retirement

Reader questions about retiring on a military enlisted pension

June 27, 2012 by Doug Nordman · 3 Comments

A reader asks some very good questions:

“I came across your book and am interested in purchasing it, but I have a few questions.

I’m an E-6. I’m married, with no children, and currently only have a retirement savings account via TSP. Is is realistic to assume that someone in my situation can read your book, apply it, and then live off the retirement?

My spouse and I could retire in another country with cheaper cost of living. Would that help my chances, if the above answer is “no?”

I’m really hoping to retire and start my own business– not because I need to, but because I want to. If your book can give me the information I need to make that a reality, then I will gladly purchase it.”

Where to find the book

Here are some other book suggestions for “try before you buy“.

First, the blog summarizes most of the book in the ~80 posts between September 2010 and March 2011. There are a few diversions, and the posts don’t have the personal stories of the contributors, but you get a good idea of the contents. (You’re going to have to read the book to get the personal stories.) Scroll through the titles and the opening paragraphs to see what catches your eye.

Second, look up the book at your local library system or on WorldCat.org. It’s in several libraries on Oahu, and it’s in at least 30 other libraries on the Mainland. You might be able to borrow it from a library near you before you make a buying decision.

Finally, see if your military base’s family service center offers free copies of the 4″x5″ 64-page pocket guide. Impact Publications sells these at a very low bulk price for military transition programs and VA service centers to offer to their clients. The pocket guide doesn’t have the contributor’s personal stories and the chapter checklists that are in the full-size book, but it’s another great way to try it before you invest any money in it.

Retiring on an enlisted pension

The process of saving for financial independence is fairly straightforward, but the commitment can be difficult. The challenge is to track your spending, figure out what’s important to you, align your spending with your priorities, and make a plan.

It’s realistic, based on the stories I’ve heard from readers and on the process that people are following from the book. However your spending and your savings are important. Save as aggressively as you can in your TSP (and your Roth IRA) and put yourself even further along the path to financial independence. But you don’t have to stop there. Your pay gets a lot better if you finish your college degree and apply for a commission. One course at a time, max out the tuition assistance, and see where it takes you. The worst that will happen is you’ll start your education on the military’s active-duty funding and finish it on your GI Bill.

As you save for retirement, project your pension income against your retirement budget. If it’s not enough then you’ll either need to consider a bridge career, be ready to do some part-time work, or cut back your expenses. I can’t tell you which approach will work best for you, but you’ll know when you’ve crossed the line from “frugal retirement challenge” into “deprivation”. The more you can save on active duty, and the higher your retirement rank, the closer you’ll be to financial independence.

The book includes advice from a Navy Chief nicknamed “Boxkicker” who retired as an E-7 at 20 with only a few thousand in his TSP account. He immediately went back to school on the GI Bill (and its housing stipend) to finish his bachelors’ & masters’ degrees in sports management. His “business” is refereeing community sports leagues and teaching golf. He’s one of at least three other veterans (profiled in the book) who have managed to swing the finances on their pension, with little savings, and with part-time work. It takes a low cost of living and some financial discipline, but it can be done. You’re saving in your TSP, so you have a head start.

Retiring overseas

You absolutely can live on a U.S. military pension in another country. We know a number of military retirees who are doing just that.

The two best resources for your own overseas planning are Billy & Akaisha Kaderli’s Retire Early Lifestyle website, and Paul & Vicki Terhorst’s Early Retirement website. Both couples have traveled the world on far less money than you’d expect. They’re experts at living local in Southeast Asia, Latin America, and Europe. You can also try Gary Pierce’s Frugal Retirement Living website. He and his spouse have lived overseas, but they’ve also enjoyed their retirement in America on a boat and in an RV.

Starting your own business after the military

I don’t specifically talk about starting your own business in the book. When I first retired, my time & energy went into enjoying retirement. Later I began showing other veterans & families how to achieve financial independence… wait, I guess I did start a business.

If you’re interested in writing then you can read about my experiences in the “Books & publishing” section of the blog. I also talk about earning revenue from the blog, and the sidebar has a whole “Personal finances” section of bloggers who are earning tens of thousands of dollars a year from blogging and advertising. It’s not easy– it’s a job and you might be your toughest boss you’ve ever had– but blogging has a lot of advantages over the office environment. Your earnings are also much more correlated to your effort.

Boxkicker put together his own income in the sports industry. I know of several veterans who have gravitated toward their professional skills, especially training others. As a military retiree, your new business would probably be in the service industry– and in a sector with low startup costs. The advantage of being a military retiree is that you have a safe income to fall back on while you’re growing your business. I’d love to hear from more veterans who’ve used their military experience to start their own businesses and achieve financial independence on their terms. They might not even want to retire from that type of bridge career.

Hope this helps you with your book-buying decision. Whether you decide to borrow or buy it, please let me know what could make it better!

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Filed Under: Finances · Tagged With: early retirement, financial independence, GI Bill, military, military retirement, PostAWeek, retirement, Thrift Savings Plan

Retire at 17 years of service or 20?

May 24, 2012 by Doug Nordman · 7 Comments

I read another good question on a Linkedin group:

I am a Marine O-4 who has been passed for promotion and is looking for some advice on early retirement. I will have 17 years of active duty by the time I am eligible for the early retirement next year. I am a pilot with experience in operations and safety. I will also be close to completion on my MBA, DAU Level II acquisition certified and Lean Six Sigma Green Belt. Do I make the jump or stick it out?

This is the first mention I’ve seen of the Marines using the early retirement program. Congress has authorized it for this year’s defense budget, but the services can use the program at their own discretion. Please leave a comment if you’ve seen any message or other information, especially if you can link to an announcement.

