The best way to estimate your military pension is with one of the calculators available on militarypay.defense.gov. For most folks in the window to retire, the High-3 plan will apply where you receive the average of your highest 3 years of base pay on active duty (usually your last 3 years).
You plug in your retirement year (or estimate) years of service, grade, and then estimate inflation and pay raises plus your tax rate after retirement to generate a fairly lengthy output. There are several graphs of how much your retirement amounts will increase over time and such, but the most important chart is at the very bottom and it is labeled Summary Results Table. This chart shows your your monthly and annual pay before and after taxes and provides an estimate of how your pay will change based on the active duty pay raises you selected.
So now you can calculate what your pension will look like with various scenarios on inflation, cost of living increases and tax scenarios. Some states either don’t have a state income tax or exempt military pensions and these facts are important to consider when you are picking your retirement location.
In this scenario, the pension isn’t enough for an average family to live on without some pretty severe belt tightening, but it provides a nice supplement to either a second career income or to offset the amount of retirement savings or other income producing investments (such as real estate) you have to draw from upon retirement.
The best characteristic of the military pension is that it represents a government backed annuity with guaranteed cost of living increases.
Next post we will punch some numbers on example retirements.by Rich
I recently had my eyes opened on retirement. I was trudging along planning to retire from the Navy with a generous pension and then get a “beltway bandit” job at a defense contractor to rake in some big cash before I permanently retired. Now, I might find myself going down the contractor path, but as of right now that is not my plan.
After some research I discovered I might be able to just retire from the Navy.
Currently, we live in Northern Virginia and the cost of living here is very high. Way too high to retire on just my Navy pension. That’s ok as my wife and I have no intention to retire in this area. We are looking at several locations, our most promising current locale is Northwest Washington State. My goal between now and retiring from the Navy is to save for a big down payment on a house in the Pacific Northwest.
In this blog post I want to discuss some the websites I peruse regularly for financial/retirement advice, some of the calculators available online and budgeting options, to include Excel spreadsheets and paid for software.
So the first site I stumbled upon for the topic of early retirement was a guy who calls himself Mr. Money Mustache (mrmoneymustache.com). His blog focuses on budgeting, cutting costs and retiring earlier. MMM and his wife retired at 30 to raise their son. Their current annual budget is $27,000 (they own their home outright). MMM has been featured on a slew of financial, self-help and news sites/programs, most recently in a Washington Post article (http://goo.gl/FcuQk).
His frugality may be more than some folks (your dedicated scribe included) can live with, but he provides some great motivation with financial “face punches” to folks spending huge amounts of money and working their entire lives to maintain a ridiculous” Exploding Volcano of Wastefulness”.
MMM has over 300 blog articles and a very active forum of “Mustachians” who share advice and “badassity”. A great group of folks.
Next up is The Military Guide website (http://the-military-guide.com) Doug “Nords” Nordman has literally written the book on military financial independence (http://goo.gl/ur3HY). He and his bride are retired (he from active duty Navy, she from the Navy Reserves). They live in Hawaii, where he splits his time between surfing, managing a rental property and running a kickass website/blog.
Nords posts tend to be more aligned with military financial independence and retirement, but he still covers a lot of ground of great use to almost anyone. He is a regular poster on many other sites (to include MMM, where I first found out about him). His posts are very well written and very entertaining.
There are a slew available online. I’ll discuss two I really like.
Todd R. Tresidder is the owner of financialmentor.com and a financial coach. His website provides a plethora of advice and some of the best financial calculators out there. My favorite is his Ultimate Retirement Calculator, http://financialmentor.com/calculator/best-retirement-calculator
This calculator asks for your age at the end of the current year, age to retire, life expectancy, annual desired income and allows you to input several variables, such as cost of living adjustments to pensions, expected rate of return, expected inflation etc. It is a fairly comprehensive calculator, but lacks any type of historical averaging or Monte Carlo simulations, it just runs the numbers against your predicted returns. The lack of historical returns is on purpose, Todd does not think it is particularly relevant. It is a great calculator to run various dollar amounts through as far as how much income you will need, what size estate you want to leave etc.
Nords did a great review/explanation of Todd’s calculators here (http://goo.gl/BHigD)
Firecalc http://www.firecalc.com/ is a very powerful retirement calculator that runs your predicted finances through scenarios involving data from every year since 1871. The end result looks like a kid’s Spirograph gone horribly wrong, but will show you the percent chance your retirement plan will work across all the years. This is handy to give you a percent chance your savings and spend plan will support you your entire retirement. If your plan survives contact with the crash of 1929 you are probably in pretty good shape!!
There are a bunch of financial calculators available, and I have only listed two. They are my favorite and you should try several to see what works for you. It is important to understand the investing philosophy of the owner of the calculator and ensure that philosophy aligns with yours.
I have toyed with many budgets over the years with limited success. Once my wife and I got serious about this new retire early plan, I modified an Excel based monthly budget and started using it.
What really made it much more effective than previous attempts was one important change to my system. Previously we spent pretty much what we wanted and did our best to pay off debts early. With the new system, my wife and I agreed to pay ourselves an allowance every two weeks. This allowance was automatically transferred to our own accounts to be spent however we wanted. Everything else in the main checking account went to monthly bills and investments.
This has worked very well to help us pay off debts and get our financial house in better order.
Recently, I purchased YNAB – You Need a Budget (youneedabudget.com) This is a software budget system(cost is $60) and focuses on giving every dollar a job by budgeting. The other goal of YNAB is to get you out of the paycheck to paycheck cycle allowing you to get a month or more ahead.
I am fairly new to YNAB, but really like it. The software has a broad following and a strong forum community to answer questions as well as lots of free training to go with your software. Definitely a community feel and focus.
Here is my affiliate link which will get you $6.00 off the price (full disclosure, it gets me $6 as well!) http://ynab.refr.cc/WJ2XRXZ
So that is a very quick rundown of various sites and software I’m using to chart my family’s plans for the future. Future posts will run some example retirement scenarios to see how they work.
I’d love to hear from you on your retirement plans and goals in the comments section.
Welcome to Chartprepping.com! I’m Rich Davis and I wanted a blog to talk about many things including my plans for retirement, finances, the U.S. Navy, helicopters, motorcycles, my faith, beer brewing and other stuff I haven’t thought of yet.
Why chartprepping.com? Aspiring Naval Aviator’s spend a lot of time preparing aviation charts before flights. Marking the different flight legs, time for each leg, fuel required etc. as well as planning for alternate landing sites in case something goes wrong with the aircraft or weather.
I think chart prep is a great metaphor for life. We try to plan out our flight through life and often find we have to detour our flight path around bad weather or realize we can’t reach our original goal due to an unexpected headwind.
My wife and I are knee-deep in planning for our lives post Navy and we want to share our thoughts and plans with you.
Thanks for checking out the site!by Rich