Military Financial Independence

Joining the Military During a Drawdown

Posted on March 18, 2013 by Doug Nordman

A reader writes:

Nords, can you talk to me about my son joining the military?

Here are some things we are wondering about. Times are changing and the way it’s run doesn’t give the kids the options like they used to. For example we are told they are releasing them at four years and not letting them sign back up. A recruiter recommended that if he goes in to get everything he needs out of the four years period. There also seems to only be openings in Army infantry? My son wants to work with computers. He had originally wanted a plan like yours and I still will probably get him your book but it looks like “retiring” from the military is now only going to be for the very top and most highly educated people? What are you hearing and do you have any advice?

There seems to be some misconceptions out there about military benefits. I think people confuse active service benefits with 20 year military retirement ones. I worry so much for the boys at his school who have poor grades and think that the military is the way they will get ahead in life. With the cuts this may no longer be a way to accomplish that.

From the military’s perspective, the next few years will be terrible because the wars are winding down and the government is slashing DoD’s budget. The personnel staffs have to cut back on recruiting, although they still need E-1s and O-1s to fill in for the servicemembers who are promoted.

From your son’s perspective (or at least a parent’s), this could be a great time to join. The wars are winding down, fewer servicemembers are getting shot at, and everyone should be doing more training in garrison instead of deploying. However, budgets still get cut so there’s a squeeze on benefits (like tuition assistance), training suffers (not enough fuel or ammunition), wages don’t grow very fast, and promotions are slow. Meanwhile the servicemembers with a year or two of seniority are getting the good deals and the recruits might feel that life seems miserably stagnant.

Servicemembers seeking advanced training usually have to agree to longer enlistments. Infantry troops (with shorter enlistments) tend to leave the service at a higher rate while tech fields and advanced specialties may be overfull. Recruiters have to make their own monthly quotas (in numbers as well as specialties) so they don’t always have a full slate of choices every month. They also can’t guarantee re-enlistments, although people in the top third of any specialty can probably count on a career.

So here’s my advice, which might be tough love– or a realistic perspective on corporate downsizing.

Don’t Join the Military Just for the Retirement Benefits

Nobody should plan an entire career around the retirement benefits. It’s impossible to predict your attitude that far ahead, and it’s too big of a commitment to mentally lock yourself into. Join the service for the training, for the chance to fulfill your potential, to be part of something bigger than yourself, for the teamwork, for the incredible responsibility at a very young age, and maybe for the GI Bill. But don’t expect to stay for a military retirement any more than you’d expect to have the same civilian job at the same company for 20 years.

Look at the Skills, Not Just the Lifestyles

Your son might want to consider all of the services, no matter what he’s seen or heard. Focus on the training and the specialty, not the uniform. “We’re an Army family” or “My best friend joined the Air Force” or “I get seasick” are terrible reasons to pick one service over another. The Army might want infantry or medics but the Air Force also needs technicians, the Marines need leaders, and the Navy needs all of them in its own communities. If he’s looking for technical training (computers, electronics, or mechanics) then I’d highly recommend the Air Force or the submarine force or the Marines as well as the Army. There’s also plenty of tech in Navy air and surface ships. If he’s looking for incredible leadership and teamwork then I’d go Marines or Army Ranger. The Air Force has the highest quality of life and the highest percentage of servicemembers staying until retirement but it might bear the brunt of the drawdown and the budget cuts. The Navy could come through the drawdown better than the Army, although all the services will suffer. I understand if your son feels that only one service is for him, but he needs to explore all of his options before he makes a choice due to misplaced affinity.

Many people dismiss the submarine force out of hand because of claustrophobia or being underwater. However, in the rest of the military, he could also be spending his computer time in a windowless building or an underground bunker or in miserable weather. I think all of the services require computer skills, but in the submarine force, he’ll literally be surrounded by computer systems. More importantly, he’ll be surrounded by people who will make him part of the team, cross-train him in other skills, and push him to do his best. It’s probably the same culture in any part of the service where you have to volunteer for special duty.

Study the ASVAB and the SATs

If he wants his choices from the day he takes the oath then he has to nail the top scores on every part of the ASVAB. Study guides will help with this, and their cost is cheap considering the future benefit. When he has the scores then he can shop the recruiters and see if they’ll match another service’s best offer. He may want your help at parsing the enlistment contract to discern “good-faith promises” from “guarantees”. If he wants advanced technical training he may also be asked to sign up for six years instead of four. This can be a very intimidating obligation but it’s well worth the price in skills and promotions, both in the military and afterward.