Money is not the only question here. “Quality of life” is still as much of an issue as the finances. Servicemembers who aren’t being promoted but who can’t retire yet might end up being sent wherever the assignment officer has a hot-fill billet. If you’re not approved to retire then your only “negotiating option” is to resign from active duty for the Reserves. That might evade the assignment issue, but even if you’re financially independent then you’re still giving up over $500K of potential O-4 active-duty retirement income before the Reserve pension kicks in. If you’re not financially independent then it’s hard to find a bridge career which will make up for that loss. It’s also very difficult to convince yourself that “It’s only money!”

Unfortunately, staying on active duty and grimly clenching your jaw to get through those years is risking your physical, emotional, and mental health. The stress fatigue can lead to respiratory infections, elevated blood pressure, higher cholesterol, and other unhealthy conditions. Being separated from family is another set of problems. Even retirees who stuck it out for 20 would advise taking care of your health before taking care of your pension.

If you’re offered a good assignment then you might be able to convince the chain of command that you should stay there until 20. Yet even at the best duty station you’re still trading some quality of life for the prospect of future financial security.

Financially, the conventional wisdom is that retiring before 20 years of service is a significant pension cut. Or is it? The “good” news is that retiring at 17 would avoid gutting out three years for a few more percent on a pension. A 17-year pension would work out to just under 40% of High Three base pay instead of 50%. An O-4 High Three pension at 20 years is just over $41K/year*, and an O-4 TERA High Three pension at 17 years would be just under $34K/year. Yes, a 17-year TERA pension is nearly a 20% reduction from the 20-year retirement. However it’s a difference of only $7225/year. Is it worth the extra $7K/year (and three years of salary) to push for three more years of active duty? Why not take the retirement and avoid a potential hardship tour?

* (Starting that $41,167/year High Three pension in 2012 is also 1% higher than my current $40,788 Final Pay pension that has received a decade of COLAs.)

In my opinion, servicemembers can be made to suffer an inferiority complex. The military’s constant pressure to train and promote (which is good) can lead to a zero-defects mentality (not so good). High-quality personnel can be made to feel as if they’re barely capable of serving in their current rank, let alone be promoted, and in a drawdown everyone is struggling to stay competitive. When one mistake can kill a promising career, you learn to play it safe and avoid big risks or unknowns. We’re also constantly reminded of veterans encountering high unemployment in a vicious job market, and even Linkedin can leave the impression that the job search is a dangerous jungle filled with predators and pitfalls. As difficult as military service may be, it still seems a lot “safer” than the risky unknown of trying to find a civilian job.

Yet that safety can be a trap. Aviators with these skills are quickly employed. If you chose to retire at 17 with those skills (and with a smaller pension) then you’d immediately find a job and start your bridge career in a new avocation that makes you feel challenged and fulfilled. Would you feel the same if you tried to hang tough for three more years of active duty? You’re the only one who can determine the “right” answer to that question, but I’m pretty sure that you’re going to be pelted with civilian or civil-service employment offers.

I think the real value of a military retirement comes from its inflation-fighting COLA and cheap healthcare. (It’s not easily done with TIPS, I bonds, or annuities.) TERA’s 20% reduction in the amount of the military pension– just $7K/year– is easily made up by a civilian paycheck. The safety net of financial independence is to have some “guaranteed” income from reliable sources (military pension, Social Security, TSP annuity) and some control over expenses (Tricare and Tricare For Life). These are the biggest financial challenges faced by people retiring in their 40s and 50s, and the discussion board at Early-Retirement.org has tools and advice to help solve those challenges. You can save up the rest of your retirement funds from your civilian paycheck, and your financial independence might be closer than you think.

Personally, I applied for the 1990s TERA three times but ended up being continued on active duty to 20. Luckily my retirement assignment was a great billet (I’d made myself very valuable to the training community) and I worked with great people. Even so I would have happily retired for a smaller pension, a few years of a part-time job, and more family time. Staying on active duty was a major physical/emotional stress, and retirement was an immediate improvement in my health.

In retrospect I’m really glad that I didn’t learn how to surf until I’d retired, because I’m not sure I would have been able to make the right decisions every day about work versus surf…

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Filed Under: Finances, Military · Tagged With: active duty, early retirement, financial independence, LinkedIn, military, military retirement, PostAWeek, retirement, Tricare

Starting your bridge career after the military

February 15, 2012 by Doug Nordman · 10 Comments

Long post today: I have 2400 words of real-life examples for a reader’s question.

When I started thinking about a book, I wasn’t writing “just another job-search manual“. I wanted to talk about early retirement and frankly, I was scared of the competition from other career-transition authors. However I get questions every week about bridge careers. If you’ve pushed for financial independence, even for just a few years before separating or retiring from the military, then you have enough flexibility to take the time for a thoughtful job search. You don’t have to sprint to sign a job contract before your terminal leave is over! There are dozens of books and tools to choose from (see the links near the end of the post) and if you have a specific topic area then I can even recommend specific websites and books.

Here’s an e-mail from a long-time reader:

Hi Nords,
I found the Early-Retirement.org site about seven years ago after a Google search for “is military early retirement possible”. I have spent many late nights reading the forum, learning a lot! My question for you, is that you always comment on the job offers that “come out of the woodwork” when you retire, and I wonder what type of jobs you are referring to.
My husband is eligible for retirement in 2.5 years. He is really experiencing burnout. We would not be able to fully retire, and would need a bridge career, but he just doesn’t know what is out there.
Your name came up in our conversation today, after a particularly frustrating day for my husband.
He was relating a story about a Navy guy who got news of a bad assignment. I said that according to Nords, they really start messing with you the last few years of your career. He laughed that I get my information about other services on a retirement forum, and said “Why don’t you ask Nords what kind of jobs are out there after you retire.” So I am! Thanks for your time, and all your past posts!

Back in 2005 a survey conducted by Russ Graves, a retired officer, concluded that 85% of retired officers immediately returned to civilian work after the military. This was independent of military career satisfaction, wealth, expenses, and other lifestyle factors. However in the more senior ranks, the percentages returning to civilian work were even higher. As unbelievable as the statistics may seem, it’s easier for military retirees to get a job than to stay retired.

