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Scott:
Our guests today are Carol and Doug who both retired early using military benefits and the military career that they had and are going to live or have lived most of their adult lives in a state of financial independence. So we’re going to be talking about the remarkable opportunities you have if you’re in the military to build wealth either with stocks or with real estate. And we’re going to be talking about one of the biggest decisions that career military folks face which is how to value the pension that you become eligible for at twenty years. You know, it’s a very valuable asset. What are the probabilities of you actually achieving it and how does it compare to the opportunity cost of going into the private sector?
Mindy:
Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me as always is my commanding podkisser co-host Scott Trench.
Scott:
Thanks, Mindy. Great to be here. Uh we’ve talked about Coast Fi, Barista Fi, Fat Fi, Chubby Fi and today we’re talking about Semper Fi. Just kidding. Uh not the right one. Marines, we got two Navy retired naval officers here in the show today.
Mindy:
We are so excited to have Doug and Carol back on the podcast. It’s been six years. We’re going to hear more about their specifics on their portfolios and how they each retired early one generation apart in the Navy. So welcome back, you two. Thanks for joining us.
Doug:
Thanks, Scott. And aloha and uh I’ll I’ll put a spoiler in right now. Six years later everything’s better than ever.
Carol:
Exactly.
Mindy:
All right, that wraps up this episode of the BiggerPockets Money podcast.
Scott:
Any other questions?
Scott:
How about you, Carol?
Carol:
It’s great to be here. Thank you for having us all back again. And yeah, six years, I mean, when you’re raising kids, it’s one year, six years, four months. It’s all the same, right?
Mindy:
So, Carol, you retired early following in your father’s footsteps. How early did you retire? What year did you retire and and what is the more traditional timeline for your position?
Carol:
I left active duty as soon as my contract would allow me to leave five years in. And so that was summer of 2019. And at the time, it was just my first exit point. I could leave active duty and I could go to the reserves. My dad, and we’re going to call him Grand Doug because it’s a lot easier to keep him separate from, you know, my husband being the dad to my daughter and so forth. But Grand Doug left when he did his full 20 year active duty career. And one of the things he’s always told me was hey, if you have an opportunity to leave, you don’t have to get it out till 20. And he’s wrote a great article about that as well. It can if you Google don’t get it out to 20, you’ll find his article online as well. And so when I left at my five year mark, there were a couple of factors in play. My husband loved his job. He was also active duty Navy. He’s still active duty Navy, but it was getting harder and harder for us to find duty stations that would work for both his career and us living together. And so it was really easy for me to say you know what, I don’t think this Navy thing is for me anymore. I’d rather step down to the reserves. That way I can move wherever you want to go next in your career. And we can go from there. And so when we left in summer of 2019, I say left as in I left active duty and then we immediately moved from Virginia to California. And to make things more complicated, I also found out I was pregnant at the same time. So now the morning that the movers are coming, I’m going into medical to make sure that yes, I really am pregnant. And then we embark on a 23 day road trip to California while I’m pregnant. The first trimester. And then we finally make it there and our daughter is born in January 2020. I’m so sorry my fellow Californians at the time we got locked down hard on March 17th, 2020 exactly two months into this newborn thing. And so the best part about the financial independence thing was that I just became the stay at home parent. I didn’t have to worry about trying to work and manage a newborn at the same time while my husband was still doing his active duty job.
Scott:
Before we get into like the the update for the story, I want to ask a question about military FI in general because I feel like the military is such a gift to a financial independence journey after you get through that first, you know, contract period, depending on and and it gets better the longer you stay for for a lot of reasons. And yet the military guys all grumble about it the whole freaking time.
Carol:
Yes, absolutely.
Scott:
Is that what you observed as well?
Carol:
Yes and no, because you’re always going to be told something like the needs of the army, the needs of the navy. So they’re going to keep you as long as you are useful to them. And so we have seen situations where people were told at 16 years, 17 years, hey, you’re not a benefit to our service anymore. We can’t promote you or you’ve reached higher 10 year or we’re closing out your rating and you need to either leave or you need to do something different. A lot of the benefits come from the fact that to an extent your housing is paid for, your food is paid for, and you have health care. I think health care is probably the biggest win for the military. But a lot of people would also argue that your health care is still a number that you’re still dealing with everybody else in line that maybe it’s not as timely as you would expect it to be.
Scott:
Well, I think there’s two other components to this too, which is the pension and disability which seems very, very prevalent. Disability I understand comes with a disability in there, but that that seems to be very common across that. Can you tell us a little bit about those two benefits and how they work for your shorter tenure, for example, and your longer one, Doug?
Carol:
So Grand Doug, I think you should go first to talk about your pension and then I’ll talk about my VA benefits afterwards because I think my VA benefits were more of a shock to everybody than the traditional pension.
Doug:
Absolutely. My spouse and I both have dual active duty military careers. She left just short of being eligible for her active duty pension. So I took an active duty pension at the traditional 20 years. Only 15% of the people who joined the military in any service, any specialty, only 15% get to the pension. One out of six. And in my spouse’s case, with a reserve pension, she started that actually at age 60. She left active duty in her 40s and then waited another 15, 16 years before she reached the start of her reserve pension. We had this big gap in between me starting my pension and her starting her pension. The pension is is absolutely great. has a cost of living adjustment the same one that is the social security formula and it keeps up with inflation fairly well. We also, of course have uh VA disability compensation. Now everybody is encouraged to put in to file for their VA disability rating and then you get certain benefits depending on the amount of issues that have cropped up over the years. Uh and it’s surprising stuff. You leave the military, you do not feel broken and then you start looking at things during the physical process, the separation as you’re retiring and realize maybe it’s a little worse than you thought. Uh also, there is health care for life if you retire, if you retire from the reserves, there’s health care once you start your pension, usually at age 60. And the VA steps in in many cases depending on your disability rating to take care of health care there. I’ll I’ll point out that this is a disability rating and the VA is compensating for an impaired ability to provide for your family. It doesn’t mean you’re in a wheelchair or on a short fuse and liable to explode an anger at any moment. It just means that you’re dealing with issues that you probably would feel from a difficult employment environment at Google or at Ford or at Goldman Sachs or just about any other career.
Scott:
One point there that I think is really important is you mentioned the word pension at the outset and then again later, but you said only fifteen percent of people are getting the pension here. I’m very confused by that. How can you explain how that works?
Carol:
Only 15% of people in the military make it to 20 years and the only way that you get the pension as soon as you retire is if you do 20 years of active duty. And so out of everybody you would see in like a room full of uniformed folks, only 15% of those people are going to make it to the age where you get a pension. And I’m exactly a version of that. I did not make it to 20 years. I’ve already completely left the military as of 2022. And so there’s really no chance of me making it to 20 years and getting that pension.
Mindy:
Carol, tell me about your exit. What your benefits or situation looks like as a result of your service.
