Author Topic: How to factor military benefits into FI plans?  (Read 2629 times)

warehouse

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How to factor military benefits into FI plans?
« on: January 04, 2015, 03:19:59 PM »
Hello,

I've been reading the blog for about 6 months now. Made quick small changes in my lifestyle (quit gym, cancelled cable, switch to republic, etc.) I always thought I was frugal, turns out I have a lot of room for improvement!  I am obsessed with the idea of FI but I am not sure how much we will need to stash before we get there. 

I am 30 and my husband is 34. Our current yearly expenses are $36,000 which includes the mortgage payment of $1234 a month. Let's say I wanted to retire with expenses of $30,000- how much do I need stashed?

Current Assets:
IRA $128,000
401K $32,000
TSP $12,000
Total: $172,000

Debts:
Our outstanding mortgage is about $20k less than the zillow estimate so I figure that a wash as far as debts go.
School loan: $2,250 (will be paying off ASAP)
Car loans: $1,900 (will be paid off in next 4 months)


This is where my biggest question is.  My husband is a veteran and receives $1,680 each month tax free as a disability benefit (goes up each year with COLA.) This covers $20,000 of our needed $30,000 a year! I am not sure how to factor this amount into our needed stash because the payments would stop in the event of his death. Should we just plan on that money coming in and purchase life insurance for him to protect me in case something happens to him?

If there is an easy calculator to put this in just point me in the right direction :)

Let me know if additional information would be useful and I will supply it!
« Last Edit: May 19, 2015, 07:22:16 PM by warehouse »

caliq

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Re: How to factor military benefits into FI plans?
« Reply #1 on: January 04, 2015, 03:34:48 PM »
I'm really interested in others' thoughts on this too, as we're in a similar situation.  One thing you should keep in mind is that the VA does technically periodically review most disability awards, especially for younger veterans.  My husband is 29 but has incurable neurological disabilities that make it pretty hard for him to work consistently, and even he has a re-evaluation scheduled for every five years or so.  I think if you're older or have the same % award for a certain number of years (10 or 15?) they designate you as "permanently and totally disabled" although that might be only for high percentages based on the 'totally disabled' part.  It's probably pretty dependent on your husband's exact disability and if it's something where you can reasonably expect that his benefits will never be reduced.

Edit: I should have Googled this before posting; http://www.nolo.com/legal-encyclopedia/when-can-the-va-terminate-lower-my-disability-benefits.html


wtjbatman

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Re: How to factor military benefits into FI plans?
« Reply #2 on: January 04, 2015, 03:56:39 PM »
I would look at it like a pension with built-in COLA but no survivor benefit.

The only caveat is a future benefit reduction, what caliq pointed out. Is that likely? Not likely? Impossible?

warehouse

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Re: How to factor military benefits into FI plans?
« Reply #3 on: January 04, 2015, 04:03:33 PM »
It is not likely that his disability would be reduced. He has had a disability rating for 7 years, 3 years ago it was increased. The VA has never requested a re-evaluation. It is not a concern that the benefit would be reduced.

Thanks for your replies!

Nords

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Re: How to factor military benefits into FI plans?
« Reply #4 on: January 11, 2015, 05:34:28 PM »
This is where my biggest question is.  My husband is a veteran and receives $1,680 each month tax free as a disability benefit (goes up each year with COLA.) This covers $20,000 of our needed $30,000 a year! I am not sure how to factor this amount into our needed stash because the payments would stop in the event of his death. Should we just plan on that money coming in and purchase life insurance for him to protect me in case something happens to him?
Yes.  The challenge is insurability and medical underwriting. 

You'd probably be happy to buy a $500K term policy for $50/month, but a lot less happy if medical underwriting wanted $250/month for a $200K policy.  You could try to sign up for Veteran's Group Life Insurance with the VA, and they'd give you a feel for how you'd do if you were trying to buy a policy on the open market.  You could also try one of the service-affiliated insurance companies-- but stick to term and don't let them talk you into whole or variable or universal.  In your situation those are inappropriate and a waste of your money.  If you choose to insure his income stream, you want to insure it for only as long as necessary.  You might drop the insurance when he stops working (because you have enough in your retirement investments) or when he's eligible for Social Security benefits.