In the middle of a tough tour, your spouse is facing long hours and burnout. You’re both a bit too busy to sit back and watch the world around you, occasionally commenting to each other “I could SO do that job“. When you’re spending 60 hours a week at work, then pursuing financial independence is less effort than tackling the scary job search. After most military retirements, you face the stress of relocation and perhaps the financial pressure to “get a job”. You may not know the local employment market in your new retirement location, you might not know anyone there, and you don’t feel comfortable taking 6-12 months to find a bridge career that you really enjoy.

Yet there are thousands of jobs out there for military retirees. We have skills. We have experience. You’ll be surprised at how urgent the hiring standards can be. Your biggest problem is networking, and your second-biggest problem is being patient enough not to leap on the first offer.

Part of our employment fear comes from the military’s self-perpetuating culture of constant criticism & humiliation. Our chain of command tells us every day that we’re barely capable of performing at our current rank, let alone getting promoted. We need to “pull our act together” and “step it up”. We hear about how hard it is to find a job in the civilian world and we get scared.

What employers want

The reality is that you & spouse are members of a demographic in high demand. Employers are seeking the skills that you’ve developed over two decades: “bringing order out of chaos”. It’s walking into a room with people, learning how they do their jobs (or how they’d like to do them), listening to their problems, and figuring out how to get things done. Maybe it’s writing a document or preparing a presentation. It’s cutting through some sort of workplace bureaucracy or figuring out who to call for help. It’s making coworkers happier & more productive so that they can form a team and solve problems. In the military we use squishy words like “leadership” and “taking care of our people“. In the civilian world it’s called “middle management” or “operations” or “program manager” or even “consultant“.

The corporate world is full of waste, inefficiency, and needless drama. Companies want people who can show up regularly, healthy & sober, and ready to work. They want employees who can communicate. They want workers who can recognize a good idea when they hear it. They want people who can remain calm under pressure. Judging from some military commands, our resumes should have bullets like “Knows how to get yelled at” and “Doesn’t get upset about deadlines“. They want people who have “common” sense (not so common) and who can think. They want people who can talk in front of a crowd. Being able to do math is a bonus. They can teach you all the other details about sales & finances. The basics can be learned from the Internet.

My final tour was at a training command. My (unsolicited) job offers were: GS-11 training program manager at the Pearl Harbor shipyard, contract instructor at several military commands in the area (like the instructor training school), and contract instructor at the local business college. Because I’m a nuclear engineer with way too much time standing watch and keeping the lights burning, I also heard from the local electrical utility, the local trash-burning power-generating plant, and shipyard firms. I didn’t write a résumé or network with submariners. I’m an introvert who prefers to avoid socializing. Heck, I don’t even play golf. Other shipmates are at engineering firms. Another takes care of the shipyard’s Emergency Command Center. A couple are Troops to Teachers at local high schools. A few guys who used to do incredibly stupid things on liberty with me are now running the corporate world, but that’s another bunch of sea stories.

When my spouse left active duty for the Navy Reserve, she drilled at a local headquarters command. Whenever she did her two weeks of active duty (or a few weeks of relief watches) she’d get a job offer by Day Three. It’d be a civil-service job (running an office or helping update programs), or an active-duty mobilization, or a contract to help design & run military exercises. One offer was a full-time instructor contract to teach military watch teams how to use the command’s specialized computers and software.

Other career options

Civil service is just one choice. Almost everyone in the military learns about maintenance, testing, and quality assurance. My submarine & aviation shipmates get those types of civilian job at defense contractors and QA firms. Military retirees know about military exercises and tactics development. Every major command contracts a network of military retirees to work a few dozen days a year designing scenarios for training and exercise simulations. A military pension lets retirees be selective about the contracts.

An Early-Retirement.org poster has been getting calls from wingmen who retired before him. In addition to civil-service offers he teaches online classes at a local business college. Because he and his spouse are near a military base with a steady stream of tenants, they manage several rental properties. He’s financially independent so he doesn’t stress about the work or his performance. He just enjoys each day as it comes.

Another Early-Retirement.org poster retired from the Navy to finish his bachelors’ degree in sports management. He’s stitched together a career of refereeing community basketball & softball games, plus working on the golf course. He doesn’t need a lot of money and he’s doing what he loves. He’s also part of a huge job-search network because everybody knows him from their leisure activities.

At USAA’s blogger conference I met a retired Air Force officer who’s “just a pilot”. A wingman hired him for a distribution job at a national retailer and he’s now their flight operations manager– he says he gets paid to fly all over the country. He just wants to fly, but he does some management & paperwork on the side to make sure that the products are getting where they need to go.

If you’ve saved and invested during your military years and you’re close to financial independence, then you can use volunteer service to start a bridge career. Consider non-profits. After my spouse retired from the Reserves, a shipmate asked her to volunteer with a military family literacy group. She’d presents the program to military commands & family groups before the deployment, and give them the program materials. She’d run a display table at book fairs & milspouse conferences. A couple years later she was hired as a part-time regional volunteer coordinator, and then as a program manager. She has savings and a Reserve pension and she doesn’t need to earn a high income.

Consider military-friendly companies like USAA. At the blogger conference I met a submariner who’d left active duty after his service obligation. He’s spending the next two years working 4-6 months in departments dealing with various member-related operations and special programs. They’ll teach him what he needs to know. At the end of that time he’ll fill out a “dream sheet” and let USAA’s “assignment officer” give him “orders” to a “billet”. USAA actually sets a goal of hiring at least 25% of their new employees each year from the military. I still don’t know exactly what some their people do all day, but they learned their skills on the job and they’re happy. USAA hired them for their potential and their military experience, not because they had graduate degrees in the insurance business.

