Hi I'm Virginia

[virginia]

Hey there - I've been thinking about retiring early a lot lately. I'm in the military and decided to reenlist and recently made the decision to stay in for 20 years, so I have 11 more to go. I want to really retire, when I hit 20 years, or at least be able to go to a job/part time job that I love rather than work at a 40+ hour/week job that I don't love. I have about $40k saved, have in a money market account, the rest is in IRA's. I also have a condo I'm paying off, that I add enough extra to the mortgage to have paid off in 12 more years. I save around $800/mo. and another $100 or so in savings for nieces/nephews savings and my own travel. I'll be able to save more as the years go on. I'll receive half of what I make now when I retire - well, not really. I'll receive half of my basic pay which is probably about 30% of what I really make now. The thing is, when I retire, I will spend more on extras (I think) that I do now. I want to travel and spend money on things like maybe remodeling my house, etc - again though, I won't have the mortgage payment. Anyway, just wondering what some of your thoughts are. Everyone I work with basically says that I'm crazy for thinking I could, but what do they really know? One of the big things for me though - I save a lot, and don't spend much at all - I often limit myself and don't blow much money on extras - I don't want to be so limited in retirement if I don't want to be. I coulldn't see retiring early if I have to be just as frugal as I am now. I'm interested to see if anyone else has been in a similar situation, and if I'm saving enough? I don't trust calculators and article writers - who knows what guidelines they are really following anyway? Thanks and nice reading your comments

 

[JWR1945]

Welcome, Virginial.

I recommend that you visit Vanguard's retirement area . You can get real quotes on retirement annuities to see what your retirement income stream is worth. It is worth a lot.
https://flagship5.vanguard.com/VGApp/hnw/content/AccountServ/Retirement/ATSAnnuitiesOVContent.jsp

[I was not able to put the entire link on one line. Whatever you do, whether you click on the link or whether you copy both parts and combine them, it will be easy for you to get to the right section.]

I recommend that you take full advantage of the Government's Thrift Savings Plan (TSP). There is no money market fund equivalent to the G Fund. It offers a higher interest rate than anything else and it is 100% safe. The other funds are outstanding as well. Their expenses are below what even Vanguard charges.

I recommend that you start dreaming about what you want to retire to, not simply what you want to retire from. This is your most important step.

Your biggest shock when you get into civilian life is likely to be buying work clothes or, if you retire immediately, buying regular civilian clothes instead of military uniforms.

Thank you for your service.

Have fun.

John R.

 

[laurence]

Welcome Virginia!

First of all, thank you for your service! You have an interesting point about just how far you live below your means. If you want a higher lifestyle in retirement than you have now, you'll have to work longer, no doubt. But if you have your mortgage paid off, and find a part time job you love after leaving the service, you could perhaps live solely on your retirement check and part time work check, and let the savings you have accumulated continue to compound untouched for some time. Knowing you can spend everything you bring in at that point, since your nest egg is working for you in the background, would probably raise your lifestyle considerably. Then, say, 15 years down the road, you can set up withdrawals, combined with your military retirement, and be in great shape!

 

[virginia]

Thanks for your comments. I checked out the website. I've never even thought about an annuity before.
Laurencewill that's a good idea, to live off the retirement check and part time work - actually a really good idea. That's sort of what I'd been thinking of too.
I'll be reading your comments in other posts. Thanks!

 

[brewer12345]

Virginia, you might try playing with FIREcalc on this site. You also might want to play with the Gen X retire early spreadsheet at www.retireearly.com because it lets you customize how much you think you'll save, earn, etc. to your specific situation.

You might want to specifically seek out Nords, who posts on this site. He is an ex-military early retiree who could probably offer you a lot of insight.

 

[JWR1945]

I went to the Vanguard site.

I requested a quote of how much a life time annuity would cost:

1) Single, female, born on March 1, 1965 (40 years old).
2) $1000 per month income with inflation adjustments. [IIRC, there is a cap on the maximum adjustment.]
3) Florida, qualified deposits.
4) First withdrawal on April 4, 2005.

