Early Retire

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Topic Author
Tooth
Posts: 152
Joined: Sun Mar 28, 2021 3:41 am

Early Retire

Post by Tooth »

Greeting from a first time poster.

I retired from active duty AF in July 21. I have been unemployed since retiring. My wife is also unemployed. Currently living in Ohio. I am married and have one child, 8 YO. Our needs are covered to include inexpensive healthcare through Tricare for family and VA for myself.

Income Before Tax: Retired Pay- $3823.17 per month; Disability pay-$2160.18 per month. Inflation protected.

Expenses: $3600 per month.

Emergency funds: $25000 in checking. This would cover 6 months.

Debt: No debt but pay rent of $1031 per month.

Tax Filing Status: Married, joint return.

Tax Rate: 12% Federal, 0% State

State of Residence: Ohio

Age: Myself: 44 and Wife 44

Current Asset allocation: 75% stocks / 25% bonds with 25% being international.

Net Worth $2.4 million

Taxable- One-third of total net worth.



Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
Last edited by Tooth on Tue Sep 21, 2021 12:26 pm, edited 1 time in total.
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BolderBoy
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Re: Early Retire

Post by BolderBoy »

Tooth wrote: Tue Sep 21, 2021 12:15 pm Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
1. Probably all cash. You have almost $6k in COLA income (lots tax-free) against $3600 in expenses.
2. Probably none except that you may get bored, being so young.

Congratulations.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
sailaway
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Re: Early Retire

Post by sailaway »

BolderBoy wrote: Tue Sep 21, 2021 12:24 pm
2. Probably none except that you may get bored, being so young.

Congratulations.
Paid work is not a bulwark against boredom. Plenty of people are bored at work.

Better advice is to make sure you aren't bored. Some people call this having something to retire to. Other people just don't get bored sitting around reading all day.

With your income and net worth, you should be fine indefinitely, as long as you manage your day to day expenses (ie, how will home ownership affect your budget?).
Last edited by sailaway on Tue Sep 21, 2021 12:38 pm, edited 1 time in total.
adamthesmythe
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Re: Early Retire

Post by adamthesmythe »

Tooth wrote: Tue Sep 21, 2021 12:15 pm
Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
Right now it appears that there is no need for you to work again. But you have many ears ahead and Things Will Change. And you will change.

Boredom might be an issue.

You will need to think about the message received by your kid, who will need to prepare to earn his/her own way in the future.

As a vet (and I, guess, disabled) you have preference for many federal employment options.
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

sailaway wrote: Tue Sep 21, 2021 12:32 pm
BolderBoy wrote: Tue Sep 21, 2021 12:24 pm
2. Probably none except that you may get bored, being so young.

Congratulations.
Paid work is not a bulwark against boredom. Plenty of people are bored at work.

Better advice is to make sure you aren't bored. Some people call this having something to retire to. Other people just don't get bored sitting around reading all day.

With your income and net worth, you should be fine indefinitely, as long as you manage your day to day expenses (ie, how will home ownership affect your budget?).
This is a good question. I looked through online searching about the hidden costs of home ownership. For this year, we are ok but we will need a bigger place for things in military storage. It can be stored for a year. We went to a smaller apartment after dumping our stuff in storage. Discussed eliminating our stuff but she is not too keen on the idea. Better to make her happy.
Last edited by Tooth on Tue Sep 21, 2021 12:53 pm, edited 1 time in total.
sailaway
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Re: Early Retire

Post by sailaway »

Tooth wrote: Tue Sep 21, 2021 12:48 pm
sailaway wrote: Tue Sep 21, 2021 12:32 pm
BolderBoy wrote: Tue Sep 21, 2021 12:24 pm
2. Probably none except that you may get bored, being so young.

Congratulations.
Paid work is not a bulwark against boredom. Plenty of people are bored at work.

Better advice is to make sure you aren't bored. Some people call this having something to retire to. Other people just don't get bored sitting around reading all day.