Another easy place to price a policy would be Jeff Rose's LifeInsuranceByJeff.com.  He's a military veteran and a CFP, he's making plenty of money with his financial management firm and his blogging businesses, and he's not going to churn you for a commission.  His reputation among personal-finance bloggers also depends on happy customers.

Before you start pricing policies, step back and ask yourself a different question:  why do you want to purchase life insurance?  If you have your salary and savings, do you need anything else to protect you?  I don't know whether you have a Survivor's Benefit Plan, and his new employer might also carry insurance on him as an employee benefit.  If he died then you'll also be eligible for Dependent's Indemnity Compensation from Social Security. 

You're right to analyze protecting an income stream of $20K+COLA, but you want to do it at a reasonable price-- and only if you actually need it.  Otherwise you could save the expense of the premiums and either add them to your FI stash (to self-insure) or spend the dollars on enjoying quality time with your spouse.

warehouse

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Re: How to factor military benefits into FI plans?
« Reply #5 on: April 08, 2015, 07:49:08 PM »
This is where my biggest question is.  My husband is a veteran and receives $1,680 each month tax free as a disability benefit (goes up each year with COLA.) This covers $20,000 of our needed $30,000 a year! I am not sure how to factor this amount into our needed stash because the payments would stop in the event of his death. Should we just plan on that money coming in and purchase life insurance for him to protect me in case something happens to him?
Yes.  The challenge is insurability and medical underwriting. 

You'd probably be happy to buy a $500K term policy for $50/month, but a lot less happy if medical underwriting wanted $250/month for a $200K policy.  You could try to sign up for Veteran's Group Life Insurance with the VA, and they'd give you a feel for how you'd do if you were trying to buy a policy on the open market.  You could also try one of the service-affiliated insurance companies-- but stick to term and don't let them talk you into whole or variable or universal.  In your situation those are inappropriate and a waste of your money.  If you choose to insure his income stream, you want to insure it for only as long as necessary.  You might drop the insurance when he stops working (because you have enough in your retirement investments) or when he's eligible for Social Security benefits.

Another easy place to price a policy would be Jeff Rose's LifeInsuranceByJeff.com.  He's a military veteran and a CFP, he's making plenty of money with his financial management firm and his blogging businesses, and he's not going to churn you for a commission.  His reputation among personal-finance bloggers also depends on happy customers.

Before you start pricing policies, step back and ask yourself a different question:  why do you want to purchase life insurance?  If you have your salary and savings, do you need anything else to protect you?  I don't know whether you have a Survivor's Benefit Plan, and his new employer might also carry insurance on him as an employee benefit.  If he died then you'll also be eligible for Dependent's Indemnity Compensation from Social Security. 

You're right to analyze protecting an income stream of $20K+COLA, but you want to do it at a reasonable price-- and only if you actually need it.  Otherwise you could save the expense of the premiums and either add them to your FI stash (to self-insure) or spend the dollars on enjoying quality time with your spouse.

Nords- I only just now saw your reply. I appreciate all the information and advice!

I will do some research on the options you mentioned for life insurance. I would be happy to pay $50/mo for $500k :) we'll see where the market stands. Thanks for the tip on term only, wouldn't have known what was best. I don't think we'll need the insurance forever, but just as a safeguard in our earlier years of ER.

Nords

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Re: How to factor military benefits into FI plans?
« Reply #6 on: April 18, 2015, 05:04:52 PM »
Nords- I only just now saw your reply. I appreciate all the information and advice!

I will do some research on the options you mentioned for life insurance. I would be happy to pay $50/mo for $500k :) we'll see where the market stands. Thanks for the tip on term only, wouldn't have known what was best. I don't think we'll need the insurance forever, but just as a safeguard in our earlier years of ER.
You're welcome-- glad to help!

You're absolutely right about not needing insurance forever, unless you're paying estate tax or balancing inheritances among your heirs.  For active-duty military retirees, the typical tactic is to take SBP.  For Reserve/Guard retirees and other military veterans, it might make more sense to simply buy term insurance until the age at which you plan to start Social Security. 

If you both expect to earn a pension, then maybe you don't want any insurance at all.  My spouse and I turned down our SBPs on our pensions so that we could have the extra 6.5% to invest on our own-- or now, to spend on each other.

The key is to buy cheaper term insurance while putting the savings into your other investments.