Cost: $492 427.13
for $12000 per year (or $1000 per month).

You can scale these numbers. An income of $500 per month would cost one-half of this. An income of $2000 per month would cost twice as much.

I tried to find out how much a similar annuity would last with a 50% survivor benefit (with a male born on March 30, 1965).

They did not produce a quote. They told me to telephone them for a quote.

I bet you didn't think that your military retirement annuity was worth this much!

Have fun.

John R.

 

[Zipper]

I think annuitizing at the early age of 40 with these low interest rates would be the last thing you would want to do.

 

[Eagle43]

Hello Virginia,
Don't forget your TRICARE insurance value. That is, if it's still around in 11 years. I retired from military, then went to mega-corp and retired there, too at age 60. I found a lot of guys working at mega for one specific reason; medical insurance. Either they or their wives had bad medical problem and they felt they could not retire.

Glad you're onboard and you'll find some real investment wizards here.

 

[virginia]

Thanks for all the replies -
JWR thanks for doing the legwork. I had gone to the site and surfed around a little, but could find a calculator or anything that would do all that for me. Thanks! Now here's the thing. My military pension will be paid month to month. (Keep in mind I know nothing about annuities). With an annuity, you deposit a lump sum right? So, I would need to deposit nearly $500,000 at the time in order to pull out that $1000/mo? I just want to make sure that I'm clear. If that's the case, it should last me for my lifetime right?
Zipper - you mentioned that you didn't think I'd want an annuity at 40. Why is that? Are you saying that because you think I should not be concerned with be that safe with investments at that age?
I know that medical insurance is one of the greatest benefits. This has been the number one obstacle for my dad in his reitirement. I wonder though, how much of it will be left when I retire.

 

[Nords]

Welcome to the board, Virginia!  

We have several vets and a few retired military with several more at the ready spot, but so far only one other military ER.  (Where the heck is GDER?)

First off, you're not crazy and you are smarter than your co-workers, but you're also in a very small minority.  Ironically, although military retirement solves two of ER's biggest challenges, most military don't ER.  Unpublished research claims that 75% of retired officers keep working.  I don't know of any research on enlisted ERs but lower pensions would discourage ER.

Before you retire you have to get through (at least) the next 11 years and you might want to keep your options open at your next re-enlistment.  Assignment officers will stomp all over that long-term obligation and in eight or nine years you may end up in some overseas garden spot getting (highly over-rated) combat pay.  Whatever service you're in, get everything you can out of this enlistment but also learn everything you can about the Reserves.  One of my biggest regrets today is that when I was at your point I was too ignorant to appreciate the advantages of a Reserve career.  (Admittedly that's a small regret, but you can learn from my experiences without repeating them.)

If you make a career of it, take the high-three retirement decision (at 15 years) vice REDUX.  The $30K REDUX "bonus" is a bad long-term deal but it's tempting to those who don't do financial math.  If you don't know REDUX then join Military.com and start reading the fine print.

For the next 11 years, if you're not already, you should be maxing out your TSP & Roth IRA contributions.  Don't invest in anything else until you've put the most you can in these accounts.  I'd recommend a high-stock allocation but you have to make your own sleep-at-night decisions.  (You can always pile up bonds & cash in your taxable accounts, but again there are lots of correct answers to the asset-allocation question.)

The two biggest ER challenges are inflation & healthcare.  High-three military pensions are indexed to the full COLA (admittedly a manipulated number but there's nothing better) while TRICARE will carry you to Medicare & beyond for only $230 per YEAR.  I'm not aware of any other retirement system with these benefits, credibility, & sustainability-- as long as you don't get your assets shot off before you qualify.

I wouldn't recommend an annuity for a military retiree.  You're already getting the world's best annuity from the federal govt-- pick your retired paycheck and see how much it'd cost to buy an INFLATION-ADJUSTED annuity from Vanguard or anyone else.  Instead I'd keep socking it away in your TSP & IRA and learning to manage your own finances.