With your income and net worth, you should be fine indefinitely, as long as you manage your day to day expenses (ie, how will home ownership affect your budget?).
This is a good question. I looked through online searching about the hidden costs of home ownership. For this year, we are ok but we will need a bigger place for things in military storage. It can be stored for a year. We went to a smaller apartment after dumping our stuff in storage. Discussed eliminating our stuff we my wife but she is not too keen on idea.
Looking at rent/buy calculators for your area can help, but since you want something bigger, not similar, you really need to sit down and look at property taxes, insurance, maintenance costs, etc.
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

adamthesmythe wrote: Tue Sep 21, 2021 12:35 pm
Tooth wrote: Tue Sep 21, 2021 12:15 pm
Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
Right now it appears that there is no need for you to work again. But you have many ears ahead and Things Will Change. And you will change.

Boredom might be an issue.

You will need to think about the message received by your kid, who will need to prepare to earn his/her own way in the future.

As a vet (and I, guess, disabled) you have preference for many federal employment options.
Yes, looked into volunteering. My wife volunteers for the red cross. She had to do this because she could not work in some areas we moved to. She did it to keep active. In Italy she helped set up a clinical pharmacy position at base hospital and I think it is a paid position now.
aristotelian
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Re: Early Retire

Post by aristotelian »

Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

aristotelian wrote: Tue Sep 21, 2021 1:08 pm Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
She'll get 55% through an annuity for life if I die. This is the government's survivor benefit plan. The disability pay would not continue. I've been thinking about this as well. I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.

SS-I'll have to perform homework. I looked at the online SS site and it appears I have enough credit but I believe it is predicated on continued work to retirement. Do you have a recommendation for a tool to research this?
59Gibson
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Re: Early Retire

Post by 59Gibson »

Tooth wrote: Tue Sep 21, 2021 1:16 pm
aristotelian wrote: Tue Sep 21, 2021 1:08 pm Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
She'll get 55% through an annuity for life if I die. This is the government's survivor benefit plan. The disability pay would not continue. I've been thinking about this as well. I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.

SS-I'll have to perform homework. I looked at the online SS site and it appears I have enough credit but I believe it is predicated on continued work to retirement. Do you have a recommendation for a tool to research this?
I'm not familiar w VA term life, IMO it doesn't seem to be necessary with $2.4million, 55% pension payout and SS at some point with 3.6k/mo expenses. Btw pay cash for house, it's about 10% of your portfolio.
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MillennialFinance19
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Re: Early Retire

Post by MillennialFinance19 »

Tooth wrote: Tue Sep 21, 2021 1:16 pm
I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.
You can get a commercial policy. The companies don’t always view the disabilities the same as the VA does.

The VGLI term is HORRIBLE.
VTI and chill until 57...
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

59Gibson wrote: Tue Sep 21, 2021 2:29 pm
Tooth wrote: Tue Sep 21, 2021 1:16 pm
aristotelian wrote: Tue Sep 21, 2021 1:08 pm Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
She'll get 55% through an annuity for life if I die. This is the government's survivor benefit plan. The disability pay would not continue. I've been thinking about this as well. I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.

SS-I'll have to perform homework. I looked at the online SS site and it appears I have enough credit but I believe it is predicated on continued work to retirement. Do you have a recommendation for a tool to research this?
I'm not familiar w VA term life, IMO it doesn't seem to be necessary with $2.4million, 55% pension payout and SS at some point with 3.6k/mo expenses. Btw pay cash for house, it's about 10% of your portfolio.
VGLA from the veterans administration. I was thinking I could self insure the life insurance, too. Forgo the monthly premium and save it.
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

MillennialFinance19 wrote: Tue Sep 21, 2021 2:36 pm
Tooth wrote: Tue Sep 21, 2021 1:16 pm
I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.
You can get a commercial policy. The companies don’t always view the disabilities the same as the VA does.

The VGLI term is HORRIBLE.
I'll get some quotes but I was thinking of self funding with net worth like the prior poster suggested. Any blind spots with this plan?
aristotelian
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Re: Early Retire

Post by aristotelian »

Tooth wrote: Tue Sep 21, 2021 1:16 pm
aristotelian wrote: Tue Sep 21, 2021 1:08 pm Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
She'll get 55% through an annuity for life if I die. This is the government's survivor benefit plan. The disability pay would not continue. I've been thinking about this as well. I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.

SS-I'll have to perform homework. I looked at the online SS site and it appears I have enough credit but I believe it is predicated on continued work to retirement. Do you have a recommendation for a tool to research this?
Regarding SS credits, that should be on your annual statement.