He might want to consider ROTC, which pays all tuition and gives him a stipend. (ROTC does not pay for room & board.) The first year is totally free of obligation but the second through fourth years carry an enlistment payback if he drops out. If he has at least 600 verbal & 600 math on his SATs then I recommend learning about service academies. If he’s not granted a service-academy nomination on the first round then he may be sent to a one-year prep school with a guaranteed appointment to the next service academy class. (Some caveats– ROTC and service academies have an age cutoff of being less than 26 years old at graduation, and service academy students can’t be married or parents.) The irony is that if he doesn’t feel ready for college now, then 12-18 months after enlisting he’ll realize that college is a better deal than he thought.

Take Some College Classes

If he decides to enlist instead of going to college, then his goal should be to complete that 4-6-year obligation while doing some undergraduate courses on the military’s tuition assistance money (when the TA funding cuts are restored) and his own time. (After his enlistment he’ll have the GI Bill with a housing stipend.)

Nobody can predict what military retention will be in the next few years, and he can’t predict how he’ll feel near the end of his obligation. If he likes what he’s doing then he can apply to re-enlist and see how it works out. If he doesn’t like it then he can go into the Reserves or National Guard (for the camaraderie and the income) while pursuing a college degree. He could combine Reserve/Guard duty with federal or state civil service, or leave the military behind and go his own way for a civilian career. Linkedin has a huge military/veterans network, and after a decade of war once again the employers appreciate what veterans can do for them.

Volunteer for Advanced Training in Any Service

If, after exploring all of the other choices he still chooses Army infantry, then I suggest he try for the Rangers. He has to have physical potential but the Rangers offer plenty of practice. They’re experts at safely building muscle & endurance while showing trainees how to do more than they ever thought possible. The Rangers are seeking the intensely hypercompetitive hard-driven young adult who won’t quit and who can work with a team. Only volunteers can be Rangers, and it requires more persistence and cognition than just showing up for the physical training. It also requires computer skills. I highly recommend a library copy of Dick Couch’s “Sua Sponte”, or I can introduce you to Rangers and other Army experts.

Posted in Career | 22 Comments

I Tried 23andMe Genetic Testing & Here’s My Review

Posted on March 7, 2013 by Doug Nordman

Very long post today (3000 words) but you have the time to read it– and it’s worth reading. Especially if you’re interested in genetic testing. Here’s my 23andMe Genetic Testing Reviews.

A genetics researcher and director of the National Institutes of Health once said:

“Genetics loads the gun and environment pulls the trigger.”

I think a more meaningful quote comes from the bank robber character at the start of the 1971 Dirty Harry movie, who’s trying to figure out how many shots Clint Eastwood has fired from his revolver:

“Hey– I gots to know.”

What Is 23andMe

I’m a tech geek, and I’ve followed startup companies for years. 23andMe came to my attention because a 23andMe co-founder is married to a Google co-founder, and nearly six years ago Google’s $3.9M early-stage investment in 23andMe was considered a controversial choice for Google’s venture funds. However, 23andMe used the money to develop one of the industry’s fastest and most thorough automated analyses of genetic data. They quickly established their credibility by earning Time magazine’s 2008 “Invention of the Year” award.

Back then the company was charging as much as $499 to analyze sections of a customer’s genome, along with a monthly fee for access to their research and genealogy databases. It was an intriguing idea, but I’d also decided that decoding my genome was also way out of my price range. I was financially independent, but I didn’t get there by shelling out $499 for this sort of purchase. What would I do with the data?

23andMe eventually dropped the price to $299 to attract more customers, but I still didn’t see the value. Nearly 200,000 other people ponied up, however, so 23andMe’s databases grew large enough to be statistically significant. Researchers and specialists use the (anonymous) data to search for the genetic roots of many diseases. Pharmaceutical companies are also using the data to develop effective drugs and possibly even gene therapies. These corporate customers are willing to pay a lot more than $299, and rapid growth is financial catnip to a venture capitalist. Late last year 23andMe secured $50M in a venture round and announced their pursuit of a database of one million genomes. Shortly after they cashed that check, 23andMe accelerated their sales (and the growth of their database) by dropping the price to $99 with free lifetime membership.

