or perhaps there is a TSP with significant funds you have not mentioned. If so scratch my concerns.

I appreciate your assessment. I know there's some risk but believe my COLA adjusted pension and ability to save up to $3k a month on that pension will mitigate the risk. Most of the expenses listed are what we are already accustomed to and no, I don't have any interest in working in the private sector. I already have a full time job working on the homestead

[HowardL]

Quote:

Originally Posted by ivinsfan Thanks for your service and enjoy retired life, although taking care of any type of acreage is not really retiring. You might want to look up our poster Nords and read the many ideas he has about retired military life. You will find he put a lot of thought into mortgage or paid off house. At the very least, you might think about getting a 30 year and really lowering your payments, you can always make bigger payments when you want too. This would give more cash flow month to month. A comment on the VA disability, when you are military retired there is an offset between the VA and the military pay...you might not actually get much more coming in monthly, the VA benefit is not considered taxable, which is nice. Also a certain percent disability often qualifies you for some benefits from your state. Don't know if you read Nord's blog, you can link to it from his profile.

Thanks, I'll take a look at Nord's blog. I haven't decided if I'm going to do 30 vs 15 years yet and agree with you on the benefit of increased cash flow. I, like many here, want to pay this off soonest.

The VA offset is if you have less than 50% disability. Once you are 50% or above, it's tax free income in addition to the retirement income.

[Kaufmanrider]

Quote:

Originally Posted by HowardL Thanks, I'll take a look at Nord's blog. I haven't decided if I'm going to do 30 vs 15 years yet and agree with you on the benefit of increased cash flow. I, like many here, want to pay this off soonest. The VA offset is if you have less than 50% disability. Once you are 50% or above, it's tax free income in addition to the retirement income.

Interesting. Does this requirement come into play?

Individual Unemployability:
You are eligible for full concurrent receipt of both your VA disability compensation and your retired pay, if you are a military retiree who meets all of the above eligibility requirements in addition to both of the following:
you are rated by the VA as unemployable, generally referred to as Individual Unemployability (IU),
you are in receipt of VA disability compensation as a result of IU

Concurrent Retirement Disability Pay

[Nords]

Quote:

Originally Posted by HowardL Greetings, I’ve been reading this board for a couple of weeks and have found it to be extremely useful; I hope to contribute in the future as we go down this early retirement path and adventure. I am retiring from the Army after 26 years. I have been planning for this moment for nearly ten years and my wife and I made the decision early this year that it was time. My last day on active duty will be September 30, 2014 and I will be 50 years old and my wife will be 49. My two older boys have graduated from college and are working on their careers and my youngest son will use my New GI Bill for his undergraduate degree.

Welcome to the board, Howard! It looks as if your plan is going to work just fine.

I hope you can maximize your terminal leave. You'd hate to have your retirement ceremony at the end of the fiscal year when everyone in your command is distracted by funding issues...

There are plenty of military retirees living happily on their pensions with low savings. Here's one example:
Military retirement with low savings

It's quite likely that your farming business is going to lower your expenses even more, or perhaps generate some excess income:
Reader questions about retiring on a military enlisted pension

Quote:

Originally Posted by HowardL papadad111, you just highlighted the fact that I have no experience (or requirement) to pay for health insurance during my active duty time and did not factor this into the budget. My family insurance premium for military retirees will be around $460 annually and I can elect to get VA medical care if I choose at no additional cost.

To get excruciatingly detailed, here are your Tricare Prime premiums for the rest of FY14:
Health Plan Costs - Prime Enrollment Fees
$547.68/year works out to about $45.64/month. It'll go up each year by the military retiree COLA percentage. Of course you can also use the local VA clinic or base military clinic or roll the dice with Tricare Standard. You may decide that it's a matter of appointment availability and driving time. I'm surrounded by three military base clinics within 15 miles but I'm much happier at a civilian clinic that's three miles up the road.

I'm with ivinsfan on the 30-year mortgage. You can look at the interest rates & payments to choose between a 15-year or a 30-year mortgage, but you could also analyze your true expenses of taking out a 30-year mortgage and paying it off at a 15-year schedule. This puts you in control (instead of the mortgage company) and gives you built-in flexibility to recover from a surprise expense by temporarily reducing your extra principal payments if necessary. The mortgage company will not give you this "reduced payment" option with their 15-year mortgage.