Self-employment

Consider blogging freelance writing. This blog reaches a potential audience of four million military & families. After 16 months it averages 300-500 hits per day (and rising!). Personal-finance bloggers write for an audience at least 10x larger. They start with nothing and spend two years writing for free to build up an audience of 1000-2000 hits/day. They learn tips & techniques from other PF bloggers. After a couple of years they have their audience and an advertising income stream of a few hundred bucks a month. They learn more techniques from other professional bloggers and marketing execs– ironically from reading their blogs and watching their videos. After a couple more years the income grows to $1K-$2K a month from affiliate marketing, 50-page e-book sales, website advertising, podcast/YouTube advertising, contracting for smartphone apps… it’s an endless list. Their success is based on their writing ability, sure, but a much more critical skill is perseverance. When you’re writing for free then it’s easy to give up. When you’re close to financial independence, though, you have the time to be an entrepreneur and grow the business.

Very little money is required to write, publish, and sell a book. Again it takes persistence and patience, which you have acquired in bulk from the military. One book won’t buy the groceries but the process gets you started on a writing & speaking career. One of my shipmates used her military training experience to write a leadership book that she’s built up into a six-figure public speaking and career-coaching business.

Three ways to start

If military retirees were already living in their ideal retirement locations then we’d be able to research these careers in person. Most of us have to do it remotely, or have someone else do it for us, or we spend a few months doing it after we retire there. Taking a few months to learn the area can be scary because you’re living off of “just” a pension & benefits.

“Remotely” means signing up for LinkedIn.com, filling out a profile, and joining their military groups. Read posts by other servicemembers & spouses in those groups who are networking their next career. Don’t be intimidated by the jargon– these people got through their own transition, made plenty of their own mistakes on active duty, and would love to tell you what they’ve learned. The “hard” part consists of learning the bridge career’s new culture & language, just like transferring to overseas duty. Despite the scary stories, note that people are swapping job offers and career advice.

“Someone else do it for you” means a headhunter. Their staff will help your spouse (and you, too) decide what you want to do by translating military skills & personal interests into civilian equivalents. Then they’ll teach your spouse how to wear a different uniform, handle a different set of protocols, network, do interviews, and get hired. The hardest part is getting the servicemembers to figure out what interests they’d like to pursue. Servicemembers are overwhelmed with “Who would hire me?!?” but the answer is “Everybody in your chosen field”. All veterans have to come up with is a list of “what I like to do” from self-assessment surveys and other career-transition tools. My favorite headhunter story is the shipmate who spent months trying to figure out what bridge career he enjoyed. He did so well at career networking and interviewing that… Lucas Group hired him to be a headhunter. Then he went on to help another dozen of my shipmates find their bridge careers.

If you choose to spend a few months doing it after you move to your retirement area then join local service groups like VFW, MOAA, Rotary Club, or Lions. Just enjoy socializing at the meetings. Volunteer for service projects. As people get to know you, the job offers will come. If you’ve saved enough cash to go a year without a paycheck then it will help you relax and make good decisions without financial pressure.

Impact Publications has an entire catalog of books and pocket guides that cover every aspect of the transition.

Let me know if you want introductions to other Early-Retirement.org posters who were a big help on the book. They’re at all stages of the journey to financial independence, and they can help you too.

It’s not just about your spouse. At USAA’s blogger conference I met a dozen military spouses who have carved out their own entrepreneurial careers (because they move so frequently). There’s a huge network out there for your “milspouse employment”.

I hope these stories help. I’m collecting more stories for the second edition. Please tell me yours!

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Filed Under: "What do you DO all day?!?", Military · Tagged With: active duty, bridge career, early retirement, financial independence, military, military retirement, Navy Reserve, PostAWeek, retirement

Congress changes military careers and retirements

January 18, 2012 by Doug Nordman · 11 Comments

The last post summarizes the latest gloomy news about drawdowns and possible changes to the military retirement system. It’s full of links covering each of the service’s proposals to cut both active duty members and civil servants.

It’s a daunting task. The question isn’t “what” will be cut, but rather “how much”. You can try out your own version of defense cuts at this New York Times calculator. There are plenty of options, but the choices aren’t simple or easy.

Rumors have been flying that the services will offer a 15-year retirement. I can tell– for the last couple weeks this blog’s search terms have been dominated by phrases like “Army 15-year retirement“, “Navy early retirement“, and “early military retirement“.

Well, there’s a catch. The National Defense Authorization Act only mentions separation incentives in section 526, where it extends voluntary separation pay and benefits authority to the end of 2018. Technically a military “temporary early retirement” has only been authorized by Congress. That’s just the first step– giving DoD the authority. It’s still up to each individual service whether or not they implement their own programs.

The last round of 15-year retirements started in 1993, and at first it was not pretty. All of the services had small cohorts of officers who had failed selection for promotion to 0-5 but who had been allowed to continue on active duty. Their continuation approval letters said “… until eligible for retirement” which had been interpreted as “20 years of service”. When the 15-year retirement program was imposed, however, the submarine force declared their continued officers “eligible for retirement” and gave them less than the usual year’s warning to retire.

The issue with a 15-year retirement (aside from the short notice) was that the pension multiplier was still 2.5% but a 1% penalty was applied for every year below 20. Retiring at 15 years of service would reduce retiree pay by 5% below 37.5%. In other words, a 15-year retirement offered only 32.5% of base pay. There were other “catch up” incentives to encourage retirees to seek certain types of post-military employment in exchange for a higher pension at age 62, but many regarded 32.5% as barely more than Social Security. A 15-year retirement could cost hundreds of thousands of dollars of lifetime pension payments.

The 1990s 15-year retirement program wasn’t very popular with the service’s financial or personnel staffs, either. DoD issued funding regulations which obligated the services to pay for their TERA pensions up to the 20-year point. This meant that every 15-year retiree’s pension came out of the Army, Navy, or Air Force budgets until they would have been authorized a full retirement. DoD did not boost the service’s funding for TERA and the services could not tap into the DoD retirement trust fund until the retirees had the equivalent of 20 years of service. True, the services were paying as little as 37.5% of base pay (and no allowances), but they were paying it for as long as five years to people who were no longer in uniform.