$99?!? I can make room for that in our budget. Ironically the announcement came shortly after the start of the holiday shopping season, so we made it an ohana Nords present: the gift of self-awareness.

Like Dirty Harry’s bank robber, I’d suddenly found an intense personal reason for my curiosity. My father developed Alzheimer’s four years ago in his mid-70s and is currently deep into mid-stage symptoms in a care facility. (He’s doing well, but the disease’s progress is relentless.) His father lived until age 97 but spent his final 14 years(!) in a care facility under the vague 1980s diagnosis of “dementia”. My mother and her father both died in their 40s, so we’ll never know their genetic flaws. However, my mother died of breast cancer and I wanted to know if I’d passed those genes on to my daughter. My spouse has a few questions about her own genealogy, and I’m pretty sure our daughter has wondered many times if she’s really related to the people who tried to raise her.

How it Works

Each box contains a test tube, instructions, and the return shipping label. You just add your spit.

23andMe boxes arrived in the mail

The process is straightforward: spit it out. Literally. You sign up on the company’s website, charge your credit card, and wait for the snail mail. A few days later a specially loaded test tube shows up in your mailbox and… you expectorate into it. (Only about 15 milliliters– one spitball.) It comes with directions (in an ambitious 14 languages and pictures) and plenty of helpful spitting advice. You seal the test tube, drop it in a plastic bag, and return the (postage pre-paid) box to 23andMe. After a couple of weeks they e-mail you the announcement that your data is on their website.

Fill it, cap it, bag it, and send it back in the box.

The spit tube with cap and preservative.

The actual analysis has been industrialized and automated. Your spit ends up on a slide tray coated with nearly a million different copies of various genetic fragments. When your genes match any of these fragments, a chemical reaction occurs to trigger a sensor on the slide. A scanner reads the sensors and pulls the results out of the 23andMe database.

Better still, this is not “one and done”. Samples can be saved for a very long time and sent back through the analysis. As researchers find more interesting genes to analyze, bioengineers will improve the sensitivity of the chip and the number of genes it can detect. All 23andMe does is provide more data to the researchers and pharmaceutical companies who are paying them for answers to specific questions, but a copy of your data is also uploaded on your account.

Psychological, Ethical, and Legal Issues

Although genetic testing is “affordable” and the technique is established, the concept has incited an explosive ethical and legal debate. I doubt that the controversies will ever be resolved, but we have choices. I can’t presume to recommend how you should tap-dance your way through these minefields, but here are some issues to consider before you decide to get tested.

The first question is whether your awareness would actually lead to behavioral change. We all “know” that we’re supposed to eat healthy and exercise– how’s that workin’ for ya? Why in the world would we expect that our genetic data would inspire us to pursue an enlightened self-interest?

If you found out that you’re carrying genes which have a marginally statistical link to a fatal disease, would you change your habits? How far are you willing to go? Most heart attack survivors fail to make significant lifestyle changes (like quitting smoking) to improve their health and reduce their cardiac risk, so what makes you so sure you’d change your behavior? What statistical risk would cause you to change: 25%? 50%? 100%? A few women at high risk for breast cancer have opted for preemptive double mastectomies– what if your genes are linked to a 10-25% chance of breast cancer? If you’re at an elevated risk for prostate cancer… ouch, I don’t even want to think about it, and my Dad’s a prostate-cancer survivor.

Other questions: What if you learn that you’re adopted? What if the guy you’ve called “Dad” all your life learns that he’s not your biological father? If you’re carrying the genes for a serious disease, do you want to have kids? What if you decide to get tested but your spouse isn’t interested? If your unborn child turns out to have a genetic disease, would you choose an abortion?

Geneticist Bryan Sykes has documented dozens of situations in his books. What if your ancestry has a statistically significant percentage of other races in what you thought was a homogeneous family tree? What if your ancestors include both Thomas Jefferson and Sally Hemmings? What if you’re descended from Neanderthals? What if your culture’s creation beliefs might be more mystical than factual? What if you believe in the power of specific prayer for your own situation– or for others? These may seem like minor controversies if you’re not part of the affected culture, but there’s been a huge uproar in many societies around the globe.

What about other risks? What if your genes keep your body from responding to certain chemotherapy drugs? What if you’re exceptionally sensitive to a drug, and a “normal” dose could kill you? What if you’re violently allergic to a food you’ve never tried? What if your college daughter turns out to be genetically slow to metabolize alcohol? Hey, I’m just reporting the news here, I don’t judge.