Carol:
So when I exited at the five year mark, I immediately was still not ready for the pension. I only had five years in. When I go into the reserves a lot like my mom, that can keep your counter running. And so my counter is technically at six years and some change for a total military service. But that’s still too short for the 20 year pension. What surprised me was that I didn’t think I was broken. I didn’t really think I had a lot of problems. I can remember that one time that I slid down a ladder well and did something to my knee. I can remember the other time that uh shipboard medical took almost three weeks to diagnose a sprained wrist. Didn’t really think that was that big. But I went on to the va.gov website anyway and I submitted my disability claim just just to see what would happen. And to my surprise, I got 40% right out the gate. Like, oh, okay, 40%. That’s not bad.
Scott:
What does 40% mean?
Carol:
The VA math is not real math, but 40% is an indicator of what your level is for privileges and what your level is for payments. Once you’re above 30%, you actually get paid every month in tax free disability compensation. and it’s not only for you, it’s for you and your dependents. So one of the first mistakes that I made was once I got the deposit, I assumed that because my husband was still active duty, that my daughter and I were his dependent. And what I didn’t realize is that the VA doesn’t care. I also had dependence in my husband and my daughter. And so it turns out that I was being underpaid on disability compensation. As soon as I submitted that I admitted that I had a husband and a daughter, they’re like, oh yeah, dependence. Here’s a bigger number. I’m like, whoa, okay, I’ll take it. It’s this is almost $1,000 a month now, this is nice.
Mindy:
And that starts now, not after 20 years would have passed.
Carol:
Exactly. It started right away. Uh well, when I say right away, I mean I got like back pay of about six months and then it kept going forward from there. And so even yesterday I got my last payment from the VA disability compensation. It was like uh just shy of $1,700 a month now for me. And that’s partly because I increased my my rating. I actually went to what’s called a veteran Service organization, VSO. Shout out to DAV by the way, they do a great job and they helped me look at a couple of things in my record that actually brought me up to 60%. And when I went over that 50% tier, it actually got me into what’s called priority one VA health care. So my primary care right now is actually the VA clinic that’s about 15 miles from my house. And I’m not dealing with Tricare right now unless I want to. I’m not dealing with military treatment facilities because in many cases the VA is a totally separate system from the DOD system. And so as a result, I have health care, lifelong, just for myself because I only serve six years of active duty.
Scott:
I’m fascinated by the military journey to FI because it seems like so many military guys seem to have such bad finance situations in a general sense. And then this other sect seem to just like emerge from military service in their like late 30s, early 40s, totally completely done. Secure, more secure than anything else you could ask for.
Carol:
Here’s the way that I view it. The military is the perfect cut of the United States. You are going to find anything that you find in the United States, you’re going to find in the military. And that means that individual habits are also something that you’re going to find in the military. For me in particular, I was in charge of some really smart sailors. I mean, these are folks that are handling the computer systems and the guidance systems for things like missiles and guns and radars. I mean, really technical stuff. But the main reason that a lot of them had joined the Navy was because they were in credit card debt. They were in some situation in their teen age years or their early 20s and they were now dealing with 27, 28, 29% credit card debt. And they knew that thanks to the Civil Service members relief Act, the CRA, as soon as you enlisted, any pre-existing debt they automatically dropped the interest rate to 6%. So their goal was just to have some experience, to have some military benefits, to get that common paycheck, maybe travel the world, but also to help bring down that debt as much as they could. Some of them didn’t quite change their habits. They still bought the hot rod. They still overspent on credit cards. Some of them just kept those habits, but others of them actually used their benefits. Um one of my sailors actually bought a house near the shipyard that we were in and rented out to the rooms to two of the other sailors in my division. And so now he was doing an exact house hack, exactly what you talk about in bigger prophets. And so it was it was one of those things where if you were in the military, you already start with baseline benefits that are awesome, but you yourself have to take some initiative, whether that’s talking with a mentor, talking with your peers or just being pushed into that situation to actually do better.
Scott:
I’m not as knowledgeable as you guys, of course, but I spent a lot of time on this. I actually went to the Naval Academy and gave a brief to the midshipman on, hey, here’s hypothetical of how I would go about achieving financial independence if I was a midshipman. This was two or three years ago. And I was shocked at they all think they’re not getting paid. Like they think that the navy in like, you know, West Point, these guys like they’re not good like professions because they look at their income, their their taxable income and they’re like, no, it’s not very high. And they’re right, but if you actually add in BAH, basic allowance for housing, which is a non-taxable, just like your disability, and the basic allowance for subsistence, BAS, which these these guys get right out of college, that goes stacks on top of their pay and it’s totally non-taxable and it’s just a refund to them. If they spend nothing on housing, they just get the same amount either way and it’s a thousands of dollars. And it depend, you know, depending on marital status. And then there’s no health care. There’s no pension, you can contribute to your 401k but your best a pension for free. All the insurance types you can get are are very cheap. um for the have the VA load. It’s incredible. I did the research and I think there was like two colleges, Harvey Mudd and Harvard or something like that where the median graduate earned more than the Naval Academy grad and West Point was like just a hair a hair below. I thought it was really interesting. I think that that that’s it’s like one of the best possible ways to build wealth. And then I built it again for the enlisted men and I was like, the enlisted guys can actually come out ahead of the officers in a very reasonable scenario because they’re getting paid for those four years that the officers have to go a college for, even with the free college. And then if the tenure goes on to 10, 12, 15 years the officers flow past them because it makes so much more. But I thought that was really interesting. Sounds like you’ve done similar analyses here. Am I am I getting close with these?
Doug:
Oh yeah, you’re you’re absolutely right. And and let’s let’s start off by saying, there’s got to be a reason why the Department of Defense is being so nice to us. And uh there’s an element of survivor bias that we never hear about other than gold star or families or services for wounded warriors. And there’s also an element of uh yes, you might have a 40% or a 60% VA disability rating. Those are clubs that nobody wants to be in and those are ratings that in the long run will limit your longevity. I mean, you look at Carol and me and neither one of us seems to be uh any more disabled than anybody else of our our age, our demographic. And yet uh we have the statistics to show that people that have the VA disability ratings that we have are probably going to have a shorter lifespan. Do we regret that? Well, if we’d thought about that when we were in our 20s, maybe we would have made different choices. However, we value our military service and we also know that we do get compensated for things like that. All all the uh numbers that you’ve mentioned, the housing allowance, the basic allowance for subsistence, the VA disability compensation, all of that is in federal law. And uh the BA disability rating process, every little criteria for that is also laid out in federal law. It’s very difficult to parse all that and to figure out how you’re going to be rated and how you’re going to be treated for that. However, it’s standardized, it’s a very difficult labyrinth to navigate. and we talk about how the people that most need the support of the VA disability rating system are frequently the ones who are also least able to navigate the process. And Carol probably knows a few people already that have a a VA disability rating of 100% permanent and total. I’ve got many friends in that category as well. We talk about this all the time because again, it tends to affect your not only your longevity, but how your family has to approach your care in your elder years, so to speak. Not that I’m, you know, trying to lay the ground here for Carol for any expectations. However, there is that issue and I have a number of posts on on my site talking about making sure that you do this stuff now while you still have the memories and you still have the capabilities so that your family doesn’t have to try to reconstruct it when you’re no longer able to. I would also make a comparison to corporate industries, banking, manufacturing, construction, engineering, all of those. Imagine if they had the same federal system in place for a disability rating and compensation. I think maybe some of the workplaces would change the way they do business now.
