Military-Advice Needed

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Topic Author
gator15
Posts: 458
Joined: Sun Mar 18, 2012 8:33 pm

Military-Advice Needed

Post by gator15 »

All,

I need some feedback. Here is my background. I’m in the military and I’m about 5 years out from being eligible for a pension. At this point, I intend to finish my military career at the 20 year mark. Afterwards, I’m not sure if I want to take on another career. I want the option to work part-time, full-time, or retire all together. Below is some additional info about my situation.

Married
Ages: 39/41
Kids: 1 (9 yr old)
Income: His: $120k Her: $160k
Area: HCOL
Emergency Fund; equal to six months living expenses
Asset Allocation: 95% stocks/5% bonds
Current Portfolio: equal to 16x current annual expenses
More portfolio info: 75% of money in Retirement Accounts; 25% in Taxable Accounts
Mortgage: $390k at 3.25% (23 years left to pay); worth $750k
Debt: Just my mortgage
529 College Savings: About $58k; Also transferred 27 months of my GI Bill benefits
Life Insurance: Him= $2.5 million Her=$1 million
All cars are fairly new and paid off.

Projected 2019 Contributions

$18,500 TSP Contributions
$18,500 401k Contributions
$5,500 His IRA Contributions
$5,500 Her IRA Contributions
$6,300 529 Contributions
Taxable Contributions TBD

Pension Projection
$4,000 a month (will cover about 50% of anticipated monthly expenses)

As stated above, after my military career I’m not sure if I want to pursue another career. I want the option to fully retire, pursue another career (full time employment), or pursue part time employment. My wife has no intent to retire in the near future (likely closer to age 50). Her job is stable.

I’m trying to put my family in the best financial position possible over the next 5 years so I can do what I want from a career standpoint once I retire from the military. Ideally, I’d like to save 25x expenses and pay off my mortgage, but I’m not sure if that’s feasible.
Below are some questions I have:

1. Based on my intent to possibly retire in five years would you prioritize saving 25x expenses or begin paying off the mortgage?

2. I feel like for my age, my asset allocation is way too aggressive. Do you agree? I went through the 2007/2008 recession and learned that I can stomach a volatile market. Just doesn’t seem necessary to be this aggressive now. If you were in my shoes, where would you place your AA?

3. If I decide to seek full time employment after my military career, I will likely continue saving over the next 5 years to save 25x expenses, then start a second career with the sole purpose of paying off the mortgage. This would allow both of us to retire. Does this approach make sense?

4. Last, I’m open to any other recommendations based on what you see above. Overall, I want to know what I can do to improve my situation?

Thanks
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warner25
Posts: 519
Joined: Wed Oct 29, 2014 4:38 pm

Re: Military-Advice Needed

Post by warner25 »

Making it to 20 years as an officer, by itself, pretty much amounts to "winning the game" in my book (as long as the officer hasn't lost half his retirement pay to divorce). Doing so with a spouse who additionally earns $160k per year with no intent to retire for another decade means you've crushed the game. Congratulations. It probably doesn't matter what you do at this point.

Your wife's continued earnings and investment growth should let you guys pay off the mortgage and exceed 25x expenses over the next decade regardless of what you do.

As far as your asset allocation, you have no need to take on that much risk, but you have plenty of ability. As an ultra-conservative Boglehead, I say pay off the mortgage and reduce your stock exposure to 50-60%, but again it probably doesn't matter.

The top priority right now should be making sure you can actually complete 20 years. Do you still need to face the O-5 board? Even so, I guess SELCON seems to be offered liberally these days.
Last edited by warner25 on Sun Dec 16, 2018 2:38 pm, edited 2 times in total.
randybobandy
Posts: 103
Joined: Fri Oct 05, 2018 10:51 am

Re: Military-Advice Needed

Post by randybobandy »

With being 5 years out from retirement will you be PCSing once more, or staying in the same HCOL area? Also, do you have a retirement location set in mind or going to stay where you're at when you hit 20?

A minor point but wanted to make sure you know TSP allows up to $19k contributions for 2019 and IRAs are up to $6k.

I just hit the 12 year mark and some days I feel like hitting 20 and continuing on as long as I'm still enjoying myself...some days I want to hit 20 and make fishing my new full time job.
Grammar and spelling matter. | Quoting the OP isn't a necessity.
spooky105
Posts: 133
Joined: Fri Aug 14, 2015 11:38 pm

Re: Military-Advice Needed

Post by spooky105 »

