Author Topic: Case study: Military Life and retirement  (Read 2443 times)

Huskerfan

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Case study: Military Life and retirement
« on: February 27, 2019, 08:16:50 PM »
Good evening.  This post is a longtime coming. Iíve been a huge lurker, and rarely post.  Iím looking to change that and start moving away from Social Media stuff and being more productive around the house and at work. Warning:  some of this is military heavy, but I think Iíve seen a few military experts here.  Iíve been plugging away on a spreadsheet for a few years now and I ďthinkĒ I have my numbers right but want to run this by the experts here to see if Iím missing something.  I wanted to mention a few upcoming plans, and get your ideas. This post is HOPEFULLY organized enough to help you get the big picture.  Itís not a ďI have $1.5m saved, can I retire?Ē Type of post. I tend to think a military pension lowers your ďnumberĒ that you need and want to make sure Iím not missing anything.

Goal has always been financial independence but not necessarily retiring early.  More on that in a few. I didnít take any of this seriously until around 5 years ago.  Wife and I were living paycheck to paycheck and just floating by. Not desperate for anything, but not really planning for a future and kind of squandering things.  I sat in a week long class and everything clicked and changed for me.  I got the bug and decided it was time to ďadultĒ.  Best decision ever.

Background:

Me- 41 (Military 24 years of service, 16+ Active Service.  Plan to stay until 50)
Wife - 43 (Union Member, likely will ďretireĒ when I leave in 9 more years)
3 kids Ė one left living at home, going to be entering his senior year in High School soon

Income (monthly):

Me - $5800 take-home paycheck (after $1650 to 403B-TSP). (I technically get paid every two weeks.  Military Pay... the TSP is split between the two checks).  *note: base salary increases on an average 2.1% annually.  Sometimes more for BAH and COLA increases

Wife - $5000 take-home (after $700-800 to 401k thingy/defined contribution)

Total $ 10800ish take-home

Expenses (monthly):
Major expenses that we share. Sorry they are not exact.

$1200 mortgage (ins, escrow...).
$500 groceries/household
$300 cell phone - this is for four line unlimited data (itís a vice and we pay for a line for my parents)
$$$ auto insurance - not really sure, but high due to Stupid rules in my state
$$$ natural gas not too sure
$$$ water: not too sure
$150 electric
$100 cable
$75 landline/internet
$250 transportation (gasoline) (guesstimate)
$40 pets (food/vet)
$12 netflix
$20 AMC a-list

Assets:
Primary residence (3-4BR/2ba, 1800 sqft) $95,000 left on the mortgage.  Bought for $175k, currently prices are skyrocketing in my area and house is estimated at $290k
2001 honda Insight-paid off
2013 Ford F-150-paid off
2014 Buick LaCrosse-16,000 owed
16ft camper-paid off

403b (mine) $90,000
401k thingy (hers) $86,000
Precious metals: $7500 worth
Robinhood taxable- $700

Emergency Fund $10k 
Cash (personal) $5k

Liabilities:

Primary mortgage $95k at 3.5%
Buick car loan: $16k
Credit card: $700

Plan:  not overly concerned about the debt.  We know the car payment is the only really big thing we are looking at.  The credit card simply came from needing to purchase a fridge, and not wanting to use emergency fund. We plan to tackle the car loan.  Then still add more to the house payment. We currently pay about $20k in principle on the house for the year. I plan to add more now that my TSP is maxed out and Iíll be getting a pay raise soon. (Next promotion is at around $1,200 a month. More on that in a minute). 

The the plan I have is to work an additional 9 years (military) which is 8 more years than needed for my pension.  The way the numbers will work out, the out-processing and last year will mainly be spent prepping for retirement.  So I think Iíll technically retire at 51.  That will place me at 28 active years. The pension breakdown to this (estimated basepay for average pay increases over past 20 years):


$6975 -Monthly pension (70% of basepay)
($450ish) -SBP
$937 -VA 50% disability estimate (concurrent pay)
$150ish -COLA annual increase (20 Year history is roughly a 2.1% average)
$7600 a month
I have not figured in taxes.  And the VA Disability will be tax free. 

So I say all of this to get to the point of our plan and hoping for someone to spot a hole or two so I can work on fixing it over the next few years. 

TSP: I still plan to max each remaining year. I estimate this will be at roughly $750k at age 60 if earning roughly 5.5% annual return rate. 
Roth IRA: just started and will make my first contribution following tax returns. I only anticipate this being around $150k at age 60. 

I currently contribute $1900 each pay check for my share of ďbillsĒ. I call this ďblood moneyĒ. The remainder of my money: I tend to save roughly 75% of the remainder of my paycheck.  Thatís a recent development. This is an additional savings my spouse doesnít really know about, but itís not really a secret either. 

Retirement outlook:
Ages 51-57: $7600 a month
Ages 58-60: $10700 a month (wifeís pension will kick in, and she can start pulling 4% from her defined contribution plan)
Age 60: $13100 a month (can start pulling 4% from my TSP and the Roth IRA)

The wife will ďretireĒ when I do.  She wonít be able to contribute to her defined contribution as sheíll not be working for those seven years.  Yet her pension is solid and remains the same with the way a few changes went about in the union. 

We are really tossing money at the mortgage, being mortgage free is a goal.  We are planning to be done with that in 3-4 years being that Iím working on paying off the Buick as well.  The $1200 a month increase for an upcoming promotion is practically earmarked for the car payoff and then mortgage.  What is a recommendation for that cash AFTER that? 

Do you see holes with any of this?  Concerns?

We are considering buying a different house right before I retire (using the sale of this home, and some extra cash) in order to get a bit more land and to buy a more energy efficient home (looking at a LEED home as well as having geothermal heating/cooling).  Weíd likely still be mortgage free after purchase. 

