Transition Planning from a Military Career on the Path to FI
Episode 296
Episode Guide
Episode Timestamps
ChooseFI Episode Show Notes
Episode Title: Transition Planning from a Military Career on the Path to Financial Independence
Hosts: Brad Barrett and Jonathan Mendonsa
Guest: Doug Nordman, author of "Raising Your Money-Savvy Family for Next Generation Financial Independence"
Release Date: [Insert Release Date]
Podcast Intro:
"You're listening to ChooseFI. The blueprint for financial independence lives here. If you're looking to unlock the secrets to financial independence and early retirement, you're in the right place. Stay tuned and join a community of like-minded people who are taking control of their lives in the pursuit of financial independence. ChooseFI, your home for financial independence online."
Key Topics Discussed:
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Introduction of Military Couples' Financial Journey
- Discussion on following a cohort of military families transitioning to financial independence.
- Highlighting Matt and Megan's unique challenges during their military careers.
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Understanding the Military Pension and Financial Independence
- Doug discusses the benefits of a military pension as similar to having multiple lottery tickets.
- Insights on planning for financial independence while considering military pensions and healthcare.
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Navigating Healthcare Concerns as Veterans
- Discussing the fears veterans might have regarding healthcare after transitioning out of the military.
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Military Inferiority Complex
- Doug explains the mindset of military members doubting their qualifications in the civilian workforce.
- Encouragement on recognizing the valuable skills they bring to civilian jobs.
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High Savings Rate and Financial Security
- Doug shares his experience of living in a high-cost area (Hawaii) and his strategies for maintaining a high savings rate through frugality and strategic housing choices.
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Transitioning from Military to Civilian Life
- Discussion on navigating the transition and the importance of networking and soft skills in the job market.
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Importance of Licenses and Certifications
- Discussion on the necessity of certifications and ongoing education for success in civilian careers.
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Children and Financial Independence Education
- Discussion on Doug's book aimed at teaching children about financial independence, enhancing financial literacy from a young age.
Actionable Takeaways:
- Military Members Should Recognize Their Value: Understanding the breadth of skills acquired during service can help overcome feelings of inferiority in civilian job hunting.
- Explore Healthcare Options Early: Start planning healthcare needs well before transitioning out of the military to avoid unnecessary stress during the process.
- Prioritize High Savings Rates: Focus on a blend of frugality and income enhancement to maximize savings during your career.
- Seek Out Certifications/Training: Invest in skills and licenses that can aid in a smoother transition into civilian employment.
- Educate the Next Generation: Encourage financial literacy in children early, providing them with tools to achieve financial independence.
Episode Timestamps:
- - Introduction to the episode and its purpose.
- - Discussion on military pensions vs. financial independence.
- - Addressing healthcare concerns.
- - Maintaining a high savings rate in high-cost areas.
- - Importance of ongoing education and skills for civilian life.
- - Discussing the new book on teaching children financial independence.
Podcast Extro:
"You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time."
Transition Planning from Military to Financial Independence
Transitioning from a military career to financial independence is an important journey that many service members face. This process requires careful consideration of financial planning, leveraging benefits, and understanding the emotional aspects of leaving a structured life to embrace a new one.
Understanding the Military Pension
One of the key benefits for military personnel is the pension, often described as a "lottery ticket." This concept highlights that having a military pension greatly enhances financial security, especially for those thinking about retirement.
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Value of the Pension: The military pension is not just a safety net; it often provides a steady income stream and healthcare benefits, which can alleviate a significant worry for many transitioning service members. Consider this essential financial resource in your overall retirement plan.
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Compounding Advantage: If you remain in service until retirement, your pension will grow. Typically, if you put in 20 years of service, your pension will start paying out as soon as you retire. The longer you serve, the more beneficial the pension becomes.
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Dual Pension Options: If you're part of a dual military family, financial benefits can multiply, giving you valuable options. For some families, it might make sense for one partner to take a reserve role instead of active duty, allowing the other to secure a military pension while living a balanced life.
Embracing the Abundance Mindset
Transitioning out of the military can lead to feelings of inadequacy, commonly referred to as the “military inferiority complex.” Many veterans question their marketability in civilian life.
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Highlighting Skills: Focus on what you can offer rather than where you've been. Employers are often more interested in your skills and potential contributions than your specific job titles or educational background.
