Young military doc looking at options

[gsmolin]

Greetings all from Afghanistan.

First, thanks for the wealth of information out there on this forum.

A bit about me:
33, married w/ 3 young boys, on active duty in the Army until 2016, looking at Reserves vs staying AD for the full 20 yrs. $105K in assets (currently split into: 20% money market account, 45% stocks, 20% bonds, 5% precious metals, and 10% Army Savings Deposit Program for deployed soldiers). No debt. No mortgage (living off post but rent + utilities are covered by the Army). IRA's for both my wife and I are maxed out and we have a 529 set up for each boy, although contributions are low @ $50/month/boy. Also saving $500/month for a future home purchase--the $ in our money market account. Usual living expenses are around $60K/year and we've in large part stuck to this amount of yearly expenses for the past 6 years and allocated larger and larger amounts to investments.

My goal would be to continue in the reserves from 2016 until at least 2021 (when I'll have my 20 "quality" years in) and longer if I like it. I'd like to shoot for semi-retiring in 2016, i.e. working as a physician about 2 days a week. I'd then be able to spend more time with my wife and sons as well as starting my own small business (something completely unrelated to medicine--a bicycle shop) at the same time.

My specific questions would be:
1. I'm looking at a pension, even if I get out of active duty @ 2016 and do another 5 yrs in the reserves, of $3363/mo ($7470 in 2038 dollars, per HRC's website). If I stay in the reserves until age 60, that goes up to $5315/mo, or $11806/mo in 2038 dollars. Since that pension starts @ age 60, is it a good idea to do the following:
- invest enough $ into TSP now to, along with our Roth IRA's and pension, then entirely cover projected living expenses from age 60-90? A lot of that depends on how long I'd stay in the reserves, as obviously if I stayed as long as I'm eligible, my pension would completely cover our living expenses.
- Perhaps allocate funds differently than above given the fact that I will have a pension? This was covered in the Military Guide to Financial Independence and Retirement, but wanted to hear people's thoughts on being more aggressive with a portfolio given the "guaranteed pension". Right now its very conservative, but that's also due to my thoughts on the fact that I think the world economic situation right now isn't great.

2. Advice on college savings? That's the biggest concern we have right now, with projected college costs, even for public universities, being > $100K/year, and private high schools > $20K/yr, with tuition rates rising @ about 7%/yr. It would seem that demand for higher education is high, and credit (student loans) are easily available, so much like the housing market, the system can only crash. However, I'd rather plan ahead, so any help is appreciated.

Thanks for any information or advice you all can give me.

[justplainbll]

Is the deal still 20 years AD = half pay and 30 years AD = 3/4 pay?
One advantage of staying active duty is that it gives you a better opportunity to check out a larger variety of locations for their retirement potential. Are commissary, PX (AAFES?), O-club, and health care benefits still attractive?
I understand private practices are on the decline and given the potential for increasing government regulation of civilian medicine you might be better off staying AD.

[MichaelB]

Hi gsmolin, welcome to the forum. Thanks for your service. Congratulations, you are young but well on your way and based on your assets already ahead of the pack.

I can't help with pension questions but there are many members with service experience and they will stop by with their views. The college question - that's a challenge. My advice to my own kids (your age) is that it will only get more expensive and their challenge is not just to pay for it but to make sure their children get maximum value and a competitive advantage. I also think every effort should be made to enable young people to graduate without debt, as that holds them back and limits their choices, but not all here on the forum share that view.

[justplainbll]

You might want to take into consideration that by remaining on AD you’ll have an increased opportunity for checking out a variety of locations (e.g. Fort Huachuca, Fort Lewis, …) that you would find attractive for retirement.

[martyb]

How many active duty years do you have now? You realize that if you retire from the reserves, each active duty day counts for one retirement point, right? One weekend of reserve drill counts for 4 points, but unless you're on active orders you're not going to rack up nearly the points as you would on active duty. You can have a "good" year in the reserves but might only earn 75 points that year, so not nearly as lucrative. That year won't be monetarily worth nearly as much as if it had been an active duty year. I'm only asking because I want to make sure you've really studied up on the ins & outs of reserve retirement vs. active duty. I retire from the reserves, but if I could go back and do it again, I'd stick out the 20 yrs on active duty. Higher pay, immediate pension and medical etc. etc. Be sure to meet with a VA counselor as well, BEFORE you leave active duty.

