Author Topic: Active-duty Air Force and retiring in Dec 18  (Read 5801 times)

FI Military

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Active-duty Air Force and retiring in Dec 18
« on: June 28, 2015, 06:33:54 AM »
Updated May 2018:

Active-duty Air Force E-9. Retiring at the end of 2018 with just under 21 years of service. 

Always conscious of importance of savings/personal finances with a dream to retire at 50. Then I read ERE/MMM/and Nord's Military Guide…moved that date from age 50 (2027) to 42 (2019). Married with two children (8 and 10).
 
Looking for your feedback/perspective on my plan. What am I missing, gaps to fill etc.?

All thoughts welcome!

Current Income:
Me:
$5,500 month (active-duty net)
Wife/DW:
$2,150 month (E-7 retirement pay, no SDP)

Assets-
  Roth IRA-DH ($129,000) (USSPX 60%, USMIX 20%, VGSTX 20%)
  Roth IRA-DW ($130,000) (USSPX 60%, USMIX 20%, VGSTX 20%)
  TSP-DH ($110,000) (C/S/I @ 60/20/20%)
  TSP-DW ($110,000) (C/S/I @ 60/20/20%)
  Money Market: $24,000
  Taxable Brokerage: $78,500 (VSMGX 50%, USMIX 25%, USNQX 25%) 

  TOTAL ABOVE: $581,500

  Kids College ($34,000 ESA in USSPX and another $22,500 529 in VTSMX) + 55 months of Post-9/11 GI Bill (combined 36m DW, 19m DH)

Checking/Savings: $5,000

Liabilities-None

Each month we put $2,500 into the Taxable Brokerage account. (Stopped contributing to Roths and TSP (Feb 15) to concentrate on Gap Fund (Taxable Brokerage). Will continue to fund account until end of 2018.
We own two cars (2010 Toy Sequoia, 2011 GMC Sierra 3500) and our fifth wheel free and clear. Truck is for pulling the fifth wheel across N. America this coming year (and it'll be sold as soon as we settle down somewhere)
We currently live in base housing and spend approx. $4,850m ($58,200 yr) (including base house payment of $1,550) (hands protecting face from backlash that will ensue from MMMs). Promise I’m working on this, currently biking to work, looking for other ways to cut back (too many/much cars, etc.)

On Jan 2019, military pensions (DH and DW) will pay around $5,000 per month ($60,000 yr)

In mid-2018 (on terminal leave), we've taking off for a year of slow travel around N. America, ending up in Alaska in Aug of 19. Then we'll figure out what's next. 

The plan is to live on the military pensions, letting Roths and TSP grow until age 50, then do one of two things:
A.   Travel: Take out 4% per year (starting with Roth contributions to avoid any penalties).
B.   Let accounts grow as we enjoy the lifestyle we’ve built.

Side note: Thinking of turning down SBP for me and buying term life insurance (USAA or other) with a 15-20 year term.

Questions-
Where can I improve the plan?
What am I not thinking about…any gaps you see?

Thanks for looking…grateful for your thoughts.








« Last Edit: May 04, 2018, 06:40:44 PM by FI Military »

lakemom

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Re: Active-duty Air Force and retiring in 2019
« Reply #1 on: June 28, 2015, 09:54:05 AM »
First of all GREAT JOB!!  E-9 active duty is impressive.  I think that you have done an incredible job of savings so far and I personally cannot see where you need to make changes but just needed to say congrats to being the other side of the usual coin (retiring at E-6/E-7 with a crapton of debt and no plan).  My dh is E-8 in the AF Reserves with 8 years max to go and should be sewing on E-9 in a couple of years.  Even the reserve retirement is a nice monthly income to plan on in retirement.  The only thing I can think of to mention is to remember that at 62 (or older) you can both start drawing on SS too therefore your invested funds can just continue to grow for your heirs.

RichMoose

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Re: Active-duty Air Force and retiring in 2019
« Reply #2 on: June 28, 2015, 10:20:09 AM »
Your plan is very safe. I'm assuming you will be able to take advantage of a LCOL area in retirement as well to keep your housing costs down.

If you are dead set on not touching your TSP or Roth accounts you can easily make it work. Your (house not included) spending is $3500/month with your current lifestyle including two vehicles. This is easily covered by your pensions and leaves you $1300/month for housing and utilities without touching your additional savings. It's probably a little tight in many parts of the country, but if you can trim your spending down to around $3000/month you will be 100% ok. That won't be hard if you go down to one vehicle and watch some of your discretionary spending.

