Author Topic: On Track for Military FIRE?  (Read 2101 times)

mgnhrvth

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On Track for Military FIRE?
« on: June 20, 2019, 06:14:03 PM »
Thank you for taking time to weigh-in!

I am trying to shape my short and mid-term financial goals - a few moving pieces for 2019/2020 are detailed below. Please pick apart my current situation, goals etc apart - looking for great advice and discussion from the MMM collective!

Current Situation: Active Duty O4 with 11 years of service; mid-30’s

Annual Income for 2019: $87,000
Projected Annual Income for 2020: $90,000
(NOTE: I am deployed in a CZTE area so July 2018 – July 2020 pay is tax-exempt)
I am a resident of WA State (no state income tax) and have no dependents.

ASSETS
Cash: $15,000
Roth IRA: $92,500 (Vanguard)
Roth/Traditional TSP: $195,000 (currently contributing 22% of pay)
(NOTE: I opted into BRS in JAN 2018 so receive full matching into Traditional TSP of approx. $4,340 per year)
Investments: $20,000 (Vanguard Index Funds)
Savings Deposit Program (SDP): $10,000
https://militarypay.defense.gov/Benefits/Savings-Deposit-Program/
TOTAL: $332,500

LIABILITIES:
Mortgage: $322,000
Bought in JAN 2013 for $360,000 @ 3% VA home loan (currently a break-even rental in Oahu)
Current Zillow value: $579,000
TOTAL: $322,000

2019 Goals:
Max Roth TSP – on track
Max Roth IRA – DONE, did a lump sum in JAN19
Negotiate orders for 2020
Contribute $5K to my Vanguard Index Funds

2020 Goals:
BRS mid-career bonus decision, tax implications, obligated service etc
https://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/Fact%20Sheet-Continuation%20Pay.pdf
Max Roth TSP
Max Roth IRA (I plan to do a lump sum on 1 JAN 2020)
Contribute $10K to my Vanguard Index Funds

Long Term Decision: Remain Active Duty in the military for 20 years (retire in 2028)
 
No specific questions - looking for gut checks or recommendations for adjustments in saving/investing/planning.

If there is anything else I can add to enhance the feedback, please let me know - Thank you so much!
« Last Edit: August 12, 2019, 05:14:33 PM by mgnhrvth »

M5

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Re: On Track for Military FIRE?
« Reply #1 on: June 20, 2019, 10:14:26 PM »
The short answer.. absolutely!!!

If you moved to a LCOL area after retirement then your pension alone would more than cover all expenses, even with a mortgage. In your case I don't think I would've opted into the BRS, but that's a moot point now. I have a buddy who retired a couple years ago as an O4 and pretty much survives with ease on his pension in LCOL area.

As far as adjustments, I think the goals you've got for the next few years are just fine. The only thing you might look into is swapping enough of your TSP contributions from Roth to traditional to get down into the 12% tax bracket - you can always do the Roth conversion ladder in the future if necessary. Just maxing TSP and Roth IRA plus pension will give you boatloads of money in retirement. For perspective I'm an AGR E-6 who opted into BRS and my measly pension plus TSP and Roth IRA would easily allow us to pull in $100k/yr in retirement and die with several million in the bank.

Congrats on your progress so far and keep it up!! I wish I only had 9 years left.. lol


Sun Hat

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Re: On Track for Military FIRE?
« Reply #2 on: June 21, 2019, 06:53:44 AM »
The forum expert on US military retirement planning is Nords, so I'd ask for his input and use the search feature to check out some of his posts. Good luck!

@Nords

JoSo

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Re: On Track for Military FIRE?
« Reply #3 on: June 21, 2019, 02:51:56 PM »
You’re absolutely doing all the right things.  Just keep doing what you’re doing.  That money will double and triple in no time.  Good luck on making it to 20 years.  The time goes by fast.  I have a little over 3 to go.  Do you plan to retire to Hawaii?  If not, I’d consider selling the rental and being happy with the profit. 

A Fella from Stella

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Re: On Track for Military FIRE?
« Reply #4 on: June 21, 2019, 03:01:07 PM »
Have you also looked into the military FIRE guys? There's Doug Nordman........and definitely some others.

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #5 on: June 22, 2019, 12:29:54 AM »
In your case I don't think I would've opted into the BRS, but that's a moot point now. I have a buddy who retired a couple years ago as an O4 and pretty much survives with ease on his pension in LCOL area.

As far as adjustments, I think the goals you've got for the next few years are just fine. The only thing you might look into is swapping enough of your TSP contributions from Roth to traditional to get down into the 12% tax bracket - you can always do the Roth conversion ladder in the future if necessary. Just maxing TSP and Roth IRA plus pension will give you boatloads of money in retirement. For perspective I'm an AGR E-6 who opted into BRS and my measly pension plus TSP and Roth IRA would easily allow us to pull in $100k/yr in retirement and die with several million in the bank.

Great points - and thank you!

RE BRS - I think that opting in is/was a highly personal choice and certainly not right for everyone in the "opt-in" donut hole in 2018. I felt that it provided me flexibility (as well as an additional $40K of matching Traditional TSP funds over 10 years - with BRS, I receive matching into my Traditional TSP of approx. $4,340 per year x 10 years). In 2020 (my 12 year mark in the military), I will decide whether or not to take a mid-career bonus. 

Active duty service members/personnel may be eligible for a continuation pay multiplier of 2.5 to 13 times their monthly basic pay. For me that translates to 2.5 ($18,000) to 13 ($1,004,250) times my monthly basic pay (estimates base off of 2019 monthly basic pay). It's been challenging finding Officers in my community who have pursued this option/received the bonus in exchange for 4 additional years of obligated service. If I do take the mid-career bonus, my goal will be to complete 20 years of service.

Agree that I need to take a look adjusting my TSP contributions from Roth to Traditional to get down into the 12% tax bracket. I also have a lot of contributions in TSP flagged as CTZE contributions :)
« Last Edit: June 23, 2019, 08:32:58 AM by mgnhrvth »

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #6 on: June 22, 2019, 12:30:34 AM »
The forum expert on US military retirement planning is Nords, so I'd ask for his input and use the search feature to check out some of his posts. Good luck!

