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This is Part 2 of my interview with BG Michael J. Meese, USA, Ret., Ph. D as we discuss Financial Independence for members of the Military. Click here for Part 1.
OK, so my next question is what you said about deployments. How often do armed forces members move around?
They usually move around, minimum, every 3 years, although frequently more often than that. In my 32 years in the Army I moved 17 times. And it is not uncommon for them to deploy about a third of the time, but that varies substantially based on specialty. So my son, who graduated from West Point 2012 spent 9 months in Afghanistan in 2014, and then 6 months in Eastern Europe because of the Russian threat to the Ukraine. So for the first 4 years in the Army he was deployed 15 months.
So on the topic of moving around, a big part of Millennial Revolution’s message is that there is no such thing as stability, so buying a house doesn’t make sense anymore. I’d imagine that this is even more of an issue for the military. If you move around every 3 years, does it make more sense to rent or do people actually buy when they move in and sell when they move out?
Typically, people rent and sometimes there are government quarters available so they don’t even have to do that. For me, in 32 years of being in the Army, I bought a house once at Ford Hood, Texas, owned it for 2 years, and I was able to sell it by owner and made a LITTLE bit of money on it. And I only bought it because I thought I’d be there a longer than 2 years. Turns out I wasn’t. So I’m with you.
Now there are some military people that buy a home at their first duty station, then rent it out when they go to another duty station they buy a home and then rent that out. They have property all over the nation and become these expert property renters. But that, in my view, is a high risk strategy. You’ve gotta have the wherewithal and the funds to be able to do that.
Yeah, and I’d imagine that if the person messes up your house you’re not there to prevent it or fix it, right?
Yeah, exactly. You’ve either got to have a really good property manager or know someone in the neighbourhood to keep an eye on that home. Now, on the other hand you may be renting out to someone else in the military you know and trust, so that could be an option.
Though that being said, think of all your friends. How many of them would you trust with your property? Maybe half?
OK I’m gonna leave that question dangling. I’ve got a question about the spouses. So if every 3 years they have to pick up and move. Obviously the military member’s career goes with them but what happens with the spouse? Do they have to quit their job and find a new one every time? I’d imagine that would make it hard for a spouse to make a career of their own.
It is. It is. But it’s a little easier today, there are more options like you who can have a career over the Internet, having things where you can work out of your homes. Also, as an example, my daughter-in-law got a teaching degree from Colorado and we’re all really proud of that, and in almost every military base there’s children and there’s a need for teachers.
In the United States we try to have cross-state credentialing for military spouses. That way if she got a teaching degree in Colorado she can get a teaching job in Georgia. Similarly my daughter who married a military guy decided to switch her degree to recreational therapy so she can help fulfill some of these health care needs that the military has.
So I think it’s appropriate that because a military spouse does have to move around, some of the retirement compensation is meant to take into account that the spouse likely wasn’t able to advance in their career as much as they could have.
Hmm, interesting. So the spouses that are the most successful nowadays are the ones that emphasize mobile Internet-based work, or servicing the needs of military bases.
Clever. I like that. And again, that’s a nice segue into my next question about retirement compensation. How does the pension system work? And how does the Thrift Savings Plan (TSP) interact with that?
Good question! Under the current system, military members can voluntarily participate in the TSP, which is set up for federal workers, and is a basic account where you can invest your funds in 6 different Index funds (or Lifestyle funds that are a combination of them). These are run by the federal government and are very low-cost way to invest money. So for anybody that has funds to contribute towards retirement, the TSP is a very very good thing.
With regards to military pensions, the pension has historically what they call “golden handcuffs.” You don’t get any retirement pay until you’ve served 20 years. And at 20 years you get 50% of your final salary. If you serve longer than 20 years, it goes up to 75% at 30 years. So it’s a generous pension.
Hey, you guys certainly deserve it. Actually, it’s kinda funny. We keep hearing all this talk on the news that “If the government were in charge of stuff it would suck. Only private corporations and the free market can do a good job.” But in this case, the government appears to be doing the exact right thing for you guys, which is using low-cost Index funds, while in the private sector they just try to shovel people into crappy mutual funds to line their own pockets.
I think that’s a pretty accurate observation.
And with the 401(k)’s, there’s a limit to how early you can withdraw. Does the TSP have a similar limit?
Yes, the TSP is a qualified retirement account, so you can’t start withdrawing until 59.5, and if you do there’s a 10% penalty. And you have to start withdrawing at 70.5, and there’s a required minimum distribution (RMD). So if you’re saving for a house or graduate school a TSP may not make as much sense.
But could you roll a TSP into a Traditional IRA and implement a 5-year Roth IRA conversion ladder?