I like this calculator. https://ssa.tools/#
roguewarrior0
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Re: Early Retire

Post by roguewarrior0 »

Staying active is always great. People are focused on that. I would say there are 2 things you should be focused on.

1) 8yr Old - College Fund - Start a 529 or something like it.

2) Housing - 3 alternatives
  • Pay for it in cash. $250k out of $800k is a pretty big chunk. Are there any tax implications to tapping that $250k. Meaning are you have to sell equities that have a capital gain?
  • Take out a 30 year mortgage - rate ~2%.
  • Take out a margin loan @ 1%, while leaving your investments alone
The Boglehead in me says that you do either bullet #1 or #2 as that is tried and true. You will need to balance your need to sleep soundly at night (no debt) vs 2% Mortgage (~8% historical gain @ your AA). Between those 2, I would choose bullet #2 as this is a historical low interest environment and locking in 2% is incredible. But many like Bullet 1 and never worry about debt.

I only list bullet #3 because of your young age. Theoretically, you could borrow (margin loan) $250k for 1% from your $800k taxable equitable portfolio (BKR) and leave in Index funds for the next 30 years and have the reward. Potential continued growth while taking advantage of low interest environment. You could always payoff margin loan at your leisure or if interest rates go the wrong way. This works under buy, borrow & die theory.

I only point out the options. If I were you, I would choose bullet #2 and continue investing a free cash flow, but option 1 could be great and then just $$$ cost average back into the market. Option 3 would be only if you are bullish on your circumstances not changing for the next 10 years. More risk with only 1% interest savings.
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

aristotelian wrote: Tue Sep 21, 2021 2:49 pm
Tooth wrote: Tue Sep 21, 2021 1:16 pm
aristotelian wrote: Tue Sep 21, 2021 1:08 pm Is the pension transferable to spouse should something happen to you?

Do you have enough credits paid into Social Security to be able to claim?
She'll get 55% through an annuity for life if I die. This is the government's survivor benefit plan. The disability pay would not continue. I've been thinking about this as well. I don't have term life but could transfer to VA term life. Likely could not get a commercial one with disability.

SS-I'll have to perform homework. I looked at the online SS site and it appears I have enough credit but I believe it is predicated on continued work to retirement. Do you have a recommendation for a tool to research this?
Regarding SS credits, that should be on your annual statement.

I like this calculator. https://ssa.tools/#
Yes I do. Found annual statement at ss government site by creating a log in account. I remember getting paper copies. Must of stopped at some point. If I should die does my wife get my ss if she does not have enough? She has a lot of holes in employment with moving around and limited opportunities in locations we moved too.
Topic Author
Tooth
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Re: Early Retire

Post by Tooth »

roguewarrior0 wrote: Tue Sep 21, 2021 2:52 pm Staying active is always great. People are focused on that. I would say there are 2 things you should be focused on.

1) 8yr Old - College Fund - Start a 529 or something like it.

2) Housing - 3 alternatives
  • Pay for it in cash. $250k out of $800k is a pretty big chunk. Are there any tax implications to tapping that $250k. Meaning are you have to sell equities that have a capital gain?
  • Take out a 30 year mortgage - rate ~2%.
  • Take out a margin loan @ 1%, while leaving your investments alone
The Boglehead in me says that you do either bullet #1 or #2 as that is tried and true. You will need to balance your need to sleep soundly at night (no debt) vs 2% Mortgage (~8% historical gain @ your AA). Between those 2, I would choose bullet #2 as this is a historical low interest environment and locking in 2% is incredible. But many like Bullet 1 and never worry about debt.

I only list bullet #3 because of your young age. Theoretically, you could borrow (margin loan) $250k for 1% from your $800k taxable equitable portfolio (BKR) and leave in Index funds for the next 30 years and have the reward. Potential continued growth while taking advantage of low interest environment. You could always payoff margin loan at your leisure or if interest rates go the wrong way. This works under buy, borrow & die theory.

I only point out the options. If I were you, I would choose bullet #2 and continue investing a free cash flow, but option 1 could be great and then just $$$ cost average back into the market. Option 3 would be only if you are bullish on your circumstances not changing for the next 10 years. More risk with only 1% interest savings.
I like options 1 and 2. Too much risk in option 3 IMO. Do you think I'd have a problem qualifying for a loan being unemployed?