@Nords

Nords is the mil guru!

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #7 on: June 22, 2019, 12:39:44 AM »
You’re absolutely doing all the right things.  Just keep doing what you’re doing.  That money will double and triple in no time.  Good luck on making it to 20 years.  The time goes by fast.  I have a little over 3 to go.  Do you plan to retire to Hawaii?  If not, I’d consider selling the rental and being happy with the profit.

Thank you for the kind feedback! Appreciate hearing from professional colleagues in this forum. Plan is to stay the course - am taking a hard look at the next set of orders and beyond. I joined at 24 so goal is to retire at 44 and maximize my flexibility RE work post-military (pay, location, benefits etc). 

RE the Hawaii house - so far it has worked out well as a rental and increased in value. If I sell, I'd like to move back for 2 years to benefit from the federal principal residence capital gains exclusion. My understanding is that if you have lived in it for 2 of the 5 years prior to sale, a single filer has a $250,000 exclusion from capital gains on sale.

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #8 on: June 22, 2019, 12:46:04 AM »
Have you also looked into the military FIRE guys? There's Doug Nordman........and definitely some others.

Yes! There are great networks (TSP groups, Federal Service groups, Military FIRE etc) to tap into. I think for a lot of military folks - the path to military FIRE is simple but not easy.

Nords

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Re: On Track for Military FIRE?
« Reply #9 on: June 22, 2019, 01:19:13 AM »
The forum expert on US military retirement planning is Nords, so I'd ask for his input and use the search feature to check out some of his posts. Good luck!
@Nords
Have you also looked into the military FIRE guys? There's Doug Nordman........and definitely some others.
Nords is the mil guru!
Thanks for the tags, @Sun Hat and @A Fella from Stella, and I appreciate everyone's kind words!


Mgn, you may have seen a lot of this before in military Facebook groups and other forums.  I'm not trying to beat dead horses into the ground, but I want to give a complete commentary for other readers who might not have your background.

Current Situation: Active Duty O4 with 11 years of service; mid-30’s
(NOTE: I am deployed in a CZTE area so July 2018 – July 2020 pay is tax-exempt)
2020 Goals:
BRS mid-career bonus decision, tax implications, obligated service etc
I don’t want to put any additional retention pressure on you here, especially not while you’re in a combat zone, but...
https://militarypay.defense.gov/Portals/3/Documents/Blended%20Retirement/Combined%20BRS%20Policy%20Document.pdf?ver=2018-09-19-094018-610

... if you decide to take the Continuation Pay contract, you have to sign it *before* you reach 12 years of service.  (Paragraph 8.b of that link.) 

As you know, you’d be getting at least 2.5 months of base pay at the O-4>10 scale.  You could wait until the exact 12-year day to sign the contract (with about 10 minutes as an O-4>12), but you’d be out of luck if anyone in the chain of command (or the finance office) sat on the paperwork.  However if you decide to stay on active duty for the additional years then it makes sense to see what the FY20 multiples might be for your community.  Watch for your service’s FY20 memo at this link:
https://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/2019-01-07.pdf?ver=2019-01-16-092802-143

In addition, if you sign that CP contract in the combat zone, then the entire CP payment is tax-free.  You could dump it all into the traditional TSP at once, or (if it makes sense) take it as four annual tax-free payments.  (Paragraph 8.e.) 

Even if you’re no longer in the combat zone for those subsequent payments, they’re still tax-free because you signed the contract in the combat zone.
https://militarypay.defense.gov/Pay/Tax-Information/CZTE/

(currently a break-even rental in Oahu)
RE the Hawaii house - so far it has worked out well as a rental and increased in value.
I see way too many servicemembers using qualitative real-estate phrases like this.

What’s your plan for this property, and what’s your exit strategy?

When people use terms like “break-even” or "worked out well", it’s hard to tell whether the property is worth keeping.  Phrases like "increased in value" overlook the opportunity cost of investing in other assets (like a total stock market index fund)... especially when the long-term appreciation of even Hawaii real estate rises with the rate of inflation.

My understanding is that if you have lived in it for 2 of the 5 years prior to sale, a single filer has a $250,000 exclusion from capital gains on sale.
If you know that you’ll return to Oahu (to live in it for at least a few more years) then it’s possibly worth keeping.  As you wrote, returning to make it a primary residence means that you’d eventually be able to sell and defer some of the capital gains.
https://www.katehorrell.com/capital-gains-rules-for-military-families/

But if “break-even” means “the rent equals the mortgage” then you’re losing money to property taxes, property management, maintenance, repairs, turnovers, vacancies... you get the idea. 

Even though you deduct depreciation on your income-tax return, you’re really getting hurt by the tax code because you have very little taxable income to deduct while you’re in a combat zone.  To add insult to injury, someday when you get rid the place (other than via probate) you’ll still have to pay depreciation recapture tax.
https://www.katehorrell.com/understanding-depreciation-recapture-taxes-on-rental-property/

If you use real-estate investor phrases like “1% thumbrule”, “50% thumbrule”, or “capitalization rate of 6.9%” then we know you’ve done your analysis. 

If you’re not already reading BiggerPockets then it’s worth your time to learn the vocabulary definitions and analyze the property’s return.  Very few properties on Oahu meet the 1% thumbrule, and way too many of them are higher than the 50% thumbrule (in a bad way).  If your cap rate is less than 6% then you’re losing out to the opportunity cost of investing your equity in the stock market or anything else with a long-term APY of at least 6%... like a good investment property in the southeast U.S.

2019 Goals:
Max Roth TSP – on track

2020 Goals:
Max Roth TSP
Agree that I need to take a look adjusting my TSP contributions from Roth to Traditional to get down into the 12% tax bracket. I also have a lot of contributions in TSP flagged as CTZE contributions :)
You might already know all about this, but for other readers I’ll mention that you could not only maximize your Roth TSP contributions to the elective deferral limit ($19K for 2019) but also maximize your traditional TSP contributions up to the combined TSP total annual addition limit ($56K for 2019). 