Thoughts?  Note I did not include things like social security.  If itís there, great.  I likely will wait to withdraw that money at 67.  My wife will likely draw sooner.  I did take a liberty with the estimated VA disability percentage.  Thatís where I believe Iím at right now.  So hopefully I can keep the body from falling apart before my plan is fully in motion. 

What pitfalls can you see with the years between retirement and my wife drawing a pension?  We are looking at a 6-7 year timeframe.  Technically she could always head back to the Union for a month or two of work if she wants to.  Not sure what she wants to do.  I plan to retire at that age and not go back to a second career. 

I also will have a few large pay increases popping up for the promotions within the next ten years. I donít think the best avenue is tossing it in a savings, but I still want to have quite a bit sitting there for emergencies. If I tie that money up into a betterment account, wonít it be locked away until Iím 60? Should I not worry about that with the income that will be coming in?
« Last Edit: February 27, 2019, 08:24:38 PM by Huskerfan »

DoNorth

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Re: Case study: Military Life and retirement
« Reply #1 on: February 27, 2019, 11:57:03 PM »
looks like you're pretty well set.

I would sell the house if you PCS especially if prices are increasing in you area.  I finally just got rid of a house I bought in 2009 and it was a huge relief.  Some people buy term insurance policies instead of selecting SBP--it's something worth looking at.  It's probably worth going to ACAP or whatever your service calls the transition course 1-2 more times over the next 8 years because the offerings do change and I personally got quite a bit out of several of the sessions.  Good luck.

MrThatsDifferent

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Re: Case study: Military Life and retirement
« Reply #2 on: February 28, 2019, 12:13:41 AM »
You should talk to and read everything @Nords

Linea_Norway

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Re: Case study: Military Life and retirement
« Reply #3 on: February 28, 2019, 01:38:21 AM »
We are considering buying a different house right before I retire (using the sale of this home, and some extra cash) in order to get a bit more land and to buy a more energy efficient home (looking at a LEED home as well as having geothermal heating/cooling).  Weíd likely still be mortgage free after purchase. 

As you still have 9 years to go until FIRE, it might pay off to switch to a more energy effective home now. As long as it doesn't increase your mortgage. Of course commuting costs should also be considered. But saving energy over 9 years might have a significant effect.

Is there anything you can do with you current home? Install an air-air warmth pump? Extra insulation? Solar panels? HR windows?

Linea_Norway

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Re: Case study: Military Life and retirement
« Reply #4 on: February 28, 2019, 01:47:15 AM »

$1200 mortgage (ins, escrow...).
$500 groceries/household
$300 cell phone - this is for four line unlimited data (it’s a vice and we pay for a line for my parents)
$$$ auto insurance - not really sure, but high due to Stupid rules in my state
$$$ natural gas not too sure
$$$ water: not too sure
$150 electric
$100 cable
$75 landline/internet
$250 transportation (gasoline) (guesstimate)
$40 pets (food/vet)
$12 netflix
$20 AMC a-list

Cell phones with unlimited data + landline internet. What do you need the unlimited data for? At home and at work you can probably use wifi. Can't you switch to limited data on your cellphones? You can cut out your land phone line, at least.
Cable and netflix also sounds double? Can you cut out the cable?

Assets:
Primary residence (3-4BR/2ba, 1800 sqft) $95,000 left on the mortgage.  Bought for $175k, currently prices are skyrocketing in my area and house is estimated at $290k
2001 honda Insight-paid off
2013 Ford F-150-paid off
2014 Buick LaCrosse-16,000 owed
16ft camper-paid off

That is at least one car too many to 2 people. Get rid of one of the cars and pay off the car loan.
Can't you and your wife have just 1 family car (comfortable for long distance driving) and one small, fuel efficient car? The Ford F-150 looks very fuel inefficient. One car less is also less car insurance.

403b (mine) $90,000
401k thingy (hers) $86,000
Precious metals: $7500 worth
Robinhood taxable- $700

You probably know that precious metals are not considered a good monetary investment on this forum.

Primary mortgage $95k at 3.5%
Buick car loan: $16k
Credit card: $700


Prioritize paying off the credit card debt.
« Last Edit: February 28, 2019, 11:09:35 PM by Linda_Norway »

Huskerfan

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Re: Case study: Military Life and retirement
« Reply #5 on: February 28, 2019, 04:26:23 AM »
You should talk to and read everything @Nords

Very sound advice.  Iím going through his posts and taking notes.

davisgang90

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Re: Case study: Military Life and retirement
« Reply #6 on: February 28, 2019, 04:34:29 AM »
You sound like you and your wife are in really good shape!

I just retired after 28 years in Uncle Sugar's Navy, so I have a similar pension and VA that you lay out.  The difference is that my wife hasn't worked outside the home so we only have the one pension.

@Nords is the man and will likely be along to give his thoughts.

Bottom line, you look to have a really solid plan!

Huskerfan

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Re: Case study: Military Life and retirement
« Reply #7 on: February 28, 2019, 02:18:20 PM »
You sound like you and your wife are in really good shape!

I just retired after 28 years in Uncle Sugar's Navy, so I have a similar pension and VA that you lay out.  The difference is that my wife hasn't worked outside the home so we only have the one pension.

@Nords is the man and will likely be along to give his thoughts.

Bottom line, you look to have a really solid plan!


Thank you.  I know we still have ways we can cut a few bills and we are definitely looking into that.  Iíll respond to a few of the suggestions above that someone made, and get some opinions. I think on the money side, we should be good.  I have been nervous about the floater years between my retirement and the day she can grab her pension, but without a mortgage payment, Iíd like to think we should be good to go. 

I am considering tossing more money into the emergency fund.  I am also considering adding more to that fund, but ear-marking it for home improvement items.  Kind of a ďit would be nice to have thisĒ type of fund.