That I’m not sure. (Any military members in our readers who can confirm whether a TSP is compatible with a 5-year Roth IRA conversion Ladder?)
And finally, one question that I’ve been dying to ask is that of our military readers who write to us, literally ALL of them have as part of their retirement a plan to build a bunker or a cabin in the middle of the woods and stock it with guns and canned food, “just in case?”
Why is that?!? Do you guys know something that we don’t? Should we be building a bunker in the woods as well?
Uh…no, I don’t have a bunker. I don’t have any more cans than my wife has in our pantry. So I’m not aware that’s a thing that military people do.
All I can say is, there’s nothing special I know, and I’m not building a bunker any time soon.
OK that’s good to know. I don’t want to be dying in an apocalyptic hellfire.
From talking to some of them it seems like the perspective they have from operating in these warzones like Iraq or Afghanistan is that here in civilian life we take for granted that there probably won’t be enemy tanks rolling up the National Mall but they’ve actually seen it happen! So they have this belief that our nice comfy peacefulness is actually a lot more precarious than we think. One of them sent me a book (which I did NOT read because it’s too alarming) about how we are all only 72 hours after having food supply lines cut off from descending into a zombie apocalypse situation.
Right, right, there’s also a book out there about what would happen if an EMP pulse hit the United States and destroyed our electronic infrastructure. But the truth is, our infrastructure (electronic and otherwise) is so interconnected like a spider’s web in North America that if something like that were to happen the system would kind of repair itself rather than collapse completely like a house of cards.
Right, the Internet was specifically designed by DARPA to be a de-centralized network to survive a nuclear attack from the Soviet Union, right?
Right, so that’s why I don’t have a bunker.
OK, so that makes us feel a lot better. If you’re not worried, I’m not worried.
Right, I’m not too worried.
Well, there you have it. Pensions, danger pay, and nuclear apocalypses. It’s a trifecta we strive for with every interview here on Millennial-Revolution.com. I would like to extend a big THANK YOU to BG Michael J. Meese, USA, Ret., Ph. D. for taking the time to talk to us and open us up to a whole new world of personal finance that we normally don’t get exposed to.
Once again, he is the COO of the American Armed Forces Mutual Aid Association, and if you’re in the Armed Forces check them out because they have a TON of great information for you.
Thoughts? Feelings? Let’s hear about it in the comments below.
BG Michael J. Meese, USA, Ret., PhD is a retired Army Brigadier General and is the Chief Operating Officer of the American Armed Forces Mutual Aid Association (AAFMAA).
Mike joined AAFMAA as Chief Operating Officer in 2013. He retired from the United States Army as a Brigadier General having concluded his 32-year career as the Professor and Head of the Department of Social Sciences at the U.S. Military Academy.
At West Point, he taught economics and national security courses and was the Director of the Economics program. He has written numerous articles and two books: the Armed Forces Guide to Personal Financial Planning and American National Security. He has served in a variety of strategic political-military positions including deployments to Afghanistan, Iraq, and Bosnia for a total of 31 months and was the Executive Director of the Secretary of the Army’s Transition Team in 2005 and the co-director of the Department of Defense Panel on Commercialization. He is a graduate of the National War College, U.S. Military Academy, and earned his Ph.D., MPA and an M.A. from Princeton University.
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19 thoughts on “Financial Independence for the Military – Part 2”
As a serving member of the Canadian Armed forces, I agree with many things in this interview, however there are a few key differences between the U. S. and Canadian militaries with regards to finances.
1. Many U. S. bases are situated close to large population centers, whereas the largest group of Canadian serving members is located in Ottawa (10k estimated). Easy enough for most spouses to find a job if posted here. However most Canadian bases are situated in fairly remote, low population areas (Petawawa, wainwright, valcartier to name a few). These locations make it difficult for a spouse with a professional career to find gainful employment. The military usually offers financial subsidies in the form of allowances, which help, but don’t make up for the lost spousal income.
2. Our pension system is no longer a 20 year payout. Canadian soldiers must now serve 25 years minimum before being eligible. With an average of 2% a year (do the math) hardly enough to live off of.
3. Canadian soldiers are posted… Typically every 3-7 years, we get minimal say in where we go, but typically can remain in the same province to make family transition easier (posted ottawa to kingston for example). Subsidies for selling and purchasing a new home are provided (closing costs, moving costs etc) but this can backfire horribly, like when the housing market in Edmonton crashed. Many soldiers lost tens of thousands because of a posting. Some locations do offer a living differential allowance for higher cost postings (1200 a month extra to live in Toronto for example) but these allowances are based off of general living costs in Ottawa, so if you’re posted to Ottawa you get nothing extra.
4. The Canadian military does offer financial planning for free aswell as investing seminars, but the usual “invest in mutual funds” line is heavily used.
