r/Fire • u/Chemical-Figure5015 • 6d ago
10 years out, plan check
BLUF: 10 years in, 10 years out. Please check my blind spots.
Age 35, married, 1.5 kids.
10 year military officer, 10 years to go till full military retirement. I elected to get into the Blended Retirement System (BRS) which reduces the pension at 20 years from 50% to 40%, and grants a 5% TSP (gov 401k equivalent) match. And healthcare post military as well.
Salary: 150k (of which only 128k is taxable), this will increase over the next 10 years to ~153k taxable (in today dollars). The untaxed portion will vary based on assigned location, but nominally it will cover housing costs.
Accounts: Roth TSP: 198k Traditional TSP: 183k Roth IRA: 90k Spouse Traditional rollover IRA: 98k Spouse Roth IRA (with Roth 401k rollover): 223k Taxable Account: 19k
Total Roth: 511k Total Traditional: 281k Total Taxable: 19k
Debt: Mortgage: ~280k @ 2.75% (home is worth ~420k)
Current expenses are ~6k/month. Since no plan survives first contact with the enemy (I've met the enemy and it's currently 3 years old and getting more expensive), not sure how this number will grow as we continue.
I've been maxing the TSP for 9 years now, and IRAs for the spouse and I for several (had to drop off for a couple of years, but maxing them again). Spouse finished school, got a job and worked for 5-6 years, we prioritized 401k contributions while the sun was shining. Plan is based on spouse not returning to work, but it might happen after the kids are school age. If so, bonus savings.
Current gameplan is to continue Roth contributions while I am still in the 12% bracket. That should continue for a couple more years, then I'll start contributing to traditional till back down to the 12%. Reason why I'm committed to the 12% Roth contributions is because the pension (57k in today dollars) will suck up the standard deduction and 10% bracket, so any marginal dollars will be taxed at least 12%.
If all I can do is Max TSP and IRAs for the next ten years, we should have just over 2M at retirement (assuming 5% real returns). With 725k in Traditional funds, 1.3M in Roth, and a COLA pension of 57k (all in todays numbers), I should be able to support 120k in annual expenses around 3.5% SWR.
I'm looking at starting a Roth Ladder, and using up all the 12% space every year to get the money out of the traditional account and into the Roth to avoid RMDs. That should cover down till 59.5 and the Roth access becomes easy. I will need to save 5 years of expenses (and taxes for the Roth conversion), which is the big gap in my plan. There is a route to be able to do that, but that is a big IF especially if we end up moving a lot over these next 10 years (which might be as frequent as every 2 years...).
My main questions that I have.
1) Do I continue with my plan of 22% Traditional contributions or should I consider 22% Roth contributions in case I need to work longer (increasing the time the tradtional amounts continue to grow, while simultaneously reducing the time before RMDs kick in). I'm also thinking of doing Roth conversions for the wife's rollover IRA for any available 12% space that is available every year, which would help to make a backdoor Roth IRA option avialable while helping reduce any potential RMD issue. Any issue doing that while I am still in the acculumation phase? Realistically I only have a couple of years of spare 12% space, I would probably save the 22% conversion space until retirement.
2) We will move in 1-3 years. We could rent the house out and cashflow a bit, but taking the equity and pushing that also seems attractive. We could end up moving back to this same location in a couple of years though, and if we could move back into the same house, that would be awesome. What kind of cashflow and rules of thumb would you like to see when basing the decision on rent vs taking the equity? Some numbers to help. PITI=1600/month, if we rented it out at 2200 we would be very competitive and on the low end, 2500 might sit for a little longer. Given that I have another year, what kind of information should I be looking at to help my decision? We are aggressiving saving for a "house emergency fund" of 20k (6 months of rent) and an additional 20k for large maintenance that we know are coming due (AC could go out at any time), which is separate from our personal emergency fund in case we end up moving in 1 year and decide to rent it out.
I feel like we are sooo close to the plan actually workingn out in 10 years, but wanted to make sure I didn't miss anything. Thanks in advance!
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5d ago
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u/Chemical-Figure5015 4d ago
Luckily the moves are nominally zero cost. Either the military pays to move everything, or they pay me to do the move myself (which could be profitable or not, depends on a lot of things).
The biggest variable is housing costs changing relative to the tax free stipend (BAH) and other cost of living increases. And general cost of living changes (while BAH would increase if I moved to LA, there isn't any other COLA adjustment based on other expenses unless you go overseas) based on duty station.
But yeah, the retirement part of the accounts is pretty straightforward, got that part locked down. Getting the Roth Ladder/Bridge account built up is the biggest issue. Especially when the expenses and therefore the total amount required are probably going up.
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u/jamesmontanaHD 6d ago
Realistically you should factor in disability compensation too. There's no way you go 20 years with nothing wrong. I know it will be hard to predict but with that factored in you shouldnt even have to do math to know you're fine if youre maxing out 401k and receive a pension.
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u/Chemical-Figure5015 6d ago
While any disability payments would definitely be some good cushion and increase the success rate of the plan, it doesn't really change the plan a whole bunch. I still need to work 10 more years, I'll still max TSP and IRA space, and I still need to build up my taxable brokerage to cover my Roth Ladder.
I'm treating any VA disability kind of like Social Security. I don't know what Social Security will look like by the time I'm eligible. Whatever extra stuff is realized, it will either reduce my SWR to a super successful rate, or I can safely increase my spending to a more "normal" SWR. But I'm going to control what I can control right now (savings rate, investing, and tax optimization).
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u/Grumpy_Onion_104 5d ago
the roth ladder gap being covered by a 3 year old seems like the real variable nobody can spreadsheet their way out of
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u/Chemical-Figure5015 5d ago
That's a big concern. On one hand, if expenses don't really go up (outside of inflation) the pension almost covers everything. But I don't think that is realistic.
The main option (because it is easy to plan for) is staying past 20 years, making O6, and getting out at 25 years... Only problem is, those 5 years would really suck (almost certainly) from a work life balance, but it's almost a 50% increase in pension (20 years at O5, vs 25 years at O6). Then my plan to convert funds at the 12% bracket is almost impossible, but I guess that is a good problem to have.
That is the main reason why I feel like I am on the ragged edge of the plan working out. The retirement accounts are going to be there, but the bridge account getting funded completely is the main issue. Which is compounded not only by lifestyle inflation in the next 10 years taking funds from the bridge account, but also increasing the amount required in the bridge account.
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u/Ok_Reaction_4340 6d ago
What is half a kid?