Travis

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Re: Case study: Military Life and retirement
« Reply #8 on: February 28, 2019, 05:05:38 PM »
Are you active duty? Are you living in the same house from now until retirement?

Nords

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Re: Case study: Military Life and retirement
« Reply #9 on: March 02, 2019, 11:27:30 AM »
Thanks for de-lurking, Huskerfan.  It looks like you know what you want to do and perhaps youíll be fine, but Iím confused by some of your comments.  I canít draw enough conclusions from the data to have an opinion one way or the other.

Me- 41 (Military 24 years of service, 16+ Active Service.  Plan to stay until 50)

The the plan I have is to work an additional 9 years (military) which is 8 more years than needed for my pension.  The way the numbers will work out, the out-processing and last year will mainly be spent prepping for retirement.  So I think Iíll technically retire at 51.  That will place me at 28 active years. The pension breakdown to this (estimated basepay for average pay increases over past 20 years):

$6975 -Monthly pension (70% of basepay)
How are you estimating your pension?

I donít understand the comment about ďan additional 9 years (military) which is 8 more years than needed for my pensionĒ and how they add up to ď28 active yearsĒ from the numbers 24 or 16. 

Are you in the Reserves or National Guard with 24 good years and 16+ years of points for a non-regular pension which typically starts at age 60? 

Yet you seem to be planning for your pension to start at age 51, so perhaps youíre on active duty now and will qualify for an active-duty High Three pension with 28 years of service?

Once I understand which type of military pension youíre receiving then we can check that $6975 number.

($450ish) -SBP
No matter what type of pension youíre receiving, at age 50+ the decision about the Survivor Benefit Plan is a little more complicated.

If your spouse simply feels more comfortable having an inflation-adjusted life annuity after your death, then you should pay for the SBP.  If it helps her sleep better at night then thatís behavioral economics and a good reason for making that choice.

If you have a child whoíll be a permanently disabled adult, then SBP is a great choice for funding a Special Needs Trust.

Financially, though, otherwise SBP seems unnecessary.  The policy is only paid up when youíre at least 70 years old and have made 360 payments.  Youíll essentially be paying premiums for the rest of your life.  Yet your spouse eventually has her own pension and Social Security.

For an active-duty pension, you might decide to buy a few years of term life insurance until your spouse is receiving her own pension and Social Security.  You could save/invest the rest of the 6.5%/month premium that would be spent on SBP.

For a Reserve pension, it might make sense to select SBP for the period when youíre ďretired awaiting payĒ before starting your pension.  RCSBP is a much more complicated decision than active-duty SBP.

But the detailed discussion on SBP can wait until I understand which type of pension youíre receiving.

$937 -VA 50% disability estimate (concurrent pay)
Thatís a bold call, although you might have enough pension income & assets without it. 

If you havenít already done so, you could have a Veteran Service Officer review your medical records to verify that (1) the records document the service-connected disabilities and (2) show the need for continued treatment.  Even then Iíd hesitate to add $937/month to your income estimate.  You have no idea what the rating criteria will be when you file your claim or how the VA raters are going to handle the evidence. 

In any case, while youíre still in uniform, make sure you have all the documentation to support the VA disability rating to which youíre entitled.  Itís a lot harder to take care of that issue after you retire. 
 
Regardless, Iíd be very careful about assuming how much VA disability income youíll receive.

Expenses (monthly):
Major expenses that we share. Sorry they are not exact.
I have not figured in taxes. 
You already know this needs more clarity.

We see this issue a lot on FI forums.  Youíre making incomplete estimates about your retirement spending and skipping over other factors. 

Military retirees have low income taxes, but youíd still want to account for any applicable state & local taxes.  Youíll possibly be paying property taxes, and if youíre taking Required Minimum Distributions from your TSP or her 401(k) then those are taxed as personal income.

The most conservative estimate would be to assume that your family spending in your retirement is the same as it is now, and then make reasonable adjustments for her retirement.  Youíd factor in lumpy expenses like replacement vehicles, home repairs, college funds, and fantasy vacations. 

Coupled with my confusion about your pension and the uncertainty in anyoneís VA disability income, itís hard to tell whether your retirement cash flow is positive or negative.  If itís negative then youíd want to know that you have enough assets to make withdrawals at the 4% Safe Withdrawal Rate.

We are considering buying a different house right before I retire (using the sale of this home, and some extra cash) in order to get a bit more land and to buy a more energy efficient home (looking at a LEED home as well as having geothermal heating/cooling).  Weíd likely still be mortgage free after purchase. 
Youíre not starting a bridge career after military retirement, so that makes it a lot easier to pick your retirement location.  If you know your retirement location now, and you know that youíll spend enough time there to make it worth buying a home, then that could work out great.  You could use the next few years to keep an eye on the neighborhoods and buy a discounted bargain from a distressed seller. 

However thatís rarely the case for military families.  Hereís some of the risks (that you already understand) and ways to minimize them:
https://the-military-guide.com/dont-buy-home-leave-active-duty/

Thoughts?  Note I did not include things like social security.  If itís there, great.  I likely will wait to withdraw that money at 67.  My wife will likely draw sooner.  I did take a liberty with the estimated VA disability percentage.  Thatís where I believe Iím at right now.  So hopefully I can keep the body from falling apart before my plan is fully in motion. 
I think itís far more reasonable to expect 75% of your Social Security (the latest projections of the SSA for 2035) than to expect CRDP from your VA disability rating.

I also will have a few large pay increases popping up for the promotions within the next ten years. I donít think the best avenue is tossing it in a savings, but I still want to have quite a bit sitting there for emergencies. If I tie that money up into a betterment account, wonít it be locked away until Iím 60? Should I not worry about that with the income that will be coming in?
As reasonable as your career expectations may be, I wouldnít count on any promotions in your projections.  Your community may change dramatically over the next few years in an unpredictable manner, no matter what the last decade of drawdown promotion statistics may be.   I think itís reasonable to expect 1.5% pay increases each year, and of course the longevity columns in the pay table.

