Thanks for de-lurking, Huskerfan. It looks like you know what you want to do and perhaps you’ll be fine, but I’m confused by some of your comments. I can’t 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 I’ll 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 don’t understand the comment about “an additional 9 years (military) which is 8 more years than needed for my pension” and how they add up to “28 active years” 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 you’re 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 you’re receiving then we can check that $6975 number.
($450ish) -SBP
No matter what type of pension you’re 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 that’s behavioral economics and a good reason for making that choice.
If you have a child who’ll 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 you’re at least 70 years old and have made 360 payments. You’ll 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 you’re “retired awaiting pay” 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 you’re receiving.
$937 -VA 50% disability estimate (concurrent pay)
That’s a bold call, although you might have enough pension income & assets without it.
If you haven’t 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 I’d 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 you’re still in uniform, make sure you have all the documentation to support the VA disability rating to which you’re entitled. It’s a lot harder to take care of that issue after you retire.
Regardless, I’d be very careful about assuming how much VA disability income you’ll 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. You’re making incomplete estimates about your retirement spending and skipping over other factors.
Military retirees have low income taxes, but you’d still want to account for any applicable state & local taxes. You’ll possibly be paying property taxes, and if you’re 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. You’d 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 anyone’s VA disability income, it’s hard to tell whether your retirement cash flow is positive or negative. If it’s negative then you’d 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). We’d likely still be mortgage free after purchase.
You’re 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 you’ll 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 that’s rarely the case for military families. Here’s 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 it’s 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. That’s where I believe I’m at right now. So hopefully I can keep the body from falling apart before my plan is fully in motion.
I think it’s 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 don’t 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, won’t it be locked away until I’m 60? Should I not worry about that with the income that will be coming in?
As reasonable as your career expectations may be, I wouldn’t 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 it’s 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, I’d 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. Here’s 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/