Thanks to this decade's sacrifices of thousands, veterans currently have a good reputation with Congress and once again we'll soon have a lot of veterans IN Congress.  I don't see any erosion in TRICARE or military pensions for at least the next couple decades.  Veteran's organizations have some of the country's highest voting rates and retiree/medical benefits have significantly improved over the last decade.  

As for savings, everyone's picture is different and again there are lots of right answers.  Track your expenses, throw in a little extra for remodeling & traveling, and run that annual withdrawal in FIRECALC.  If you're near a 4% withdrawal rate at anything over an 80% success rate then you'll probably be OK without part-time work.  However your real fun for the next 11 years will be tracking & refining those estimates.  You can trust FIRECALC as one of the best free calculators on the web, or you can pay some bucks for an extremely detailed analysis at FinancialEngines.com.  

 

[Zipper]

Annuity payouts increase as you get older, and the insurance co.'s base them on a number of factors, including long term rates.

If you have $500 000 now and you purchase an annuity at age 40 to get $1000/mo, you are locked in and cannot reverse the decision.

Why not set up a conservative balanced portfolio, and withdraw 4% per year. That would be more than $1000/mo.

In the future, as you age, and/or long term rates go up you can review your options, and an annuity might be more attractive.

I'm just saying that the terms aren't favourable for you yet.

 

[MooreBonds]

I went to the Vanguard site.

I requested a quote of how much a life time annuity would cost:

1) Single, female, born on March 1, 1965 (40 years old).
2) $1000 per month income with inflation adjustments. [IIRC, there is a cap on the maximum adjustment.]
3) Florida, qualified deposits.
4) First withdrawal on April 4, 2005.

Cost: $492 427.13
for $12000 per year (or $1000 per month).

...
I bet you didn't think that your military retirement annuity was worth this much!

IMO, annuities are usually for those who have no investment knowledge and/or no proficiency in math.

If you simply invest $500,000 in a 30-year gov't bond at today's rates (4.6%), it would yield $23,000 in annual income - nearly double the annuity cash flow. Sure, the annuity is COLAed, but it would take a while for the $12,000 to double to the cash flow from the Treasury. Actually, right about the time that cash flow would be equal would be right around the time the 30 year bond matures.

So, buying a 30 year bond would give you roughly 50% more income each year (on average), plus give you full control over your original principal. Sounds like a no-brainer to me...

 

[JDARNELL]

Hi Virginia,

Welcome to the board. I am AD and I remember at the 9-10 yr point thinking what I was going to do about staying in or getting out. Thank goodness I had a good assignment and a great boss at that point. Before I knew it I was at the 13 yr point and realized how fast time was going. I have 5 yrs left before I can retire but as many military folks do it all depends on what they dangle in front of me to stay a couple of more years. In my case I will meet a board that if selected I would probably have to stay 2 more years to average in under the high three plan.

I remember my wife and I planning what we were going to do to get us to be able to "retire" retire and now we are executing. It is a great feeling. But "retire" retire means so many things to so many people. For me it means I can do what I choose. High on my list is family time.

Someone mentioned the value of TRICARE. This is a huge benefit. In my case I have a son with some health issues and TRICARE is sure good thing for us. No Complaints.

I have a couple of spreadsheets that I have put together about the benefits of staying after 20 and how much you actualy get. If you are interested I will be glad to share a copy for you to alter to your situation.

Nords, GDER, and others on this site have some good advice for us military retirees in waiting. My advice is simple "Plan your work and work your plan" Having that P-nut buter money from Uncle Sam will be a good feeling. Plus along the way we get to do some neat things and serve our country.

