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.