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Networking and Certificates: Leverage your military experience by learning about industry certifications or licenses that can make you more attractive to employers. Engaging with groups on platforms like LinkedIn can help significantly in making connections.
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Overcoming Self-Doubt: It's important to combat feelings of inferiority. Celebrate your skills and experiences; they can translate into valuable workplace competencies. Remember, hiring managers often look for problem-solving capabilities and teamwork skills, both of which are inherent in military training.
Navigating Healthcare Post-Military
The healthcare landscape can be daunting, but having a military pension often means you can access TRICARE or other VA benefits that simplify this aspect of your financial planning.
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Understanding TRICARE: If you’re unsure about how healthcare works post-retirement, familiarize yourself with TRICARE policies, which can extend benefits even when you are not on active duty.
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Health Costs vs. Income: Factor in healthcare costs when planning your retirement budget. Seek to understand your coverage options and how they can fit into your broader financial strategy.
Living on Your Terms
The concept of financial independence is often linked with the freedom to live life on your own terms.
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Location Independence: The transition may offer opportunities to choose where you live. This could allow for the potential of house hacking or selecting regions with lower costs of living, which can significantly affect your financial status.
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Versatility in Employment: Many service members may look for remote work opportunities or jobs that allow flexible schedules. This flexibility can enhance your work-life balance while you navigate your post-military career.
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Engagement in Community: As you transition, consider actively engaging with community organizations and networks which can provide support and additional learning opportunities.
Financial Planning for the Future
Transitioning to civilian life includes rethinking your financial strategy.
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Maximize Retirement Accounts: Contribute to your TSP (Thrift Savings Plan) or consider the benefits of Roth versus traditional accounts. Understanding the tax implications now and in the future can help optimize your savings.
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Adjusting Your Expenses: Review all ongoing expenses regularly. Adjust your lifestyle, scrutinize spending, and align your budget with your financial independence goals. Frugality doesn’t mean deprivation; it means making informed choices about what enhances your quality of life.
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Checking In with Your Financial Goals: Regularly revisit your financial independence goals. As your situation changes, be ready to pivot and adjust your strategies to stay on track.
Legacy and Philanthropy
As you become more comfortable with your financial situation, consider passing on your knowledge.
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Teaching Future Generations: Share your experiences and lessons learned with younger service members or your children. Help them understand the importance of financial literacy and planning.
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Philanthropy: Give back to the community in meaningful ways. Whether through financial contributions, volunteer work, or mentorship, contributing to others’ journeys can be deeply rewarding.
Conclusion
The path to financial independence from a military career can be complex, filled with both challenges and opportunities. By focusing on understanding your benefits, nurturing an abundance mindset, and being intentional with your financial planning, you can navigate this transition successfully. Remember, the journey is your own, and it offers the potential to craft a fulfilling life on your terms.
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Household of FI-Matt & Megan with Mentor Doug Nordman
What You'll Get Out Of Today's Show
We are circling back to check in with our Households of FI families. First up are Matt and Megan, our international, dual military couple.
Having a military pension is like having multiple lottery tickets. You have both healthcare and an inflation-fighting pension, but how many of these lottery tickets do you need to really crush this game?
Naval service is Doug Nordman's family business. In addition to his own 20 years of service in the Navy, his wife almost had 20 years of active duty service in the Navy before finishing her career in the Reserves. And then their daughter joined the Navy on an ROTC scholarship and married a Naval Officer.
While dual-military couples are a small demographic that hasn't been extensively studied, Doug says even if they earn just one pension, they will likely have more money than they need for the rest of their lives just because of the pension and healthcare.
Matt says the US military pension system is much more simple than for the UK's Royal Navy. He and Megan are working toward FI with their investments alone and consider the pensions to be an additional comfort.
Matt has served for 11 years so far and the Royal Navy's systems provide a pension based on each year of service. Megan has been in the US Navy for 15 years after doing her first 10 years enlisted. She needs to fulfill 22 years before being eligible for retirement as a Naval Officer.
Doug says when you're in the military with the opportunity to earn an active duty or Reserve pension, you have four lottery tickets and you only need to have one of them to pay off because you solve the healthcare problem and have an inflation-fighting life annuity with just one.
If serving in the military is still challenging and fulfilling, stay in as long as you want, but when the fun stops, don't be afraid to leave.
