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Military retirement with low savings

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Here’s a question from a reader:

OK Nords, I need a sounding board.

Background: I retired two years ago with 21 years. I was recently found 80% disabled by the VA. After I retired I immediately shipped over to teach JROTC– which I love.

Present: While I love my job, it has incredible demands. To make a difference on kids, you must get them after school hours and that means 12+ hours a day, and many weekends. I make a huge difference, but medically it’s crushing me. The VA is good here, but all the medical stuff is its own full-time job.

I own a house in the west near my wife’s family that we both love. We live in the east without any nearby family. I’m contemplating pulling the plug in a couple of years to live in the house near family, especially as our kid enters high school. (I missed a lot due to deployments). However the last thing I want to do is trade a job I love with bad hours for a job I hate with bad hours.

Here’s his financial info:

Assets:
$18K in TSP. (Wish I could still contribute!)
$7K in other IRAs & teacher’s deferred compensation plan.
$10k emergency fund.

Home in west: $600/month mortgage, rented out, breaking even.
Current home: we have ~$40k in equity due to buying with 20% down. $1200/month mortgage. If I get what I paid for it, I lose $15K on the selling costs. Since there are so many variables to selling, I’m not counting on the cash in it. If it works out, that’s great, but there’s also 2500 miles of moving expenses.

No other debt.
$800/month goes into a short-term savings fund for short trips, car repair, and medical/dental expenses beyond Tricare.
Our kid’s college is covered by my GI Bill.

I earn $4400/month as a teacher. This contributes $1200/month to the deferred compensation plan and pays our $2500/month living expenses. Anything extra goes into savings.
$2500/month military retirement. $1200 pays the mortgage on the home we live in now. Another $800 goes into savings. Anything extra also goes into savings.
$1700/month VA disability: we save all of this.

Here’s his plan:

I’m looking at “popping smoke” in two years (the summer before our kid enters high school), selling our current home, and moving the family to our home in the west. We initially would live off my military retirement & VA disability. This would easily cover our monthly living expenses in the west, but we wouldn’t be able to save any more than the $800/month that I’m saving out of my pension. My big concerns are trying to forecast savings for various unknowns.

In the next two years we could save another $70K. After moving west our savings rate would drop to about $10K/year. In other words our cash flow is good but our savings could be eaten up quickly if we have an expensive problem or if I need long-term care. The only “affordable” premiums are the Federal Long Term Care Insurance Program. Due to my medical history, the cost is extremely high. This part concerns me a bit.

I have Survivor Benefit Plan coverage on my pension, so my spouse has that income after I’m gone.

Any ideas on collectively working to lower cost of living and boost our savings, especially for the short term? It seems that the entire family has to be dialed in to the methods and lifestyle changes in order to meet the goals. Any recommendations on this part?

This situation is all too common among veterans. It’s easy to finish a military career with low savings yet enough income & medical benefits to be very close to financial independence– without a safety margin. For those who are physically able to work, part-time employment can go a long way toward supplementing savings over the coming years. “The Military Guide” profiles one servicemember (“Boxkicker”) who did exactly that. He retired with a military pension yet almost no other savings. He had nearly finished his college degree on active duty (tuition assistance). After retiring he went back to college on his GI Bill. Along with part-time work at a golf course and refereeing for youth leagues, Boxkicker completed a master’s in sports management.

But let’s get back to our reader’s questions. As we swapped e-mail, he seems to feel that he can continue to work these hours for another two years. However six years (until his daughter finishes high school) is medically not achievable.

Spouse employment is another option, especially after they move. However military spouses sacrifice a lot of potential income during their servicemember’s career, and finding a job might be a challenge. Of course there are plenty of other employment options but it may be easier for a spouse to spend time on frugal efforts at home instead of earning income. The two of them could look into employment (or self-employment) opportunities now and see what they could devote more time to after the move.

Another option would be to transfer his GI Bill benefits to his spouse now, not his daughter. If his spouse wanted education or training for her “dream career” then she could achieve that certification before their daughter started college. His spouse would probably be able to earn more from a career than their daughter would receive from the GI Bill, too, so there’d be a net positive return on their investment in her employment skills.

One extra factor is Social Security, although he’s nearly two decades away from starting benefits. “When to start SS” is a tough decision when there are medical issues. Taking SS at age 62 ensures that you’ll have some extra income now to enjoy life, but your spouse’s survivor benefits will be lower. Taking SS at age 70 will max out benefits and spouse’s survivor benefits, but if the recipient dies before breakeven (in the late 70s) then that income is permanently lost.