This gets horribly complicated with BRS agency/matching contributions being included in the AAL, as well as annual pay raises and your O-4>12 raise.  However if you’re trying to maximize your tax-deferred compounding (and your prospective Roth IRA conversions after leaving the military) then it’s worth digging into the spreadsheets behind these two posts:
https://the-military-guide.com/maximizing-your-thrift-savings-plan-contributions-in-a-combat-zone/
https://keepinvestingsimplestupid.com/2019/02/01/maximizing-tsp-contributions-for-the-entire-year-when-you-deploy-to-a-combat-zone/

The spreadsheet in the first post comes directly from a CPA on the TSP staff, and the spreadsheet in the second post is a much more detailed guide to planning your contributions.

Long Term Decision: Remain Active Duty in the military for 20 years (retire in 2028)
No specific questions - looking for gut checks or recommendations for adjustments in saving/investing/planning.
If I do take the mid-career bonus, my goal will be to complete 20 years of service.
Speaking of gut checks.

You might have read this before, and about half of the forum’s military readers are already nodding along with this, but I’ll write it again for the newer readers:
You have nearly nine years left to get to 20.  You know how much you and your priorities have changed in the last nine years, and the next nine years are highly likely to be at least as evolutionary.

Take it one service obligation at a time (even if you sign the CP contract).  Stay on active duty as long as you’re feeling challenged & fulfilled.  But when the fun stops, it’s time to consider leaving active duty for the Reserves or the National Guard. 

At least monthly, I get e-mails from senior enlisted and field-grade officers who've reached 14-17 years of active duty:  "I'm already FI without an active-duty pension.  The career was fun but now my assignment officer is playing payback hardball and my family is annoyed with the idea of moving again.  If I'm FI without the pension, then why am I staying on active duty?!?"

Don’t gut it out to 20, especially when you’re already on track for financial independence.  It’s possible that you’ll reach FI even without the military pension or Tricare, and you’ll certainly reach FI when you’re backstopped by the Reserve pension (and Tricare). 

Staying on active duty just for the active-duty pension will probably overshoot the FI goal line by hundreds of thousands of dollars.  After 17 years of active-duty retirement I can affirm that my overshoot has grown to over a million dollars.
https://the-military-guide.com/dont-gut-20-leave-active-duty-reserves-national-guard/

If there is anything else I can add to enhance the feedback, please let me know - Thank you so much!
I realize you’re listing the details in a format, but what are your total expenses?  That number will help other readers look at the gap between where you are and what you’d need for the 4% SWR.

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #10 on: June 22, 2019, 11:18:28 AM »
I don’t want to put any additional retention pressure on you here, especially not while you’re in a combat zone, but... if you decide to take the Continuation Pay contract, you have to sign it *before* you reach 12 years of service.

As you know, you’d be getting at least 2.5 months of base pay at the O-4>10 scale.  You could wait until the exact 12-year day to sign the contract (with about 10 minutes as an O-4>12), but you’d be out of luck if anyone in the chain of command (or the finance office) sat on the paperwork.  However if you decide to stay on active duty for the additional years then it makes sense to see what the FY20 multiples might be for your community.  Watch for your service’s FY20 memo at this link:
https://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/2019-01-07.pdf?ver=2019-01-16-092802-143

In addition, if you sign that CP contract in the combat zone, then the entire CP payment is tax-free.  You could dump it all into the traditional TSP at once, or (if it makes sense) take it as four annual tax-free payments.  (Paragraph 8.e.) 

Even if you’re no longer in the combat zone for those subsequent payments, they’re still tax-free because you signed the contract in the combat zone.
https://militarypay.defense.gov/Pay/Tax-Information/CZTE/ 

Thank you Nords! I'm going to break out each subject/issue in a separate response. RE the CP contract:

Tracking and will keep an eye out for the FY20 continuation pay rates (multipliers) in October 2019.

For example purposes, based on the FY19 continuation pay rates (multipliers) for the Navy AC @ 2.5% - I'd receive approx. $18,000 (in a CTZE setting). I think the best option for me would be the lump sum ("A member who qualifies for continuation pay may elect to receive the payment in a single lump sum or elect a series of equal installment payments, not to exceed four annual payments over 4 consecutive years.”) And for now, would plan to dump it into my Vanguard Index fund account or Traditional TSP. 

My real question is the actual execution of requesting (?) the continuation pay - about 6 months ago, I reached out my Detailer (no response). Reached out again today to the Detailer and my command Career Counselor. I just need education on the process (forms, timelines, etc) and a better understanding on how the continuation pay... is paid. I'm assuming it'd be listed in the "Bonus Pay" section of the LES.... If I do elect to receive the continuation pay bonus, I'll post a play-by-play to help out other military folks (forms, timelines, payment etc).



mgnhrvth

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Re: On Track for Military FIRE?
« Reply #11 on: June 22, 2019, 11:38:12 AM »
You might already know all about this, but for other readers I’ll mention that you could not only maximize your Roth TSP contributions to the elective deferral limit ($19K for 2019) but also maximize your traditional TSP contributions up to the combined TSP total annual addition limit ($56K for 2019). 

This gets horribly complicated with BRS agency/matching contributions being included in the AAL, as well as annual pay raises and your O-4>12 raise.  However if you’re trying to maximize your tax-deferred compounding (and your prospective Roth IRA conversions after leaving the military) then it’s worth digging into the spreadsheets behind these two posts:
https://the-military-guide.com/maximizing-your-thrift-savings-plan-contributions-in-a-combat-zone/
https://keepinvestingsimplestupid.com/2019/02/01/maximizing-tsp-contributions-for-the-entire-year-when-you-deploy-to-a-combat-zone/

The spreadsheet in the first post comes directly from a CPA on the TSP staff, and the spreadsheet in the second post is a much more detailed guide to planning your contributions.