Ultimately, the 15-year retirement program wasn’t very successful. The small pension discouraged many servicemembers from volunteering, while the funding burden deterred the services from imposing the program on many who were eligible. The services actually made most of their personnel cuts by reducing accessions. Most of those who left the service used early separation programs which paid a cash incentive, not a pension. More importantly, these programs were being offered in the mid-1990s. The Internet gold rush was in full swing so the obscenely generous salaries & benefits tempted many to seek their fortunes online. (A few years later, many of them regretted their choices.) These 1990s separation incentives wouldn’t be very popular in today’s shaky economy.

But, hey, a 15-year retirement could still happen. If you’ve been aggressively saving your earnings then you might be close to financial independence, and you could retire with a lower pension. If you have more than 13 years of service and think that you might be interested in the program, then test-drive your decision now. Review your finances, discuss it with your family, and understand the impacts. If the services announce the program they may use a first-come-first-served priority and you may need to file the application within 24 hours. Even then the services could choose by specialties and performance. Personally, I met all the requirements but was turned down three times because the submarine force belatedly realized it had cut too deep.

Whether or not you leave the service voluntarily, you’ll have more support during this drawdown. Both the President and Congress have boosted the military’s transition assistance programs and have offered tax credits to employers who hire veterans. The private sector has committed to hiring as many as 100,000 veterans, and their “Veterans Job Bank” makes over 500,000 employment openings available online in a format that’s easily searchable. Other initiatives provide higher limits on Veteran’s Group Life Insurance. The NDAA also limited the increase in annual TRICARE enrollment fees for retirees & families to the annual retiree COLA percentage. This caps the rate of future increases to allow families to remove uncertainty over medical costs.

The cost-cutting news isn’t totally gloomy. There’s also a rumor that Viagra may soon return to the Tricare formulary. It’s considered more effective and Pfizer is offering a substantial discount. [Insert joke here about the military's size and effectiveness.] It seems that everyone wants to support the troops…

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Filed Under: Finances, Military · Tagged With: early retirement, military, military retirement, National Defense Authorization Act, pension, retirement, Tricare

The first stop on “The Military Guide” speaking tour

October 24, 2011 by Doug Nordman · 4 Comments

Some of us early retirees talk about “giving back” or “paying it forward“ by teaching our financial planning and ER skills to the next generation– whether that’s at a high school, a college, or an adult-education program.

I think the contributors did a great job of that with “The Military Guide“. They handed me their advice (a few even wrote parts of the chapters) and I organized their knowledge. It’s straightforward and I’m told it’s highly readable. However “giving back” and “paying it forward” happen every day in the military– we just call it training. A speaker gathers a small groups to teach, demonstrate, and then lead in their own hands-on performance. Nuggets of knowledge are dispensed in 50-minute doses. I personally did it almost daily at two training commands for nearly eight years, and also several times a week on two submarines for over five years. I enjoy it and I’m good at it.

So far the book’s marketing has been in print or online, and it’s spread largely by search engine or social networking. (Thanks!) I’ve handed out lots of review copies to personal-finance bloggers, journalists, and “influential posters” on discussion boards, but there’s no personal contact during the sales decision. (Of course a few of you have taken the initiative to pass out the pocket guide at your commands.) The sales decision is totally in the reader’s hands, and I have no idea who that is unless they e-mail me or post a comment.

But now I have a chance to do some of that paying-it-forward in front of a crowd. In the next month or two I’ll actually talk about ER and the book face-to-face with my first group of military. It’ll probably be 10-20 servicemembers, veterans, and spouses at one of Oahu’s local libraries. I plan to talk for 10-20 minutes and then take questions.

I have part-time support from the library’s publicist. I have plenty of time to market this through military websites, base newspapers, flyers at military exchanges, and maybe even a radio PSA. In the entrepreneurial world it’s known as an elevator pitch– a random customer with whom you only have 30 seconds to set your hook and invite to a longer presentation.

Some of the advertising is straightforward:

“ALL royalties support the troops through Wounded Warrior Project and Fisher House, the first two charities chosen by the book’s contributors.”
“FREE copies of the book for the first five military servicemembers, veterans, or family members who sign up. $15 value.”
“FREE copies of the 4″x5″ 64-page pocket guide for the next 10 people. Not in stores, only from the publisher at $2.95/copy +S&H.”
“25 copies of the book will be on sale for $10 cash. $5 of each sale will be donated to Wounded Warrior Project and Fisher House.”

If I hop up in front of a military crowd with a PowerPoint presentation or a flip chart, it’s over. We’ve all seen enough of that in uniform. Instead I’m just going to hand out a page of bullet points. These are discussion topics with room for taking notes. Or the audience could flip through the book (while I’m flapping my jaws) and make their decision that way.

Here’s the curriculum of just three points:

The military’s biggest drawdown in two decades is about to begin. Get ready by making yourself financially independent.
Think about what you want to do after the military: bridge career, part-time work, or full-time retirement. Would you like to be financially independent when you leave the service? It typically takes 10-20 years but can happen as quickly as five years.
The top three worries of all retirees are inflation, healthcare, and “But what will I DO all day?!?” The military retirement system takes care of the first two. You’ll have no problem figuring out the third. Even if you don’t retire from the military, you still have benefits.

The rest of the Q&A can focus on those three points or delve into these take-home topics which are also in the book:

Track your spending for a few months.
Develop your budget from what you’ve learned by tracking spending.
Decide what’s valuable to you, and allocate your spending accordingly.
Save as much as possible.
Max out the TSP and IRA(s) and put the rest in taxable accounts.
Develop your retirement budget. What would you like to do all day?
Calculate your savings goal, your savings rate, your asset allocation, and your financial independence date. The book shows you how.
Frugality vs deprivation.
The fog of work.