Scott:
I just want to say I was being a little glib there. This is like you guys are risking your life for our country, right? You know, there’s real danger that you can get yourself into in in these and on many of these things and there’s lots of sacrifice that’s made across it. And I’m glad that that results in some of these benefits that are very powerful. You could argue that there should be a lot more in many of these cases. So I definitely don’t want to don’t want to like say, hey, this is not this is too much. I just think that when you study numbers all day every day for financial independence, these light you up because they’re very attractive in making the other parts of the financial independence journey very easy from a spreadsheet perspective. and that’s where I was coming from on those numbers, not the this is crazy. there’s a real attraction here. And I’ll also say that when I went to the the Naval Academy and talked to these guys, these are kids that are really committed to what they do. They want to be there. They’re going after it, they’re working hard, they’re fit, they’re strong and they really matter. Like they’re going to be on these billion dollar ships one day commanding them and be leading. It’s pretty special.
Carol:
First off, I got to thank you for going to the Naval Academy and actually doing that talk. If there was one thing my husband was really, really unhappy about coming out of the Naval Academy is that for the financial talk, the only financial talk that he got from the academy was hey, you don’t want to invest in this TSP thing. they’re just going to take your money and put it all into the G fund if you…
Mindy:
Oh my goodness. I mean well, I mean technically that’s true. if you put money in the TSP, they’re going to put it in the G fund unless you tell them to put it in something else, right?
Carol:
Not anymore. They changed the rules a couple of years ago. And so now what they’ll do is they’ll put it in the life cycle fund that tracks closest to your age. I believe it’s age 65. So that’s one of the two major changes that TSP did. The first thing was they automatically bumped it up to 5% once you’re of the enough service to be able to make the contribution and then they also changed it out of the G fund and into the L fund that mostly tracks your age. So those are those are two of the big changes that were made. It’s awesome that someone like Scott is going to the Naval Academy and saying hey, this is the talk that you know, midshipman Carol had from midshipman Grenduck so many years ago was invest in your TSP, put some money in your Roth IRA if you got some room, if you don’t have the time to spend the money then invest the money because that was the big problem I had in my military career was I had no free time. 2015 was the first year in which I really earned money and I actually have some numbers here that I put together. In 2015, the actual number that showed up on my W2 for my paycheck was $35,000. But when you look at everything, BH, BS, at the time I was earning something called the overseas housing allowance, which is only about $1,700 a month, it was actually $68,000. So I was getting tax for $35,000. It was either 10 or 12%. I can’t remember that bracket anymore. But the actual money I was receiving was $68,000. And that happens to be pretty close to the current median even after all these years.
Doug:
And that’s intentional. that’s set by the Department of Defense and approved by Congress and the pay tables. The idea is that the total package, the regular military compensation calculator will have uh the average officer or enlisted at that age and experience level getting about 95% of the median salary for what they could earn doing a similar occupation out in the in the regular corporate world. And there’s a whole bunch of hand waving going on behind that to make it look about right. But it’s essentially retention. If retention in one area, in one service, and one specialty is is declining and and crading, well, eventually somebody’s going to come along and start throwing bonus contracs and incentive pay and other benefits. Well, benefits that don’t necessarily show up in a pension, but show up in bonus income.
Carol:
And blood money.
Doug:
Yeah, blood money. Okay, sure, sign a contract, get some money, but you got to give us three to five years. And the whole idea is that you’ll raise retention there enough to solve your immediate problem of manning whatever ship or submarine you’re trying to uh get the mission done with. So these things are able to be looked at if you have the understanding, if you have the experience, if you have the financial literacy to to figure out where this comes from. And just like you’re doing, Scott, I’m aware of at least another dozen other people who are regularly going to ROTC programs, colleges and and service academies to give these same talks. Now whether the midshipman at your talk were all able to stay awake. It sounds like you had a pretty compelling presentation. Normally, there might have been periods like that 45 years ago where I would have just dozed off and not even absorbed any of it, but I’m glad to hear it’s much better now.
Scott:
There was some interest, so I got I got like a golf clip.
Doug:
Once you plant seats, right? Once you plant that seat, you got to wait for it to grow.
Scott:
Again, going back to the the numbers excitement around this, right? It’s like a modeller’s dream because everything is right there. The pay is right there. It’s all going to be adjusted for inflation. You can see it on the calculator. You know exactly what your career trajectory is going to look like within a few years, you know, unless you’re exceptional, you know, that may move move through it or get or get lucky or whatever it is to get to get ahead in there. But it’s like very clear like here’s how your progression is going to go and what things are going to look like. You can just map it out into a spreadsheet, no problem for what your career is going to look like. And that’s your worst case scenario because you’re going to get some kind of like hazard pay or special duty or whatever that’s going on there at at some point in time as well. or or I I heard this term blood money. You signed your blood money contract for another three years and your $15,000 bonus or something like that.
Carol:
Oh, way more.
Scott:
Way more. Okay.
Doug:
A really, really big pickup.
Carol:
Yeah, when I was what was called a Surface warfare officer- nuke, Swonuke. And so my nuke bonus was $15,000. That was congratulations, you packed what was then the the Richardson test. It was CNO Richardson at the time. And so here’s $15,000, you know, we’ll see you in a couple of years once you get your Sl pen. But on the swo side of things their retention was so bad before the pandemic that if you were selected in the first round for the department head bonus, it was $105,000. If you were selected in the second round, it was $95,000. And if you’re selected in the third round it was $85,000. And they would pay it out to you, I can’t remember if it was lump sum or over three years, but you would have to decine for a department head tour as a surface warfare officer. I spent a lot of time watching my department heads on my first ship and my second ship and I spent a lot of time saying to myself I don’t want that job. This just looks miserable. Why would anybody want to sign up for this? No wonder the bonus is six figures out of the first round. This just looks awful.
Doug:
I don’t know, Carol. if Scott had joined the Navy, he’d be in a submarine right now.
Carol:
Uh I mean, how was your department head tour? because you didn’t look like you were happy either.
Doug:
I learned a lot and it was valuable experience and I treasure it, but it was not fun at the time. And I did that to serve off my obligation for having gone to get a a free, a free graduate degree from the naval postgraduate school. So there are various benefits you can get and the benefit I got out of that was getting a computer science and a weapons engineering degree right at the dawn of the worldwide web. That’s paid tremendous dividends over the years. Again though, there is a payback and I don’t know if you can tell Scott Mindy, we have this conversation in our family every week and right now, I can only imagine how my son-in-law feels when he sits down between us at the dinner table on Sunday nights and listens to this kind of retention discussion.
Mindy:
Does he have any plans to leave?
Doug:
Oh yes, he does.
Mindy:
Okay.