Could this affect you financially? If people learn about your genetic profile, how will they treat you? More importantly, how will your health insurer treat you? Can you still get life insurance? How much will you pay for long-term care insurance, if you can even get it? Will the insurance company insist on checking your genome for the longevity gene before they quote you a price on an annuity?

It turns out that your genome is legally protected by federal law against genetic discrimination in health insurance– and employment. Although there may be a statistical link between your genome and some diseases, that statistical link is not considered significant enough to affect health insurability (and certainly not employment). You can’t be turned down for health insurance because of your genome any more than you can be turned down for tobacco or alcohol consumption. However, the law does not cover life insurance, disability insurance and long-term care insurance. The law may also be changed someday to allow different rates for different risks, and maybe an insurer could require genetic testing before setting those rates. Even if you’re protected by the full power of the law, do you really want to have to defend yourself through years of stress and costly litigation?

23andMe promises to keep your data private, but the Internet’s history is littered with the corpses of confidentiality vows. What if your genome is splashed across the Web, and on your Facebook profile? What if you’re blackmailed or humiliated or bullied because of your genome? This isn’t hypothetical or ancient history– you only have to glance at today’s headlines to read about ethnic atrocities. Even when the privacy controls work the way they’re supposed to, any data you make public could be compared to other public ancestry databases to personally identify you. And although 23andMe promises to keep your data private today, what if they get a court subpoena for a criminal investigation or a paternity suit? What if they just decide to change their policy and sell your data to the highest bidder? Oh, wait, they’re already doing that– although they promise to keep it anonymous. As far as you can tell.

Let’s bring this down to personal finance: if you have a 50% chance of developing a fatal disease in your 50s, then what’s your “safe” withdrawal rate? More importantly, when would you choose to retire? Would your spouse want to care for you when some horrible genetic event comes to pass? Would you abandon your family responsibilities and spend your 401(k) “experimenting” with “alternative lifestyles” while checking off your bucket list? If you have the fabled (and rare) “longevity gene”, then should you invest 100% of your portfolio in an inflation-adjusted annuity? Should you buy extra disability insurance? What about self-insuring for long-term care?

Enough questions. Luckily 23andMe has thought about this too. They’ve added checkpoints to their results that you have to acknowledge and unlock on your profile before you can learn the facts. When you review your data on their website, you have to click several confirmation windows to find out about genetic susceptibilities to diseases like Alzheimer’s. You have to specifically opt-in to share your data, and frankly, Facebook could learn a lot from 23andMe’s incremental privacy & sharing settings. You can’t actually delete your data from 23andMe’s servers and pretend that this never happened, but you can keep it as secret as today’s Internet tech can reasonably achieve.

Remember this: once you share, you can’t take it back. You can turn the feature on & off, but shared data can be copied and stored by the people you share it with. You cannot un-ring the bell.

What You Get

23andMe organizes the results very well. Once you unlock your main page, you can elect to unlock each of the subcategory summaries. (Over 35 pages of printed summary alone, with hundreds more in the details.) Your personal web pages are broken down into dozens of categories with deeper links to background information, references, and other studies. You can spend hours reading up on your “favorite subject”. They compare your data to the averages and the statistics. You see all the research citations and you’re guided through some of the implications of the information.

Once your genetic profile is in their database, they keep updating it with the results of new studies & data. You can answer survey questions and volunteer for research. Even better, those researchers and pharmaceutical companies will share their data as well, and you might be invited to join the FDA trials. You can join 23andMe forums to discuss your genome with others who have a similar profile. You can share your genetic data with anyone else who’s also a 23andMe customer. (I shared mine with my spouse and my daughter.) You can build your family tree and post it on 23andMe for their database to track down your distant cousins.

My Results

Let’s cut to the chase: Was it worth it?

Heck yeah. Not only for me, but also for my spouse and our daughter.

In fact, our daughter is even luckier to be alive than she’s already been told (many times). I should’ve paid for this even when it was $499. I should’ve mortgaged our home to pay for it.

If you’re closely related to me then I strongly recommend that you sign up for 23andMe and get tested. (If you’re one of my cousins, or if you’re even considering having kids with one of my cousins, then please have this done today. Seriously. Stop reading and go to 23andMe’s website now. If $99 seems too expensive then we need to discuss your budget priorities.) If you’re contemplating an intimate relationship with my daughter… well… you were already in for some interesting Q&A with her– and now it’s going to get even more focused. (Good luck with that.) Oh, and it turns out that she really is my daughter, to 85% certainty. Sorry, honey.