I’m going to dress for success: aloha shirt (untucked, of course), a nice pair of shorts, and slippers. Hey, we retirees have an image to maintain. Heck, I’d dress like a GEICO caveman if I thought it could get the point across, although some of my alleged friends point out that my style is most of the way there already.

The fun part of the talk will be selling the lifestyle while people think that I’m trying to sell them a book. Ha! I’m just there to pay it forward and talk story for a while. I enjoy that whether I sell books or not. Once I manage to explain why I wrote the book, they’ll understand why they should buy it. Or at least borrow it from the library.

If you had 10-20 minutes in front of a retirement-curious crowd, what points would you like to make?

Related articles:
Lessons learned on book signings

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Filed Under: Books & publishing · Tagged With: early retirement, Fisher House, military, Military Guide, military retirement, postaweek2011, retirement, Wounded Warrior Project

DoD panel proposes new retirement system

August 4, 2011 by Doug Nordman · 8 Comments

By now many of you have seen the scary headlines:
“Dump the Military Retirement System?”
“No more 20-year rule?”
“DoD panel calls for radical retirement overhaul”

In my opinion these headlines are the military equivalent of the same scare tactics you can get from the financial media.

Imagine if CNBC or the Wall Street Journal or SmartMoney came out with a civilian headline:
“Congress to radically change 401(k) retirement laws!!!”

Panicked readers would overwhelm websites, buy all the papers & magazines off the newsstand, and glue themselves to the daily TV shows. Then the talking heads would start dragging senators & representatives onto the sets to defend our traditional retirement standards and our American way of life.

But upon further reading you’d learn that what really happened was a press release on the steps of the Capitol by an Ameriprise lobbyist about an obscure think tank proposing lowering 401(k) matches, letting fund companies charge higher fees, and raising the minimum age for distributions. Then you’d find out that the panel was funded by the major 401(k) fund-management companies. You’d know immediately that nobody would vote for such a blatantly self-serving proposal.

It’s the same fear & uncertainty in these military headlines, only this time it’s intended to motivate servicemembers, families, and veterans to write their elected representatives. (Just look at the reader comments on the linked articles above.) The media want to get your attention so that you’ll subscribe to their publications. The benefits websites want you to click on their ads. Even the veteran’s support organizations can use your membership dollars.

DoD has been ordered to cut a few hundred billion dollars from the budget, and they’d rather not cut fuel or ammunition. They’ve already raised Tricare premiums, and doctor’s reimbursement rates are once again scheduled to be cut. There’s scuttlebutt about scrapping (let alone postponing) the Navy’s latest aircraft carrier, the USS KENNEDY (CVN79). Aircraft programs are being cut way back, Army weapons systems development is grinding into low gear, and once again the Marine Corps is getting eyed by the other services like the honorary guest sheep at a wolf’s club banquet. I’m not holding out much hope for accelerated submarine construction, either.

One way to accomplish these budget cuts is to have “independent authorities” (preferably bipartisan blue-ribbon panels filled with retired officers and experienced defense consultants) turn their staffs loose to brainstorm various creative proposals. Some of the groups were started by previous administrations, others are projects of the service heads, and a few are legitimate think tanks like RAND. They float the trial balloons to their bill-paying customer: DoD. DoD passes them over to Congress to show that they’re taking a “hard look” at every possible cost reduction. Congress shoots them down (“Support our troops!”), or the President vetoes them. The next panel looks at the issues, and the cycle starts anew.

A similar system tried to raise Tricare premiums for over 15 years. Nearly every year DoD would propose a premium hike, and every year Congress would vote it down. The reality is that the think tanks, lobbyists, and DoD failed to make the case to Congress for raising Tricare premiums. It was actually accomplished with the support of the veteran’s organizations, and only because they could see that they would eventually lose this battle of attrition. They reluctantly supported a premium hike in exchange for controlling the rate at which future increases could happen.

The last major change to the military retirement system was a miserable failure. It took decades to pass the military’s 1986 REDUX retirement system. It did not affect anyone already in the service– only new recruits. Yet just 13 years later their retention had plunged so low (perhaps aided by the Internet gold rush) that the Joint Chiefs of Staff actually appealed to Congress to restore the previous retirement system. Congress compromised with a combination of High Three (which is more popular) and the REDUX Career Status Bonus (which is being allowed to shrink through inflation erosion).

In 2004 DoD radically overhauled its civilian personnel employee rules with the National Security Personnel System. Only four years later it was substantially amended. This was a program covering just 180,000 civilians and it still hasn’t been fully implemented. The military is nearly an order of magnitude larger.

The last major change to the military retirement system actually allowed senior enlisted and senior officers (E-9s, flag officers) to collect pension multiples up to 40 years of service instead of 30. Pensions at those stratospheric ranks used to top out at 75% of base pay and can now go to 100%. But at that level of leadership, it was never about the money. It also doesn’t affect the rank and file, except for those exceptional performers who will someday make the top ranks.

The military’s coming budget cuts (and the personnel drawdown) will be bad enough. However the retirement system will not change anytime soon. It might not even change this decade. One harbinger of the change will be matching TSP contributions, which will eventually help Congress agree to support pension cutbacks. Even when the change arrives, servicemembers will be able to stay under the current system or volunteer for the new system.

Personally I think it’ll be decades before Congress ever changes the 20-year system, and troops may still vote with their feet.

Next time you see a scary headline about military retirement, figure out who’s proposing the idea– and who’s paying them. Then you can decide how credible their plan is, and whether it will survive Congressional debate. Even then it’ll probably require the support of a coalition of veteran’s organizations.

Until then, keep pursuing financial independence. If the system does change, then you want to have your own choices!

Related articles:
Will Congress change military retirement?

