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Personal Finances / (Motley) Military Money Matters
|Subject: Re: Force Shaping/Voluntary Separation Pay||Date: 8/14/2006 4:04 PM|
|Author: SandPockets||Number: 11 of 17|
Wow, I am a reservist currently on active duty in Kuwait, but as well work full time in the civilian sector as a Deputy Sheriff in a County of Florida. I am 39 years old and am currently spending a great deal of my freetime learning much of my options for both one retirement at a decent age and secondly, making the most of my tax deferrals while empowering myself in managing my own investment funds.
Getting a lump sum retirement from the military after 12 years (from what I understand) of being an Air Force officer sounds unusual, as well depending on age, can sound tempting.
One way you have to consider is to calculate what he would end up with at 20 years with full medical. and determine what one would need, to equate that amount by investing it over the long term in an IRA. To take the lump sum without a rollover into an IRA would be a grave mistake and you will most definately lose as much as 30% of it to taxes and penalties. You have to treat this as yours and your husbands future and place it in an IRA account to avoid any taxes.
If leaving the Active Duty Air Force is a no-option in his case, he may want to see if he can salvage his military career as a reservist, this would not allow him to see a retirement until he is age 60 (might change to age 55 with a pending bill in congress). but given him not being able to draw on an IRA until age 59-1/2. It might be the better of the two options. There are calculators available on most .mil websites to determine what his retirement will be with 12 years prior service active duty and 8 years of reserve participation. Keeping in mind, he will at least be eligible for medical for himself, reducing the need for paying out of pocket for both of you at age 60. He may again get the opportunity to add more active duty time to his retirement, making it more pleasing in what he'll recieve. It is an option he should look into..
From one who is already in his 18th year of military service. I stayed in the reserves to get the medical benefits, being I will only have about 4 years of active duty in addition to my years of reserve service and probably retire as a E-7 (currently E-6). My pension will only amount to around $800/month at age 60. For me that's my new car payment. I am betting that his 12 years active duty and 8 years reserve as say an O-5 to O-6 might yield at least double that, possibly more.
Leaving with only 8 more years to go is a difficult decision to make. One would have to ensure they can truly make a significant income in the civilian sector and invest heavy to achieve the same goal they would have recieved by only giving 8 more years. This might be a good instance where hiring a financial planner might come in handy.
One serious question you both need to ask yourselves in making this decision. Do we have enough in savings and investments currently where we can afford to give up this military retirement? If the answer is "no", that should be a decision weighing heavily on you both.
I myself learned not to put all my eggs into one basket, that is why I am currently working on two pensions (military and State Government) and socking money into tax deferred shelters (thrift savings plan and 451 deferred compensation plan). In this day, one cannot rely solely on a pension and/or social security alone for a retirement.
I recommend you spend some time in a couple other discussion boards and learn more about IRAs, 401k and government tax deferred funds. More so if your spouse goes the route of taking the lump sum early out. You will need to learn as much as you both can on how to invest it wisely...
Gary Michalosky (sandpockets)
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