Am aware of the combined TSP total CZTE limit ($56K for 2019). I did not do that in 2018 (last 6 months of the year in CZTE) nor have I pursed that in 2019 (entire year will be CTZE pay). I may attempt to aim for hitting the combined TSP total in 2020 (first six months CZTE pay) if I elect the CP contract bonus and deposit it into TSP. Frankly, from what I've read about other people experiences, it seems like the process to max a combined TSP total in a CZTE is clunky from an admin/DFAS perspective as well.... I'll definitely post an update on this topic!
« Last Edit: June 23, 2019, 12:10:23 AM by mgnhrvth »

Nords

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Re: On Track for Military FIRE?
« Reply #12 on: June 22, 2019, 07:08:02 PM »
Tracking and will keep an eye out for the FY20 continuation pay rates (multipliers) in October 2019.
Hunh.  I was searching around and it's just been released:
https://www.mnp.navy.mil/group/pay-and-benefits

I no longer have a CAC (well, all right, I've *never* had a CAC) so I can't read the actual memo. 

If you come across a PDF or a public page then I'd appreciate a copy of the multiples.

I think the best option for me would be the lump sum ("A member who qualifies for continuation pay may elect to receive the payment in a single lump sum or elect a series of equal installment payments, not to exceed four annual payments over 4 consecutive years.”) And for now, would plan to dump it into my Vanguard Index fund account or Traditional TSP. 
I agree.

Hypothetically the best place would be the traditional TSP, especially if you plan to do a Roth IRA conversion after the military.  However the expense ratio of VTSAX is very close to the TSP and it's pretty tax-efficient.  If you run into TSP contribution obstacles then you'd get much the same financial results by putting it into your (taxable) Vanguard account.

My real question is the actual execution of requesting (?) the continuation pay - about 6 months ago, I reached out my Detailer (no response). Reached out again today to the Detailer and my command Career Counselor. I just need education on the process (forms, timelines, etc) and a better understanding on how the continuation pay... is paid. I'm assuming it'd be listed in the "Bonus Pay" section of the LES.... If I do elect to receive the continuation pay bonus, I'll post a play-by-play to help out other military folks (forms, timelines, payment etc).
Apparently you're supposed to use NSIPS or your CCC.
https://www.navy.mil/submit/display.asp?story_id=109966

I may attempt to aim for hitting the combined TSP total in 2020 (first six months CZTE pay) if I elect the CP contract bonus and deposit it into TSP. Frankly, from what I've read about other people experiences, it seems like the process to max a combined TSP total in a CZTE is clunky as well from an admin/DFAS perspective as well.... I'll definitely post an update on this topic!
"Clunky" is a very tactful word.

The whole annual addition contributions rulebook is poorly communicated and hard to understand.  (It took me three tries with the TSP and another discussion with a second CFP to parse their language.)  The BRS agency/matching contributions are an unintended side effect of screwing up the annual addition contributions even further.

The TSP staff is painfully aware of how badly their training materials suck, and they're working on it, but I'm not holding my breath.

By the way that first link (maximizing your TSP contributions in a combat zone) also includes the IRS form to let them know your deployment dates.  When OPSEC is no longer a concern, then let the IRS know your deployment dates (along with any documentation) and tell them separately for each tax year.  Otherwise you'll be getting IRS query letters until 2024.


« Last Edit: June 22, 2019, 07:13:36 PM by Nords »

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #13 on: June 23, 2019, 08:29:46 AM »
Good timing!

Blended Retirement System Calendar Year 2020 Continuation Pay Rates Announced
https://www.navy.mil/submit/display.asp?story_id=109966

CY20 continuation pay rates attached (for USN) as well as the MILPERSMAN reference. Looks like rates remained static from CY19 to CY20 (for Navy folks).

Active duty service members/personnel may be eligible for a continuation pay multiplier of 2.5 times their monthly basic pay. For me - 2.5 times my monthly basic pay ($7,250 based off of 2019 monthly basic pay) equals approximately $18,000. Assuming a base pay increase in CY20 - the CP might inch up towards $18,750....
« Last Edit: August 12, 2019, 05:52:00 PM by mgnhrvth »

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #14 on: June 23, 2019, 10:04:46 AM »
You might have read this before, and about half of the forum’s military readers are already nodding along with this, but I’ll write it again for the newer readers:
You have nearly nine years left to get to 20.  You know how much you and your priorities have changed in the last nine years, and the next nine years are highly likely to be at least as evolutionary.

Take it one service obligation at a time (even if you sign the CP contract).  Stay on active duty as long as you’re feeling challenged & fulfilled.  But when the fun stops, it’s time to consider leaving active duty for the Reserves or the National Guard. 

At least monthly, I get e-mails from senior enlisted and field-grade officers who've reached 14-17 years of active duty:  "I'm already FI without an active-duty pension.  The career was fun but now my assignment officer is playing payback hardball and my family is annoyed with the idea of moving again.  If I'm FI without the pension, then why am I staying on active duty?!?"

Don’t gut it out to 20, especially when you’re already on track for financial independence.  It’s possible that you’ll reach FI even without the military pension or Tricare, and you’ll certainly reach FI when you’re backstopped by the Reserve pension (and Tricare). 

Staying on active duty just for the active-duty pension will probably overshoot the FI goal line by hundreds of thousands of dollars.  After 17 years of active-duty retirement I can affirm that my overshoot has grown to over a million dollars.
https://the-military-guide.com/dont-gut-20-leave-active-duty-reserves-national-guard/

I think this is a healthy lens to approach the (possible) remaining service time (9 years to 20) and how the last 9 years can differ in experience from the first 11 years. I have always tried to consider the merits of each assignment (challenge, scope, impact) individually. I think a key (for me) has been prioritization of my health (fitness, sleep, nutrition), interesting work assignments, and work/life balance (taking leave, pursuing personal goals that give me an identify outside of the military). And frankly, being as proactive as I can in establishing a financial foundation that affords me choice.

My homework for the weekend:

1. Explore the articles/resourses at BiggerPockets and attempt to analyze the Hawaii property’s return

2. Create a detailed list of expenses (I'm assuming the most beneficial would be to list expenses anticipated in retirement/post-20 year military?)
« Last Edit: August 12, 2019, 04:45:29 PM by mgnhrvth »

Nords

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Re: On Track for Military FIRE?
« Reply #15 on: June 23, 2019, 10:28:25 AM »
Good timing!