[MichaelB]

Quote:

Originally Posted by justplainbll I understand private practices are on the decline and given the potential for increasing government regulation of civilian medicine you might be better off ataying AD.

Tricare (like Medicare) is much better than government administered healthcare.

[packrat44]

I am confused why you would want to serve 15 years AD and then switch to the reserves. By not serving the remainining 5 years you give up/delay a lot of financial and medical benefits.

[martyb]

Sorry, I kind of speed-read through your original post. However, I would still strongly lean towards staying until you can retire. At that point, you'll draw your pension immediately, instead of waiting until age 60 (reserve option), and like I said, immediate medical benefits. Same as others are suggesting. Easy to say from the outside, I know, but having been both active & reserve, that's my opinion. Best of luck to you.

[HawkeyeNFO]

Similar situation to me, I have 14 years in, and would like to have my own "business" totally unrelated to the military or aviation when I have the time. With that in mind, I am sticking around until 20 years for the retirement pay, because it will be nice to have that cushion should my other endeavors not become profitable.

[justplainbll]

Molin, you might also want to consider the tax implications of not staying on active duty. For example- since I had a civilian job to return to, I felt obliged to pay state income tax but suspect you could elect a state of domicile which does not impose an income tax.

[Nords]

Welcome to the board, Doc. And I'm glad to see that the book is helping!

Quote:

Originally Posted by gsmolin Greetings all from Afghanistan.

Golly gee, guys, maybe there's a clue in why he's thinking Reserves right now. Of course we veterans all have nothing but happy memories of the good times we all enjoyed during our fun deployments...

I think I'd give more weight to the retention advice coming from guys whose memories include more hospital time than I (luckily) ever had to see. Or let me ask the question a different way. If you regain consciousness on the operating table as they're about to slice you open for combat surgery: would you prefer the happy doc who loves what he's doing and wants to stay to 40, or the grumpy doc who's gutting it out (so to speak) to get to 20?

I asked my spouse (who left active duty at 17 years and 11 months) for her opinion about staying on active duty. Her response was mostly unprintable. The last part of it was "... and besides it was only money. Going Reserves was the best thing I ever did!"

Doc, you might be surrounded by medical Reservists right now. If you haven't done so already, you could ask them how they've been treated and whether they'd rather be on active duty, or drilling/mobilized Reservists, or totally civilian. You might also send a PM to Deserat, an AF Reservist who's living in Germany with her active-duty spouse for just a few more months. She's in the medical tech field (an engineer with a medical company) with considerable insight into medical & Reserves. You might say that she wrote the book on it-- she wrote most of "The Military Guide" chapter on the Reserves.

I think you'll do quite well for yourself in the Reserves. However my impression of Reserve doctors is that they get mobilized more than anyone else in the military. I might be mistaken. But you'd hate to leave active duty in 2016 (probably right after a deployment) to join a Reserve unit and find out that you're on the short list for a year's Reserve deployment to somewhere like Africa or another "hot" spot.

Quote:

Originally Posted by gsmolin I'd like to shoot for semi-retiring in 2016, i.e. working as a physician about 2 days a week.

I know that Rich_in_Tampa did something like that for a few months after he left full-time practice. One of the issues (which can be resolved with moderate difficulty) was malpractice insurance. You'd want a cooperative hospital or clinic to cover that for you.

Quote:

Originally Posted by gsmolin 1. I'm looking at a pension, even if I get out of active duty @ 2016 and do another 5 yrs in the reserves, of $3363/mo ($7470 in 2038 dollars, per HRC's website). If I stay in the reserves until age 60, that goes up to $5315/mo, or $11806/mo in 2038 dollars.

If the money makes a difference to your decision, then make sure the calculator is using the right pay scale. For example you may be telling the calculator that you'll be retiring as an O-5 at 20. That pay is currently $8,070.30/month. However if you retire from the Reserves awaiting pay then your pension is calculated at the max pay scale for that rank, which is O-5>22 and $8,313.30/month. It's only ~3% but it might make a difference to you-- especially if you can promote in the Reserves and retire as an O-6>30 at $10,391.10.

Seems like a deal too good to be true, but that's the Reserve incentive to "retire awaiting pay" (and be eligible for a possible Presidential mobilization) instead of "resigning" until eligible for retired pay.

And then there's the whole issue of the pay scale in effect during the year you turn 60. It's quite possible that medical doctors will get targeted pay raises to retain them, which will boost your retired pay quite a bit from the estimate based on today's pay scales.