For everyone else, I’d suggest that the ethical minefields are not your biggest concern. You should worry whether you’re a ticking time bomb. Not just your own blissful ignorance– what if the “professionals” in your life are also ignorant or negligent? If you develop an exotic disease or cancer, you’re hoping that your doctor thinks to check your genome to find out if you’ll respond to a medication– or whether a “low dose” could kill you. If you’re even considering procreating then I think you owe it to your hypothetical life partner (and your hypothetical kids) to understand the risks you’re imposing on them.

Scary example: I’m a carrier of cystic fibrosis. Luckily my spouse had already decided that I’m done procreating (me, too, sorry ladies) and everything worked out fine, but I wish we’d known this info about, oh, 21 years ago. [Insert “dodging a bullet” metaphor here.] If we’d had this information before starting a family then we would’ve definitely opted for additional testing, and the results would’ve justified the minimal medical risks of the testing.

I’m also a carrier for hemochromatosis. I have a couple of susceptibilities for exotic chemotherapy medications that I hopefully won’t ever encounter, and I’m at nearly a 3x elevated risk of deep vein thrombosis. I have a marginally lower statistical risk for prostate cancer– but I’m still going to keep an eye on my PSA.

Since my daughter and I have shared our profiles, she knows which parent to blame for a host of minor issues. Nothing serious or heartbreaking, but definitely things that I wish I’d known at her age.

I was highly amused when my spouse’s ancestry turned out to be slightly above the global average of Neanderthal genes… until we learned that I’m much higher at 2.9% (the max is 4%). That just confirms the suspicions of many people in my military chain of command. (Sorry, XO, I really was born that way.)

My ancestry? 100% purebred free-range Scandinavian Viking on both sides. (I guess we could’ve seen that coming from my surname.) Very few of my shipmates seem surprised.

My spouse’s genes? Well, no surprises there. The family longevity claims turned out to be fact. She’s already drafting her acceptance speech for our alma mater’s “Oldest Alumna” award. She assures me that she’s going to be around for a very long time… chronologically as well as relativistically. As for the rest of her genome, my relatives & friends would agree that I married up. Way up.

Alzheimer’s

Well, enough of the humor & snark. You regular readers of the blog are already wondering: “Hey, Nords, cough it out. Your grandfather died of dementia and your Dad has Alzheimer’s. Are you gonna get Alzheimer’s or not?!?”

I clicked through all of 23andMe’s website acknowledgments and warnings to learn the results, but I’m not ready to share that info yet. When I do share it, I can’t change my mind and take it back.

Alzheimer’s Disease is estimated to have a 60%-80% chance of heritability, so 23andMe tests for the APOe4 variant (which may be the primary cause of Alzheimer’s). There’s another gene which may actually offer some protection, and 23andMe tests for that too. Based on those gene combinations, the probability of showing Alzheimer’s symptoms between the ages of 50-79 can swing from as low as 7% (the general Alzheimer’s population of that age group) to 44%. There may be other factors, but 23andMe doesn’t test for them.

The main reason I’m not sharing is because I don’t want you guys to treat me any differently than you already do. You don’t know whether I’m protected or at risk, and I’d rather be judged on the purported quality of my writing than on the documented quality of my genome. Neanderthal or not.

Besides, I doubt the Federal Long Term Care Insurance Program will lower anyone’s premiums based on 23andMe results. At least I’ll always have Tricare, and I no longer have to care about employment.

Would I Do it Again?

I’m glad I did the testing, and $99 is a compelling bargain for ensuring that I’m invested in the results. I’m happier knowing about it than being blissfully ignorant. Dirty Harry’s revolver could be loaded with more than one cartridge, but it still has empty cylinders. I stopped drinking two years ago, I don’t smoke, I take vitamins, and I’m not going to widen my horizons of any other illicit experiences. (Sorry, ladies.) My myosatellite cells and my mitochondrial metabolism may be spluttering and my recovery time sucks, but exercise and healthy eating are no longer hypothetical benefits: they’re preventive medicine. My chocolate-chip addiction is heading toward sugar-free and possibly abstinence. Those last 10 pounds? They’re outta here. Luckily paleo still favors bacon and cacao, so life remains worth living.