Blended Retirement System Calendar Year 2020 Continuation Pay Rates Announced
https://www.navy.mil/submit/display.asp?story_id=109966

CY20 continuation pay rates attached (for USN) as well as the MILPERSMAN reference. Looks like rates remained static from CY19 to CY20 (for Navy folks).

Active duty service members/personnel may be eligible for a continuation pay multiplier of 2.5 times their monthly basic pay. For me - 2.5 times my monthly basic pay ($7,250) (based off of 2019 monthly basic pay) equals approximately $18,000. Assuming a base pay increase in CY20 - the CP might inch up towards $18,750....

Thanks for posting these!  That’s saved us bloggers (without CACs) a lot of time.

You’re right, it’s tough to plan your TSP annual addition limit contributions when your CP bonus and other pay numbers are also moving around.

And yeah, the detailers don’t seem to be doing much with those CP multiples.  I thought that by now they’d be treated just like re-enlistment multiples.  I wonder whether the Air Force will try to use them for their (self-imposed) pilot shortage.

That’s an interesting difference between the MILPERSMAN and the CNO memo.  The words of the federal law are much looser than the other two references, but the services are free to set their own requirements within the federal law. 

MILPERSMAN gives the impression that the four years runs between 12-16 years of service. 
“7. Obligated Service. A member who accepts CP will enter into an agreement with the Navy to serve 4 years of additional service in their respective component, commencing on the 12th anniversary of the member’s PEBD.”

Then there’s the CNO:
“A Service Member who accepts CP and enters into an agreement will serve 4 years of additional service, commencing on acceptance by the Navy.”

If someone signs up at 11 years of service (O-4>10 pay scale), does this mean that their obligation could start at the 11-year-point and end at 15?  This is within federal law.

Or does the Navy “accept” the contract at the 12th anniversary?  And if that’s the logic, then should the CP bonus be paid as O-4>12?

2. Create a detailed list of expenses (I'm assuming the most beneficial would be to list expenses anticipated in retirement/post-20 year military?)

I’d project today’s annual expenses in today’s dollars, and then try to decide which ones will change when you begin terminal leave.  (That way you’ve done the math for whenever you get out, not just for 20.)  You won’t be paying for uniforms, gas for commuting, buying lunch at work, or command functions anymore.  However you might ramp up your travel & entertainment or do more of an expensive hobby like golf.

The reality is that when you’re out of the military you might start cooking more (reducing your food expenses), exercising more (reducing medical expenses), and even haggling with your insurers for retiree discounts.  You’ll stalk travel bargains (and travel-hack airfares & lodging), you’ll stay longer in AirBnBs instead of resorts (lower monthly prices), and you’ll travel off-season.  The result is that (a year or two after leaving the military) you’ll optimize your expenses on the activities you really care about.  Very few vets actually raise their non-discretionary spending, it’s usually a lump sum for a one-time purchase, and it’s rarely permanent.

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #16 on: July 02, 2019, 11:48:27 PM »
I am still working on the house cost/benefit analysis and the projected annual expenses.

In the meantime, this week I received the automated email below detailing the CP program and info:

Continuation Pay Eligibility

This email is to inform you that you have been identified as eligible to receive Continuation Pay. 
The Navy Standard Integrated Personnel System (NSIPS) indicates that you are enrolled in the Blended Retirement System (BRS) and are eligible for Continuation Pay (CP). Under BRS you may be eligible for CP at 12 Years of Service (YOS) based on your PEBD.  CP is a one-time, mid-career incentive payment in exchange for an agreement to perform four years of additional obligated service.  This one-time payment is in addition to any other career field-specific incentives or retention bonuses.
Important elements in determining whether you are entitled to CP are:
    a. Your eligibility to remain in the service at the time of payment.
    b. Your agreement to serve an additional four years of obligated service.
    c. If you are a reservist, your status as a member in a paid status upon completion of 12 YOS and your recommendation for retention in the Selected Reserve.
There are three CP payment options to choose from:
    a. A single lump sum payment
    b. Two annual payments (50%, 50%)
    c. Four annual payments (25%, 25%, 25%, 25%)
CP is subject to federal and state tax.
The election to receive CP must be made in NSIPS BRS (Continuation Pay tab) and before you complete 12 YOS (based on your PEBD).  Your command is standing by to assist you with your CP election.  Please make an appointment with your CCC or CFC as soon as you are ready to begin the CP election process.
If you elect to receive CP in addition to any other bonus, incentive, or special pay; your agreement to remain on active duty for four additional years may run consecutive or concurrent depending on the structure of the other contract, extension, or obligation you may have incurred.  If you do not complete four additional years of obligated service after receiving the CP, any unearned portion of the CP will be subject to recoupment by the U.S. government.
Your CP election is considered to be effective and irrevocable on the 12th anniversary of your active or reserve duty based on your PEBD.
To learn more about CP, the DOD has an informative website that discusses BRS and more specifically CP. The site includes an interactive retirement calculator to help you decide whether to elect CP and commit to four more years in the Navy.  You are encouraged to explore the web site at:  http://militarypay.defense.gov/BlendedRetirement/ and discuss your alternatives with your family.

davisgang90

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Re: On Track for Military FIRE?
« Reply #17 on: July 03, 2019, 05:22:09 AM »
mgnhrvth,

You are in great hands with Nords and you look to be doing all the right things.

I didn't see any discussion of VA disability.  You are a good ways off from retirement and the VA process, but I will tell you from experience to document early and often any medical issues.  Do a scrub of you records (your medical facility will provide you a digital copy of your record on CD) and meet with a VSO (Veteran Service Officer) from American Legion, Disabled Vets of America, VFW etc to have them help you go over your record and fill out the paperwork.  It can be a lot of work, but I ended up with a much higher rating than I expected which means concurrent receipt (greater than 50% disability) of tax free disability compensation on top of my pension.


Nords

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Re: On Track for Military FIRE?
« Reply #18 on: July 03, 2019, 07:39:01 AM »
In the meantime, this week I received the automated email below detailing the CP program and info:

Continuation Pay Eligibility

This email is to inform you that you have been identified as eligible to receive Continuation Pay. 
Thanks-- I appreciate having the text to work with.