JDW

 

[JWR1945]

Thanks for all the replies -
JWR thanks for doing the legwork. I had gone to the site and surfed around a little, but could find a calculator or anything that would do all that for me. Thanks! Now here's the thing. My military pension will be paid month to month. (Keep in mind I know nothing about annuities). With an annuity, you deposit a lump sum right? So, I would need to deposit nearly $500,000 at the time in order to pull out that $1000/mo? I just want to make sure that I'm clear. If that's the case, it should last me for my lifetime right?

I did not intend for you to buy an annuity. I ran down the numbers so that you could see how much a military retirement is worth.

Yes, for every $1000 of monthly income that your military retirement pays, you will be receiving a benefit worth one-half million dollars.

The annuity would provide a withdrawal rate close to 2.5% plus inflation. The annuity company would expect to keep paying you for more than 40 years.

Interestingly, 2.5% for 40 years is what an inflation-matched cash equivalent (such as TIPS and I-bonds at a 0% interest rate) would throw off.

This gives you an idea of how annuities are priced.

Have fun.

John R.

 

[virginia]

It never occurred to me how much a military retirement was worth, whether 250k or 500k. Either way it's still a lot. It made me want to work harder!
Sorry I haven't replied this week, but I guess I was working harder.
I'm going to check more into TSP. I don't want to set it up, if I have to wait until I'm 55 to start spending it though. That's the only thing that's kept me from doing it so far.
Thanks again.

 

[JDARNELL]

I believe TSP can be withdrawn before 55 Under the 72(t) rule?

JDW

 

[RAE]

That's correct.

RAE

 

[RAE]

I should have added that you do have to be seperated from federal service to begin withdrawals from your TSP account. If you seperate before normal retirement age, you can set up monthly withdrawals based on the IRS life expectancy table, similar to the 72t rule for IRA's.

There are several other possible ways to withdraw $$ from a TSP account. For more info., go to: www.tsp.gov

 

[JAFDIP]

It never occurred to me how much a military retirement was worth, whether 250k or 500k.

Few in the military fully appreciate the value of their retirement pay or the added value of every promotion, fogey raise, and other pay increase which effects their eventual retired pay.

The important thing to keep in mind about ER is cash flow. You do NOT need access to all your funds the minute you ER. You can tap after tax accounts and Roth contributions first to supplement your retired pay. There are even a number of ways to get funds out of TSP and traditional IRAs without paying penalties. On the other hand, if you're in the lowest tax bracket now, it may well make more sense to use an after tax account for those savings and take advantage of cap gains, etc. Particularly, if you expect to attain a higher tax bracket during retirement. Fully funding a Roth would appear to be a no brainer under current tax rules. OF course, all the tax planning is subject to numerous changes.

 

[Nords]

I don't want to set it up, if I have to wait until I'm 55 to start spending it though.  That's the only thing that's kept me from doing it so far. Thanks again.

You don't have to wait.

In the first place, most of your cash flow will be handled by your pension check.

Secondly, if you decide that you'll need to access the funds, when you retire you'll be able to roll all (or a portion) of your TSP over to a conventional IRA and then convert that to a Roth. Then you'll be able to invade Roth contributions at will without worrying about penalties.

Third, the TSP has some of the world's lowest-cost index funds. Unless you're choosing all-Vanguard taxable accounts, you'll be paying more in expenses than I believe the flexibility is worth. Plus you'll be losing the benefits of tax-deferred compounding.

 

[Helen]

Third, the TSP has some of the world's lowest-cost index funds.  Unless you're choosing all-Vanguard taxable accounts, you'll be paying more in expenses than I believe the flexibility is worth.  Plus you'll be losing the benefits of tax-deferred compounding.

I agree, the TSP is the lowest cost 401k plan. I plan on keeping my money in the TSP after I retire, then rolling into a Vanguard IRA right before I want to begin withdrawing.

My only complaint with TSP is that it isn't very flexible with the withdrawals. If the market gets hammered, I may want to withdrawal less that particular year. Unfortunately, it looks as though I would have to take fixed amounts out.

So, I'm thinking that I will eventually go with Vanguard and take the money out as needed.

-helen