Retiring in 18 months - planning and this year's inflation concerns

[Travis]

I am retiring in the fall of next year, and need to start looking hard at where we will end up living and how much it'll cost. I've been living overseas for the last three years so I have no historical data for what the US economy has been experiencing, and will experience over the next year or so.  We're moving back to the US this summer so I'll get a taste of it, but that's not going to give me much time to recalibrate my FIRE numbers.

Life Situation: MFJ, one nearly high school age child

Gross Salary: $12k/mo. Will drop to $10k/mo for my final year

Maxing out two IRAs, one TSP, and about $60k/yr going into brokerage
Taxes: $810/mo Fed/FICA/Medicare. No state income tax (yet). Withholding was about $1000 short for 2021.

Current expenses: (monthly, living in Korea)
Rent: $1900 (covers utilities, internet)
Car/Renters Insurance: $41
Television: $15
Cell phones: $84
Groceries: $450
Fuel: $30
College: $50 (son gets 3 years of my GI Bill)
Life insurance: $30
Dental: $30
Vehicle maintenance: $70 (averaged over life of two vehicles so far)
School activities: $60
Eating out: $100
Birthdays/Christmas: $50
Non-specific shopping: $100
Charity: $500
Vacations: haven't taken one in three years, but it's going to be a recurring expense
Total: $3500 (again, non-US expenses)
Post-retirement health insurance, utilities, and vacation expenses are wild guesses so far


Assets: 2008 Prius w/200k miles

Pension: $55k/yr
IRAs: $131k, $210k
TSP: $570k
Brokerage: $917k

Situation: In July we will move from Korea to Fort Leavenworth, Kansas and stay there until I retire from the Army next year. Most likely I will hang up the uniform and burn off the rest of my leave starting in Sep 23 with my final day being the end of November.  Our intent is to settle in northern CA or central CO and buy a house.

My concerns:

Inflation: I have no idea if/how inflation will affect our FIRE calculations. I expect food prices to go up somewhat, but by how much? If I can live on-base this final year, then we can stay a one-car family and our fuel costs will be negligible.  What do the prospects for home ownership look like? What changes to your expenses have you all seen so far, or expect to see going into this year?

Where to retire:
Option 1: CA
Pros: If we moved back to DW's hometown just north of Sac, then we're within 60 minutes of most of her family, half of mine, and all of my friends. Two new children in the family that we haven't met yet. Great weather most of the year, good environment for gardening, two hour drive from beach, mountains, forest.
Cons: CoL. 2021 calculation of $70k/yr after taxes.  Homes are $410k and up and inventory is very low at our price point.  Energy is more expensive, and will go up much faster than anywhere else.  If I ever wanted/needed to go back to work I'd have difficulty finding work without relocating to Sacramento, or spending a couple hours a day commuting. Even if we moved to Sac, the price/availability problem is similar.

Option 2: Colorado Springs
Pro: DW's sister and my son's favorite cousin live there.  They're already talking about wanting to go to college together. If I needed to work there are job opportunities all over the place. Countless places for walking, biking, and hiking just within the county. Homes starting at $350k depending on where in the city we want to live.  Zillow has a lot of "build to order" listings.  CoL projected to be $65k/yr after taxes. Any increase in CoL favors CO.
Cons: Pretty much the opposite of CA's pros. Snow 6 months a year. Don't know many people. Will have to travel to visit everyone in CA.

Wherever we end up, I think we will want to close on a house the summer of 2023 while I still have W2 income and it gets the family settled before the next school year. I was thinking of only contributing to IRAs and TSP between now and retirement, and holding onto the difference as a down payment ($80k over the next 18 months if I don't have to buy a second car).  By last year's calculations I can afford either option, but this is going to be a weird year for everybody financially and l am finding it a difficult choice to make. Are there any planning considerations I may have missed?

[Another Reader]

First, I'm not sure you will be retiring in 2023.  World events may make it prudent for the Army to retain trained officers.  In your shoes, I would keep that in mind.

Second, while I would continue to save for a house, I would not commit to anything until you are much closer to making the move.  You may find much higher interest rates and a different market in 12 to 18 months.  I would keep my options open.  I would also consider renting for the first year in the new location, especially in Colorado.  Getting to know the area and deciding if you want live there permanently isn't accomplished by a couple of visits.  Family needs will change, your parents and in-laws are getting older, other family may move away, etc.  A job in your new location will give you the income required to qualify for a mortgage when you decide to buy.

Despite all the work setbacks, you have done a great job with what you have to work with.  Looking forward to reading about the next chapter!

[waltworks]

Colorado Springs is not snowy 6 months a year. Maybe 3. I mean, it has a real winter, with snow, but it's essentially high desert.

UCCS, when I live there, was only sort of a college (more a junior college/2 year degree place) but that may have changed, it's been 25 years. CC is a great school if the student likes the block plan (and can get in). I assume your son and cousin are not going to attend AFA, but if they are, that's of course a great reason to be there (and a great school).