It can be a lot of work, but I ended up with a much higher rating than I expected which means concurrent receipt (greater than 50% disability) of tax free disability compensation on top of my pension.
I can't believe it's already been a year since your retirement! 

davisgang90

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Re: On Track for Military FIRE?
« Reply #19 on: July 03, 2019, 11:11:08 AM »
It can be a lot of work, but I ended up with a much higher rating than I expected which means concurrent receipt (greater than 50% disability) of tax free disability compensation on top of my pension.
I can't believe it's already been a year since your retirement!
Me either!  It's gone fast!

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #20 on: July 09, 2019, 07:38:28 AM »
Not a full update but a proud moment - just crossed the $200K TSP threshold!

As of today (9 July, 2019) - combined Roth/Traditional TSP balance is $200,004.94!
« Last Edit: July 09, 2019, 12:07:46 PM by mgnhrvth »

M5

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Re: On Track for Military FIRE?
« Reply #21 on: July 09, 2019, 10:59:28 AM »
Not a full update but a proud moment - just crossed the $200K TSP threshold!

As of today (9 Jul, 2019) - combined Roth/Traditional TSP balance is $200,004.94!

That's awesome, congrats!!

Huskerfan

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Re: On Track for Military FIRE?
« Reply #22 on: July 10, 2019, 08:04:36 PM »
Not a full update but a proud moment - just crossed the $200K TSP threshold!

As of today (9 Jul, 2019) - combined Roth/Traditional TSP balance is $200,004.94!

That's awesome, congrats!!

Cheers!  Nice moment to have!
What was for timeframe to get to $100k?  And then after reaching $100k, how long until you reached $200k. I’d assume the $300k will come quicker than you anticipate

Villanelle

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Re: On Track for Military FIRE?
« Reply #23 on: July 10, 2019, 08:13:28 PM »
You’re absolutely doing all the right things.  Just keep doing what you’re doing.  That money will double and triple in no time.  Good luck on making it to 20 years.  The time goes by fast.  I have a little over 3 to go.  Do you plan to retire to Hawaii?  If not, I’d consider selling the rental and being happy with the profit.

Thank you for the kind feedback! Appreciate hearing from professional colleagues in this forum. Plan is to stay the course - am taking a hard look at the next set of orders and beyond. I joined at 24 so goal is to retire at 44 and maximize my flexibility RE work post-military (pay, location, benefits etc). 

RE the Hawaii house - so far it has worked out well as a rental and increased in value. If I sell, I'd like to move back for 2 years to benefit from the federal principal residence capital gains exclusion. My understanding is that if you have lived in it for 2 of the 5 years prior to sale, a single filer has a $250,000 exclusion from capital gains on sale.

There's a military exemption to this. I believe it adds 10 years to the "of the last 5", effectively making it "2 of 15".  Definitely confirm that, but I know you get extra time.

Nords

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Re: On Track for Military FIRE?
« Reply #24 on: July 10, 2019, 08:23:37 PM »
You’re absolutely doing all the right things.  Just keep doing what you’re doing.  That money will double and triple in no time.  Good luck on making it to 20 years.  The time goes by fast.  I have a little over 3 to go.  Do you plan to retire to Hawaii?  If not, I’d consider selling the rental and being happy with the profit.

Thank you for the kind feedback! Appreciate hearing from professional colleagues in this forum. Plan is to stay the course - am taking a hard look at the next set of orders and beyond. I joined at 24 so goal is to retire at 44 and maximize my flexibility RE work post-military (pay, location, benefits etc). 

RE the Hawaii house - so far it has worked out well as a rental and increased in value. If I sell, I'd like to move back for 2 years to benefit from the federal principal residence capital gains exclusion. My understanding is that if you have lived in it for 2 of the 5 years prior to sale, a single filer has a $250,000 exclusion from capital gains on sale.

There's a military exemption to this. I believe it adds 10 years to the "of the last 5", effectively making it "2 of 15".  Definitely confirm that, but I know you get extra time.
Here's three more posts from military landlord bloggers:
https://www.katehorrell.com/capital-gains-rules-for-military-families/

https://www.katehorrell.com/three-tax-considerations-when-selling-your-rental-property-in-the-military/

https://richonmoney.com/capital-gains-military/

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #25 on: August 12, 2019, 08:25:08 AM »
Minor updates to amounts and way forward for 2020 - changes indicated with italics.

Annual Income for 2019: $87,000
Projected Annual Income for 2020: $90,000
(NOTE: I am deployed in a CZTE area so July 2018 – July 2020 pay is tax-exempt)
I am a resident of WA State (no state income tax) and have no dependents.

ASSETS
Cash: $10,000
Roth IRA: $92,500 (Vanguard)
Roth/Traditional TSP: $200,000 (currently contributing 22% of pay)
(NOTE: I opted into BRS in JAN 2018 so receive full matching into Traditional TSP of approx. $4,340 per year)
Investments: $25,000 (Vanguard Index Funds) - deposited $5K in AUG19 from cash reserves
Savings Deposit Program (SDP): $10,500+
https://militarypay.defense.gov/Benefits/Savings-Deposit-Program/
TOTAL: $338,000

LIABILITIES
Mortgage: $320,000
Bought in JAN 2013 for $360,000 @ 3% VA home loan (currently a break-even rental in Oahu)
Current Zillow value: $579,000
TOTAL: $320,000

2019 Goals:
Max Roth TSP - on track (+ full BRS matching into Traditional TSP)
Max Roth IRA - DONE, did a lump sum in JAN19
Negotiate orders for 2020 - verbal agreement for Europe 2020
Contribute $5K to my Vanguard Index Funds - DONE (AUG19)

2020 Goals:
BRS mid-career bonus decision, tax implications, obligated service etc - I plan to elect to receive the BRS Continuation pay in JAN/FEB20 after receiving a copy of hard orders; will still be in a CZTE and allows approx. 6 months to process prior to the 12-year mark.
Max Roth TSP (+ full BRS matching into Traditional TSP)
Max Roth IRA (Plan to do a lump sum on 1JAN20)
Contribute $10K to my Vanguard Index Funds

Other major factor I will update later - the plan for the property in Hawaii. Will update shortly - thank you all again!