For your retirement income projections, though, Iíd assume the worst case of your current rank being your terminal rank.  If the numbers still work (as they probably will) then any promotions are a happy bonus.

You can absolutely tap your TSP, her 401(k), and your IRAs before age 60.  The withdrawals can be penalty-free and possibly even tax-free, and you have plenty of time to set things up.  Hereís most of the methods, including a few specific to the military or home buyers:
https://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/

fuzzy math

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Re: Case study: Military Life and retirement
« Reply #10 on: March 02, 2019, 02:02:13 PM »
What is your goal in retirement? Do you want to live a much more lavish life than you do now?
You're pulling in $10k a month post savings and saving a huge portion of it. From what I can gather if your home were paid off your pension alone would cover it.

You said you're eligible for retirement sooner. Any reason you wouldn't just quit then?

Huskerfan

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Re: Case study: Military Life and retirement
« Reply #11 on: March 13, 2019, 07:41:16 PM »
What is your goal in retirement? Do you want to live a much more lavish life than you do now?
You're pulling in $10k a month post savings and saving a huge portion of it. From what I can gather if your home were paid off your pension alone would cover it.

You said you're eligible for retirement sooner. Any reason you wouldn't just quit then?

I apologize for the delay.
The reason (at least in my head) to stay longer is to bridge the gap a bit more between the day I retire and the day my spouse can start pulling her pension.  Staying in a bit longer gains extra percentage towards my pension and makes that monthly pension larger, this enabling my spouse to ďsoft retireĒ at the same time I choose to walk away. 

Walking away at the moment I can retire: pension is worth about $4050 a month
Walking away perhaps 6 years after that: $15% percentage increase and multiple other things brings pensionto around $7600 per month.

I think Iím concerned about this part from my original post:
Retirement outlook:
Ages 51-57: $7600 a month
Ages 58-60: $10700 a month (wifeís pension will kick in, and she can start pulling 4% from her defined contribution plan)
Age 60: $13100 a month (can start pulling 4% from my TSP and the Roth IRA)

If I left when I could retire, that would be about three years; and Iíd be gaining $4050 a month, until the age of 57.

That cuts things quite a bit. 

I donít anticipate a lavish living. We are pretty simple and enjoy our quaint camper and simple vacations.  I donít see us getting too extravagant. At most, we are considering buying a different home for retirement.  A more efficient home. I mentioned that above.  We are looking for a little more land.  Most would be covered by the sale of the current house and adding perhaps $100k. That doesnít cut into any of the 401ks. 



Huskerfan

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Re: Case study: Military Life and retirement
« Reply #12 on: March 13, 2019, 07:45:33 PM »
Are you active duty? Are you living in the same house from now until retirement?

Iím Active Duty, but for the NG.  Did the normal AD route, then switched to NG when I found out about the AGR stuff.  Thatís where I sit currently. 

I am living in the same house until retirement, unless we decide to change that up a year or so before retirement.  We arenít extravagant, but could reach a bit on an efficient home (we are considering something like a LEED Platnium type of home).

Huskerfan

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Re: Case study: Military Life and retirement
« Reply #13 on: March 13, 2019, 09:04:50 PM »



Nords!  I canít thank you enough for diving into this. Iíll clear up a few things and try to address a few things as well.  Iíve added some explanations below. I hope it clears the mud a bit.  Obviously, I look forward to anything that catches your eyes as being incorrect.

Military Math explanation:
I am AGR with the NG.  So the timeframes/years and stuff are calculated a bit odd. But I will be looking at an Active Duty retirement, not the M-Day version of collecting at 60 years old.
 
I am at nearly 17 years Active Federal Service (AFS) right now.  I have served 24 years.  For the extra 7 years (between 17 years and 24 years), Iíve earned an additional amount of 1 year and 2 months of equivalent AFS.  The catch with that: I cannot count that towards anything until I hit 20 years of AFS.  When I hit that in 2022, I automatically jump to 21 years and 2 months of AFS as that time rolls into the 20 years. I will be 44 years old in 2022.  The goal is to stay until I am 50, perhaps 51.   Thatís 6-7 years extra work.  Not 8-9.  My mistake.  It will still place me at 28 years of AFS if I stay until 51.

Pension calculations:
I set up an excel sheet and did a lot of number crunching.  Basically I imported the pay chart as it was last year, main focus was on my ranks (Warrant Officer).  Then I looked at the historical annual increases over the past twenty years in the military. I made it to where I can adjust this yearís Pay Chart for this yearís pay increase, while leaving each year in the future adjusted to the historical value over the past 20 years (2.1%).  I understand that past performance does not guarantee future outcomes, but when I looked at the data I figured this was the best that I got.  Next year, Iíll add the 3.1% for that column, and it adjusts the future years off of that yearís column and then each year after that at 2.1% increase (historical value). That gives me a round about idea of what to expect a CW4 will be making in 2029.  Then I can base retirement pay off of: high three divided by 3.  Times .065 (SBP Payment).   I then added the Historical Cola increase (but that doesnít start counting until retirement year and beyond).  Thatís where I came up with the $6900ish number.  Let me know if the back of the napkin calculations figure out for you. ( I can shoot you my spreadsheet if you are interested in comparing)

SBP:
I think itís a piece of mind thing.  If the pension is $6900ish, sheíd receive 55% of that. Itís an amount that doubles her pension. If I were to pass away and she no longer sees that money coming in, sheís still have my TSP and Roth.  But $3800 is guaranteed cash sheíll keep getting. Sheíll likely outlive me, her genetics seem better than mine.  However, I am interested in hearing more on this subject. My state retirement section tends to believe we are forced to make the election at the 20 year mark, and that we canít change that.  Iíd personally like to challenge that.