1. Based on my intent to possibly retire in five years would you prioritize saving 25x expenses or begin paying off the mortgage?
At 3.25%, your mortgage interest rate is rock bottom from a historical perspective. I wouldn't rush to pay it off -- you can expect a higher long-term return by keeping your money invested. Also, you could sell your house for $750k, pay off your $390k mortgage, and still have about $360k to buy a house outright in a lower cost of living area if that option is on the table.
2. I feel like for my age, my asset allocation is way too aggressive. Do you agree? I went through the 2007/2008 recession and learned that I can stomach a volatile market. Just doesn’t seem necessary to be this aggressive now. If you were in my shoes, where would you place your AA?
Not when you consider the pension as a part of your asset allocation. You have an inflation-adjusted, risk-free income for the rest of your life to the tune of $48,000/year to start. Depending on how you want to model it, you would need somewhere between $1.2m - $1.5m to yield something similar with a similar risk profile. I would think about your AA as though you had this equivalent in bonds.
3. If I decide to seek full time employment after my military career, I will likely continue saving over the next 5 years to save 25x expenses, then start a second career with the sole purpose of paying off the mortgage. This would allow both of us to retire. Does this approach make sense?
Not required. You could both retire in five years, see below.
4. Last, I’m open to any other recommendations based on what you see above. Overall, I want to know what I can do to improve my situation?
If your pension will cover half of your expenses, then retirement savings need only cover the other half. Accordingly, think of your current retirement savings as being roughly 32x the amount of money you need (based on stated 16x annual). With that coverage, you could retire with a withdrawal rate of just over 3% (assuming a flat portfolio over the next 5 years), far more conservative than the 4% rule of thumb. If you bump that to 25x annual (50x required) in five years time then you can still easily cover expenses + mortgage payment (assuming that's not already factored into annual expenses).

Options for accessing retirement funds early: https://www.madfientist.com/how-to-acce ... nds-early/

In five years, you've won the game. Beyond that, work is optional.
gwrvmd
Posts: 820
Joined: Wed Dec 02, 2009 8:34 pm
Location: Calabash NC

Re: Military-Advice Needed

Post by gwrvmd »

Military retiree here
I don't think your asset allocation is too aggressive, you will have an indexed military pension and in 2008 you proved you can handle volatility
I don't think you have to save 25x expenses either, that is based a 60/40 asset allocation and SS covering 40% of expenses
With a military pension that is indexed and Tricare For Life which covers much more than Medicare which is a major cost for most retirees, you would be well off with 15x expenses if you have no mortgage expense.
I agree with the other responses....You have won the game!......Gordon
Disciple of John Neff
curmudgeon
Posts: 2120
Joined: Thu Jun 20, 2013 11:00 pm

Re: Military-Advice Needed

Post by curmudgeon »

I look at a mortgage as somewhat equivalent to a "negative bond" in terms of investments. That is, when you have a large mortgage you are being somewhat leveraged. Paying extra on your mortgage is another form of reducing the risk in your asset allocation. But that's at a very high level, and there are a lot of specifics about mortgages that play out a bit differently.

I think your big risks right now are in the form of possible relocation disruption; if you get PCS'd, that could make for a significant disruption to family income and other plans. But I'm sure this is something you are aware of.

It would be really nice to have your mortgage paid off by the time your wife retires, as that reduces the cash flow needs greatly. This presumes that you want to remain in your current HCOL area. Do some cash flow models looking at various scenarios 5, 10, 15 years ahead to see what things might look like. At some point you will have SS kick in as well, and it's quite possible that the combination of SS and pension will cover your ongoing expenses at that time and the retirement savings will be for "gravy". You do need to consider the potential of what would happen if one of you dies relatively young, though, from pension and SS perspective.

I've always tried to maintain a balance between current lifestyle and saving for the future. Like most on this board, I leaned a bit heavier on the saving side, because life doesn't always run smoothly, and it's more pleasant to adjust spending up than down.
Fishing50
Posts: 466
Joined: Tue Sep 27, 2016 1:18 am

Re: Military-Advice Needed

Post by Fishing50 »

1. I'd choose taxable investing.

2. You are correct, it's not necessary to be so aggressive. After being 100% equity until 2015, we're quite happy with 70% equity, 10% cash, and 20% G Fund. For tax efficiency keep bonds in TSP and 401(k).

3. Not really. You're just trading active duty for the headaches of corporate life. Might be a good choice, if you are choosing to anchor on her career knowing the military options will be geographically undesirable. At your career point, I targeted the dreaded DC tour to keep promotion possible. We got a spectacular follow-on job after DC, and a promotion that means 2 more years until we're fully retired fishing at 50. If the assignment genie had been difficult, we'd have retired at 22yrs.

