Through the 20/20 focus of hindsight, I've developed a straightforward approach to military retirement planning that I think any military member could put onto place and retire comfortably after a 20-25 year career.
- For the first five years of service, live in military quarters, do not buy a car or take on any debt, and save at least 25% of your income towards a home purchase.
- At the beginning of your fifth year of service, purchase a home with a 15 year mortgage with a payment that does not exceed the BAH (base allowance for housing) of your current rank.
- Pay cash for your new home furnishings (see the trend?)
- When you do purchase a vehicle, pay cash for it. This will likely cause you to buy a late model used car, which is probably exactly what you can afford.
- When you PCS, do not sell the home. Find a good property management company to rent the house for you. You will likely be able to rent it for the current BAH, which should be higher than it was when you bought the house. This gap will pay the property management fee.
- Don't be tempted to rent the house yourself. This increases the risk that the house will sit empty or that the house will be neglected without supervision.
- Only purchase another house if you can pay less than the BAH at your next location. If you cannot, either live on base or rent a home. Your focus should be on accumulating money in the Thrift Savings Plan, opening a ROTH IRA, and saving for the college needs of your children, if you have any.
- Your goal during this phase is to save 30% of your income.
- Get as much education as possible during years 5-10. If you don't have a college degree, start with an AA. If you have a bachelors degree, get a masters. The military offers outstanding educational benefits. Passing them up is like leaving a bag of money on the table.
- During years 15-20, save 20% of your income into a guaranteed cash account, like a certificate of deposit, money market account, etc. By the end of year 20, you'll have at least one-year's income saved in this account, in addition to your additional retirement account balances.
A great strategy would be to move to the rental house, update it to suit your tastes, and plan on living in it for two years. At the end of that time you could sell the house, not pay any capital gains tax, and buy your next retirement home for cash!
The dual-retired military couple's biggest expense is their mortgage. Think about what their financial situation would be like if they didn't have one! This plan works because it sets realistic limits on spending, and ensures that the rental home will be competitive in the local markets.
Is this what I did? No. Like I said, it takes the clarity of hindsight to see how this might work.