Quote:

Originally Posted by gsmolin - invest enough $ into TSP now to, along with our Roth IRA's and pension, then entirely cover projected living expenses from age 60-90? A lot of that depends on how long I'd stay in the reserves, as obviously if I stayed as long as I'm eligible, my pension would completely cover our living expenses.

The main attraction of the TSP (and the Roth TSP, coming in mid-2012) is the world's lowest expense ratios. If you need to tap cash before age 59.5 then you'll be able to roll the TSP over to a conventional IRA and use a 72(t) plan. If I were you I'd max out the TSP and your IRAs over the next five years.

Quote:

Originally Posted by gsmolin Advice on college savings? That's the biggest concern we have right now, with projected college costs, even for public universities, being > $100K/year, and private high schools > $20K/yr, with tuition rates rising @ about 7%/yr. It would seem that demand for higher education is high, and credit (student loans) are easily available, so much like the housing market, the system can only crash. However, I'd rather plan ahead, so any help is appreciated.

The demand is certainly there. Value? Hard to tell.

529s are probably the best way to go, especially if one of your kids isn't interested in college (or gets a full scholarship) and you decide to change the beneficiary to another kid's college expenses. You might also want to look into states that subsidize state college expenses like California or Texas. You are also probably fully eligible for the GI Bill, which you could transfer to your spouse or kids.

The motivated kids always find a way to afford college, even if it's two years at community college and two years at State U through work-study & scholarships. The un-motivated ones (for whatever reason) will never have enough money to complete their degrees. I think a parent's responsibility ends at funding four years at the community/state college level, and the rest is up to the kid. Of course I'm biased by our experience, although I'd like to think our hard work & coaching influenced the results.

I can connect you with two military docs. One is a couple years ahead of you and is gutting it out to 20 for the pension, after which he will never work again. Another one just retired (O-5>20 or so) and is happily partnering full-time in a civilian medical clinic. Both are enjoying their plans and their lives. Let me know if you're interested and I'll contact them.

[justplainbll]

Quote:

Originally Posted by Nords Welcome to the board, Doc. Golly gee, guys, maybe there's a clue in why he's thinking Reserves right now. Of course we veterans all have nothing but happy memories of the good times we all enjoyed during our fun deployments...

MSC types have normally have it a bit better than those with a picket fence MOS.

[JPatrick]

I'm a little confused about your number of active years. Unless you went to USUHS, I can't see how you could have 15 or even 10 years active at age 33.
I'm also curious about your medical specialty. As part of your planning, you need to figure your worth on the outside. Certainly some specialties will bring you a quick double of pay from day one.
All that said, if it turns out that you are at the 15 year point, I'd really think hard about sticking for 20. I don't know how it is now, but when I "graduated" many of us were in a position that you really had to stay 22 to get that extra pension kick. Of course nobody but you can appreciate the personal pain factor associated with gutting it out for several more years.

[Nords]

Quote:

Originally Posted by JPatrick All that said, if it turns out that you are at the 15 year point, I'd really think hard about sticking for 20. I don't know how it is now, but when I "graduated" many of us were in a position that you really had to stay 22 to get that extra pension kick. Of course nobody but you can appreciate the personal pain factor associated with gutting it out for several more years.

We have some interesting "grass is greener" perspectives.

Having stayed for 20, in retrospect I would've gone to the Reserves. Just because I "made it" does not count the very real physical, emotional, and mental strains of getting there. When spouse got to her decision point a few years later, she decided Reserves was best for her with the qualifier of "Oh, well, I can always get a real job".

For the next eight years she had to listen to "You were HOW CLOSE to an active-duty retirement?!?" Her answer was "Here's HOW BAD the assignment choices were." Being able to see a way to financial independence was the only way to exert control over her career. In round numbers it worked out to about $750K. In retrospect the Reserves has paid back far more in physical, emotional, & mental strains. She's even calculated her break-even (military pension checks) to be in her 80s.

The Reserves turned out to be far better than the coercive assignment policies that both of us were subject to. I don't know how the other services do it, but in the Navy around the 15-year point the assignment officer stamps "I own you!" across your forehead. Some of you may have heard that analogy using slightly coarser vocabulary, but no matter how elegantly you word the process... the end result is the same.

I agree that making retention decisions from a combat zone is not a good idea. But failing to consider and evaluate the Reserves is an even worse idea.