4. Our epiphany was discovering dividends from a taxable account were 25% of our required income after the military pension. We started taking dividends in cash already: sometimes we invest them, sometimes we spend them. Big ERN's safe withdrawal rates series helped us understand we're closer to retirement than expected https://earlyretirementnow.com/2016/12/ ... t-1-intro/ :beer
2yrs from military pension. 80 equites / 20 bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. | Gone Fishing At 52yrs old!
Soon2BXProgrammer
Posts: 1080
Joined: Mon Nov 24, 2014 11:30 pm

Re: Military-Advice Needed

Post by Soon2BXProgrammer »

not the suggestion you asked for.. but you should also over the last few years of your career, make sure you document with the medbay every ailment, pain, physical issue, etc... you need documentation to support your VA Disability claim that you will be filing. (Didn't know you where filing one? well you probably should be, if it is diagnosed on active duty, it was caused by active duty).
Topic Author
gator15
Posts: 458
Joined: Sun Mar 18, 2012 8:33 pm

Re: Military-Advice Needed

Post by gator15 »

All,

Thanks for the feedback so far. To answer some of your questions, I don't have to worry about another PCS. My current location is where I will remain and I stay here after retirement as well. Also, throughout my career I've documented any medical ailments. Last, I don't have to worry about any separation boards at this time.

thanks
Independent George
Posts: 999
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

Re: Military-Advice Needed

Post by Independent George »

I'd say the one big difference between today and 2007/2008 is that you've got a kid to look out for; dialing back your equity exposure might add to your peace of mind a bit, especially since you've pretty much already 'won' the game.

I wouldn't be in a hurry to pay off the mortgage, though I fully understand the desire to get out from under a debt. At 3.25%, though, it's barely ahead of inflation. Put it another way: you've got 23 years left on the mortgage at 3.25%. There are currently FDIC-insured, 5-year brokered CDs paying out 3.50%. Heck, the 20-year t-bill just went for 3.03% (and has been as high as 3.31% earlier in the year).
3504PIR
Posts: 975
Joined: Mon Jul 26, 2010 2:46 am

Re: Military-Advice Needed

Post by 3504PIR »

I retired at 22.5 years as an infantry officer. I was pretty beat up and honestly wish I’d prepared as well as you have in order to have the option of not working. I recently posted, as I left I made a plan, which became the ten year plan so that 10 years after leaving and starting a new career I would have those options. Ten years passed in August and I am retiring in May, and I’m truly thankful I took stock when I did.

I think your AA is too aggressive, but that’s just me. I allocated savings into a taxable account and have been also able to fully max all retirement accounts as well. The taxable account is 50% of our portfolio, and while you can tap retirement accounts early, I did not want the hassle. Our taxable account is a combination of muni bond funds and blue chip dividend paying stocks which have a long history of dividend growth. Not very BH like, but the Boglehead way works well in our retirement accounts. This works for us as our tax burden is predictable and we dont take capital gains which might come unexpectedly from a mutual fund, even taxable account friendly mutual or index funds. The dividends and distributions from the muni bond funds are the extra income we might need on top of the military retirement. Food for thought.

I also recommend you take a look at your medical record now to ensure it is straight when you do retire. Disability may not seem important now, and it didn’t mean much to me when I retired, but I am very happy my rating from the VA was accurate as I now 100% feel like I had a solid 15 year NFL career when I get out of bed.

I agree with the others on not paying off your current mortgage due to your rate. Direct that payoff money into your taxable account and reassess at the time you retire.

I too am curious if you might know where you would retire to as that could help focus additional answers. If you’re in DC and planning to stay there, you might have some lucrative part time opportunities.

Thanks for your service, you’ve really done well. Congratulations and good luck!
Thorsbane
Posts: 26
Joined: Tue Dec 18, 2018 2:57 pm

Re: Military-Advice Needed

Post by Thorsbane »

Independent George wrote: Mon Dec 17, 2018 8:41 pm I'd say the one big difference between today and 2007/2008 is that you've got a kid to look out for; dialing back your equity exposure might add to your peace of mind a bit, especially since you've pretty much already 'won' the game.

I wouldn't be in a hurry to pay off the mortgage, though I fully understand the desire to get out from under a debt. At 3.25%, though, it's barely ahead of inflation. Put it another way: you've got 23 years left on the mortgage at 3.25%. There are currently FDIC-insured, 5-year brokered CDs paying out 3.50%. Heck, the 20-year t-bill just went for 3.03% (and has been as high as 3.31% earlier in the year).
You will get taxed on the CDs. These days, it is becoming less likely to recoup on the mortgage interest deduction. You'd need a higher effective rate on the CDs to make them worthwhile.
3504PIR
Posts: 975
Joined: Mon Jul 26, 2010 2:46 am

Re: Military-Advice Needed

Post by 3504PIR »

I forgot to add in my post that one advantage of going into a second career was the savings rate we have achieved during the ten years I mentioned. Most years we’ve been lucky to have saved six figures per year. It’s something we needed to do if retirement would be possible by 55, but we have been very fortunate to have had that opportunity due to the military retirement and having our healthcare mostly covered.
Last edited by 3504PIR on Tue Dec 18, 2018 11:28 pm, edited 1 time in total.
Golf maniac
Posts: 590
Joined: Wed Dec 27, 2017 2:02 pm
Location: Florida

Re: Military-Advice Needed

Post by Golf maniac »

Hey gator, you have won, congratulations. Like others have stated your AA is heavy on equities for my taste, but given where your at if you can stomach the downturns no big deal. Thanks for your service.
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