VA Disability: 
Iíve got everything documented very well. So I do have that part covered.  This section though, I completely agree with you. Itís a bold move to ďcount thatĒ and to be honest I have a separate column on my sheet that shows the pension without that percentage.  You are correct as you never know what your rating will be.  Working closely with a few ďfriendsĒ in the VA world, Iíd like to think Iím a pretty good candidate to hit 50%.  They seem to think more.  Iíll count this section as a welcome Christmas present if it were to happen. Iíll remove it form normal calculations, just as Iíve removed the Social Security from my equations.

Speaking of Social Security:
I agree.  I think the assumption of Social Security payouts are higher than CRDP with VA Disability.  I believe Iíll be at 50%, even using the funky VA math, but you are correct and guessing right now is simply a crapshoot.  I feel good about the possibility, but I would not wager $100 of my pension on it.

Monthly Expenses:
I owe a detailed response to this.  I will try to get that together. 
 
Debt:  Credit card debt is gone.  Thatís a small edit at least. Iím going to tackle my car payment now.

Counting future promotions:
The only reason I counted mine are because things are pretty step-based for Warrants.  If I was enlisted: Iíd never count on a promotion as those can be a crap shoot in the AGR world.  Officers can be DA Non-Select.  But Warrants in the AGR, NG community, are basically TIG based. As long as you have the Military Education completed, and you reach TIG: they push the promotion forward.  The next promotion is practically guaranteed.   The last one: that is debatable on if I want to stay or not.  The staying to 51 figures in the staying to reach the High Three for that new grade.  I very well could tap out at 48-49 and take a cut.  Not 100% ideal, but numbers should still work.  I think. 

Nords

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Re: Case study: Military Life and retirement
« Reply #14 on: March 14, 2019, 10:10:14 AM »

Military Math explanation:
I am AGR with the NG.  So the timeframes/years and stuff are calculated a bit odd. But I will be looking at an Active Duty retirement, not the M-Day version of collecting at 60 years old.
 
I am at nearly 17 years Active Federal Service (AFS) right now.  I have served 24 years.  For the extra 7 years (between 17 years and 24 years), Iíve earned an additional amount of 1 year and 2 months of equivalent AFS.  The catch with that: I cannot count that towards anything until I hit 20 years of AFS.  When I hit that in 2022, I automatically jump to 21 years and 2 months of AFS as that time rolls into the 20 years. I will be 44 years old in 2022.  The goal is to stay until I am 50, perhaps 51.   Thatís 6-7 years extra work.  Not 8-9.  My mistake.  It will still place me at 28 years of AFS if I stay until 51.
Whew.  No worries then.  Youíre AGR, you understand how your pension works.  (Thereís a very good reason that the blogís post on calculating a Reserve pension has been the top-ranked post for over five straight years.)  Active-duty pensions are a lot easier to deal with in your projections.  No further questions there.

You could assume a hypothetical worst-case pension with your current rank and 21.167 years.  That builds in a conservative buffer where you donít have to count on serving longer or getting promoted.  Stay with the AGR program as long as youíre feeling challenged & fulfilled, but if the fun stops then youíll already know where you stand on pension income.

Pension calculations:
I set up an excel sheet and did a lot of number crunching.  Basically I imported the pay chart as it was last year, main focus was on my ranks (Warrant Officer).  Then I looked at the historical annual increases over the past twenty years in the military. I made it to where I can adjust this yearís Pay Chart for this yearís pay increase, while leaving each year in the future adjusted to the historical value over the past 20 years (2.1%).  I understand that past performance does not guarantee future outcomes, but when I looked at the data I figured this was the best that I got.  Next year, Iíll add the 3.1% for that column, and it adjusts the future years off of that yearís column and then each year after that at 2.1% increase (historical value). That gives me a round about idea of what to expect a CW4 will be making in 2029.  Then I can base retirement pay off of: high three divided by 3. 
Speaking as a nuclear engineer, you might be over-nuking this.

Instead of dealing with pay projections (let alone the political risk behind 3.1% press releases) you can format your spreadsheet in todayís dollars and then just update it every year or two until you retire.  That way it's ready to reflect your current thinking instead of locked on to a date in 2029.

Iíd use the above worst-case assumptions (High Three CW3?>20 with 21.167 years).  If youíre feeling really confident about the NG AGR warrant community managers then give yourself one promotion.  (Regardless of your community and experience, Iím skeptical-- bordering on paranoid-- about military community managers of all the services.  You have awesome skills yet you have no control over drawdown policies or outsourcing.)  You can calculate your High Three average right now from your LESs or the pay tables (and looking back 36 months).  That High-Three calculation helps make sure you donít inadvertently skip over a longevity raise.

By sticking with todayís dollars and pay tables, you avoid having to project history.  You can also use your expenses (in todayís dollars) and assume that both your pension and your expenses will go up with the CPI.  The reality is that your retirement expenses will stay flat or even go down, but your spreadsheet starts out with the conservative assumption and has room to add in new spending for new retirement activities.

This post just went up on that subject:
https://the-military-guide.com/retirement-spending-smile/

Better still, your spreadsheet reflects your current situation.  Then when military life gets tough (hopefully temporarily) you can compare your current pension estimate to your current expenses and ask yourself whether you want to retire tomorrow.  You wonít have to think about recalculating your spreadsheet for 2022 or 2026 and you wonít have to tempt yourself into gutting it out to your projected 2029 date.

