296 | Transition Planning from a Military Career on the Path to FI |Doug Nordman | ChooseFI podcast

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Episode description

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Episode description

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.

Resources Mentioned In Today's Conversation

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