College funding is squared away. No problem, he just needs to work hard in learning. Keeping that a secret so he doesn't slack.
roguewarrior0
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Re: Early Retire

Post by roguewarrior0 »

I don't see you unemployed as much as already early retired with a pension. The main issue for lenders is around income and you do have monthly income through your pension and disability.

Whether you qualify for a loan or not is not an area of expertise for me, but from a high level given your income levels (pension + disability), asset level, and lack of existing debt, you would seem very credit worthy in my book. I would expect you to qualify for a loan very easily. With everything else, shop and research loans. Amazing differences in fees and interest rates.
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Watty
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Re: Early Retire

Post by Watty »

Tooth wrote: Tue Sep 21, 2021 12:15 pm Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash?
Even though interest rates are low investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk.

If I was in your situation I would pay cash.

Here is a very simplistic example of that which I have posted before.
If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To pay off the mortgage at the end of the second year you would need about $96.5K so you would need to gain back $12.5K and another $6,000 for the next years mortgage payments which combined is $18.5K. That would take a 22% return on the remaining $84K to get back to the point where you could pay off the mortgage.

In the past portfolios have declined in roughly one of four or five years depending on the asset allocation. (20 to 25 percent of the time)

https://investor.vanguard.com/investing ... allocation

The sequence of returns risk can also go the other way and you could get lucky and have the first couple of years get good returns that would put you on the path for large gains over the years. There will sometimes be very optimistic projections on just how much better not paying off the mortgage could be but one limiting factor that needs to be considered is that few people actually keep a 30 year mortgage for the full 30 years. It is difficult to put a number on it but many people who own a home will sell it in less than 10 years.
Tooth wrote: Tue Sep 21, 2021 12:15 pm 2. What are the problems if we never perform paid work again?
One risk is that you both might not work for a while and then get divorced. I don't have a clue how a divorce settlement might work when someone is disabled but I would think the disability payments might not be split. Likewise, depending on your state laws, how long you have been married, and lots of other factors, the disabled spouse might get more than 50% of the pension and shared assets.

This could leave the non-disable spouse without enough to live on and if they have been out of the job market for a few years it may be difficult for them to find good work in their field.

If the non-disabled spouse has a good paying job that would be hard to get back into after a multi year employment gap then they might want to find part time work in that field to help keep their skills up to date.
MattB
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Re: Early Retire

Post by MattB »

Watty wrote: Tue Sep 21, 2021 3:31 pm Even though interest rates are low investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk.

If I was in your situation I would pay cash.

Here is a very simplistic example of that which I have posted before.
If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;
. . .
I don't view the situation Watty conjured up as being applicable to the OP's. Watty's example suggests OP will be selling investments to cover a mortgage. But here, OP has the free cash flow to pay a mortgage. So, no need "to pay a $500 mortgage out of" "a separate investing account."

Thus, the OP wouldn't be taking on any sequence or return risk for taking a mortgage.

--

Separately, I suggest OP consider taking on a mortgage to pay for the house because he can inflate away much of the value over 30 years. Interest rates are currently quite low, at or about 2%. His retirement and disability compensation are both indexed to inflation. But his loan would not be.
Slacker
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Re: Early Retire

Post by Slacker »

Watty wrote: Tue Sep 21, 2021 3:31 pm
Tooth wrote: Tue Sep 21, 2021 12:15 pm Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash?
Even though interest rates are low investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk.

If I was in your situation I would pay cash.

....
Tooth wrote: Tue Sep 21, 2021 12:15 pm 2. What are the problems if we never perform paid work again?
One risk is that you both might not work for a while and then get divorced. I don't have a clue how a divorce settlement might work when someone is disabled but I would think the disability payments might not be split. Likewise, depending on your state laws, how long you have been married, and lots of other factors, the disabled spouse might get more than 50% of the pension and shared assets.

This could leave the non-disable spouse without enough to live on and if they have been out of the job market for a few years it may be difficult for them to find good work in their field.