Overall as militaries go, Canada has one of the worlds best paid, but the rigors of military life usually results in divorce, child support and allimony payments and for some, the burden of relying on a pension that doesn’t pay enough to cover basic needs.
Malaysia is looking better and better.
Military life is endlessly fascinating to me (hence why we did this interview) and your Canadian perspective helps a lot. Thanks for sharing.
Interesting stuff Wanderer. While I’m not military it was still a good read.
I found that bit about the bunkers particularly interesting. While I doubt the world is going to end in fire tomorrow, I do know that natural disasters happen and it can take weeks before aid agencies do their thing and life returns to mostly normal.
So I do think it’s smart to keep a little extra canned or dried food on-hand, and have a water source…but nothing to go crazy over and build a bunker.
Yeah, totally. Ask Fort MacMurray how quickly things can turn south.
That being said, I always look at these situations and think “MAN I’m glad I don’t own a house there.”
My brother-in-law is active duty in the Army and they’re currently renting out a home they purchased in Fort Bragg, even though they live across the country. I think it’s incredibly risky to have rent properties spread out across the country, but I’m sure it’s a strategy that works well for some people. If I didn’t live near one of my properties I would at least want to hire a property manager, but that’s just me. It’s much easier if you have a revolving network of fellow friends in the forces who can rent out your home.
That freaks me out too, to be honest. I don’t know how people can entrust their finances to some random stranger, especially if I’m not there to stop any damage they might do. That being said, it may not be the best idea to piss off a soldier, so maybe that’s why the rental strategy might work for them.
Very informative and thank you for the blogging session.
I’m curious as far as military personnel buying and renting their properties, even when they’re in deployment, is that more for higher ranking officers and not the enlisted and Non-Commissioned Officers. Because I can imagine how difficult it would have been for Enlisted as well as NCOs having the time and resources to buy, rent and monitor their properties.
What is your take on that?
Sorry, this is my ignorance talking. But why would a high-ranking officers have a different situation from enlisted/NCOs in terms of their stance on housing?
Maybe I’m reading it wrong and not communicating it correctly. And I’m not talking about housing per se. What I’m talking about is the process and access to buying and selling real estate properties overseas while being deployed overseas.
What I meant was when both enlisted and officers are deployed overseas and when they buy the properties overseas and renting it out overseas, would the situation of the high-ranking officer be more conducive since he has the personnel resources, i.e. real estate agents or people working under him while overseas, compare to the enlisted personnel who is more restricted to have access to buying and selling since his job does not allow much freedom for a complex real estate transactions. The advantages the officer has is that his duties are not confined and restricted to a time limit and therefore he has all the time off-base to buy and sell real estate when he’s in a foreign country.
My wife and I are both active duty navy, we own a house in Charleston SC and are buying one at our next duty station in San Diego CA. The Charleston house will be taken care of by a property manager. We are both about to put on E-5 when we reach our 2 year point in June so this is deffinetly possible for NCO’s. If you have any questions feel free to ask.
Great stuff again. Very interesting to hear about the challenges military members face when it comes to saving for retirement.
You should look into the BAH –
The Basic Allowance for Housing (BAH) is a U.S. based allowance prescribed by geographic duty location, pay grade, and dependency status. This can be a subsidy of US $3,000/month or more for housing.
Yes, that does help a lot of military spouses especially. Thanks for bringing that up.
Thanks for this cogent perspective. But what I really appreciated were your measured to the “apocalypse/survivalist” questions. Nice to see reason in this new Age of Unreason.
Yeah, I also appreciated that a lot. A nice break from all the “end-of-the-republic” articles circulating on the MSM right now.
Well actually, I do think that our republic is in dire jeopardy…..just don’t think worrying about “bugging out” is useful. Think we should stay and fight with all of our being. Just sayin’.
Hi M-R! Member of the US Mil here. To answer your question from the interview: You can roll your TSP over to an IRA.
Good to know. But a note to our readers: only do this if you plan on implementing a 5-year roth ira conversion ladder. In most cases, the investment choices available from private industry for IRAs suck in comparison to the choices available in the TSP. This is one of the very VERY few instance where you WANT your government to have your money
As a military spouse and teacher, I can absolutely deny that military spouses who are teachers receive any kind of special treatment. After five moves in the past eight years, I have had to apply for a teaching license on three separate occasions.
Some states offer reciprocity with others but they are few and far between. Spouses careers suffer tremendously. I would love to know about these work from home jobs that this individual is referring to. Most spouses stay home and do sales like Scentsy, Lularoe, or some other random fad. It’s unfortunate considering the DoD and other military related programs like MCCS, etc. don’t hire qualified spouses first either.