Reader Case: Military Family Nearing FIRE

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As FIRECracker recently mentioned, we’ve been dealing with seemingly back-to-back family emergencies lately. Everyone’s fine now, and as a result we’re going to try to get back into our “normal” rhythm of two articles a week.

So on that note, FRIDAY READER CASE TIME! Today’s email comes from the US of A, with a big-income-big-spending family coming from a rather unlikely field: The military!


Hello from the Southern USA!

Just finished “Quit Like a Millionaire” this weekend which led me to your blog. Been binge reading posts and saw the option to write you both. First I want to say thanks for the book. Several new ideas or deeper dives on older ideas in it that have me pondering our way forward.

We are married in our early 40s. I am a career military man and look to retire in 3 more years from the service. My pension will start immediately and be about $60k a year before taxes plus medical. We’ll be nearly FI but the timing won’t be ideal just yet to stop. At that time our oldest daughter will be just graduating high school. Our youngest daughter will be 3 years behind her.  I have talked to them (and will continue to) about options in life. Trade schools. Military. Community college. Etc. The oldest claims she wants to be an attorney like her father. While I’m honored she wants to follow my path, I have my worries. It’s not cheap. It goes against your POT rule! Heck we just paid off my student loans when I was 40!

I make $125k a year after taxes. My wife currently stays home with the kids making sure they’re doing their school work. We budget for all $125k annually (but $36000 a year or more goes into TSP/IRAs/brokerage accounts/savings).  In retirement I’m factoring in $8500 a month to live like I want once we stop funding the accounts.

We have no debts. None. It’s a great feeling.  We keep ours cars longer and avoid debt otherwise. We do not own a house though (another thing I loved about you two when I read the book). With our life the past 17+ years we move far too often. And being a long distance landlord has had no appeal…so no houses. We rent or live on base.

The only fixed assets we have are our vehicles and only one worth mentioning. A classic car I restored with my Dad.  All owned outright. My oldest gets my daily soon and I’ll buy me something newer with cash.

We have just over $400k in non-taxable accounts. Mostly VWENX (largely Roth IRAs) and TSP (mostly traditional but in a 2035 date fund). We try to maintain a 65/35 split (another thing I loved about your book).  We have another $150k in taxable accounts (Vanguard VWINX and VDIGX for the most part). And we maintain an emergency fund of $35k.  We also have $40k in 529s and also transferred by GI Bill to my kids. This should cover both their undergrads in a reasonable state school.

I plan to work after my military retirement for another 7 years (so 10 years from now), funding our accounts at the same levels we are now (@$3k a month) or more. I should be able to land a job that pays $80k or more plus the pension. I will then be 53 and plan to retire completely. Both kids out of the house and debt free. The house we will buy post military paid off. Are we missing anything? How much sooner could we get there? The youngest will be out of the house in 6 more years…ideally I’d like to stop then!

Thanks.

MilitaryFamily


People don’t typically go into the military for financial reasons, but for those that choose a career in the armed forces there are lots of tools that can really supercharge your journey towards FIRE. You have subsidized living expenses when you’re on base, tax-free earnings while deployed in a combat zone, excellent retirement plans in the form of the Thrift Savings Plan (or TSP), and oh yeah, a gold-plated military pension that you have access to after 20 years.

We’ve been actually getting a lot of questions lately about military families preparing to retire this year, and I couldn’t figure out why until it hit me: This year is 2021. Meaning 20 years ago was 2001. So the giant cohort of people who joined the military right after the 9/11 attacks are all hitting retirement age all at once.

Well, if any group of people have earned their right to a kickass retirement, it’s these people.

So without further ado, let’s dive into the numbers and MATH SHIT UP!

Current Reality

Our reader has made the extremely smart move to avoid buying a house during their time in the military. Even though they have access to VA loans that are lower interest than other people, military personnel move around so much that they don’t actually get to enjoy the property, and if you think being a landlord is a lot of work, try doing it remotely, halfway across the world, while being shot at. No fun.

While deployed, military personnel receive a Basic Allowance for Housing, or BAH, because the military loves their acronyms. The BAH is determined by where you’re deployed, the local rental market, your rank, and the number of dependents you have.

Interestingly, your BAH is not dependent on what you actually choose to rent, so on certain deployments if you can find housing cheaper than your allotted BAH, you can actually make money by living off base, paying the cheaper rent, and pocketing the difference. And on other deployments where you can’t find a good deal on housing, you can opt to live on-base. You don’t get your BAH, but you don’t have to pay rent either. It’s an interesting optimization problem that appeals to the narrow overlap of military people and spreadsheet nerds.