Carol:
He’s officially classified himself as what’s called high risk in his community. He’s reached the point where he’s gotten his master’s degree in computer science thanks to the Navy. He’s a Naval Academy grad, so he also got his bachelor’s degree from the Naval Academy. So the military has paid entirely for his schooling at this point. And then on top of all that, he’s had a job for almost what year is that? 2026, 12 years. we were both the E group 14. So, except for a sequestration or a budget shutdown or or one of those situations, he’s gotten paid for the last 12 years. And for my husband and I, we were both teenagers when the recession happened. So to have a college degree and a guaranteed job was a huge benefit. But the problem is, we’ve also been millionaires for quite a while now. And so he goes to work after dealing with accidents on the highway that are slowing down traffic, and maybe the base gates aren’t functioning properly, so he has to go in the long line to have his ID checked, and maybe he walks in the building only to find out that three of his sailors got arrested over the weekend and two of them are considering divorce. And at some point he looks at everyone and says, so what am I doing here again? Why why do I want to keep going on this? I could be surfing right now.
Doug:
Does any of this sound familiar to the other Bigger Pockets money guests? does it resemble your work environment?
Scott:
I did talk to another officer and you think about these things in the outside and you’re like, oh, you only get eight more years and you get a full pension. like that sounds great. But then you realize like this is at your 30s and yeah, like this guy was a captain in the army and he was like, you know, it’s really hard because there’s these guys in the barracks and they’re 18, 19, 20 years old and some of them are really not good actors and then you got to you’re you’re have to deal with their shenanigans on a regular basis and that’s the job at this particular scenario. and that was very taxing on this particular individual.
Doug:
I I talk about this for years about don’t gut it out to 20. once you feel like you’re no longer challenged and fulfilled and you’re not having fun, that’s a great time to consider your exit. You know, take it one obligation at a time and be ready to get out at the end of every obligation. And one of the best off ramps is going to the reserves, the National Guard. That’s a good way to have some of the military camaraderie and some income and some of the lifestyle without all of the suck. However, uh maybe going full civilian is the right thing to do. And so her spouse, our son-in-law is looking at that option. He’ll probably uh end up going into the reserves and seeing how he likes life there. but every time he comes home for a weekend, he’s got his spouse showing him what their bank accounts look like.
Carol:
The big draw for my husband for staying on active duty is unfortunately Grand, you’re a little bit out of date on this. There is a way to have Tricare through the entirety of your life. And the way it works is, you do active duty until you decide to leave for the reserves. And then when you’re in the reserves, there’s actually something called Tricare reserve select. So while you’re in the reserves, then you can buy Tricare and for your family rate it’s close to like $260 a month for our family right now. It is like bonkers low compared to most of the civilian world. If it was just you by yourself, it’s under $100. I want to say it’s somewhere around $80 per person right now. And then this is where there’s been an update that most people aren’t aware of. Tricare has something called Tricare reserve retiry and it covers the period that they call the gray area. And it’s the gray area between you’ve completed 20 years, age, 42, 40, 38, whatever that age is. you’ve completed your 20 good years of service and now you just need health care from the time that you are starting your gray area up until your pension starts at age 60. And so you can still buy that tri care as well as someone who already did your 20 good years and is eligible for the pension, but is not going to receive the pension for what could be another 22 years. The big attraction is that even though I have BA health care because of my service and my husband is gonna have BA health care because of his service, unless one of us is 100% permanent in total, our kids cannot have VA health care without that rating. And so that’s the big attraction of reserves is being able to buy tri care for our kids until they age out.
Doug:
And again, these are all good prices for Tricare. It’s uh some of America’s cheapest, least expensive health care and it’s a wonderful deal. but again, it’s those golden handcuffs that you can feel wrapping themselves around your wrists to keep you feeling up for drill weekends or staying on active duty and getting it out to 20.
Carol:
We call them gunmetal handcuffs. You know, the color gunmetal?
Doug:
Gunmetal. Yeah, okay, very good. Yeah.
Scott:
Let’s bring this to a financial concept problem, right? So I think there’s two parts of this. one is how did you accumulate Carol, the the wealth you have now to give you this option. And then two, now we have a financial and an analysis we have to do. This pension is worth something very real and you’re going to give that up. and I think you can beat it. it’s value in the private market pretty handly over that same time period. And that’s a math problem. even if you could give it a very high valuation because of the safety rating and the inflation adjustment um for that pension. How do you think about this? Can you tell us the how you got here and then how you’re thinking about this analysis.
Mindy:
Well, Scott, she said she made $30,000. that’s how she got here.
Scott:
That’s right. Yes. $35,000 taxable income, right? That’s it. Boom, you saved that. five years and you become worth a million bucks.
Carol:
So to to start, the very first thing that happened was I graduated college in the morning and I commissioned in the military in the afternoon. And by that point, the person on my first ship who was helping me figure out how to get to my first ship, she said hey, the ship is going to be moving to Spain in two weeks. Are you coming with us? I’m just like actually yes I am. So by Wednesday that week, I graduated on a Saturday by Wednesday. I’m in my car. I’m driving from Houston, Texas to Norfolk, Virginia to get on the ship. And I got on the ship and two weeks later, the ship actually moved from Norfolk to Spain. And then I was sent back stateside to go to a school for about six weeks and then I went back to the ship. I met it up in Greece this time and then for like the next 19 months, I did not have any free time it felt like. I I remember out of the 19 months I was stationed on that destroyer, 13 months were spent on the ship, which meant that I only had six months on shore. Out of those six months on shore, only four months were continuous because the ship was in a temporary shipyard and needed some repairs. so I was actually going home every night except when I had duty once every six days, except when duty was once every three days because everyone was on holiday and they needed to let half the ship go on leave and the other half would stay on duty. So out of six weeks, I had only one weekend to myself. every other one of those five weekends I was spending at least one day on the ship. Six day work weeks, seven day work weeks, eight day work weeks. it felt like it seemed. Out of the six months that I spent on shore, four of them were continuous but without weekends. and then I only had three week pockets here and there. We would pull back into port for three weeks and then something would happen in the Mediterranean or in the Black Sea. and this is this is 2014 to 2016. so we we had our suspicions but nothing had actually started yet. And then we were back on the ship. I’m actually not even sure if I ever clean the toilet in my first house with how with how little time that I had.
Doug:
I’m pretty sure we spent more time in your house than you did.
Carol:
Yes, because I left the key in a lock box for you so that you guys could come and use my Spanish house way more often than I did.
Doug:
Thank you for your service.
Carol:
I had no free time. Now, don’t get me wrong. I was getting a port call every three weeks. so we were landing in places like Bulgaria, Romania, Greece, Cyprus, Portugal, uh Spain, Scotland, the UK, England. We did get a port call in Israel. Our port call in Ukraine was cancelled, we never got to do that one. Port call in Georgia was cancelled, so we never got to do that one. trying to think oh we were supposed to have a port call in Tunisia, that got cancelled too. This this tells you how much free time we had, right? is that we had all these promises and then we only got through about half of them.
Mindy:
So since you don’t have free time and you’re working all the time, you’re getting time and a half, right? You get overtime in the military?
Carol:
No.
Scott:
How do you spend like what’s the how mechanistically does money leave? Like how how do you sailors end up broke in this circumstance. I guess I don’t understand. Like is there any chance to spend money except at the bar on port on leave.