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Filed Under: Finances, Military · Tagged With: Congress, Department of Defense, early retirement, Joint Chiefs of Staff, military, military retirement, National Security Personnel System, postaweek2011, retirement

Getting “the job call”

May 11, 2011 by Doug Nordman · 2 Comments

“The Military Guide” blog has reached 100 posts!

Thanks to everyone who’s read and commented over the last eight months. I think my military skills & discipline will keep this going for another year or five, so tell your friends!

On with today’s post:

One of my shipmates mentioned a few weeks ago that instructor duty was the best tour we’d ever had. Unfortunately, no matter how skilled or valued we were at the training command, to the assignment officer we were just a bunch of fungibles to be rotated back to sea duty and hammered down into our little round holes again. It became a retention issue. The shipmate eventually left active duty and returned to the Mainland to start his civilian career.

He said that he wouldn’t mind teaching at our training command again. It reminded me of the second chance I was offered there after I’d retired, and maybe he could do the same:

My final tour at the submarine training command was in a gigantic building which was only half-full after the 1990s drawdown. Several classrooms hosted a self-study program of nuclear junior officers preparing for their Engineer qualification exam at Naval Reactors.

One day we got an unusual request from the shipyard. They needed space for their training program to teach civilian engineers how to supervise submarine reactor overhauls. Although their focus was a little different from the officer’s studies, both programs shared the same reference materials and basic subjects. The best part about shipyard’s request was that their instructors were experts in areas that our instructors weren’t so familiar with, and vice versa. Our military instructors were relative short-timers with only 2-3 years on shore duty while their civilian instructors might stay for a decade. The students in our two programs would someday meet again during a submarine overhaul, so it seemed like a great idea for them to start working together now. Soon a half-dozen shipyard staff moved in with us to start teaching their own students.

Their supervisor and I share a common background– we’re college alumni and we’ve had similar submarine careers. He’d left active duty for the Reserves and was drilling on weekends in my spouse’s unit. We all knew the same social circle and became friends. He knew I was retiring soon but I never talked about my early-retirement plans at work.

Many military “retirees” start bridge careers as civil servants. (It’s one of the reasons we wrote the book.) Changing from one government uniform to the other is subject to a huge stack of ethics guidelines. One of the basic rules is that you can’t retire from your military billet one day and then return the next day to the same billet as a civil servant. You’re supposed to find a different job or else wait at least six months before returning to that billet, presumably allowing someone else to compete for it first.

I was eager to retire and I wasn’t looking for a job. (I didn’t even write a résumé.) I left our building about a year after the shipyard school moved in and I didn’t keep in touch with coworkers. Retired life was better than I’d ever believed possible, our finances were recovering from the 2002 bear market, and I couldn’t understand why anyone would want to start a bridge career.

Six months and one day after I’d formally retired, the phone rang. My friend said he was short-handed at the shipyard school, and would I like to teach there?

I was flattered that he’d kept me in mind all these months for the proverbial dream job. I’d teach 3-4 hours/day and then spend another 3-4 hours at a desk helping the students with their studies. No other duties. Low stress, great coworkers & students, shared camaraderie, plenty of time for lunches & workouts. In a few years I’d be earning $90K/year. I could start as soon as I’d picked up a few more aloha shirts and some comfy teaching sneakers at Goodwill.

Confusion immediately set in as my internal dialogue lurched back & forth:
“I could SO do that job.” “What’s wrong with retired life? Why would you want a job?”
“$90K/year to enjoy teaching again?” “What would you do with more money?”
“Only eight hours, no weekend duty!” “What if the surf’s up on a Tuesday morning?”
“I can’t let this chance slip away!!” “Dude, you’ve only been retired for six months.”

The vision of being a nuclear expert (again) was doing impressive things for my ego. But two years ago at the retirement seminar, I thought I’d had enough of that. One of the shipyard instructors mentioned a submarine drydock midwatch a few times a year to help out with testing. So I’d get paid to hang out with submariners again, drinking engineroom coffee and telling sea stories? Cool. However I’d be at work after dark and chatting with grumpy watchstanders to stay awake while swilling day-old coffee.

Of course I’d have to punch a clock at the same times every weekday. I’d be doing rush hour again twice a day, sweating out the traffic jams and possibly even trapped at work by accidents every few months. Ugh.

My 10-year-old daughter wasn’t much help. She’d be sorry that I couldn’t be home to greet her after school. However she felt she was getting a little old for that and she wanted to spend more time with her friends. But would my new salary mean that we could buy a horse?

My spouse finally nailed me:
Would I want to keep improving at my instructor job? Well, sure.
Would I want to go through the entire shipyard training course? You bet.
How about advanced qualifications for more classroom credibility? Absolutely.
Would I want to be the lead instructor? Hey, I’m good at that.
Would I spend more time on submarines to learn how our classroom training was applied at shipyard? Uh, OK.
Would I want to fill in for my boss while he was on travel or vacation? Um, possibly.
Would I start climbing the career ladder all over again for no particular reason other than the sheer joy of self-imposed hyperactive testosterone-fueled competition? Busted.

The work would be complex, somewhat autonomous, and quite fulfilling– but I wouldn’t have complete control over my schedule. It was 50 weeks/year of work. I didn’t want to get swept up in the career climb again. As I mulled over the possibilities, I realized that I didn’t really have an exit strategy. This was not a temp job. If I chafed at the schedule and the career issues (let alone the commute), then there was no easy way to resolve them other than by quitting. Yet my friend truly needed help, and he wasn’t running a sociology lab for me to figure out what I wanted to do with my life. I was supposed to help him solve his problems, not the other way around. It just didn’t feel right.

A couple days later I turned down the offer. I eventually found a creative outlet to suit my flexible hours, and I’ve never regretted “missing” the job opportunity. In fact I hadn’t thought of it in years… until my shipmate mentioned how much we’d enjoyed teaching. Ironically that seems to be exactly what I’m doing right now!

