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I think it's a WONDERFUL opportunity but I LOVE what I do, but I can RETIRE in 8 to 10 years, with a very good salary as well as our investments.

Military retirement is not the lucrative retirement many people imagine. Retirement pay is taxable income. Additionally you must pay for SBP, TriCare for Life, and VGLI from your retirement proceeds. The bottom line is net retirement pay is generally 1/3 to 1/4 net pre-retirement pay. There are excellent non-financial incentives to military careers, but the financial rewards are slim.

The Air Force has an excellent retirement calculator for military members who retire form active duty on their personnel web site, but you must access the web site from a .mil computer. I'm not personally aware of a similar calculator for military members who retire from the Reserves or National Guards, but I would expect there're appropriate calculators on the Reserve and Guard web sites.

- Surf to:

- Under the "Officer" or "Enlisted" headings, select "Retirement". The calculator is the same for both corps.

- Look for Retirement Calculator.

- To use the calculator, you'll need to know several dates from your personnel file. Those dates include 1405 Date, Date of Initial Entry into Military Service (DIEMS), pay date, promotion date. The calculator has links to explanations of each of these dates. You should be able to get the dates from your Leave and Earnings Statement. If they're not listed there, then a personnel specialist can help you dig through your records to find them.

(NOTE: The 1405 Date is difficult to find for military members with service in the Reserves and National Guards. It's roughly the date of the last day of the last calendar month before you entered onto active duty, but there are adjustments made to account for Reserve and Guard time.)

Regardless whether you decide to commit yourself to the military or to remain in the commercial world, the key to a timely, secure, comfortable retirement is to save more and spend less. By saving more, you'll have more money to support yourself in retirement. By spending less you'll accustom yourself to a lifestyle you'll be able to support through retirement.

To enjoy a comfortable, timely, secure retirement, most investors must save at least 15% of their gross incomes every year starting in their early 20s. Investors who start late, want to retire early, or want to retire in luxury must save more. If you look through posts on TMF's retirement discussion boards, you'll discover many TMF subscribers claim to save 25% of their annual gross incomes, and a few claim to save over 50% of their annual gross incomes -- in addition to what they save for houses, cars, vacations, and other immediate needs.

I know many people figure they'll save for retirement when they start making serious money or when they get closer to retirement. If you have a financial calculator or a spreadsheet, try this demonstration. First calculate the effect of saving $2,000 per year every year from your 18th birthday for eight years at 8% per year, and then never saving another penny until you're 65, but allowing your savings to compound. Then calculate the effect of saving $2,000 per year starting from your 26th birthday until you're 65, again allowing your savings to compound at 8% per year. Compare the total amount invested ($2,000 per year times eight years vs. $2,000 per year times 39 years) and the final values of the two portfolios at age 65. If this demonstration doesn't convince you to save early and often, I have no idea what will.

Here's a link to an article that contains the results of a similar calculation in a table (click on the link to Rich Man, Poor Man (The Power of Compounding)). The difference between my demonstration and the demonstration in the article is the article uses a 10% annual return (rather than 8%), and the article saves for seven years (rather than eight years).

Some people argue in retirement your income needs are less than when you're working. You're not saving for retirement anymore. You're not paying Social Security or Medicare taxes. Your children probaby are on their own. Your requirements for a business wardrobe are substantially reduced. You probably can get by with one car, rather than a motor pool.

However, in retirement, your medical expenses almost certainly will be higher. You'll probably want to spoil your children or grandchildren. You'll probably want to enjoy some of the things you denied yourself while you were working (e.g., frequent meals at restaurants and exotic vacations). You may even take up one of those hobbies notorious for consuming money (e.g., chasing a small, white ball across the countryside or trying to outwit an eight pound, 12-inch fish).

Investors can safely withdraw about 4% per year from a well-performing, well-balanced investment portfolio without cannibalizing their principal. They can withdraw a little more in years with good returns, and a little less in years with poor returns. Lower withdrawal rates are better, and much lower withdrawal rates are much better.

Another way to look at that 4% number is you must have 25 times your gross annual income in savings to retire. You can retire with less money, but you'll have to cannibalize your principal, reduce your standard of living, or reduce your expected lifetime to do it.

Retirement income needs and the timing of those needs vary from person to person, but when you do the research and crunch the numbers, you'll probably discover you have to max your 401(k)/403(b), max your IRA (and spousal IRA), and still make additional retirement investments in non-retirement accounts.

David Jacobs
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