[gsmolin]

Wow, thanks for all of the information and viewpoints. Much appreciated.

I did ROTC + HPSP so in 2016 (when my ADSO is done and when I'm 38), I'll have 12 AD and 3 RC "quality" years. Sorry if that was a little confusing in my original post.

JPatrick, I'm a PM&R doc and you hit the nail on the head: civilian practice yields double the income with the same work hours with less administrative tasks. Deployments would still occur, but typically RC medical deployments are 3-6 mo, usually the 3 mo end of things. In many cases, as you progress through the ranks in the military medical world, you do more and more administrative work and less and less direct patient care which figures into this situation as well.

Nords, thanks for the many tips. I'll PM Deserat for more info from her and I hit up some of the reservists here for info as well. If you have the contact info for those docs you know I'll contact them. More perspectives are always welcome. I didn't know that you could roll TSP into a conventional IRA and do a 72t plan. The transferability of the GI Bill is a great idea, but that = an additional 4 yr ADSO but still leaves me with paying for college for 2 boys.

justplainbll, yes, 20 yrs = 1/2 of base pay. The benefits (TRICARE in particular) are nice, but the fact that I can buy TRICARE for $190/mo to cover my whole family as a Reservist is a big draw for the Reserves.

Bottom line is that I'm trying to figure out options and yes, making decisions in this type of an environment isn't a great idea. However, I do appreciate everyone's feedback as I try to sort out what's out there.

Thanks!

[av8er]

Quote:

Originally Posted by gsmolin The transferability of the GI Bill is a great idea, but that = an additional 4 yr ADSO but still leaves me with paying for college for 2 boys.

There is a 4 year ADSO to take advantage of the transferability option of the post 9-11 GI Bill, but it begins as soon as you sign up and are approved on the VA website (concurrent rather than consecutive). If you sign up now then you can work that ADSO off by 2016.

Another nice option with the transferability option of the post 9-11 GI Bill is that you can divide the 36 months of benefits any way you like between your kids. For us, we intend to give each kid their first year of college for "free" using the GI Bill and then pay the remaining years (tuition and fees) using 529s.

[justplainbll]

Quote:

Originally Posted by Nords We have some interesting "grass is greener" perspectives. The Reserves turned out to be far better than the coercive assignment policies that both of us were subject to. I don't know how the other services do it, but in the Navy around the 15-year point the assignment officer stamps "I own you!" across your forehead. Some of you may have heard that analogy using slightly coarser vocabulary, but no matter how elegantly you word the process... the end result is the same.

I knew 3 people who transferred from the Navy to the Army. One was an active duty NCO and the other two were reservist DDSs. The armored cav NCO was forced out (retired) with a medical discharge and died from heart failure about 5 years after retirement.

[gsmolin]

@ av8er: wow. thanks for that piece of info. I was under the impression that the ADSO was served consecutively, not concurrently. That just make a year's worth of college possible for each of my boys!
2 follow-on questions:
1. I know that the service member can use the GI Bill for education other than college (community college, vocational training, flight school, etc.). Does the same apply for family members?
2. If one of your kids decides not to go to any schooling at all until after age 26, can the sum that was going to be due to that child then be transferred to one of the remaining children?
Again, thanks so much for the info.

[HawkeyeNFO]

Quote:

Originally Posted by gsmolin I know that the service member can use the GI Bill for education other than college (community college, vocational training, flight school, etc.). Does the same apply for family members?

Under the 9/11 G.I. bill, it is transferable, but can only be used for college. The old MGIB (still available to servicemembers) can be used for other things, like flight school. However it is not transferable to family members.

Quote:

Originally Posted by gsmolin If one of your kids decides not to go to any schooling at all until after age 26, can the sum that was going to be due to that child then be transferred to one of the remaining children? Again, thanks so much for the info.

Yes that is an option under the 9/11 G.I. bill. Essentially you have 36 months of benefits, and you need to name the beneficiaries years in advance. You can then alter the # of months that any of the beneficiaries receive money, but the total # of months is capped at 36.

[HawkeyeNFO]

Quote:

Originally Posted by av8er There is a 4 year ADSO to take advantage of the transferability option of the post 9-11 GI Bill, but it begins as soon as you sign up and are approved on the VA website (concurrent rather than consecutive). If you sign up now then you can work that ADSO off by 2016.

Do not forget to get a signed page 13 from your admin department, or whatever the equivalent is in your service. The VA website approval is NOT the only thing you need.