No psychological worries. I may be disgusted by aging, but I no longer fear it. There’s encouraging research into every dark corner of the human genome, and lab rats are being treated with experimental therapies, but human trials seem to be perpetually a decade away. It’s my job to be alive (and sentient) when the FDA puts out the call for trials volunteers.

This experience definitely checked my priorities. I’m not going to make any hasty lifestyle decisions but I sure am glad that I’m already financially independent. Whatever happens during however much time I have left, I’m especially grateful that I have not traded any of the last decade for corporate employment. I’m already insured for financial longevity by my military pension. Long-term care insurance is always a good idea whether your risk profile is at 1% or 99%, and we can also afford it. I’ll revisit that purchase when we’re in our 60s.

No matter what’s in my genetic revolver, I’d don’t want to miss my chance of a lifetime. When my spouse reaches our college’s oldest living alumna milestone, I want to be there with her as a reminder that there’s still one more alumnus who’s just a little bit older!

Posted in Military Life & Family, Reviews | 17 Comments

Should You Start A Civil Service Bridge Career After The Military?

Posted on February 21, 2013 by Doug Nordman

A reader writes:

I’ve left active duty, but I feel compelled to get a federal civil service job so that I can apply my active duty time toward a federal pension. Would it be a wiser financial move to get a “civilian” job that pays a higher salary for investing in a taxable account that would be worth more than a future civil-service pension, especially if we’re already covered by my spouse’s military pension and medical benefits?

I think there’s only one way to determine the math answer to this financial independence question: build a spreadsheet. It’ll include your potential civil-service income, the tax-deferred contributions to your civil-service Thrift Savings Plan, the employer match to that account, and the cost of “buying active duty time” by contributing even more of your own after-tax money to that account. (Remember to include your civil-service pension if you’re planning to work long enough to qualify for one.) There may be other civil-service benefits like a cost of living allowance (for expensive parts of the country) or a subsidy for using mass transit.

After you’ve calculated your total civil-service compensation then you can figure out how much you’d earn in a civilian job. It’s not just the civilian salary (with its employer’s match for its tax-deferred account). It would also include other benefits like an annual bonus or stock options, perquisites like a company car or travel upgrades (if you feel that travel is a benefit) and other details that might only be available from their human resources website.

If you’re really digging into the details then there would be the neighborhood, the commute, and the workplace environment. Do you have to relocate for the job? How are the area’s costs of living and their school systems (both high schools and state universities)? Could you telecommute or adjust your work schedule for days off? Is there a possibility of having to move around the country (or even around the world) with the corporation for career experience? (Assuming you feel that’s a good idea.) A civil-service job would presumably avoid overtime, but what would you be expected to accept from a civilian employer? All of these aspects can be reduced to an approximate benefit (or expense).

The spreadsheet analysis is tedious, but the civil-service numbers are available from the government websites and it’s part of the estimate of when you’ll reach financial independence. The civilian job compensation is more difficult to estimate, but if you’re going to interview with a company then you’d be researching these numbers anyway. Best of all, the process of chasing down the data forces you to thoroughly analyze all aspects of both jobs– you’ll probably come up with other criteria that you hadn’t even considered before you started building the spreadsheet.

When you’re finished, you’re ready to compare the total compensation of the civilian bridge career against the civil-service career (with its additional tax-deferred benefits for buying your active-duty time). Ideally, your human capital would be more richly rewarded by a civilian career since you also have a higher probability of being laid off. Ideally, the civil-service pension would have a higher present value for its cost of living adjustment and its higher reliability of paying out for the rest of your life.

While you’re working on the numbers, take a look at this excellent Early-Retirement.org post on buying your active duty time. That poster’s Gubmints site has more tips on that process, and he’s done the same in his personal career. He’s an excellent blogger who delivers great advice, and it’s well worth your time to check your civil-service math with him.

But that’s spreadsheet math. We’re human beings, and math is only a part of our quality of life.

At some point you’re going to find yourself shaking your head and saying “It’s only money.”The challenge is figuring out where a great job crosses the line on work-life balance. Can you control your hours? Are nights/weekends part of the office culture? Does telecommuting really work? Will the employer be generous with days off, or would you be more comfortable with the civil-service leave rules? Is travel a benefit or a burden? A civil-service job may be regarded as boring, with little opportunity for advancement or bonuses. How much excitement are you seeking?