Nords

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Re: On Track for Military FIRE?
« Reply #26 on: August 12, 2019, 11:40:55 AM »
BRS mid-career bonus decision, tax implications, obligated service etc - I plan to elect to receive the BRS Continuation pay in JAN/FEB20 after receiving a copy of hard orders; will still be in a CZTE and allows approx. 6 months to process prior to the 12-year mark.
“Well played!”

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #27 on: August 12, 2019, 05:13:00 PM »
Not a full update but a proud moment - just crossed the $200K TSP threshold!

As of today (9 Jul, 2019) - combined Roth/Traditional TSP balance is $200,004.94!

That's awesome, congrats!!

Cheers!  Nice moment to have!
What was for timeframe to get to $100k?  And then after reaching $100k, how long until you reached $200k. I’d assume the $300k will come quicker than you anticipate

Great question - I actually had to call the TSP hotline to verify the first couple of dates:

$0 - $100K: So the date of my first TSP deposit was Feb 2009 - I hit $100K in July 2016. Time from $0 - $100K was approx. 7.5 years. I was contributing to my TSP consistently but not maxing out until mid-2014(ish).

$100K - $200K: From $100K (July 2016) to $200K (July 2019) - it was 3 years on the nose. So $200K at a little over 10 years of Federal Service. I maxed out my TSP contributions (Roth) each of these years and, beginning in JAN 2018, received the 5% DOD/agency matching funds as well (into Traditional TSP).

$0 - $100K: 7.5 years
$100K - $200K: 3 years
$200K - $300K: 1.5 years?? :)

Interestingly, when I was on the line with the TSP folks, I asked if my account balance was below, at or above what they typically see for my age group (based their experience manning the phone lines, answering participant questions and providing TSP guidance). Her answer - "Way, way ahead for your age group." That was good to hear - I wonder if there is a breakdown of all TSP balances by age/age group and gender....

I was also able to confirm my current tax exempt contribution balance: $16,000. These are monies I have contributed while on deployments/in CZTE.

Thank you for asking the question!
« Last Edit: August 12, 2019, 07:18:50 PM by mgnhrvth »

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #28 on: August 12, 2019, 05:24:53 PM »
As far as adjustments, I think the goals you've got for the next few years are just fine. The only thing you might look into is swapping enough of your TSP contributions from Roth to traditional to get down into the 12% tax bracket - you can always do the Roth conversion ladder in the future if necessary. Just maxing TSP and Roth IRA plus pension will give you boatloads of money in retirement. For perspective I'm an AGR E-6 who opted into BRS and my measly pension plus TSP and Roth IRA would easily allow us to pull in $100k/yr in retirement and die with several million in the bank.

Congrats on your progress so far and keep it up!! I wish I only had 9 years left.. lol

Thank you for the note! I will be reassessing the TSP contributions (Roth vice Traditional) in 2021. The first half of 2020, I will still be a in CZTE so won't bump up against any tax bracket issues in 2019 or 2020.

Can I ask why you opted into BRS? I can share my reasoning here if value-added. I'm always curious about how the other BRS "opt-inners" arrived at their decision :)

The years go by fast! Nords hit the nail on the head - take it assignment by assignment and get out when it stops being fun. I am very fortunate that my skillset allows me a wide variety of assignments (and duty locations) and translates directly to the civilian sector.
« Last Edit: August 12, 2019, 08:06:50 PM by mgnhrvth »

mgnhrvth

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Re: On Track for Military FIRE?
« Reply #29 on: August 12, 2019, 06:41:28 PM »
I didn't see any discussion of VA disability.  You are a good ways off from retirement and the VA process, but I will tell you from experience to document early and often any medical issues.  Do a scrub of you records (your medical facility will provide you a digital copy of your record on CD) and meet with a VSO (Veteran Service Officer) from American Legion, Disabled Vets of America, VFW etc to have them help you go over your record and fill out the paperwork.  It can be a lot of work, but I ended up with a much higher rating than I expected which means concurrent receipt (greater than 50% disability) of tax free disability compensation on top of my pension.

Good catch - I took the TAPS course about 3 months ago (for those separating, not retiring) and, as part of the class, we did a medical record review to help identify potential conditions that we could receive a VA rating for (conditions incurred/aggravated by military service).  If/when I hit 20 years, I will definitely submit the paperwork for a VA claim/rating prior to separation/retirement.

I had a previous assignment working with Wounded Warriors so appreciate the role and function (health-wise and financially) of a fully fleshed out VA claim/rating in addition to a 20 year military retirement. I have heard so many 20+ year military folks say "I have TRICARE For Life - I don't need a VA rating." And this is usually the same group of folks who scramble 5-10 years after separation/retirement to cobble together a VA claim as a Veteran...
« Last Edit: August 13, 2019, 04:50:04 AM by mgnhrvth »

M5

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Re: On Track for Military FIRE?
« Reply #30 on: August 13, 2019, 02:41:10 PM »
As far as adjustments, I think the goals you've got for the next few years are just fine. The only thing you might look into is swapping enough of your TSP contributions from Roth to traditional to get down into the 12% tax bracket - you can always do the Roth conversion ladder in the future if necessary. Just maxing TSP and Roth IRA plus pension will give you boatloads of money in retirement. For perspective I'm an AGR E-6 who opted into BRS and my measly pension plus TSP and Roth IRA would easily allow us to pull in $100k/yr in retirement and die with several million in the bank.

Congrats on your progress so far and keep it up!! I wish I only had 9 years left.. lol

Thank you for the note! I will be reassessing the TSP contributions (Roth vice Traditional) in 2021. The first half of 2020, I will still be a in CZTE so won't bump up against any tax bracket issues in 2019 or 2020.

Can I ask why you opted into BRS? I can share my reasoning here if value-added. I'm always curious about how the other BRS "opt-inners" arrived at their decision :)

The years go by fast! Nords hit the nail on the head - take it assignment by assignment and get out when it stops being fun. I am very fortunate that my skillset allows me a wide variety of assignments (and duty locations) and translates directly to the civilian sector.