So it looks like our reader here has played that game pretty well, using either cheap rentals or on-base living to accumulate a respectable chunk of change. Now they’re approaching their retirement date, are eligible for a nice $60k DB pension, and they’re planning on working a few more years until 53. Is their plan on track for FIRE by that time?

To answer that question, let’s start by adding up their current financial assets. They have $400k in their retirement accounts, $150k in their taxable accounts and $35k in their emergency fund, for a total of $585k. The amount in their 529 we will ignore since that’s earmarked for their kids’ college tuition.

They have a post-retirement spending target of $8500 a month, or a whopping $102k a year! That means their FI target is a sky-high $102,000 x 25 = $2.55M!

If that sounds abnormally high to you, that’s because it is, but we have to remember that post-retirement, that military pension will be able to pay for a significant portion of that spending. Remember, after tax, that pension is worth about $50k, so we have to subtract that off their yearly spending to get the amount their portfolio will need to cover, which is $102k – $50k = $52k, for a new FI target of $1.3M.

So with these inputs, how does their pathway towards FIRE look?

YearBalanceSavingsROITotal
1$585,000.00$36,000.00$35,100.00$656,100.00
2$656,100.00$36,000.00$39,366.00$731,466.00
3$731,466.00$36,000.00$43,887.96$811,353.96
4$811,353.96$36,000.00$48,681.24$896,035.20
5$896,035.20$36,000.00$53,762.11$985,797.31
6$985,797.31$36,000.00$59,147.84$1,080,945.15
7$1,080,945.15$36,000.00$64,856.71$1,181,801.86
8$1,181,801.86$36,000.00$70,908.11$1,288,709.97
9$1,288,709.97$36,000.00$77,322.60$1,402,032.57

9 years. But remember, their plan was to retire from the military after 3 years, then work for an additional 7, so their current plan’s timeframe is 10 years, which they are projected to beat with a year to spare!

Their Spending is Cray Cray

So while their current plan seems to be on track, our reader also asked us if there was anything they could do to speed this up, and the answer is obvious: Reign in their spending.

From a financial modelling perspective, MilitaryFamily’s spending is WTFH, or Way Too Fucking High (see? I can make up random acronyms too!).

Remember, that’s post-retirement spending when all the kids have left the house, so that $102k projected spending is just for the two of them.

Now, I get that our reader’s worked hard and might have more expensive taste in post-retirement toys. He’s mentioned he likes fixing up cars, for example. But for perspective, our current budget is still only $40k. That’s including rent, food, transportation, and travel. And oh yeah, that’s in Canadian dollars. That’s slightly over $30k USD. We could spend what we spend now, and buy a new Tesla Model 3 every single year, drive it off a cliff, and still not be anywhere close to $102k USD in spending. So clearly there’s some waste happening here.

Unfortunately, because our reader didn’t include a breakdown of their budget, we can’t comment on exactly where that waste is happening, but here’s a few interesting statistics.

The average US household budget is $63k, or 62% of MF’s annual spending. That’s an average across all US households, including families with dependents. It’s also more than double our spending.

But our reader doesn’t even need to get down to the US average. MF’s not going to retire from the military 3 years before he gets access to his pension. That would be stupid. So by the time he retires, he’ll have a $60k pre-tax, $50k post-tax income from his military pension, plus a retirement portfolio worth $811,353.96 (his ending balance at Year 3). That portfolio will support spending of $811,353.96 x 4% = $32,454.16. Add that to his pension and we’re talking retirement income of $82,454.16,.

So if he can get his spending down to $82,454.16 per year, which by the way is still nearly $20k more than the national average, he could fully retire once he leaves the military and not even bother with getting another job!

To Buy a House or Not

So our reader has plenty of options here, and on the surface it looks like their plan is pretty solid. The only thing that gives me pause is the following line:

The house we will buy post military paid off

That decision could make or break their FIRE plan. Which house will they buy? How much will it cost? And how will owning that house affect their monthly spending?

Making that choice wrong and overspending on a house could totally snatch defeat from the jaws of victory.

Unfortunately, because I don’t have full visibility into their budget and the types of houses they’d be looking to buy, I can’t do an exhaustive analysis of their options. But here’s an interesting data point.

If they can get their annual budget down to the national average after purchasing a house, and that should be doable since the average US household has to pay either a rent or a mortgage while this family won’t (since they’ll have a paid off house), their portfolio would only need to cover $63,000 (average US household budget) – $50,000 (pension) = $13,000 of spending.

That makes their new FI target $13,000 x 25 = $325,000.

