If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1) or Our Early Retirement Plan: My Personal Income (Part 2).
Before I start, I should come clean. I’m going to be putting some words in my wife’s mouth. We’ve talked about things a bit and this post is a result of those conversations.
I’ve mentioned in the past that my wife is a pharmacist in the military. As such she gets a few different types of pay. She gets her base pay, a cost of living adjustment (COLA), a housing stipend, amongst others.
- The housing stipend is paid to her tax-free. – This stipend is a pretty huge sum of money because it’s adjusted for home prices in the area of office. Since my wife works in San Francisco, one of the most expensive places to live in the US, she gets a lot of money. This money about 50% more than our actual rent. We pocket the rest – one of the benefits of living frugally.
- We live in two states – We traveled west to settle in San Francisco, California we went through Reno, Nevada. We fell in love with it. The weather is great. It’s close to skiing, which my wife loves. It’s close to casinos, which I love (I just keep my bets reasonable). You’re wondering where I’m going with this? The military has thing called a Home of Record which can be different than your Legal Residence. It allows for the possibility of living in one state and voting or paying the income tax of another state. It’s a weird law, but we follow the rules. Plus, if the military didn’t move us around, we probably would have lived in Reno anyway. For more information see this About.com article.
Despite what you hear about pensions disappearing, the military pension is still strong. It’s backed by the US Government. I have difficulty imagining a scenario where congress passes something that would prevent the hard-working people of the military earning their pension. My wife is eligible for this pension after 20 years of service… around age 44.
The Military Pension is a fascinating personal finance topic. At that 20 year mark, you have the opportunity to retire, take 50% of your highest base pay (no more housing stipend or other pay). If you don’t want to retire and stay on another 10 years you would then get 75% of your highest base pay. It’s a tough choice, because you stay on your base pay is likely to grow and you get to keep more of it. Of course, you could always retire from the military, take the pension, and work elsewhere – collecting two paychecks. As a pharmacist, my wife should have numerous jobs available to her. This can be a tough decision and one that Plugged in Finance tackled recently. If anyone else wants to crunch numbers on this one, I’d be appreciative.
I should also mention that military pensions are indexed for inflation, so we will truly get the same amount of buying power each year. I’m not sure if other pensions set up that way.
My wife has expressed interest in having a side job in retirement. She often jokes about having the job with the least about of thought necessary. I can’t come up with an example right now, but she did have an idea for a real job that she would like… chauffer for people visiting Napa Valley wineries. I personally wouldn’t want to be dealing with a bunch of drunk people, but I know I could make a killer blog out of Napa Valley Limo Confessions. It would make HBO’s taxicab confessions look like child’s play. I could also spin that off into a real winery review blog. In any event, the point here is that she is likely to wind down to working less, but not stop working completely. Even if she leverages here pharmacy license, she could make quite a bit of money in just one day a week. Thus some addition income can be expected from here.
Like myself, she’s been maxing out here retirement accounts – both 401K and Roth IRAs. We see no need to change that. It will be $19,000 a year for the next 11 years until she reaches that first retirement decision. That should be a nice nest egg by the time we are eligible to take the income.
I mentioned yesterday that I have a rental property. My wife has one as well. She had bought her’s before we had met. Like me, she barely makes back her expenses on it at this point. However, in 30 years it will be paid off and any income that it earns after that be a nice supplemental income.
When I was working in a pharmacy during college, there were a lot of part-time pharmacists with our retail store. Many had strict requirements (i.e. they wanted to work 2-3 days per week, and no more than 4 hours per day), but the company wanted to keep them happy and met their needs.
As long as there is a pharmacist shortgage, your wife should be able to find a job on her own terms, earn a decent paycheck, and still have plenty of time to enjoy early retirement. Good luck!