I have 7 years TIS, but only about 2.5 TAFMS. Having that 5% match for the next 17.5 years more than made up for the 10% reduction in my pension by opting into the BRS. That is what I based my decision on solely. Plus if I do decide to leave the military at least I'll end up with something extra.

DoNorth

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Re: On Track for Military FIRE?
« Reply #31 on: August 15, 2019, 06:10:08 PM »
Tax consideration:  You bought the house in 2013.  Have you lived in it for at least two of the last five years?  If your zillow estimate is even close to what you could profit on a sale, you might want to consider selling.  The longer it stays a "break even" rental, the less opportunity you have to shelter the profit from capital gains.  Also, depreciation recapture (if you do sell further down the road) can really eat into any year over year gains you might see.  So, you might have a situation where you want to sell, but would have to pay capital gains and depreciation recapture in one year when your military income was at its peak. 


M5

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Re: On Track for Military FIRE?
« Reply #32 on: August 20, 2019, 10:06:01 AM »
Tax consideration:  You bought the house in 2013.  Have you lived in it for at least two of the last five years?  If your zillow estimate is even close to what you could profit on a sale, you might want to consider selling.  The longer it stays a "break even" rental, the less opportunity you have to shelter the profit from capital gains.  Also, depreciation recapture (if you do sell further down the road) can really eat into any year over year gains you might see.  So, you might have a situation where you want to sell, but would have to pay capital gains and depreciation recapture in one year when your military income was at its peak.

For active duty military the exemption is extended to any 2 of the last 10 years.

Villanelle

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Re: On Track for Military FIRE?
« Reply #33 on: August 20, 2019, 02:34:02 PM »
Tax consideration:  You bought the house in 2013.  Have you lived in it for at least two of the last five years?  If your zillow estimate is even close to what you could profit on a sale, you might want to consider selling.  The longer it stays a "break even" rental, the less opportunity you have to shelter the profit from capital gains.  Also, depreciation recapture (if you do sell further down the road) can really eat into any year over year gains you might see.  So, you might have a situation where you want to sell, but would have to pay capital gains and depreciation recapture in one year when your military income was at its peak.

For active duty military the exemption is extended to any 2 of the last 10 years.

Even better than that.  It's 2 of 15, with a few limitations. (The military exemption adds ten years to the typical 5 year term.)  https://www.military.com/paycheck-chronicles/2017/03/07/military-capital-gains-extension-may-extend-retirement

Huskerfan

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Re: On Track for Military FIRE?
« Reply #34 on: August 20, 2019, 07:04:17 PM »
Not a full update but a proud moment - just crossed the $200K TSP threshold!

As of today (9 Jul, 2019) - combined Roth/Traditional TSP balance is $200,004.94!

That's awesome, congrats!!

Cheers!  Nice moment to have!
What was for timeframe to get to $100k?  And then after reaching $100k, how long until you reached $200k. I’d assume the $300k will come quicker than you anticipate

Great question - I actually had to call the TSP hotline to verify the first couple of dates:

$0 - $100K: So the date of my first TSP deposit was Feb 2009 - I hit $100K in July 2016. Time from $0 - $100K was approx. 7.5 years. I was contributing to my TSP consistently but not maxing out until mid-2014(ish).

$100K - $200K: From $100K (July 2016) to $200K (July 2019) - it was 3 years on the nose. So $200K at a little over 10 years of Federal Service. I maxed out my TSP contributions (Roth) each of these years and, beginning in JAN 2018, received the 5% DOD/agency matching funds as well (into Traditional TSP).

$0 - $100K: 7.5 years
$100K - $200K: 3 years
$200K - $300K: 1.5 years?? :)

Interestingly, when I was on the line with the TSP folks, I asked if my account balance was below, at or above what they typically see for my age group (based their experience manning the phone lines, answering participant questions and providing TSP guidance). Her answer - "Way, way ahead for your age group." That was good to hear - I wonder if there is a breakdown of all TSP balances by age/age group and gender....

I was also able to confirm my current tax exempt contribution balance: $16,000. These are monies I have contributed while on deployments/in CZTE.

Thank you for asking the question!

Thank you for the follow up.  It’s been my most recent research to see timeframes to major milestones like $100k/$200k. Likely, you’ll hit that $300k mark in 2.5-3 years if you are maxing TSP and if the market doesn’t crash!  Thanks again!

Huskerfan

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Re: On Track for Military FIRE?
« Reply #35 on: August 20, 2019, 07:10:58 PM »
I didn't see any discussion of VA disability.  You are a good ways off from retirement and the VA process, but I will tell you from experience to document early and often any medical issues.  Do a scrub of you records (your medical facility will provide you a digital copy of your record on CD) and meet with a VSO (Veteran Service Officer) from American Legion, Disabled Vets of America, VFW etc to have them help you go over your record and fill out the paperwork.  It can be a lot of work, but I ended up with a much higher rating than I expected which means concurrent receipt (greater than 50% disability) of tax free disability compensation on top of my pension.

Good catch - I took the TAPS course about 3 months ago (for those separating, not retiring) and, as part of the class, we did a medical record review to help identify potential conditions that we could receive a VA rating for (conditions incurred/aggravated by military service).  If/when I hit 20 years, I will definitely submit the paperwork for a VA claim/rating prior to separation/retirement.

I had a previous assignment working with Wounded Warriors so appreciate the role and function (health-wise and financially) of a fully fleshed out VA claim/rating in addition to a 20 year military retirement. I have heard so many 20+ year military folks say "I have TRICARE For Life - I don't need a VA rating." And this is usually the same group of folks who scramble 5-10 years after separation/retirement to cobble together a VA claim as a Veteran...
you are really barking up a tree I’ve been planting for years. I honestly don’t understand why peeps wait until AFTEr service to start filing for VA compensation. 

One great thing I like about National Guard AGR processes: when you walk out the door and are ready to retire: you know your compensation rate immediately. It’s part of the entire retirement process.

For some reason, Active Duty seems behind in this aspect.  And that’s a shame.