Carol:
There is. And one of the sailors on the back of one of the liberty buses said it best. He said, well, I’m still paying off the tattoo on this arm. I’m still paying off the tattoo on that arm. had a really good time at the strip club at the last port call. and then I my roommate threw up on my backpack, so I got to go buy a new one of those. and I’ve heard that the best place to buy diamonds is in Israel. The best place to buy gold is in Turkey and the best place to buy leather is in Spain. And I’m just sitting there and silencing my head saying, okay, good to know.
Scott:
He ought to give this guy a podcast.
Doug:
We talk about how when you get underway, you have no free time, but then when you get into a port, you spend all your money because you feel like you’ve built up the need to do that. You’ve earned it, you’ve had a tough deployment, so you really do deserve that pickup truck when you get back home after six months of tax exempt combat zone pay. And you end up getting a very consumeristic lifestyle because you just have no incentive to save. You have no incentive to uh put money away for a pension, especially if you grew up in scarcity or chaos, especially if you don’t have the financial literacy that goes with that and especially if you joined the military in the first place to get out of a bad situation like excessive debt. If you don’t get off to a a start, if you don’t have that financial literacy to make sure you understand where to put the money, well, the reason that your foundation for financial independence started so so early was because not necessarily that you had a high savings rate. It’s got you had an extremely low spending rate. It was piling up in your retirement accounts because you had nowhere else to spend it, right? Nowhere other opportunities.
Carol:
I couldn’t figure out how to order Amazon on the ship. There were a lot of people on the ship that would have Amazon coming in once a month and I’m just like, how do you get your computer to work? because every time I actually find a computer it times out after 15 minutes because you don’t get banned with at sea. so I couldn’t even like stress order stuff.
Doug:
We had that same Amazon problem with the submarine force.
Carol:
And so I’m not spending my money. I’m not given the time to spend my money. I’m not getting paid time and a half. I appreciate you making that comment because I actually did not get enough sleep for about 13 months. Um I was running on somewhere between if I was lucky, three and six hours of sleep every night. And I say every night like it actually happened at night. The best time for me to sleep on the ship was between 4:00 p.m. and 11:00 p.m. because my watch started at midnight and after I finished my watch at 3:00 in the morning, that was the best time to work out in the day and the work day started at 6:00 a.m. underway and it goes from 6:00 a.m. until 10:00 p.m. And so my my best opportunity to sleep was after the 4:00 p.m. early meal until 11:00 p.m. if I was able to sleep. if there wasn’t a drill happening, if there wasn’t a long announcement about kinder hippos on the uh PA system, which has happened before. I was I’m still pissed at my captain about that now was a decade ago. you know? And so what I did was I started automating it. You know, I got back from the first underway, you know, the two, two and a half months that I’ve been on that underway and I looked at my checking account and it had five figures in it because I had no time to spend money. and I’m just like okay, I got to do something about this. So I immediately lump sum dumped a bunch into my Roth IRA for the year and I’ve I’ve been a lump sum fan ever since. And then I increased my TSP contributions. And so that meant that my TSP was set to something like 25% for most of my military career. and and as I got further along and started making more money, I’d back it off 24%, 23%, 22% but it was only ever a little bit. And so I had that automated payment going to my TSP. I would do the lump sum Roth IRA whenever I could, and then every time I got back into port, if I had extra money, that was an automatic dump into my taxable account. As a result of all of that, my TSP, my IRA. so I rolled my TSP into my Roth IRA. And so that between my TSP and my Roth IRA makes up $600,000 give or take nowadays because of all the money that I was saving on active duty and then all the compounding that has happened since then. But I also have money in my taxable account from that extra little bit that I was squirreling away every time that I was in port and I already had TSP taken care of and I already had Roth taken care of and I really just needed to go get some more sleep. like let me just throw this money in a taxable account and come back to this later.
Doug:
I will point out that dual military, dual military couples when they both have an income, you can right away start with a 40 or 50% savings rate. Now you guys weren’t married at the time, but that dual military, two earners in any family reaches financial independence much faster.
Carol:
Right, two BH’s, two BAS’s, two paychecks. Um our Norfolk apartment was equal to one BH and our living expenses were only about $30,000 a year. So one paycheck covered all of our living expenses and the other paycheck went right to our TSPs, our Roth IRAs, our taxable brokerage accounts.
Scott:
So it seems like you need a very specific strategy to not accumulate wealth in this particular setting that you had here, which is the tattoo on the right arm, the tattoo on the left arm, the strip club at that port, this one in there. But then for your approach, it’s there’s the basics the the the basics that many in the financial independence community know, but the that you have to go and discover and learn here of investing in the tax advantage accounts and actually putting it to work in the right, you know, I’m just assuming broad-based market cap weighted index funds or the closest available option inside of that.
Doug:
Well, that’s that’s the thrift savings plan. It’s broad-based index funds with low expense ratios, S&P 500 fund, a small cap fund, an international fund and a bond fund and a G fund. That’s that’s the whole thing right there. Pick one or two or three.
Carol:
Or the life cycle fund, which is basically all six in different denominations.
Doug:
All of them. Yeah, yeah.
Scott:
It doesn’t sound like this was part of your journey, but if you go back in time, was there an opportunity where in hindsight it would have been obvious to house hack, which is my my the bias I bring to these these journeys here. I don’t know if that’s the answer. I would just be curious in your view if if that’s how you feel.
Carol:
I watched it backfire on a couple of people in not spectacular fashions, but in ways that you knew could be happening and you weren’t quite ready to. One of the predominant thoughts that I had while I was on active duty was I spend time with you people all day. I do not want to spend time with you people at home. And so that was pretty much what shut me down from house hacking.
Doug:
Scott, I was doing this house hacking 1980s style when I knew that I would be underway on a submarine away from home for two or three months. I would rent my condominium a a two bedroom apartment. It would be a essentially a a short-term rental arrangement. have somebody come and stay there for two or three months and pay me a couple thousand bucks in the 1980s. And then our first house here on Oahu, we uh bought a house that was in a great location that had been terribly cared for over the previous 10 years and then we basically did the Mindy Jensen model of a live in uh flip. I say flip because we still owned that place 36 years later, but the whole point was you buy a place that’s in terrible condition. and if you have the skills, you if you have the time, you can do a considerate rehab on it and build your own equity out of sweat.
Mindy:
The military has slightly different rules for the primary residence sale. I just learned this. It’s two out of the last 15, not two out of the last five.
Carol:
Yes.
Mindy:
Which is quite nice because you guys get moved around all over the place. You don’t have the opportunity to necessarily stay there for two out of the last five years. So they give you a little bit more time, which is nice. I mean, I have taken advantage of the live in flip rules 10 times.
Doug:
We have a friend who uh did 34 years on active duty. She had a wonderful career. And back then in the 1970s, 1980s, the conventional wisdom was that you would buy a house with your VA loan at every duty station because real estate always went up. She followed that rule and had a very successful career, but when she retired, she had five rental properties and a personal residence. And she spent the next decade after she sold that personal resident moving into each one of those properties to get that minimum two-year stay to be able to get the deduction on her capital gains and her yeah, she still had to pay depreciation recapture, but uh to us it seemed like a miserable life at the back end of her career when she retired in her late 40s to have to go back to each one of those properties to do that two out of 15. but it worked for her. It worked out very well for her.