One (risky) option would be to start spending a little extra money at age 62 (using more savings) in anticipation of starting SS at age 70 and rebuilding those savings. It’s a losing strategy if the recipient dies before breakeven. A “middle ground” would be to reassess the health situation at age 62 and possibly hold off benefits until age 66 or 67 when full benefits can be drawn.

Of course the best solution would be to reduce lifestyle expenses to the point where Social Security isn’t necessary. All of the eventual SS income could support long-term care and survivor’s benefits.

His spouse’s longevity insurance seem to be supported by the military retirement Survivor Benefit Plan and Social Security survivor’s benefits. Both of those programs include a cost of living adjustment, making them one of the world’s best annuities. As they approach their 60s they’d want to review the amount of these benefits against her expected spending to make sure she’s provided for.

Long-term care insurance is a another difficult situation with low savings. If medical factors are driving up the premiums then it’s not even an option. The only cost-effective solution is to maximize whatever geriatric and long-term care programs are available from the VA. Eventually an elder would spend down their savings (with allowances for spouse’s home and other assets) and become eligible for Medicaid.

My personal knowledge of military disability & VA benefits is weak, so I’d work from the links in the “Military medical” portion of the sidebar. (Especially the “Veterans Benefits Network“.) “The Military Advantage” benefits guide is another outstanding resource. If he’s unable to work due to his disability, another low-probability possibility is Social Security Disability Income (SSDI). This is difficult to apply for and not easily approved, so it would probably require significant assistance from military legal services and the VA.

Frankly, he seems to have it all under control. Even after he retires his income is higher than his spending, and he seems to be able to keep it that way. Medical expenses and long-term care are major issues, but their costs are almost impossible to predict. He seems to have sufficient benefits in place for now, with Medicaid as an eventual long-term care program. I’ve written several posts on that, and I have a book review coming up on another excellent reference.

Frugal living will help him and his family save more money, and they can make it match their lifestyle. The Internet is full of sites for cutting expenses and living more simply, but two of the oldest and best cost-cutting websites are The Dollar Stretcher and BankRate.com.

What other lessons can readers take from this story?

    • Being in the military teaches life skills. He’s extraordinarily motivated, persistent, focused, and determined. He knows he can do this. His main concern is providing for his family and having their support for his plan to stop working while he can still enjoy life.
    • Play good defense. Don’t live a materialistic, consumer-driven lifestyle. His financial situation is already stable because he has low expenses. They don’t need to spend a lot of money on possessions or entertainment or “hobbies”. He already knows how to tolerate deprivation, so a frugal lifestyle is easily achievable– even satisfying.
    • Save as much as you can as soon as you can for as long as you can. You never know what’s going to happen to you or your family, and the closer you are to financial independence then the better you’re able to handle these surprises.

He’s also going to post his financial questions at Early-Retirement.org. I may lack experience in some of the areas when he has specific concerns, but that’s a big discussion board.  Eight thousand E-R.org readers (including over 50 contributors to the book) will quickly identify anything I’ve overlooked and come up with ideas we haven’t thought of.

Do you have any other ideas, suggestions, or references for this reader?

Related articles:
Frugal living is not deprivation
Military retirement: how much can I really spend?
Tailor your investments to your military pay and your pension
Retiring on multiple streams of income

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9 Comments

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  9. Jan

    March 28, 2012 at 2:04 PM

    You are living what we did 17 years ago.
    Here are some things to consider:
    Have you gotten your lump sum from the time you got out of the military until your VA was decided? This is a tax free event and should give you a nice nest egg. Make sure it is correct- your child and wife are included.

    It sounds like being “home” would be in a much lower cost of living area. Back yard bbque can replace going out to dinner. Grandparents can enjoy hanging with your child while you go for a picnic. Do you want a slower pace of life? 80% is pretty serious disability. Maybe it’s time to give yourself permission to slow down.

    VA can “retrain” you without using your GI Bill. You could go home and decide what you really want to do with the next 40 years:>) My husband “retrained” to be a teacher. Books, tuition and stipend are available. Check with the VA closest to your home town.

    Your wife can use your disability rating for jobs if you don’t plan to. HUGE advantage if you live near a post or base. This is only the case in higher disability ratings.

    USE the VA for your medical. Again, at 80% you are at the top of the line for almost anything.
    Your wife and child can use a military hospital (if you are within 50 miles) or TriCare. Get the military dental insurance, it is better than the military one!

    I have seen people get their “retirement move” late- especially after disability kicks in proving they really need to retire. You might want to inquire.

    How about renting out your current house until it sells? Sounds like you are in a stable area….

    There are way more things to consider than money. We are glad we made the choices we did. Lower stress jobs eventually made their way into our lives. Where do you really want to be and where do you want your child to call home?

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