Just remember, you don't need to take this step because it's likely too cautious. If you TSP and Roth accounts grow to $1M by age 50, you will generate $40,000 + your inflation adjusted pension which will take you well over $100,000/year for income.

You may be better to start withdrawing some of the money right away if your lifestyle requires it. I'm not too familiar with US withdrawal rules from tax advantaged accounts because in Canada the rules are a lot more accommodating to early retirees, but there's plenty of smart people here that can help. 

FI Military

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Re: Active-duty Air Force and retiring in 2019
« Reply #3 on: June 28, 2015, 11:34:08 AM »
Thanks- understand the SS...just considering that an extra since it's really so far off. It'd be nice though!
Will look at different withdrawal ages for Roths/TSP.

Not sure if I should use Survivor Benefit Plan for me (declined for retired spouse)? Or just a term policy to age 60. Still debating.

 

john c

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Re: Active-duty Air Force and retiring in 2019
« Reply #4 on: June 29, 2015, 01:16:54 PM »
This is a conservative scenario.  My experience is that retired E-9s don't tend to take to sitting around all day.  You'll do very well with the extra income you get from things that pop up. 

FI Military

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Re: Active-duty Air Force and retiring in 2019
« Reply #5 on: June 29, 2015, 07:16:59 PM »
John C: hmmm... and that scares me too a bit. Learning to step off of the ladder, and make full goal lists outside of the military...small steps. I don't want to look up from my desk at age 80 and wonder where all the time went.

davisgang90

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Re: Active-duty Air Force and retiring in 2019
« Reply #6 on: June 30, 2015, 07:29:17 AM »
I just want to chime in and say Bravo Zulu!  You and your spouse have done very well planning!

captainawesome

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Re: Active-duty Air Force and retiring in 2019
« Reply #7 on: June 30, 2015, 09:04:15 AM »
Tagging Nords, since he usually searches Military and Nords when he gets some time.

As far as your financial plan, looks good, and congrats! I see so many people getting out hoping to rely on pension alone, and then they take Transition GPS and panic.

The only thing I can think of is what your housing situation will be.  Since you live on base now, you will eventually have to figure out rent/own and if you want a mortgage or not (personal preference) Depending on where you settle down can affect your spending and skew the numbers a bit.  And definitely do the research on living in an RV or a boat. I live on the water, but not on a boat. I see people do it everyday, but it is an adjustment for sure. Although it can be fun, there are plenty of threads and blogs talking about pros/cons. Depending on when your kids are set to leave the nest may skew that for a few years.

DoNorth

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Re: Active-duty Air Force and retiring in 2019
« Reply #8 on: June 30, 2015, 09:32:14 AM »
you're on solid ground.  I medically retired as an O-4 so ended up with a pension of about $60k/year and a similar portfolio.  I cut back pretty substantially to get my expenses comfortably under the pension amount and paid off our house/cars.  My wife and I also do some part time work so we can continue to invest.  With those numbers, you shouldn't have much to worry about especially since your costs will go down after you retire.  No more commuting, uniform dry cleaning, buying additional things for work etc.

Are you staying near a base and using Tricare Prime or will you be on Standard?  VA disability over 50% will have significant implications on your retirement check if you have any.  Lots of other considerations like COL area should also factor into your decision.

Disposaleer

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Re: Active-duty Air Force and retiring in 2019
« Reply #9 on: June 30, 2015, 09:46:06 AM »
^ +1 on VA disability.

I recently separated from the Navy as an E-6 without looking into claiming anything. A friend talked me into looking into it in the last month and after some initial research and talking to my old IDC it looks like I can expect 70-90% disability which is ~18-24k a year TAX FREE. This obviously has huge implications in regards to FIRE dates. Like taking mine from around 17 years out to potentially NOW. It is definitely worth looking into if you have any medical issues and no issues with taking VA disability. I see it as money that you earned by giving your body and mind to the military. Similar to earning your pension over the course of 21 years.

(Came out of lurker status to share that with you!)

FI Military

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Re: Active-duty Air Force and retiring in 2019
« Reply #10 on: June 30, 2015, 06:46:11 PM »
captainawesome: housing is a priority...and like most I'm torn between renting and buying. Plan to rent first in low cost of living areas (overseas for a couple years, then back to States), then possibly purchase in the States. If we can stay around $150-175k, we'll pay cash...very possible with our desire to live in LCOL area. The above mentioned brokerage account exists for that reason alone (and as we get closer to the "buy" date (5-6 yrs) we'll move thse funds into even more conservative accounts)
DoNorth: Not sure if we'll be near a base (and that'll change Tricare premiums) and since I'm three years out, no idea about VA disability. But I'll certainly put both of these on the "12 months out from retirement list"!!
Disposaleer: Thanks for coming out of lurker status for this! :) Taxes are a big issue and will certainly influence where we eventually reside. Any disability could affect that tax rate, but not counting that into my calculations at this point.