Mindy:
I was gonna say she chose to. She didn’t have to.
Doug:
Yes. The good news is that she bought a recreational vehicle so when they drove to that house, they could do anything they wanted and sleep in the driveway in the RV. and that was the the business plan that worked out very well for her. very successful. Again, once you know what you’re doing and work for it, plan out in advance that all works very well. I’m sure some of the places she bought in they did not always go up over the 20 or 30 years that she owned them.
Mindy:
And you just have to have that as your primary residence. In my primary residence, I can travel. I could go do whatever. I just have a primary residence. So she didn’t have to stay there for two years. She could like you said, hop in her RV and travel around.
Scott:
One of these Navy officers, they dive deep into this world, so. Sorry.
Carol:
There is an entire Facebook group called military landlords. It is a fantastic Facebook group. And it’s exactly what it sounds like. It’s all the folks that have become landlords, accidental or on purpose, while they’re in the military. And they’re handling things like help, I’m stationed in Florida and my it uh Air Force base house is having these issues. Anybody know a good lawyer? Like that that’s exactly what the group is for.
Scott:
I just think real estate is such a good option to be open to for military folks because you have the income, you can borrow against. Unlike like an entrepreneurial pursuit or a real side hustle, like the project at the house can wait until the next break you have there and you don’t really lose a ton if you delay it by a week where, you know, you lose a ton if you if you have it vacant for two months, but you know, it’s just like very conducive to the ebbs and flows, I think of the military work life for some people who are interested in that and the the borrowing is very beneficial. But I want to go back to two parts. So we’ve learned here that we we saved our $30,000 salary and that’s how we became a millionaire here. And I assume that these numbers just begin just stacked over the five years and and you invested them aggressively and and you had some extra whenever you got extra cash from hazard pay or, you know, sea duty or whatever they call it, the the terminology here, you you stacked all that up and that ended up really nicely and compounded over the last couple of years. Is that is that generally the story of how we got to this multimillionaire status?
Carol:
Yes, I was active duty, so I had base pay, I had an overseas housing allowance. I had a cost of living allowance for Spain, which was probably $4 or $500. And then when I was state side Norfolk, that went away. So that was BAH BAS base pay, already mentioned that. I had deductions for SL, the service group members life insurance, uh Service members group life insurance. So that was maybe somewhere between 25 and $30 a month. That number has gone up and down over the years. deductions for my TSP and I’m trying to think of what else I had. I did have C pay when I was as they say in the Navy haze gray and underway. and when I started that was about $100 a month. by the time I finished in five years, that was maybe 220 a month. it wasn’t really high. but you’ll run into some people in in C duty that have been at C for 16, 18, 20 years and you’re looking at numbers that are like a thousand a month, 1200 a month. It all depends on how many years of C duty you’ve racked up. And especially in the Navy, everybody is really adamant about paying attention to their C duty counter. It’s a number that’s actually included on every single one of your paychecks, every single one of your LS’s, and that number translates from your LS onto your DD 214 and the final paperwork actually tells you how many days you spent at sea while you’re in the military.
Scott:
I know as you play around the calculator, you’ll also see the pay jumps very nicely from O1 to O2 and O2 to O3 and it increases with your years of service, right? So those all stack up to compound, right?
Carol:
Yes, but no one talks about the tax brackets. When you put on O3, you jump a tax bracket. Most people forget about that.
Scott:
Now you join the real world.
Carol:
You join the real world. You go from that 10 or 12% and you go at the time it was either 10 or 12% and then it jumped in the 22%. And so that first paycheck my my withholding increased. I was like, wait a minute, I’m getting less money than I got last month even though I was getting paid more this month, what just happened? And I actually went in online and found out yeah, when you put on 03 because it’s such a high pay jump it also jumps you up the tax bracket.
Doug:
That means you’re doing it right.
Scott:
I want to go back to the second part of our question. So we had how we got there and now we have this is I think this is a problem facing million, hundreds of thousands of active duty service members here, which is do I gut it out to get my pension or not? There’s the how I feel about it, how, you know, that’s different. But let’s do the math. This pension for your husband is going to be what when he in eight years and he’s considering giving that up. And I think he can beat it. I think he can beat it in the private market even after tax in there, but I I want to I want to actually hear how you think about it from a mathematical standpoint. because that’s the other part of it.
Carol:
Yes, my husband is an 04 right now, which is the same rank as Grand Doug. Uh Grand Doug, can I talk about your pension numbers for a minute?
Doug:
Sure.
Carol:
So, Grand Doug gets about $3400, I think it’s still $3,400 a month in his pension. And there’s different ways that the pension changes its taxability depending on your B disability compensation. I am not going to go into that today. That is super complicated. But basically, if your rating is less than 50%, they’ll actually make your taxable pension lower. And if your rating is more than 50%, then you get both your V disability compensation and your pension side by side. And so this is one of the reasons why they tell you, apply for your V disability claim because you actually could get the pension and B disability compensation side by side. But it’s about $3,400 a month. Oh, wait, he has the numbers right there in his ER.
Doug:
Grand total of uh $4,828. Some of that is tax exempt due to VA disability compensation.
Carol:
Yes. So the pension number does not always equal the taxable number. and so that’s one of the big things about the pension to begin with. And then the other calculation is Grendog does not pay for health care. Well, I guess you pay about $13.20 a month or was it $20.13 a month for your try care?
Doug:
Used to pay about $15, $20 a month, but now that I’m on Medicare, I pay 200, no, no, no complaints. This is a this is awesome health insurance and you’re right, the health insurance is very, very cheap. It’s really around in your compensation if you’re a military retiry.
Scott:
But we’ve already got the health insurance and we’ve already got the disability that’s not going to change presumably, hopefully.
Carol:
It’s going to increase.
Scott:
It rises with inflation. I’m sorry. the decision about whether to leave the military now or in eight years does not presumably affect the disability pay your husband would receive. Is that is that a correct statement?
Doug:
Since it’s all an inflation adjusted dollars, so it’s pretty much a constant amount when you look at the forecast, you don’t have to worry about inflation.
Scott:
So on your check, Doug, that 4800, let’s strip out all the other stuff here. What’s the pension amount? That’s the math problem that Carol’s husband’s got.
Carol:
And he’s looking at the same problem and so hypothetically he’d be looking at about $3,800 a month of taxable pension income after VA disability compensation.
Scott:
Okay, so that’s 45 grand a year. I’m not going to use the 4% rule. That’s better than a 4% rule, right? Like I think that a lot of the rest of society is going to collapse long before you guys lose your military pensions in there. And I think that would that’s got to be one of the safest income streams in the on the planet that you’re ever going to see, adjusted for inflation. If we were to say that this this income stream divided by the 4% rule, that’s about 1.1 million, $1.14 million income stream. But I’m going to I’m going to give it a better rating than that. I’m going to give it a 3% guide there. So I think it’s worth 1.5 million easily. this income stream. Do you guys agree with that very back loose back of the napkin math?
