35 Year Old Sailor prospecting "early retirement"

[hoeflichs]

Hello all! Lots of folk in here well on their way...but nonetheless I can appreciate all the knowledge that comes with community. My details are slightly different then most I believe, but here they are. And thank you for your time and input.

• Taxable Retirement funds = $170K (Mutual funds via T. Rowe)
• TSP Retirement funds = $15K
• Equity in rental property 1= $40K
• Equity in rental property 2 = $-20K
• Cash = $20K
• Military retirement in 6 years time = $2300-2600 Monthly
• Wife's current military retirement = $2000 Monthly
• All vehicles paid for
• 1 7 year old who will be receiving my 9/11 GI Bill
• Current Active Duty salary = $69K/yr net

This is my Wife and I in a nut shell. I tend to communicate kind of scatter brained, so bear with me.



I am contemplating staying in the Navy past 20 years which would increase my pension significantly, but as of now I am looking forward to punching out at my 20 mark and seeking civilian life. With my Wife and I's combined pensions we would be self-sufficient with around $47K a year to include cost of living adjustments for the rest of our lives. We intend on moving back to our first investment home in Florida when I leave the Navy as it is $1K a month out the door for our mortgage. Additionally, over the next 6 years or so to invest in our retirement at a rate of 20-30K a year. Upon retirement from the military I intend on seeking employment and using it to sustain our meager over head and dumping both of our military pensions into our taxable retirement account.


I have been stubborn in the placement of monies into IRA's and such because most of my family hasn't had much longevity past their 60's...so that being said. I want to dump a significant amount of money into our taxable accounts until 55 or so which when coupled with our military pensions...and the intention of keeping the 2nd investment property ($600 a month income).



Long winded but thank you for any feedback or just a welcome. Great forum.



- Shawn

 

[MichaelB]

Welcome aboard, sailor. You're doing pretty well for a 35 year old - congratulations!

 

[Walt34]

Welcome to the forum! You're doing well; keep doing what you're doing and you should have no issues.

 

[Katiek]

Congrats, you're doing great. But you may want to look into a Roth IRA again and see if it might not be helpful for you given additional flexibility on withdrawing contributions.

 

[hoeflichs]

Thank you Katie, Michael and Walt. I appreciate the feedback.

 

[Nords]

Welcome to the forum, Shawn.

• Taxable Retirement funds = $170K (Mutual funds via T. Rowe)
• TSP Retirement funds = $15K
• Equity in rental property 1= $40K
• Equity in rental property 2 = $-20K
• Cash = $20K
• Military retirement in 6 years time = $2300-2600 Monthly
• Wife's current military retirement = $2000 Monthly
• All vehicles paid for
• 1 7 year old who will be receiving my 9/11 GI Bill
• Current Active Duty salary = $69K/yr net

This is my Wife and I in a nut shell. I tend to communicate kind of scatter brained, so bear with me.

I am contemplating staying in the Navy past 20 years which would increase my pension significantly, but as of now I am looking forward to punching out at my 20 mark and seeking civilian life. With my Wife and I's combined pensions we would be self-sufficient with around $47K a year to include cost of living adjustments for the rest of our lives.

You've listed your income & assets, and the other side of the equation is your annual spending. Could you support your annual expenses from your pension(s), perhaps supplemented by rental income and withdrawing ~4% of your taxable retirement funds?

One approach would be to pretend that you reach your terminal rank and 20 years tomorrow (perhaps E-7>20, maybe E-8>20) and then retire a day later. What would your military pension be, what would your total income be, and how does it compare to your current spending?

We intend on moving back to our first investment home in Florida when I leave the Navy as it is $1K a month out the door for our mortgage. Additionally, over the next 6 years or so to invest in our retirement at a rate of 20-30K a year. Upon retirement from the military I intend on seeking employment and using it to sustain our meager over head and dumping both of our military pensions into our taxable retirement account.

Again, the best assessment comes from comparing income to expenses, but if you retire at 20 then you have only six years left to invest in the military's Roth TSP before you lose that opportunity for the rest of your life. It has the world's lowest expense ratios and it can be tapped relatively easily (without penalties) if needed before age 59.5. However with your taxable accounts, you may not need to touch your TSP before then.

You could easily contribute another $100K to the Roth TSP before 20, and a 0.029% expense ratio means that you're compounding market returns at an annual cost of only ~$29. You won't even find that at Vanguard, let alone at T. Rowe Price.

Here's more on TSP withdrawals before age 59.5 (civilians can do the same with 401(k)s):
Early Withdrawals From Your TSP and IRA After The Military - Military Guide
Funding The Gap: "I Need Money From My TSP!" - Military Guide
TSP Tax-exempt Rollovers and Withdrawals - Military Guide

Here's another reason to consider Roth TSP contributions: you might not even need the money before age 59.5. You'll have dual military pensions, cheap healthcare, rental income, and possibly even employment income. Would you rather pay higher expense ratios and annual taxes on your taxable accounts, or would you rather pay lower expenses in the TSP with tax-deferred compounding?

I have been stubborn in the placement of monies into IRA's and such because most of my family hasn't had much longevity past their 60's...so that being said.

Those previous links already address methods for penalty-free tapping of Roth IRAs before age 59.5, so I won't get into that-- other than to observe that you're missing another epic opportunity for tax-free compounding on active duty followed by tax-free withdrawals in retirement.

It might be too late to take another look at your SBP from your spouse's pension, but you'll want to carefully consider how she wants to handle your SBP on your pension. (It's her decision, not yours.) For example, women tend to outlive men even before family longevity is taken into effect, so it might make sense for you to not have any survivor benefits from her pension. However if your longevity is tentative then when you retire she'd want to have the full 6.5% premium on your pension. You'd have to add that 6.5% expense into your retirement spending, too.

Since she has her own military pension, at your retirement another option would be to buy a term policy for the ~30 years until you start Social Security. That might be cheaper than SBP premiums, and the combination of your insurance policy with her pension might be all the survivor assets she'll want.

I am contemplating staying in the Navy past 20 years which would increase my pension significantly, but as of now I am looking forward to punching out at my 20 mark and seeking civilian life.

In general, I'd suggest staying on active duty as long as you're fulfilled and having fun. When the fun stops, however, that's the time to consider leaving active duty for the Reserves/National Guard. And if you're past 20 years when the fun stops, then you should retire.

Stay For 30 Or Retire At 27? - Military Guide

 

[martyb]

If you stay in the Guard or Reserve, you can continue to contribute to your TSP. Also, if you find yourself a federal civil service job, you can likewise continue to contribute to the TSP. You can combine the military and civilian TSP into one account, if you wish. That's what I did.

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