Frankly, I'm not sure you want to refinance that mortgage at all. Don't even give the bank a vote. You could start making additional principal payments on your existing mortgage on 1 October 2014 as though you're going to pay off the mortgage by 1 Oct 2029. That avoids the cost (and hassle) of a refi and achieves your goal on your schedule. You could do it with a $205K lump sum principal payment on 1 Oct and then pay off the remainder as though it was a 15-year mortgage. Try this excellent mortgage payoff calculator from my blogger buddy Todd Tresidder:
Mortgage Payoff Calculator - Early Payoff With Extra Payments
I think you'll save more money by accelerating the payments on your current mortgage, because I'd be very surprised to see a 15-year rate that will still save you money after paying the refinance costs.

Here's another reason not to ask the bank's permission to reset the mortgage: you say "refinance" as though you're still employed. I strongly recommend that if you decide to refinance then you obtain the new mortgage (15-year or 30-year) while you're on active duty. The finance company only cares about your income (not your assets) and they will expect you to show the cash flow (income) to qualify for the payments. If you try to refinance when you're retired, you may only have the pension income to qualify for the payments of a 30-year mortgage. My spouse and I have a greater net worth now than 12 years ago when we were on active duty, but we would not qualify for our current mortgage because we don't have paychecks-- just pension, dividend, and interest income. Don't even get me started on how a mortgage company treats the income from a rental property.

When you apply for the refinancing on active duty the mortgage company may ask you about your retirement plans, but if you were already retired then that issue would come up anyway. I suspect that the bank will pretend that you're going to be on active duty forever and will not ask about any future abrupt changes in cash flow. If you insist on a new mortgage then apply for the refi now (while you're on active duty), let them play the game by their rules, and see what you're approved for.

While you're still on active duty and doing a refinance, I also recommend that you apply for a home equity line of credit. You don't have to use it, but it's a handy emergency fund. Again, you won't qualify for access to this much credit when you're retired.

[sanfanciscotreat]

Congratulations on your retirement from military service. You should have not problem with your projected income and expenses. What branch of the military and rank does one need to attain such an attractive retirement income?

[HowardL]

Quote:

Originally Posted by sanfanciscotreat Congratulations on your retirement from military service. You should have not problem with your projected income and expenses. What branch of the military and rank does one need to attain such an attractive retirement income?

Thank you. Yes, we think we will be just fine with the retirement income and our focus to live more simply; we intend to grow much of our food on our land and our chickens are already producing a bunch of eggs!

I'm retiring as an Army colonel with 26 years of active duty time; the equivalent rank in the other services will generally have the same pay.

[HowardL]

Nords, thank you for your comprehensive and thoughtful response. My retirement brief is scheduled for June 11 so these details such a Tricare cost, VA benefits, etc, will become more clear to me.

My current mortgage payment is $1,800 (includes $500/month property tax). My intent is to refinance in order to reduce the monthly mortagage and property tax expense to around $900 per month as described in my budget plan. I'll probably take a 30 year and just make extra payments to accelerate paying it off.
I didn't factor in how the bank will treat my retirement income so will need to do some research on this...I'm gong to call USAA next week.

Again, really appreciate your insight and generous time to review my circumstances.

[Golden sunsets]

HowardL; I presume that the reason that you have so much equity in your home is you used the majority of your savings as a down payment. Reducing it further to 90M dollars is comforting but would leave you a cash reserve of only $20,000. Yikes. I hope you reconsider this decision as it leaves you unnecessarily exposed despite your gold standard pension/health care. A more conservative plan might be to plow all of your monthly excess funds into a systematic reduction in the $250,000 mortgage. You could pay it off entirely in 7 years and still have the nest egg which after setting aside an emergency fund, could be invested for growth.

[HowardL]

Golden sunsets, appreciate you taking a look and your thoughtful response. Our intent was to reduce our monthly mortgage/tax bill to under 1K and hence the strategy to pay down the current balance to 90K. Yes, we made a big down payment of over 50% and had intention of paying it all off prior to me retiring...the middle son's Duke education bill and me retiring two years sooner affected that a bit. The house and it's systems are in good shape so I think our risk is manageable. Worse case, we could take an equity loan for unanticipated expenses.

[kcowan]

One thing to consider. When we both worked, we loved the climate here in Vancouver, but when we were both home, the rainy weather bothered us more. We are unique among Vancouverites, it seems. But just beware. We solved it by snowbirding for 6 months and that has also reduced our yearly budget!

(Thanks to the already high COL in the PNW!)