You all rock for your advice!   

DoNorth

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Re: Active-duty Air Force and retiring in 2019
« Reply #11 on: July 01, 2015, 05:04:00 AM »
Prime is incredibly cheap--about $45/month for a retired family.  We moved to a lower cost of living area from DC so we're going on Standard/Extra.  $300 deductible + 20% copays on most things, but I can offset some of that with the VA.  At any rate, the catastrophic cap is only $3000 which is less the what most folks pay in monthly premiums so it's still very economical.  We miss having the base amenities nearby, but living in a LCOL area/not having a mortgage or dealing with traffic and commuting more than makes up for it.

EricL

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Re: Active-duty Air Force and retiring in 2019
« Reply #12 on: July 01, 2015, 08:34:35 AM »
In your last few years I recommend trying to up your savings a few percentage points. If you PCS one more time, shoot for cheaper housing and that should be enough. The money can be set aside to compensate for the retirement transition/slow vacation expenses so you don't have to dip into actual emergency funds or investments.  A house/RV/boat are nice but not all three at once. Overall, it looks like you're really well set up and on the glide path to getting FIRE'd.

FI Military

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Re: Active-duty Air Force and retiring in 2019
« Reply #13 on: July 02, 2015, 05:18:16 AM »
EricL-Should have written that more clearly...definitely NOT all three...those are "or" options. Either a house or an RV or a boat. Working to bump up savings percentage..not PCSing anymore (that I know of).
DoNorth-thanks for the tips on Prime and Standard.

Now to look more at downsizing cars and extras in the house. Thank you!

2Birds1Stone

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Re: Active-duty Air Force and retiring in 2019
« Reply #14 on: July 02, 2015, 05:43:54 AM »
Looks like you are on a winning path to FIRE!!
Congrats!!

Nords

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Re: Active-duty Air Force and retiring in 2019
« Reply #15 on: July 02, 2015, 05:59:14 PM »
Welcome, FI Military! 

You're good to go, but let me help you polish the cannonball.

Right now you're bringing in $7500/month and saving over a third of it... and it looks like you're planning to save most of your promotion pay raise, too.

Your pension calculation looks good, and at that point you'd be spending your income.  If you withdrew from your $461K assets (which will probably be larger in 2019) at a 4% SWR then you'd be able to take out at about $18K/year.  No problems there, either, but when you're overseas I don't think you're going to need to withdraw anything.

You seem to be comfortable with your asset allocation (whatever funds those USAA & Vanguard tickers may represent) and I think you've done more than enough for your kids' college fund.

Your travel plans will probably cost much less than your current spending, unless your Asia itinerary means Hong Kong instead of Bangkok.  When you retire you'll also have more than enough time to scrub your expenses and figure out what's important to you.  You'll also save quite a bit by not having to insure those oversized vehicles.  Instead of ramping up your spending while you're overseas, you could probably continue saving for your house fund.

It looks like you've turned down your spouse's Survivor Benefits Program, and that makes sense.  Since she has plenty of her own annuitized income (with a COLA) I think she could afford to turn down yours too.  You'd keep the [6.5% of your pension x 30 years] premiums that you'd be spending on excess insurance.  (More savings for the house.)  If your kids had health problems or other special needs then you could direct your SBP to a special-needs trust for their benefit.  If it would help your spouse sleep more soundly at night then you could do a term policy until age 60, but she might have all the family expenses covered between her pension and your assets.     

If you leave the country as soon as you retire then you'll probably get your health insurance through Tricare Overseas (http://www.tricare.mil/Costs/HealthPlanCosts/TSO.aspx), but that's really only for the catastrophic cap of $3000/year.  I think you'll pay out of pocket for your medical/dental costs, never submit a claim, and still be way ahead of what you'd pay in America.  I know that's the case in Bangkok and you'd probably see similar pricing in Latin America.

It would be much more convenient for you to enter retirement with a fully-developed VA disability claim.  Ideally they'd just have to review your package and not conduct additional exams.  If you can submit the VA claim before you leave the country then you won't have to deal with them trying to get you to an appointment in the U.S. while you're thousands of miles away.  If your spouse has not yet submitted her VA disability claim then she has three years to get it into the system.