I have zero experience with Sacramento but being 2 hours from the ocean, for me, is about the same as being 10 or 20 hours away. I'm just not doing that drive (especially in CA).

From a financial perspective Colorado Springs is going to be much much cheaper, obviously. But with a pension that more than covers your anticipated expenses, I don't think there's any reason to stress about that. If you're just considering CO because it's cheaper than CA, that's probably being penny wise and pound foolish.

-W

[Dicey]

My sister moved back to NorCal after living in TN, SC and TX, all lower COLA places. They had four young boys. I took her to Winco in Roseville. Afterwards, she told her husband as long as she could get to a Costco and a Winco, she could make it work. They moved to Auburn, and rented for a few years in a large lakeside/golf course community (LOP) while they established their business and hunted for a house on five acres. They eventually found a foreclosure and.settled in.

In your boots, I'd shut off the retirement savings now to build a 20% down payment fund. If you need a new car and can get a cheap loan, do not pay cash. One can get a mortgage with student loan debt, CC Debt and multiple car loans these days. One car payment won't DQ you from getting a great mortgage. You can always pay it off later. The key is not to buy a car get a car loan while you're actively trying to obtain a mortgage. (I made that correction because to most people buying a car and getting a loan are synonymous.)

As a Veteran, you can get into a property with much less than 20% down, but in a competitive market, offers with VA loans attached can be harder to get accepted.

I agree that getting to the ocean is a haul, but Tahoe, Donner Lake and many, many others are in much easier striking distance, along with virtually unlimited outdoor activities.

Once you have housing sorted out, you can go back to saving and investing, but you probably won't need to. Your current nest egg and pension income are probably plenty 'o plenty and will continue to grow over time. Once you have a mortgage, you might consider it a bond and adjust your AA to reflect that. In hindsight, I wish I'd known to do that. In a HCOLA, an AA of 80% stocks/20% bonds + low interest, fixed rate 30 year mortgage can easily be the equivalent of a 50/50 mix, which is way too conservative, IMO.

Lots to think about. Good luck and thank you for your service!

[Sandi_k]

With a $55k annual pension, and your current savings - using a 3% annual withdrawal rate - you're looking at $105k income per year.

Live where you want to live.

You could spend a year renting in either place - or both! - and then make the decision. I will say that CA has the advantage, as @Dicey notes, of beaches, mountains, lakes, and deserts all within a few hours drive.

If you want colder, live further "up the mountain", say in Auburn or Rockling. If you want warmer, live in Sacramento. If you want college town, live in Davis.

Three things I will note -

1) Everyone screams about CA taxes, without noting that Prop 13 is REALLY helpful in retirement, as your property taxes cannot skyrocket annually.
2) CA does not tax Social Security income.
3) If you're a CA resident, your kid could go to a UC for a very reasonable amount of money, and a first-class college experience.

All of these will be helpful in retirement.

[StachelessNicholas]

I think you'll be fine like @Sandi_k pointed out if you stick to the $105k, which doesn't appear to be a problem.

Are you calculating any potential VA disability into this? If you made it 20 years, there is a good chance you'll be able to concurrently receive benefits, which will only further pad your stats and open up additional benefits. If you aren't already, I'd start speaking to a VSO equivalent as soon as you get stateside, the system isn't the most intuitive. 

Another thing that folks may not be fully appreciating, is the benefits that will come with being a retired (potentially disabled) veteran, such as property tax exemptions, Tricare insurance, and VA loans for whatever home you do end up buying (zero down, no PMI etc...).

All things considered, I'd say you are in pretty good shape to live where you want to live and start the next chapter of your life.

@Nords is obviously the guru on military FIRE, but I worked at the VA for a number of years doing disability compensation, am a retired Marine, and have hit my FIRE number a few times now (story for another day).

Congrats on a job well done!

[MaybeBabyMustache]

We spend a lot of our travel budget on trips to see family, so I'd factor that in. (We are in NorCal, but moved from Washington, where all of my family is.)

If you did have to go back to work, is your skill set one that you could work remotely? Even going into the office 1 day/week into Sacramento might be an option. The large tech company I work for has specific numbers committed to hire retired military folks, and working remotely would definitely be an option. I suggest it as a backup plan, because know you want to FIRE, but definitely don't think you have to be near a physical office location at this point, & wouldn't let that stop me with a move location.

[YttriumNitrate]

Colorado Springs is not snowy 6 months a year. Maybe 3. I mean, it has a real winter, with snow, but it's essentially high desert.

I guess technically Colorado Springs can get snow six months out of the year. When I graduated from Colorado College I remember it being late May and was 80 degrees on a Friday, snow on Saturday, and back to 80 on Sunday for commencement. I'd much rather have that type of snow than Midwest snow that stays on the ground for months.