Don't fall for the military inferiority complex. Coming from the military you already have human capital. Employers can train you on the basic skills for a job, but they can't train a new employee on those soft skills earned in a military career.
Co-locating as an international dual military couple has its challenges. Matt may soon be getting a medical discharge from the Royal Navy which will help solve that issue for him and Megan.
Matt notes the US military provides spouses with opportunities for increasing human capital, like free courses or paying for college. Doug thinks obtaining certifications and licenses is going the help Matt find a job in the US more than an advanced degree because he's already proven that he can do things.
Networking will be key. After having conversations with others about how he can fit in, what he can help them with, and what he knows how to do, he will make a shift to an abundance mindset.
Megan notes that Doug lives in a high cost of living area. He says having a high savings rate on the path to FI, as well as frugality are what enables it. In most high cost of living cities, it's housing that is the biggest expense. After you figure that out, everything else falls into place.
Doug and his wife bought crappy houses and put sweat equity into them before renting them out. They also eat local, optimize spending, and slow travel. Spending in the areas that provide the most value gives you margin.
People who have been in the military have an appreciation for the line between frugality and deprivation. Frugality is optimizing your spending.
The transition is scary and stressful, but statistics show that within two years of getting out and starting a civilian career, half of all veterans change jobs. It's not because they can't hack it, it's because they have figured out how to get more money, get a better job, or move to a better location. They've cracked the code in a corporate environment.
Megan is torn with her TSP. She doesn't know if she should go traditional or Roth. Doug says that, anecdotally, in the military where a third of your compensation is not taxed, you are probably in the lowest tax bracket of your life so all investments now should probably be Roth TSP or Roth IRA.
If doing all Roth contributions doesn't sit well with you, split the difference and do half and half.
Roth's weren't available when Doug was active duty and he spent time doing Roth conversions for his and his wife's accounts.
In the first full year after retirement, your income probably goes down a little bit and would be a good time to look at converting a little bit and then chipping away at each year.
Doug believes the job offers will come following military retirement. He had offers but for him, it was always about the drawbacks to the offer than the good things they offered. If he were looking today, he would look for remote work where he could dictate his schedule to remove all the drawbacks.
He advises Matt and Megan to go build their own career, to their own quality of life, and not to feel constrained to themselves into anyone else's idea of how their working years should be.
While Doug gutted out his 20 years of service, his wife gave up 20 years' worth of pension for quality of life. Even so, he says he overshot the finish line by about $1 million. If he could buy back eight years of active duty with that extra money, he would.
Megan wondered if Tricare covers military retirees who live abroad. Doug confirms that it does, noting that it's called Tricare Overseas on the Tricare website. He and his wife get all of their dental care done when they travel overseas and in Bangkok, they get their routine physicals. He thinks the healthcare advantages are much more valuable than the pension boost from an additional year or two of working.
In addition to questions about how to teach kids about financial independence, Doug is often asked about the sustainability of financial independence. After living it for 18 years, he can confirm assure people that the money will last.
It's a good idea to stay flexible. Chances are after retirement you won't be doing one thing for the next four or five decades. Instead consider it a series of five to ten, or even three to five-year increments.
Having the security of an inflation-adjusted life annuity takes the stress out of economic downturns. Doug and his wife went through the internet recession in 2002, the great recession of 2008, and watched their wealth compound over the last 18 years. During the coronavirus downturn, they made a large donation to the Hawaii foodbank and put money into their granddaughter's 529 account.
Megan has heard that a high VA Disability rating can negatively impact the military pension. Doug says to make sure every medical problem is documented in your medical record.
Once you leave active duty or reserves, the VA is going to do an assessment of your disability and award compensation. However, the law states that you can't have dual compensation. With a VA rating less than 50%, you give up some pension in exchange for VA disability compensation but the VA compensation is free from income tax.
With a VA disability rating of 50% or higher, you are under a system of Concurrent Retirement and Disability Pay (CRDP). With it, you get both the pension and VA disability compensation. With respect to the inflation-adjusted pension, Doug says that in 18 years, and with three years where the inflation rate was 0%, his pension has risen just over 40% while his spending has not gone up 40%.
The certificates and licenses Doug talked about being more valuable than a degree are right in line with the Salesforce challenge discussed on Talent Stacker and ChoodeFI.