Doug:
I’ve been doing this analysis for 24 years off and on and yeah, I concur with all those numbers and that’s a synthetic net worth number. You add that to your net worth, that’s, you know, that’s the value of that. Keep in mind longevity might be an issue. Also, keep in mind that uh there is some tinkering of the system from time to time, but those are good numbers to start with. The big obstacle is not the money. The big obstacle is quality of life, uh family, uh work life balance, uh again, take it one obligation at a time if you’re challenged and fulfilled, stay on active duty. where there will be sacrifices, but eventually you have to make a priority over do I want to continue this job and promote or do I want to spend more time with my family and watch my kids grow up?
Scott:
I think that that’s exactly right. The question then is, how can I make this opportunity cost as low as possible? So maybe you can beat that number, which I think you can, um over eight years, depending on on what you do in you know, in business or real estate or other stuff. and that’s possible or even likely for someone with a master’s degree and an undergrad from the Naval Academy who’s 04. like this is not someone who’s going to go get a $70,000 a year job at entry level in marketing. This is somebody who’s going to get a probably a job that starts with a two, I would imagine, external to that, maybe more in the private sector. The second part, I think of this is if I can’t get beat it, can I how close can I get so that that cost is low over those those eight years, right? Is that how you are framing framing the problem here?
Carol:
It’s a mystery to me why he’s still showing up for work.
Scott:
Oh so I’m accidentally helping you guys, I think.
Carol:
Not exactly, but the the downshifting aspect is another thing. You know, my husband, for example, had to leave for work at about 7:00 this morning. He hopes he’ll be home at 3:00 p.m. Something always happens at 3:00 p.m. so really he’s home at like 6:00 p.m. So from the time he left the house at 7:00 in the morning to the time he makes it home at 6:00 p.m. you’re still talking an 11-hour day and that includes traffic. We’re fortunate to have electric vehicles. We are all part of the EV club now. and so our burn rate while sitting in the middle of traffic is really really low. But most duty stations aren’t EV friendly. So imagine burning gas while you’re sitting in traffic with all the people you were just sitting on base with on your way home. Are you paying for after school care or before school care or summer care for your kids because you’re at work? Are you paying for nannies? Are you paying for extra care when you can’t take a day off work when your child is sick at home? Are you paying for extra meals out? Are you paying for different kinds of drop off and pickup services for your kids to go to their different sports? And so one of the big things that we’ve been seeing and it’s mainly because I’m in my early 30s, is that a lot of our peers are having the same consideration of leading active duty because they have a family now and their minds are elsewhere. Their minds are not in the ship. They’re not on the mission all the time. They’re really more concerned about their toddler at home that has the ear infection or their kid that just picked up COVID and has to be home from school for 10 days, which was a real reality a few years ago was the fact that you’re going to have to figure out how to find some leave or find someone to watch your kid with something as at the time dangerous as COVID. How are we going to handle that? And those were some of the real situations that we had covered because I was the stay at home parent, I was the on call parent, I was the part-time parent. So you talk about the possibility of entry level marketing versus $200,000, you know, computer science background, but the reality is that my husband also does not have to work full-time anymore. I’ve I’ve not worked full-time since I left the military. My work at RWS is all been part-time. usually somewhere between 10 and 15 hours a week. Uh there was one tax season it was 25 hours, but we’re not going to talk about that one. Most of the time it’s been enough for me to work for an hour or two or three in the morning and to be there to drop off my daughter at school, to pick her up as soon as the school day ends and not have to sign up for the after school programs or have the nanny or have the pickup service.
Scott:
Let me ask another question here. So we have this $1.5 million dollar asset that we’re working towards over eight years. You said 15% of people make it Doug. How about from here? This is not this is not a 15% situation. This is farther beyond that. So the odds are certainly higher than 15% that that uh Carol’s husband will will get there. I’m sure he’s exceptional, but let’s assume he’s average for this particular uh thing and as in term in relative to his cohort in the officer sec right now. What percentage of people make it from here to there on average if they’re trying for it without getting like a, hey, we’re moving you to um not Bermuda but like some remote island that’s not fun.
Carol:
Diego Garcia.
Scott:
Yeah, there you go. What percentage of people make it from here to there without one of those things coming up along the way?
Doug:
We have the studies. RAND Corporation does this work for the Department of Defense and what happens at about the 10 years of active duty between 10 and 20 years, the retention rises every year and it’s a fairly constant slope from 15% up to about 40 to 50%. In other words, if you’ve been on active duty for 10 years, you’re probably going to have a one out of three, a 30% chance of going to retirement. You’ve been on active duty for 15 years, well, maybe it’s a 40 or 45% chance that you’re going to continue serving until retirement.
Scott:
That’s it? 45 to 50% at 15 to make it the last five?
Doug:
Yes, and two things, well, okay, medical is a definitely a medical issue or some physical disability or medical illness that keeps you from serving on active duty. And you’ve seen a lot more of that. The other issue is that at that point, you have a an impending sense that this is the time to get out or to go to the pension. You’ve got an angel on one shoulder saying, oh, stick it out for the pension. You’ve got the devil on the other shoulder saying, oh, you’re so much more worth that you’re your human capital in a civilian career. And so it doesn’t rise as you would expect to, you know, 16 years only about four more years to go, maybe my chances are 80%. Uh it doesn’t rise like that because again, the the penalties you pay, the prices you pay in quality of life and lack of family time become ever more severe the more senior you are. Another issue is that when you start out in the military at a low rank, there’s plenty of places to go because there’s plenty of jobs like that that are open. As you climb the billet structure, as you climb in rank, now you get to the point where there’s a pyramid effect and the the bill of choices you have are more restricted. And we all know that if we’re at 14, 16 years of service, that not only are our choices more limited, but the assignment officer is making a calculated bet that you’re going to stick around no matter how mean they are to you and they’re going to solve their own problems by saying yes, you do have to go to that one-year unaccompanied tour in Diego Garcia. After you do that, we’ll give you your choice of your next duty station and maybe even your next home port and then, you know, never know you might meet your next spouse at that next home port after you lose your first family during the year in Diego Garcia. So those are the choices that’s the calculus you go through to decide hey, I’m going to get that million and a half dollar payout. I think your point, the point you made earlier on, Scott is the biggest factor is that many people in the military look at where they are on active duty and they can’t imagine that anyone would pay them that much money in the civilian world. And then they work around with their peers they network they talk to their friends from high school college wherever they’ve got peers who are now succeeding in the civilian world and they realize what their human capital is really worth. And so at that 12 to 14 to 16 year point just as the assignment process just as the detailing is getting a little cursive on your career and just as you’re running out of choices, you also become aware of all those soft skills that are so valuable in the outside world and your friends who left active duty earlier 8, 10, 12 years are telling you hey, come on over to Amazon. I’ll teach you everything you need to know but really I need somebody who can get stuff done and I know you can do that. could you please, you know, and that’s how it works. So I would say that the chances rise linearly and by the time you get to 16, 18 years, there’s probably a greater than 50% chance that you’re going to stick it out to 20. If you’re at 18 years, you are federally protected to be allowed to stick it out to 20. But again, lots of other things can pop up. One example is my spouse. She left at what turned out to be 17 years and 11 months of active duty into the reserves strictly because of one of those unrefusable offers from the assignment officer. We can do all the math and and I you know I am focused on the math and and I can do it, but we also have to look at quality of life and sacrifices.