SBP:
I think itís a piece of mind thing.  If the pension is $6900ish, sheíd receive 55% of that. Itís an amount that doubles her pension. If I were to pass away and she no longer sees that money coming in, sheís still have my TSP and Roth.  But $3800 is guaranteed cash sheíll keep getting. Sheíll likely outlive me, her genetics seem better than mine.  However, I am interested in hearing more on this subject. My state retirement section tends to believe we are forced to make the election at the 20 year mark, and that we canít change that.  Iíd personally like to challenge that.
Since youíre getting an active-duty pension, the SBP decision is a lot simpler.

First, the behavioral economics (emotional) side is a perfectly valid reason for paying 6.5%/month SBP premiums for effectively the rest of your life.  (Retiring at age 44+ and paying 30 years of SBP premiums might exceed your lifespan.)  The SBP decision is made by your spouse, not you, but if taking SBP helps you both sleep more comfortably at night then you should opt for SBP. 

If you decided that you wanted to buy an inflation-adjusted survivor life annuity, then the SBP is the worldís best.  Itís subsidized by the federal govt.  Instead of paying for it all up front, you get to make ~360 easy monthly payments.  Iím not aware of any other annuities with those terms.

Financially you already have two inflation-fighting life annuities (your pension & Social Security).  If she loses your pension then she still has her SS or your SS survivor benefits (whichever is higher).  Sheíd also have all of your investments and her pension.  If she feels comfortable with the financial math then she can afford to skip SBP and spend the 6.5%/month on travel or other entertainment.  If she feels better about taking SBP then you guys should take it.

SBP depends on the type of pension youíre receiving, not what part of the military youíre in.  Since youíre receiving an active-duty pension then youíll make the choice effective on the day you retire (and start your pension).  If you took a Reserve pension then youíd make the decision about RCSBP on the day you retired awaiting pay (not the date your pension starts), although RCSBP has three payment options. 

Should your spouse change her mind about SBP, both SBP and RCSBP allow you to cancel the SBP coverage between the 25th and 36th months.  The decision to decline SBP is irrevocable.
https://www.dfas.mil/retiredmilitary/provide/sbp.html
https://www.dfas.mil/retiredmilitary/provide/sbp/change.html

The best resource I know of for analyzing the SBP decision is Forrest Baumhoverís book.  Heís a retired mustang Navy Supply Corps officer and a fee-only CFP.  (I also helped him edit the book.)  Itís well worth the $5-$7 from Amazon:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit/dp/1534883959/ref=sr_1_fkmrnull_1

If you really want to dig into the detailed SBP rules then you can read the Financial Management Regulation (DoD 7000.14-R) Volume 7B Chapters 42-46 and 49.
https://comptroller.defense.gov/FMR/vol7b_chapters.aspx
That will help you win any wagers with your state retirement section, too.

VA Disability: 
Iíve got everything documented very well. So I do have that part covered.  This section though, I completely agree with you. Itís a bold move to ďcount thatĒ and to be honest I have a separate column on my sheet that shows the pension without that percentage.  You are correct as you never know what your rating will be.  Working closely with a few ďfriendsĒ in the VA world, Iíd like to think Iím a pretty good candidate to hit 50%.  They seem to think more.  Iíll count this section as a welcome Christmas present if it were to happen. Iíll remove it form normal calculations, just as Iíve removed the Social Security from my equations.
I used to think that my medical/service records documented my situation, too, until I sat down with a VSO and watched him page through them for 30 minutes.  Regardless of what your experienced friends think, itís well worth your time to make an appointment with the VSO (which is time-consuming) and spending an hour going over your record.  Or perhaps your VA friends would be able to do that page-by-page review with you.

The real issue is not so much whatís in your record.  Itís whether the physical/medical situation requires continuing treatment and whether the treatment is also in your record.  If you do that review with a VSO now then you can make sure your records continue to add everything necessary to fully document your claim when you retire.  (In my case it was showing continuing physical therapy for damaged knees.)  Itís a lot easier to do this while youíre on active duty, not when youíre on terminal leave.

If the VSO is convinced that youíre eligible for CRDP then Iíd add it to your spreadsheet.  Otherwise youíre right, itís money that you really didnít want to earn but would appreciate having as a Christmas present. 

Even if you start your retirement with a 40% disability rating, that still lowers the tax on your pension (by 40%) and leaves the possibility that your deteriorating health will rise to the 50% threshold in the future to start CRDP at a later date.

fuzzy math

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Re: Case study: Military Life and retirement
« Reply #15 on: March 14, 2019, 01:21:56 PM »
What is your goal in retirement? Do you want to live a much more lavish life than you do now?
You're pulling in $10k a month post savings and saving a huge portion of it. From what I can gather if your home were paid off your pension alone would cover it.

You said you're eligible for retirement sooner. Any reason you wouldn't just quit then?

I apologize for the delay.
The reason (at least in my head) to stay longer is to bridge the gap a bit more between the day I retire and the day my spouse can start pulling her pension.  Staying in a bit longer gains extra percentage towards my pension and makes that monthly pension larger, this enabling my spouse to ďsoft retireĒ at the same time I choose to walk away. 

Walking away at the moment I can retire: pension is worth about $4050 a month
Walking away perhaps 6 years after that: $15% percentage increase and multiple other things brings pensionto around $7600 per month.

I think Iím concerned about this part from my original post:
Retirement outlook:
Ages 51-57: $7600 a month
Ages 58-60: $10700 a month (wifeís pension will kick in, and she can start pulling 4% from her defined contribution plan)
Age 60: $13100 a month (can start pulling 4% from my TSP and the Roth IRA)

If I left when I could retire, that would be about three years; and Iíd be gaining $4050 a month, until the age of 57.

That cuts things quite a bit. 

I donít anticipate a lavish living. We are pretty simple and enjoy our quaint camper and simple vacations.  I donít see us getting too extravagant. At most, we are considering buying a different home for retirement.  A more efficient home. I mentioned that above.  We are looking for a little more land.  Most would be covered by the sale of the current house and adding perhaps $100k. That doesnít cut into any of the 401ks.