And since they are projected to have $811,353.96 when MF retires from the military, that means he could spend $811,353.96 – $325,000 = $486,353.95 on a house (all-cash), and still be able to retire fully when he leaves the military.

However, if they don’t change their monthly spending, then no amount of house purchase makes sense. As it stands right now, they are currently projected to hit their FIRE target but there’s isn’t a lot of other slack in the budget for big expenses like a house. If our reader manages to land a job paying $80k as they’re expecting, that job plus the pension will be able to cover their living expenses and and have $36k left over every year, but after taxes it doesn’t leave anything left over for a housing fund.

Conclusion

So our reader has done a lot of things right, and they have a lot of good options to choose from, but they are at a crossroads.

They could either:

  1. Continue on their current trajectory and retire in 9 years.
  2. Bring their spending down to $82k and retire when they leave the military in 3 years
  3. Buy a house for $486k, bring their spending down to the national average of $62k, and retire in 3 years

So that’s what the math tells us MF’s options are. What he actually does it up to him.

What would you do if you were in our reader’s position? Let’s hear it in the comments below!


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17 thoughts on “Reader Case: Military Family Nearing FIRE”

  1. I agree their spending is high, but I get it. It’s a lifestyle they are use to. I’m guessing they have pretty expensive cars, nice vacations, probably some nice outdoor gear etc…all stuff that costs $. Unless they are desperate to retire in 3 years, when they will still be fairly young, why not continue that lifestyle? One thought; take a nice 6-month or longer break upon military retirement before looking for a new job. Don’t take on any big financial commitments between now and then. If having all that time back is really the magic they are looking for, then decide if you can live with driving older cars, cheaper trips, etc. and retire for good. If life isn’t fulfilling after 6 months off go back to work.
    With that pension they are crushing it. Nice work MF.

    1. Yep, I have to agree Steve. Great idea. Take a 6 month breather, and see how it is not to work at all and live off the military pension.

  2. Hi,

    My take is that they can reduce the spending below the said $62K if they have the determination. If FC can do it, I do not see whether others cannot do likewise the same. I think that there are more wants than needs in their annual budget. Having said that, it is entirely up to the family to make the reduction if they want to do so.

    WTK

  3. “All of us can do anything we want, we just can’t do EVERYTHING we want.” I could drive a Rolls Royce, but I’d have to sleep in it. I can roam the globe, but I can’t keep a house back home as well.

  4. On the one hand, you have Millennial Revolution… on the other hand, you have Financial Samurai. Not everyone can do “lean” FIRE. I gave it a shot, and realized there were just too many must-haves to make a frugal retirement worthwhile. If you want to live in the center of a major city, travel often and in luxury, and when you’re home, go to the opera, ballet, and symphony (or NBA, NFL, MLB, if that’s what you’re into), those expenses add up. Every day you have to decide what you can live without, or else you keep on working!

  5. Why not just learn to live within our means ? This is so simple, yet nobody seems to want to do it. Nobody … except very few people…

    Here is what I mean …

    Their pension starts in 3 years. So, before that time, they really have no choice but to work.

    After that three years, that’s really a question of choice. 60K$ per year for a family is not a fortune, but it’s doable. They can continue to maintain their lifestyle AND be forced to work, they can reduce their lifestyle AND retire early. But there is also a third option. They could reduce their lifestyle AND do whatever they want ! I think this is the best option of all.

    If they choose this third option, they could buy an affordable house or condo with their taxable account investments (150K$). Maybe this amount will grow in the next three years, hopefully at a faster pace than the house price increase during that time. They could also take a small mortgage, although this is not the best situation to be in if they choose to retire. They could also use their emergency fund (35K$) to make up for the difference and rebuild this fund afterward. Or they could try to save more in the coming three years knowing they want to have these funds available to purchase a home.

    Meanwhile, their taxable account investments (400K$) will continue to grow and be available to pay yearly expenses. If they choose to withdraw 4% (16K$ per year), this amount could eventually deplete, although in a very long time (30 years or more).

    If they withdraw 2% or 3% (8K$ or 12K$), this amount could supplement their pension AND their portfolio should continue to grow for the rest of their life. Then, they can increase their lifestyle – automatically if they set a fixed withdrawal % and that their portfolio is growing over time.

    If they don’t withdraw anything (continue to work or life off of the pension), then this portfolio will grow exponentially and it will eventually become SOOO BIG that they won’t be able to spend it all, even if they try very hard to deplete it.

    So why not choose to live within your means and never have to worry about money again ? This seems to be an easy choice. Like a no brainer. But very few people make this choice.