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Filed Under: "What do you DO all day?!?" · Tagged With: active duty, civil service, early retirement, Education, military, military retirement, postaweek2011, retirement, Shipyard, submarine

The Reserve Component Survivor Benefit Plan

April 14, 2011 by Doug Nordman · 5 Comments

This earlier post describes the SBP and its options, as well as the pros and cons of buying it for your survivors. If you landed here from a search engine or some other link then I’d recommend reading the previous two posts before proceeding with this one.

Some of the references and links in this post include articles from the Association of the United States Navy (AUSN), a support group for sailors and officers formerly known as the Navy Reserve Association. Although AUSN is a Navy organization, the SBP is covered by Congressional legislation implemented by the Department of Defense for all services, both active & Reserve/Guard components. The AUSN links to their February-April 2009 magazine may only be accessible if you’re a member. (AUSN is a great group, and I’d highly recommend joining just for their career advice and their benefits updates.) Please let me know if you have public links from the DoD or another service and I’ll add them here.

The SBP was enacted by Congress in 1972, and the Reserve Component SBP was added in 1978. The RCSBP sells insurance to Reserve/Guard who have applied for retirement but who are not yet age 60 (“gray area”). Once they reach age 60, their RCSBP is the same program as the SBP but with slightly different premiums to cover a portion of the cost of the years before age 60. Congress pays about 40% of the program and the rest is covered by the retiree’s premiums paid to the SBP and the RCSBP.

Although only about 75% of active duty retirees buy the SBP, over 90% of retiring Reserve/Guard enroll in the RCSBP. The difference appears to be the inexpensive insurance coverage during the “gray area” years before age 60, and the fact that premiums aren’t due until age 60.

RCSBP is another incentive offered by the Department of Defense to encourage Reserve/Guard to retire awaiting pay instead of resigning pending retirement. When Reserve/Guard reach 20 years of qualifying service they can either apply for retirement (awaiting pension at age 60) or resign from the Reserve/Guard until their pension starts (at age 60). For the DoD, the difference is that “retired awaiting pay” means the member can be recalled in the event of a full mobilization of the armed forces. (Even though recalling a retiree is highly unlikely.) There are a number of financial reasons to retire instead of resigning, and an additional reason is that Reserve/Guard who have “retired awaiting pay” can buy SBP coverage for their beneficiaries.

Another reason to buy RCSBP coverage is because it starts as soon as the Reserve/Guard member retires instead of at age 60. It’s possible to reach 20 years of qualifying service in your late 30s and wait over two decades before drawing the pension at age 60. If SBP is elected at the time of applying for retirement, then the Reserve/Guard member has SBP coverage for that entire time before age 60. (By law, upon retirement the member is automatically signed up for full coverage. The decision to reduce or decline coverage is actually made by the spouse.) If the retiree dies prematurely then one of their survivor’s options would be to receive up to 55% of their pension immediately instead of waiting until they would have been age 60. The Reserve/Guard member doesn’t actually have to pay the SBP premiums for that coverage until their pension starts. In other words, Reserve/Guard who have “retired awaiting pay” can have over two decades of “free” insurance coverage before they even start drawing their pension. Better still, at age 62 (after paying two years of SBP premiums) they can either continue their SBP coverage or cancel it.

The RCSBP has three options:

A: Decline coverage until age 60 and revisit the decision then.
B: Deferred Coverage – If you die before age 60, a RCSBP annuity begins paying out on what would have been your 60th birthday.
C: Immediate Coverage – The RCSBP annuity would begin on the day after your death, even before age 60. This is the default option.

The RCSBP’s enhanced “free” gray-area coverage comes at a price: the premiums are calculated at a slightly higher rate than the conventional SBP’s 6.5%. The premiums are determined from data tables and fact sheets provided when the Reserve/Guard member receives their notice of eligibility for retirement (20 good years). Members can also estimate their payments from a RCSBP calculator.

Spouses can elect the full amount of coverage (55% of the Reserve/Guard pension) or smaller amounts. As discussed in the last post, the decision should be based on the survivor’s projected spending or to insure the ability to pay off a large expense such as a mortgage.

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Filed Under: Finances · Tagged With: early retirement, Insurance, military, military retirement, National Guard, postaweek2011, RCSBP, Reserve, Reserve Component Survivor Benefits Plan, retirement, SBP, Survivor Benefits Plan

More SBP details

April 13, 2011 by Doug Nordman · 3 Comments

Let me disrupt the posting schedule for a day with some additional SBP information from Monday’s post.

One of the book’s contributors forwarded me not one but four separate SBP briefs put out by the Air Force Personnel Center. With the gracious permission of Mr. Dan McCullough, who added some clarification slides, here they are.

This 50-slide brief includes SBP details for divorces, disability retirements, and “insurable interest” provisions.

This five-page document presents more background to consider on the SBP decision: gender, health, family longevity, spouse’s income, expenses, your survivor’s needs, and the SBP’s COLA benefits. If you’re reviewing your options with an insurance agent then you’ll also want to read about SBP “alternatives”. (Hint: there really aren’t any trustworthy ones at these government-subsidized prices.)

This three-page document is an actuarial analysis of the SBP. You male retirees may want to note the likelihood of your spouse outliving you, and by quite a few years.

Just to emphasize the concept of the SBP COLA, this study compares the cost of a lump-sum insurance policy to the SBP. Initially both programs yield the same payout per month, but in later years the SBP’s COLA starts to outperform the insurance policy. To make matters worse (for the insurance company), a policy with equivalent COLA features would cost far more money.

Tomorrow: the Reserve Component SBP, and this time I really mean it.

Related articles:
Survivor Benefit Plan

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Filed Under: Finances · Tagged With: Air Force Personnel Center, COLA, cost of living adjustment, early retirement, Insurance, Life annuity, military, military retirement, pension, postaweek2011, retirement, SBP, Survivor Benefit Plan

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