Mr. ToughMoneyLove says
It appears that 75% of your retirement planning was complete when wife decided to stay in the military for the full 20. Also, I don’t see any analysis of the rental properties – I’m guessing that your ROI and ROE on those properties is poor but you are either too lazy (no offense – its true to your name!) to figure that out or you don’t really care because everything else you are doing is in good shape. Me – I would not want to have money poorly invested in something now just because it will pay a supplemental income in 30 years. That is particularly true if the investment takes work and carries non-investment risks, like rental property does. So, what is your ROI and ROE on that property?
Lazy Man says
In some ways, her decision to stay in for the 20 years actually just kicked off the first 1% of my retirement plans. I suddenly realized that she could retire at 44-45 and I’d be retiring 20 years later if I went with the traditional plan. It’s what pushed me to start this website to learn how to create other income streams (with some degree of passivity). Ironically this is the biggest one for now, but I’m starting to grow others that are close.
I really am too lazy to do the ROI and ROE’s on the rental properties. They were intended to be our homes – not bought for income. However, with a big promotion to move across the country the decision was either try to sell at a loss or rent them out and break even. When those are your choices, calculating the ROI or ROE isn’t productive.
It’s close enough to break even that it is insignificant to our overall plans. I’m treating them like social security, a bonus on the plans that I already have. If they turn out to be something significant, then it just gives us that much more wiggle room.
jane doe says
Rental properties can be a royal pain. First, there are the rising property taxes. Then there are the repairs, etc. So the money you get in rent each month is partly– and maybe a a large part– spoken for.
[email protected] says
Let me just say, in all sincerity, if your wife starts a business chauffeuring tourists around the Napa Valley, let me know about it! The only reason I haven’t been yet is because I know I don’t want to drive myself. I promise my girlfriends and I won’t be obnoxiously drunk – just fun! On the other hand, drunk people usually tip better than sober ones. Just a thought!
a little correction: retirement pay is based off of the average pay of the last three years of service. also, every year over 20 years, you get 2.5% increase in retirement up to max of 75% total.
you also have to make grade. the key is to make major otherwise high chance she will be booted out before 20, normally at 19. this is presuming she’s an officer in the military.
if she does wear a uniform, she is also eligible for the new “9/11” GI bill. Serve at least 10 years after 9/11/2001, she can transfer those ed benefits to you or your kids. This is one of the best benefits that congress has passed lately, and i’m amazed at how many military people do not know about it still. takes a load off of your mind about how you are going to help contribute to a kid’s education, if that is something you believe in.
Lazy Man says
Thanks for the correction. I had read this but really didn’t want to go into that level of detail. There’s also a “REDUX” election system that looks like it could complicate things.
The “9/11” GI bill is something we’ve never heard of. I’m definitely going to have to see what the education benefits are, because she would be eligible for that I believe.
Lazy Man says
In looking at it again, it seems that that “Transferability is limited to those currently serving in the military and will likely be used as a retention tool.” (link)
Since we don’t have children yet, it would seem to require my wife to work another 20 years or so for this benefit (unless I’m reading it wrong). It doesn’t seem that this would be helpful for us, she would have to give up her goal of retiring after 20 years of service.
I did not mention CBS/REDUX, because it is a bad deal compared to the High-3; moreover, if she doesn’t finish at least 20 years, she owes pro-rated of the $30k CSB.
if she serves 10 years after 9/11/2001, and you have a kid before she retires at 20, you can transfer the benefits to the kid and the kid has unlimited time to use the benefits.
Lazy Man says
Sweet. Unfortunately, for now, we are still excluded since my wife is in one of the military uniformed services that was not written into new bill. There’s something afoot to change that, but it looks like it need some kind of amendment for us to take advantage.
amendment to my previous post #10: the point about having to be in the service is if you only have 6 years after 9/11/2001, because you have to commit to 4 additional years of service. However, if you serve 10 years, you can transfer then. since you have 15 years to use upon service termination, you can transfer to spouse or dependent(s) only if you have the 10 years total service after 9/11/2001.
which uniformed service are you talking about?
carol stanley says
Better check with your wife before making new comments…However I like the limo idea…and Iwould love to be in her taxi driving around tasting fabulous wines…Great idea.