I didn't see your Roth listed above. You know that you can withdraw contributions (but not growth) at any time right? So if you only made it to age 54 or so you could still augment your pension (which would be more than at retiring at age 51)... just a thought. I am a big advocate for not working too many years!

Huskerfan

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Re: Case study: Military Life and retirement
« Reply #16 on: March 18, 2019, 03:58:01 PM »

I didn't see your Roth listed above. You know that you can withdraw contributions (but not growth) at any time right? So if you only made it to age 54 or so you could still augment your pension (which would be more than at retiring at age 51)... just a thought. I am a big advocate for not working too many years!

Id never work to 54.   50/51 is my deadline.  Thatís my line in the sand. It can move left, but I donít want to move it to the right.   Iím aware I can draw from the contributions.  But Iíve always been in the mindset of: if it is pushed to an investment account, it stays there until I withdraw from it when I am 60.

Iím looking at different things to see if I want to retire earlier. Some of the stuff Nords mentioned and some that you mention (ďnot working too many yearsĒ).  I do know if the final promotion I expect is not in the works by 47, Iíll likley bow out and call it good around there.  Iím ďsayingĒ Iím going 9 more years... but honestly, it may be around 7.

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Re: Case study: Military Life and retirement
« Reply #17 on: March 18, 2019, 04:07:25 PM »
Speaking as a nuclear engineer, you might be over-nuking this.

I think you might underestimate the amount of nuking Iím doing here. Lol
The spreadsheet now works to where I can enter this year's annual pay increase, and it adjusts all of the pay scale for the future years (all future years are calculated with the ďhistorical increasesĒ.  If I insert 3.1% for 2020, it calculates that year, and the following years calculate off of that at a 2.1% rate).  So now that the spreadsheet is complete, itís pretty easy to use and figure out. 

However I am heeding your advise to stop the nuke strikes here.  Now that itís all done, I plan to visit it every 6 months or so to see if Iím ďstill in trackĒ.  In other words, Iím going to focus on other things instead of staring at this thing.   

Iíll dissect the rest of your post later.  I found myself in a wormhole on your site and reading those articles. Thank you!

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Re: Case study: Military Life and retirement
« Reply #18 on: May 01, 2019, 03:18:15 PM »
So, Iíve spent a fair amount of time looking at things on Nordís site and digesting things a bit more with a few of the comments here. 

401k (TSP) rollover to Traditional and than eventually Roth IRA:
Is there a calculator or a favorite ďgo toĒ spot you can plug numbers in in order to try to calculate what you would save by converting x amount of dollars as opposed to leaving it in TSP and then paying Taxes later? 
My understanding of it, in order to be beneficial, youíd want to do it when your in a smaller tax bracket.  When doing so, can you signal TSP that you think not want to withdraw a certain amount for this purpose and then leave the rest in the account?  Example: if I have $600k in TSP, could I basically say I want to withdraw $30k a year for 10 years (for the purpose of rolling it over to Roth IRA).  Then still have $300k sitting in TSP?   Looking at Nordís site for me thinking that Iíll hit the higher tax bracket once my wifeís Pension kicks in about 7-10 years after I retire.  So Iím curious if thereís a reason to leave some in the TSP, or simply move the assets if Iím going to start down that path anyways.

Second thing I really started thinking more about:  I mentioned I may stay 9 years more.  Instantly the Pension will place me in the 22% tax bracket (or higher if there are changes later down the road). By retiring just three years sooner, i wouldnít be in the 22%, yet could benefit from withdrawing from the Roth IRA if needed to bridge the gap.  Retiring in 6 years is just as sustainable as retiring in 9 when I redid the numbers.   Sure... the TSP numbers would be down a bit.  But thatís all just bonus money. 

Interesting things to think about.

Nords

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Re: Case study: Military Life and retirement
« Reply #19 on: May 01, 2019, 11:09:59 PM »
401k (TSP) rollover to Traditional and than eventually Roth IRA:
Is there a calculator or a favorite ďgo toĒ spot you can plug numbers in in order to try to calculate what you would save by converting x amount of dollars as opposed to leaving it in TSP and then paying Taxes later? 
My understanding of it, in order to be beneficial, youíd want to do it when your in a smaller tax bracket. 
You could go through the extra pain of converting income-tax brackets to dollars saved, but all you really need to care about is:
1.  Am I in my lifeís lowest income-tax bracket now?  (Then contribute to a Roth TSP and, if within the income limits, a Roth IRA.)
2.  After I leave the military, will my bridge career (or my pension, if I earn one) put me into a higher income-tax bracket?  (If so, when after that could I convert?  Should I convert some of my traditional IRA now?)
3.  Will my income-tax bracket be lower at any time after my last earned-income paycheck and before age 65 (Medicare)?  (That might be the best time to roll over my TSP.)
4.  When I reach Required Minimum Distributions at age 70.5, will my RMD be big enough to jack me up into a higher income-tax bracket, and make me pay IRMAA on my Medicare premiums?  (If so then convert as much as you can whenever you can.)

When doing so, can you signal TSP that you think not want to withdraw a certain amount for this purpose and then leave the rest in the account?  Example: if I have $600k in TSP, could I basically say I want to withdraw $30k a year for 10 years (for the purpose of rolling it over to Roth IRA).  Then still have $300k sitting in TSP?   
You canít do it now, but later in 2019 the TSP is adding more withdrawal flexibility.
https://www.tsp.gov/PDF/formspubs/tspfs10.pdf

A simpler method would be to just roll over the entire traditional TSP balance (or whatever part you plan to convert) in one withdrawal.  The expense-ratio gap between the TSP and Vanguard has declined over the last decade so youíre not paying a significant amount more (when you stick to passive index funds).  Youíd move it from whatever TSP funds you owned into their passively-managed index-fund equivalents in your traditional IRA.  (There are no tax issues because itís a rollover.)  Then youíd be completely finished with the TSP.