    I wish them the best. Whatever they choose to do, I am sure they will do very well !

    1. They are technically living within their means, since they’re able to keep saving money. But yes, I agree, with such great options, a few minor tweaks to their lifestyle would have a profound impact on their FIRE journey.

  6. So so weird. I’m reading this as a holler at my wife saying this couple sounds just like us! Then I realized…it is us. Forgot I’d written this a few months back. Thanks for the data. We’ve been looking into options to be done in 3 years vs working longer. Nice to have options.

  7. But for perspective, our current budget is still only $40k. That’s including rent, food, transportation, and travel. And oh yeah, that’s in Canadian dollars. That’s slightly over $30k USD. We could spend what we spend now, and buy a new Tesla Model 3 every single year, drive it off a cliff, and still not be anywhere close to $102k USD in spending. So clearly there’s some waste happening here.

    ———

    All nice and swell but it feels like a finite race to the bottom.

    You have one life…like only one life…why make it all about how to spend the least amount possible?

    I follow one rule. Withdraw 4-5% from the portfolio each year and enjoy the options that it provides. If that means I can buy a Tesla every year and drive it off a cliff without breaking that budget, all good.

    Here’s a thing. If you decide to retire and all you can afford on AirBnB is to stay in someone’s basement and think that’s living your best self, you’re doing something wrong. Judgemental? Sure. Off the mark? Nope! I think I’m bang on with the judgement.

    Spending over $40k Canadian is not waste. It’s relative. If it’s in your budget to do so, then why not? If it’s over your budget, of course don’t spend over your means. That’s just stupid. But it’s also stupid to spend below your means as well.

    1. That’s the thing, we’re not sacrificing. We aren’t living in basements or run down AirBnbs, we live in nice places when we travel. I just don’t understand how people spend so much more without committing some pretty massive waste.

      1. A few blog posts earlier, Kristy gave me a few AirBnBs for Halifax over several months that were apparently within the range you guys consider. I was challenging whether you could actually find something reasonable while keeping the price of accommodations for a month at $1860/month or less. She was nice enough to indulge the challenge and I appreciated that.

        I read the reviews for them (I rely heavily on reading the AirBnB reviews because they are a lifesaver, especially when you want to book something for a month and don’t want to find yourself in a pickle stressing out on money outlaid and potentially having to find alternate accommodations because what you booked cheap turned out to be a shithole). Most of the Halifax AirBnBs were dumpy except for the last one of them which was ok (it also had a rating of 4.90/5.00). I asked because I really wanted to know whether you can get good value while keeping the budget low. Ultimately, you get what you pay for. And yes, value is relative to each person. I typically find AirBnBs that are in the $100-$125/night range and stick with ratings around the 4.85-4.90 range. I do pay more when needed if I feel the value is there and it makes sense.

        I completely believe you when you say you feel you’re not sacrificing. It’s all relative. We all have different expectations and that’s fine. At the same time, coming up with an arbitrary statement of saying you’re wasting money if you spend over $40k/year Canadian is silly as well. I don’t feel I’m sacrificing either (when it comes to money that is self replenishing derived from a balanced and diversified index ETF portfolio and remaining within a 4-5% SWR). Money is just a tool that is to be used to enhance your life. Hoarding it without a set purpose is silliness.

    2. Hi Dave,

      In all due respect, you are wrong on this one :

      “You have one life…like only one life…why make it all about how to spend the least amount possible?”

      By spending the least possible in early years, you can grow your portfolio much more, and spend even more money in the future. That is, if you make good investments over the years.

      So your statement should be reframed as :

      “You have one life…like only one life…why make it all about how to spend the *most* amount possible?”

      And the answer would be : “It’s just because it make sense. Who would not want to have best life possible ?!”

      1. Are you retired Manuel? Wealthy? Living off your balanced and diversified ETF portfolio? 4%-5% SWR? Not sweating your expenses? Focused on the bigger picture which is enjoying life in general? Wearing rose-coloured glasses that show a world of plenty versus a world of scarcity?

        If yes, great for you however I get the feeling that it isn’t the case. You see, it is the case for me. I understood that putting all my energy into expense reduction was a path with diminishing returns whereas investing wisely and increasing my income while I worked to facilitate further cash injections for investment were key.

        Keep patting yourself on the back for a job well done. While you do that, I’ll be at the all you can eat buffet clearing out the lobster and crab legs.

      2. They haven’t stopped spending little. This isn’t about spending little in the early years. This is their plan to the end of time. That’s not healthy, Manuel. You haven’t been paying attention.

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