Another reason to submit a VA disability claim before you retire is for the waiver on the funding fee of a VA loan.  (See page 8-17 of http://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter8.pdf)  When you return to the U.S. after your years abroad then you could obtain a VA mortgage as part of your home plans.  Of course if your spouse already has a VA disability rating then you're set.  And regardless of your VA loan eligibility, it's still worth using a mortgage broker to compare various other programs and costs.  A 20% down payment and a mortgage with a credit union might beat the VA loan's interest rates.

My point about a mortgage is that you have dual military pensions.  You don't have to dump a lot of cash into a house.  No matter what happens to the stock markets (or real estate), your annuitized income will cover your mortgage payment.  You can afford to take out a 30-year mortgage with fixed payments, because just about every year your pension will have a COLA of 1%-2%.  That will leave the rest of your assets to grow for the long term instead of tying up a large portion of your net worth in your house.  The question should be "how much" mortgage, not "if".

All of those suggestions are just tinkering at the margins, because now I'm going to share a dirty little secret of dual-income couples with two pensions:  you'll probably have more money than you need.  Unless you indulge in yachts, Cessnas, and Teslas then you'll probably have a lot more than you need.  All those years of juggling careers and parenting are paying off.

Enjoy the travel!  You might want to do more than a couple of years, but that depends on where you school the kids.  For example there's Jed of Bucking-The-Trend.com in Granada for a second year, and you could easily do the same for your kids with the right visas.  If you're not in one place for an entire school season then homeschooling is always an option.

FI Military

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Re: Active-duty Air Force and retiring in 2019
« Reply #16 on: July 03, 2015, 12:02:05 PM »
Nords,

Your response brought a lot of clarity (i.e. SBP, insurance)...truly appreciated. You also brought up a couple points I hadn't considered (VA fee waived for disability, mortgage). I'll also take a look at Bucking-The-Trend.com!
My priority is not in sitting around after the military, but in creating space to enjoy life.
This past week, I listened to your two interviews on Radical Personal Finance (http://radicalpersonalfinance.com/?s=nordman)...enjoyed both of them very much! Thank you for what you do!


Nords

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Re: Active-duty Air Force and retiring in 2019
« Reply #17 on: July 03, 2015, 01:32:19 PM »
This past week, I listened to your two interviews on Radical Personal Finance (http://radicalpersonalfinance.com/?s=nordman)...enjoyed both of them very much! Thank you for what you do!
You're welcome!  Let me know if more questions come up.

FI Military

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Re: Active-duty Air Force and retiring in Dec 18
« Reply #18 on: May 04, 2018, 06:42:29 PM »
Updated financials in top post...three months out from terminal leave! Appreciate all your feedback and thoughts!

Awesomeness

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Re: Active-duty Air Force and retiring in Dec 18
« Reply #19 on: May 07, 2018, 09:17:33 PM »
Congrats on your upcoming retirement.  I like the idea of having the sbp just for the security of the set income, adjusted for inflation for your spouse. You do have enough to manage without it just fine. You could also easily afford the premium and it’s such a good benefit with the cola.  Along with her income she wouldn’t have to worry about managing assets if someday she wasn’t able to her fixed monthly income would be plenty to live on.  I know that’s extreme and 6.5% isn’t cheap.  But it’s certainly more peace of mind for her. You do have to make the decision soon so maybe get the sbp and dump it later. You may get a nice VA rating and have a lot more money and you won’t even feel that payment.  More is always better to me and I’ve always made sure we had plenty of insurance on us.

Nords

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Re: Active-duty Air Force and retiring in Dec 18
« Reply #20 on: May 07, 2018, 11:44:01 PM »
Updated May 2018:

We currently live in base housing and spend approx. $4,850m ($58,200 yr)

On Jan 2019, military pensions (DH and DW) will pay around $5,000 per month ($60,000 yr)

No further questions from me. 

In the months since you started this thread, fee-only CFP (and military retiree) Forrest Baumhover has written an outstanding analysis of the SBP question.  (I helped edit it.)  It's well worth the eBook fee:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit-ebook/dp/B01EPB5H1Q/ref=sr_1_1

Should you decide to purchase term insurance during retirement (not that it seems necessary), it's better to buy it before you start the retirement physical and the VA disability claim with potential questions about health issues. 

FI Military

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Re: Active-duty Air Force and retiring in Dec 18
« Reply #21 on: May 10, 2018, 04:06:50 AM »
Thank you, Nords...downloaded the book based on your recommendation. Appreciate the insight-