If the non-disabled spouse has a good paying job that would be hard to get back into after a multi year employment gap then they might want to find part time work in that field to help keep their skills up to date.
Very low SRR. This would only be caused by the vets untimely death or divorce combined with poor market returns at the same time.

Barring those two unfortunate outcomes, the stock market could go to zero and their pension + disability still covers their expenses.
chipperd
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Re: Early Retire

Post by chipperd »

Tooth wrote: Tue Sep 21, 2021 12:48 pm
sailaway wrote: Tue Sep 21, 2021 12:32 pm
BolderBoy wrote: Tue Sep 21, 2021 12:24 pm
2. Probably none except that you may get bored, being so young.

Congratulations.
Paid work is not a bulwark against boredom. Plenty of people are bored at work.

Better advice is to make sure you aren't bored. Some people call this having something to retire to. Other people just don't get bored sitting around reading all day.

With your income and net worth, you should be fine indefinitely, as long as you manage your day to day expenses (ie, how will home ownership affect your budget?).
This is a good question. I looked through online searching about the hidden costs of home ownership. For this year, we are ok but we will need a bigger place for things in military storage. It can be stored for a year. We went to a smaller apartment after dumping our stuff in storage. Discussed eliminating our stuff but she is not too keen on the idea. Better to make her happy.
Rule of thumb for costs of home ownership with regards to maintenance/improvements is:
Plan on spending 5-10 percent of the cost of the home in the first year to upgrade (unless new) and 1-1.5 percent of the cost of the home to maintain every year thereafter.
This has been our experience as well, although we like to upgrade and do all the maintenance some homeowners kick down the road knowing they will sell before we move in, resulting in higher first year costs.
These are just the home improvement/maintenance costs.
The less hidden costs are easier: taxes, homeowners insurance, umbrella insurance and HOA fees if there are any.

Self insure the life insurance.

Yes, you are Financially Independent. Congrats! Work is now an option, not mandatory.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
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Watty
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Re: Early Retire

Post by Watty »

MattB wrote: Tue Sep 21, 2021 4:05 pm I don't view the situation Watty conjured up as being applicable to the OP's. Watty's example suggests OP will be selling investments to cover a mortgage. But here, OP has the free cash flow to pay a mortgage. So, no need "to pay a $500 mortgage out of" "a separate investing account."

Thus, the OP wouldn't be taking on any sequence or return risk for taking a mortgage.
Paying the mortgage out of other funds only makes the math less obvious, it does not remove the sequence of returns risk.

This is because if there was no mortgage then the pension income that could have been used make the monthly mortgage payment would be invested invested instead.
MattB
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Re: Early Retire

Post by MattB »

Watty wrote: Wed Sep 22, 2021 8:54 am
MattB wrote: Tue Sep 21, 2021 4:05 pm I don't view the situation Watty conjured up as being applicable to the OP's. Watty's example suggests OP will be selling investments to cover a mortgage. But here, OP has the free cash flow to pay a mortgage. So, no need "to pay a $500 mortgage out of" "a separate investing account."

Thus, the OP wouldn't be taking on any sequence or return risk for taking a mortgage.
Paying the mortgage out of other funds only makes the math less obvious, it does not remove the sequence of returns risk.

This is because if there was no mortgage then the pension income that could have been used make the monthly mortgage payment would be invested invested instead.
No. I don't believe you are correct.

Sequence of return risk is the risk that you will have to sell assets when the market is down early in your retirement. This is problematic because it can jeopardize your retirement savings.

Sequence of return risk is not the risk that you won't have income to invest when the market is down early in your retirement. This is not problematic because it doesn't not jeopardize your retirement savings.

OP will have the free cash flow to pay for a potential mortgage.

Thus, it doesn't appear OP would be taking on sequence of return risks by taking out a mortgage.

Moreover, the OPs cola adjusted retirement and disability benefits more or less immunize him from sequence of return risk.
Shorty
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Re: Early Retire

Post by Shorty »

Tooth,
Welcome - you're in a powerful position where reasonable options need only be driven by your preference. You could double your discretionary spend with very little risk of impact. I'm assuming your $2.4M NW is invested in equites - not funny math "annuitizing" the value of your military pension/VA disability (e.g. in addition). A few points:

1. I'd personally be willing to buy your home with cash, even if numbers were less favorable (e.g. 300k house with $1.5M NW). Make sure you have some extra money to cover related expenses, including things you might decide like new furniture. A lot of your assets are in retirement accounts, which is great, but impacts your liquidity.