Once the TSP funds are in your IRA you can convert a little each year, at your convenience, and accelerate or pause the process if your projections change. 

When I retired from active duty, I started converting my traditional IRA to a Roth IRA.  Then I rolled my traditional TSP into my traditional IRA and converted that to a Roth IRA.  Then we started converting my spouseís traditional IRA to a Roth IRA.  Finally we rolled over my spouseís traditional TSP to her traditional IRA and converted that to a Roth IRA.  Each of those steps took a few years (for a total of 16 years) but we only had to go through the rollover process once for each TSP account.

Hereís the paperwork process for rollovers:
https://the-military-guide.com/how-and-why-to-transfer-your-tsp-to-an-ira/
Iím not sure whether the TSPís new withdrawal options will enable you to set it up once for 10 years of annual withdrawals, but you should see more about that by the end of 2019.

Looking at Nordís site for me thinking that Iíll hit the higher tax bracket once my wifeís Pension kicks in about 7-10 years after I retire.  So Iím curious if thereís a reason to leave some in the TSP, or simply move the assets if Iím going to start down that path anyways.
In that case you could do the TSP rollover in Year #1 of 7.  You could convert about 15-20% of it (in order to finish by the end of year seven).  Or you could convert just enough each year to stay in a lower income-tax bracket than the bracket youíll be in when your spouse retires.  The difference between those two methods is probably not enough money to make you stay awake at night tweaking more spreadsheets. 

Another advantage of converting all of a traditional TSP or a traditional IRA to a Roth IRA is that you donít have to spend your 70s putting up with RMDs and complicating your Medicare premiums (IRMAA).  I think itís worth converting to a Roth IRA even if the tax savings are a wash.

Second thing I really started thinking more about:  I mentioned I may stay 9 years more.  Instantly the Pension will place me in the 22% tax bracket (or higher if there are changes later down the road). By retiring just three years sooner, i wouldnít be in the 22%, yet could benefit from withdrawing from the Roth IRA if needed to bridge the gap.  Retiring in 6 years is just as sustainable as retiring in 9 when I redid the numbers.   Sure... the TSP numbers would be down a bit.  But thatís all just bonus money. 
You could stay on the job as long as youíre feeling challenged & fulfilled, and retire as soon as the fun stops. 

The extra income (three years of salary & benefits) will more than make up for any higher income taxes that you pay on the Roth IRA conversions. 

Interesting things to think about.
Good #FirstWorldProblems to have!

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Re: Case study: Military Life and retirement
« Reply #20 on: May 03, 2019, 07:54:00 AM »
Lots of great information again, Nords.  Thank you.
I have a better grasp of the transferring/rollover now. It makes a lot of sense. At first I didnít realize you could still invest the dividends (I thought they counted as part of the annual contribution, but they donít). I see the overall potential with rolling everything over.  I think this will be my plan for sure. Rolling over mine and my wifeís funds may be a bit hectic, but worthwhile.

One last question on that front: when you transferred to the Traditional IRA, you promptly invested that so the money was still working for you, right?  And then rolled over whatever % you wanted to the Roth IRA to completed the process.  Rinse and repeat the next year...

Nords

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Re: Case study: Military Life and retirement
« Reply #21 on: May 03, 2019, 09:05:28 AM »
Lots of great information again, Nords.  Thank you.
Youíre welcome!  Iím glad itís helping.  Lots of other forum members (and military families) ask similar questions.

One last question on that front: when you transferred to the Traditional IRA, you promptly invested that so the money was still working for you, right?  And then rolled over whatever % you wanted to the Roth IRA to completed the process.  Rinse and repeat the next year...
Yep.  The TSP cashed us out of the shares (which happened to be in the C & S funds) and transferred the dollars to Fidelity (an S&P500 fund and a small-cap fund).  Once the dollars were in the traditional IRA we immediately bought the equivalent funds, so the money was still invested.

Each year when we did the Roth IRA conversions, Fidelity transferred the specified number of fund shares from the traditional IRA to the Roth IRA without cashing out anything.

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Re: Case study: Military Life and retirement
« Reply #22 on: May 23, 2019, 08:13:18 PM »
Question regarding rolling over accounts:
Are there any issues rolling over from traditional to Roth IRA beyond the age of 60?  For instance, if I want to roll over my wifeís account first, then delay mine and start rolling it when Iím 57 or so and extending that to 64.  Does that cause any issues or concerns?
The reason I was considering it was to limit the amount of taxes as it would be a bit more considerable to pay on her account and my account.  Just thinking out loud and wondering if there are issues with that. Obviously if I delay the conversion beyond 60 I wouldnít draw from that account until the rollover is complete (well... technically I could start withdrawing some I suppose...)

Nords

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Re: Case study: Military Life and retirement
« Reply #23 on: May 24, 2019, 03:55:54 AM »
Are there any issues rolling over from traditional to Roth IRA beyond the age of 60?  For instance, if I want to roll over my wifeís account first, then delay mine and start rolling it when Iím 57 or so and extending that to 64.  Does that cause any issues or concerns?
No worries about doing Roth IRA conversions at any age, although past age 62 your income might be higher if youíre taking Social Security withdrawals.

My spouse and I (dual military, each of us with a TSP account) spent 16 years of my retirement rolling over our traditional TSPs to traditional IRAs and then converting them to Roth IRAs.  We did a little each year up to the top of an income-tax bracket (15%) because when weíre in our 70s (and had to take Required Minimum Distributions) we could see that weíd be paying income taxes in the 25% bracket.

Some years our conversions (from traditional IRA to Roth IRA) were only a few thousand dollars, while other years weíd convert $20K.