Scott:
I love how there was just this actual island in the middle of nowhere that they do send you to, which I had invented fictionally for this example.
Carol:
It’s real. It exists. It’s not fun. Yeah. And and on top of that, I happened to be a millennial and one of the medical anomalies that’s been happening with my generation is there there’s been a lot more cancer cases in my generation. And if you see it in America, you see it in the military. I’ve actually relieved a couple of folks on active duty because they had cancer and they needed to be reassigned to the local military hospital for their treatments. And so I was taking over their job. I actually had uh he was not my captain. He was the captain of the command that was in charge of my command and he died on active duty from his cancer. And so you talk about making it to 20, one of the real issues is medical issues. There is a point where you’ve had either enough industrial exposure or you’ve had oil fields or some Mountbo in the case of my dad, you know, if you had some kind of uh industrial exposure that actually, depending on your genetics, depending on your where you were raised and what you were exposed to in the past could actually mean that you don’t make it to 20 years.
Doug:
We call that occupational hazards.
Scott:
I have to discount the pension, right? I said it was worth 1.5 million back of the napkin, you know, 3%, you know, if if you consider it equivalent to a portfolio that could withdraw 3% from that asset. You got to it by these probabilities, right? Based on your ten tenure out. So if yours only a 30% chance you’re going to be able to stick around to get it because you know that at that 17, 18 year mark, it’s not more likely. It’s it’s more likely because you’re closer, but you have every reason to believe you’re going to get station to God forsaken Island in the middle of nowhere at great personal cost at that point by somebody whose job it is to make that happen um for you before you get through that hurdle. And the taxpayer pays this pension for life, right? or whatever it is, right? Or that’s just how the cards get doubt to you. So that that means if there’s a 30% chance that your husband will make it there, just a cold calculus of of what that looks like, then this pension is now worth 500 grand, which definitely changes that that’s a very different number when you contextualize it that way. That’s a number you can achieve with saving 50 grand a year, you know, for the next eight years and investing that at a very average, non-interesting return on there in the private sector, which is probably very achievable. So is that is that kind of is that the right way to think about valuing this asset, which I think is very challenging, I imagine for a lot of military officers.
Doug:
We do this math all the time for our peers. Carol used to do it at work for her clients and and I do this all the time for military families. And the very first thing I say when I’m giving one of these financial seminars is, I am not a member of the command retention team. I am here to help you plot your exit ramp out of the military and it’s for those issues. So yeah, you can do the math and and the math works and that $50,000 a year number looks an awful lot like what a Lieutenant Commander who is on active duty now knows that they could earn at a drill weekend and some active duty for training that they would do in their reserves anyway.
Scott:
I think you should gut it out in that journey if you’re like my calling is to command a billion dollar aircraft carrier and like I’ll be out at sea for most of my life, but that’s what I’m good at and I’m going to defend this country for the rest of my you know, because I’m better. I’m just good at it and I’m going to be better than the next guy. That’s what I’m going to do. That’s a great reason to go and stay in the military it seems like not the I’m going to gut it out to get this pension if I if because the opportunity cost is just really not that large when you weigh these probabilities it seems.
Doug:
But challenging and fulfilling. if you enjoy what you’re doing and at someday you think you might become CEO of that project, well, okay, that an eventually happened. so uh to you it was worth whatever sacrifices had to be made along the way. Sometimes you might feel like you end up getting promoted just by the the vacuum of attrition sucking you higher in the ranks, but again, it’s a personal choice, highly personal choice and your family does have a vote.
Scott:
Doug, Carol, thank you for sharing this wonderful uh detail about uh about building wealth in the military and then making the irreversible decision of whether to slog it out to the pension or to give up um early and go into the private sector. I’m surprised at how more compelling the math of not slogging it out is than than what it would have biased uh to towards coming into the conversation. So thank you for sharing that. It was really illuminating. Where can people find out more about you?
Carol:
So I need to get back into social media, but you can find me under my name on Facebook. and we also have a Facebook page for the book that my dad and I co-authored, raising your money savvy family for a next generation financial independence. The reason I need to get back into writing is because my daughter has an allowance now and I have so many stories. so I will get around to that eventually.
Mindy:
And Doug?
Doug:
I’m at militaryfinancialindependence.com and uh my email address is all over the internet already, nords.nords@gmail.com. Please, reach out. I I get these emails every day.
Mindy:
And he loves answering these questions. so please reach out to Doug or Carol. They’re a wealth of information and they are generous with their time. So Doug and Carol, thank you so much for talking to us today and we will talk to you soon.
Doug:
Thanks, everybody.
Mindy:
All right, Scott, that was Doug Nordman and Carol Pitner and that was a master class in benefits of the military and how to grow wealth as a military member. What did you think of this episode?
Scott:
I thought it was great. I the intergenerational wealth building, you know, uh psychology that that has been transferred here is awesome here. Carol has a wonderful life and situation. I love the the challenge that her husband is facing in a really high stakes financial decision about how to value this asset and I think it’s not as simple as here’s what it’s worth, let’s go slog it out towards it. There are probabilities that we towards achieving that too. So I I thought it was a fantastic discussion and I think the numbers light you up from a military perspective in the the life is very hard. The benefits that you receive for military service are well earned.
Mindy:
Absolutely. Anybody who has a problem with the military members getting the benefits that they get can uh send me an email and I will I will be happy to chat with you and I will not be nice. Hey Scott, has anybody ever taken a shot at you at your job?
Scott:
Well, I’ll also say this. The fact that folks like Carol and Doug serve in the military and some of our like finest people serve in the military and defend the country are the reasons we get to debate things like what healthcare policy ought to be like or what the tax code ought to be like. So these guys really make a big difference. And we record this two days before the 4th of July here on America’s 250th birthday. So shout out to all the military service members. Hopefully this episode was helpful for you. We love the folks in the military. We’d love to help you with any problems. There’s lots of great groups out there as well that are specific to the military members trying to build wealth. So we love it and thank you for your service. We appreciate it and I hope you can use those benefits. It’s a real educational process I think to be able to to access them but I hope you use those benefits to live a life of well-earned financial freedom.
Mindy:
Yep. Check out Doug’s website militaryfinancialindependence.com. He has a ton of articles and a ton of information about the benefits. so you don’t have to just figure it out yourself. All right, Scott, should we get out of here?
Scott:
Let’s do it.
Mindy:
That wraps up this episode of the Bigger Pockets Money podcast, but just because the show is done, doesn’t mean you have to stop learning. Hop on over to our website, biggerpockesmoney.com where you can sign up for our newsletter, check out our new forums. You can find resources like calculators and templates to help you on your FI journey. Scott is busyly typing away with our tech team creating all new resources all the time. So go over there and check it out. That wraps up this episode of the Bigger Pocket Money podcast. He is Scott Trench. I am Mindy Jensen saying, convert it to a Roth Sloth.