1a. You should have no problem getting a VA home loan with your retirement/disability income - well over $250k if needed. I went through Veterans United for a loan in 2020 and a 2021 re-fi. I was extremely happy with them throughout the entire process. It cost very little out of pocket to close. I have a specific contact that I would recommend to anyone (no incentives involved) - PM if interested.

2. Your pension/disability covers significantly more than your expenses at your current lifestyle - particularly with an owned home. Medical is covered through the VA. No issues. This is true without counting social security. Also, your investment is something like 60 years of your spend without any growth (keeping up with inflation only).

3. Did you transfer your GI Bill to your daughter? In either case, education is an option to you. You can split eligibility. This includes a housing stipend. I'm happy to discuss using eligibility efficiently (getting more school done while burning less "months"). You have other retiree benefits such as "Space A" travel.

Bottom line, be honest with what provides satisfaction for your family. Might include a job (full or part time, virtual/remote is now a thing), volunteering, hobbies, etc. Also, you can afford a measured lifestyle bump even without working. I'd start with what brings your family joy/satisfaction. Did you come up with helpful options through the TAP process?

Congratulations on your retirement! You earned it with your service.
Tooth wrote: Tue Sep 21, 2021 12:15 pm Greeting from a first time poster.

I retired from active duty AF in July 21. I have been unemployed since retiring. My wife is also unemployed. Currently living in Ohio. I am married and have one child, 8 YO. Our needs are covered to include inexpensive healthcare through Tricare for family and VA for myself.

Income Before Tax: Retired Pay- $3823.17 per month; Disability pay-$2160.18 per month. Inflation protected.

Expenses: $3600 per month.

Emergency funds: $25000 in checking. This would cover 6 months.

Debt: No debt but pay rent of $1031 per month.

Tax Filing Status: Married, joint return.

Tax Rate: 12% Federal, 0% State

State of Residence: Ohio

Age: Myself: 44 and Wife 44

Current Asset allocation: 75% stocks / 25% bonds with 25% being international.

Net Worth $2.4 million

Taxable- One-third of total net worth.



Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
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Watty
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Re: Early Retire

Post by Watty »

MattB wrote: Fri Sep 24, 2021 3:17 am
Watty wrote: Wed Sep 22, 2021 8:54 am
MattB wrote: Tue Sep 21, 2021 4:05 pm I don't view the situation Watty conjured up as being applicable to the OP's. Watty's example suggests OP will be selling investments to cover a mortgage. But here, OP has the free cash flow to pay a mortgage. So, no need "to pay a $500 mortgage out of" "a separate investing account."

Thus, the OP wouldn't be taking on any sequence or return risk for taking a mortgage.
Paying the mortgage out of other funds only makes the math less obvious, it does not remove the sequence of returns risk.

This is because if there was no mortgage then the pension income that could have been used make the monthly mortgage payment would be invested invested instead.
No. I don't believe you are correct.

Sequence of return risk is the risk that you will have to sell assets when the market is down early in your retirement. This is problematic because it can jeopardize your retirement savings.

Sequence of return risk is not the risk that you won't have income to invest when the market is down early in your retirement. This is not problematic because it doesn't not jeopardize your retirement savings.

OP will have the free cash flow to pay for a potential mortgage.

Thus, it doesn't appear OP would be taking on sequence of return risks by taking out a mortgage.

Moreover, the OPs cola adjusted retirement and disability benefits more or less immunize him from sequence of return risk.
I would be interested in seeing some numbers on how you think that math would work.

If the OP has a $250K mortgage and their portfolio is $250K larger and there is a 20% decline in the portfolio then their net worth will go down by $50 more than if they had a paid off house.

They may be able to make the mortgage payment from their cash flow but if that is $1,000 a month then if they had a paid off house then they would be able to invest that $1,000 a month.
MattB
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Joined: Fri May 28, 2021 12:27 am

Re: Early Retire

Post by MattB »

Watty wrote: Fri Sep 24, 2021 10:13 am I would be interested in seeing some numbers on how you think that math would work.
It's pretty simple.

If the OP doesn't have to sell investments to fund his mortgage, the OP is indifferent to the sequence of return of his investments. He or she retains the final value of his initial investment whether or not the market has declined somewhere in between.

If the OP has to sell investments to fund his mortgage, OP will have to sell at a loss if the value of his investments decline early in the mortgage. He or she does not retain the final value of his initial investment whether or not the market has declined somewhere in between.
Topic Author
Tooth
Posts: 152
Joined: Sun Mar 28, 2021 3:41 am

Re: Early Retire

Post by Tooth »

Shorty wrote: Fri Sep 24, 2021 9:30 am Tooth,
Welcome - you're in a powerful position where reasonable options need only be driven by your preference. You could double your discretionary spend with very little risk of impact. I'm assuming your $2.4M NW is invested in equites - not funny math "annuitizing" the value of your military pension/VA disability (e.g. in addition). A few points:

1. I'd personally be willing to buy your home with cash, even if numbers were less favorable (e.g. 300k house with $1.5M NW). Make sure you have some extra money to cover related expenses, including things you might decide like new furniture. A lot of your assets are in retirement accounts, which is great, but impacts your liquidity.

1a. You should have no problem getting a VA home loan with your retirement/disability income - well over $250k if needed. I went through Veterans United for a loan in 2020 and a 2021 re-fi. I was extremely happy with them throughout the entire process. It cost very little out of pocket to close. I have a specific contact that I would recommend to anyone (no incentives involved) - PM if interested.

2. Your pension/disability covers significantly more than your expenses at your current lifestyle - particularly with an owned home. Medical is covered through the VA. No issues. This is true without counting social security. Also, your investment is something like 60 years of your spend without any growth (keeping up with inflation only).

3. Did you transfer your GI Bill to your daughter? In either case, education is an option to you. You can split eligibility. This includes a housing stipend. I'm happy to discuss using eligibility efficiently (getting more school done while burning less "months"). You have other retiree benefits such as "Space A" travel.

Bottom line, be honest with what provides satisfaction for your family. Might include a job (full or part time, virtual/remote is now a thing), volunteering, hobbies, etc. Also, you can afford a measured lifestyle bump even without working. I'd start with what brings your family joy/satisfaction. Did you come up with helpful options through the TAP process?

Congratulations on your retirement! You earned it with your service.
Tooth wrote: Tue Sep 21, 2021 12:15 pm Greeting from a first time poster.

I retired from active duty AF in July 21. I have been unemployed since retiring. My wife is also unemployed. Currently living in Ohio. I am married and have one child, 8 YO. Our needs are covered to include inexpensive healthcare through Tricare for family and VA for myself.

Income Before Tax: Retired Pay- $3823.17 per month; Disability pay-$2160.18 per month. Inflation protected.

Expenses: $3600 per month.

Emergency funds: $25000 in checking. This would cover 6 months.

Debt: No debt but pay rent of $1031 per month.

Tax Filing Status: Married, joint return.

Tax Rate: 12% Federal, 0% State

State of Residence: Ohio

Age: Myself: 44 and Wife 44

Current Asset allocation: 75% stocks / 25% bonds with 25% being international.

Net Worth $2.4 million

Taxable- One-third of total net worth.



Questions:
1. We desire to buy a house in the future. Should we buy with cash or cover with cash? Currently have $250,000 dedicated to covering the cost. Could do a no down payment with a VA loan. May be difficult to purchase a house with a VA loan in current environment.

2. What are the problems if we never perform paid work again?
Yes, the money is real and in equities and bonds. No funny math. We made a decision young to save and invest to limit our risk of not having enough. Wife and I had to watch difficult kitchen table economics growing up.

Unfortunately I did not transfer GI bill. However, we have funds through additional saving and family gifting in 529 of $100,000 for the kid's school. That's not counted in our net worth.

Leaning towards mortgage based on liquidity. Maybe do a significant down payment. Not too fond of having debt though. Watching the debate about sequence of return risk. May sway my opinion.

If I were to get a loan, would it be best to get a non VA loan? I've heard, may be rumor, that the VA loan can sabotage buys and sellers do not like them.
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LadyGeek
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Re: Early Retire

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (house purchase decision).
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