Here’s a personal issue that I grapple with at every job offer: commitment. Entrepreneurs and corporations spend a lot of effort (and money) seeking high-quality employees, so of course, they’re thrilled to discover the skills that a military veteran brings to the task. However, there’s also their unspoken expectation that they won’t have to repeat this search every six months. If you accept an employer’s offer, then I believe that you’re obligated to give it your best effort for at least a year. Unless the nature of the job is substantially and deceptively different from the offer, then stick it out.

Committing yourself to this term (even if it’s just a private personal goal) ensures that you understand the obligation you’re about to accept, and it also forces you to analyze your priorities. Do you value control over your time more than an interesting career or a paycheck? Are you really cut out for joining a team, or would you be better forming your own entrepreneurial team– or even freelance contracting?

In my case, every time I read the surf forecast I realize that I value my time more highly than having to show up for work on a regular schedule. Not many corporations will cancel the plan of the day for a longboard meeting, no matter how epically gnarly the conditions may be.

The advantage of financial independence is that it gives you the control over your time, and a choice on working. You want to answer your career “What if?” questions now and have time to change your plans once or twice. (That gets a tad more difficult as we get older.) The key is to find your financial comfort level of “enough” and not get sucked into “just one more year” syndrome.

Whether it’s civil service or a civilian career, you’ll know how much (and for how long) you feel like using your skills. It may take you a couple of years to find your financial comfort zone– and to gain confidence that you can succeed in a civilian career. Once you prove those points and answer your “What if?”, then you’re ready to stop working. Best of all, you’ll have no problem figuring out what you want to do all day.

(Click here to return to the top of the post.)

Posted in Career | 4 Comments

When do you stop contributing to tax-deferred accounts?

Posted on February 14, 2013 by Doug Nordman

A reader writes:

How do you know when you have enough assets in retirement accounts so that you can stop contributing and put your money in taxable accounts? We could probably stop now but it’s a hard habit to break.

This is a good question for both military retirees and for servicemembers with only a few years of active duty. It’s tempting to put all your retirement savings in tax-deferred accounts (both the Thrift Savings Plan and IRAs) because those options are only available for that tax year. If you don’t make a contribution before the deadline then that year’s opportunity (and the tax-deferred compounding) is lost forever. If you have a civil-service job (with TSP matching) or if you’re contributing to a civilian tax-deferred savings plan with its own matching, then it’s tough to give up the employer’s matching “free money”.

The question has become even more complicated with the advent of the Roth TSP. Military enrollment in the Roth TSP has quadrupled in the last couple of months,* even leading to rumors of automatic enrollment for new recruits.

In general, when you’re just starting your military career, the Roth TSP is a better deal because you pay taxes on contributions now (when tax brackets are low) rather than on withdrawals later (when tax brackets may be higher). But this strategy still requires predicting your future tax brackets, and it may seem more attractive to avoid paying taxes now.

I’ll discuss the options below, but I’m not going to go into the details of how to execute each one. I’ll link to other references, of course, but otherwise a detailed explanation would be several more blog posts of procedural steps.

The goal of this post is to give you the vocabulary to follow the links and create your own plan— perhaps with a review by a financial professional or a tax accountant.

When you’re just starting your first military obligation, you have no idea whether you’re going to leave after several years or stay until retirement. If you end up with a military pension then your retirement income will quickly bump you up to a higher tax bracket.

Once again the problem is taking advantage of the opportunity– if you contribute to the TSP (regular or Roth) now then you can always roll the money out later. It’s much more difficult to get money into the TSP if you delay until later.

Let’s look at the question from the other direction:

How much do you need to save in taxable investment accounts? Military veterans want enough savings to live on during their transition from the military to a bridge career, or enough savings to live on while getting a college degree, or enough to “bridge the gap” between leaving the military and reaching age 59½– the age at which penalty-free withdrawals can begin from tax-deferred retirement accounts. (See page 55 of the PDF at that link.)

Again, it’s difficult to predict those numbers when you’re just starting out. However, as soon as you finish recruit training, you’re going to start tracking your spending and developing a budget.

After you’ve been in the military for a few years, you’ll be able to project your expenses for the transition to civilian life. You’ll know your monthly spending, whether you’ll be drilling in the Reserves/National Guard, and roughly how long your job search should take.

Once you’ve forecast those numbers then you’ll know when to start piling up cash in your taxable accounts and reducing your contributions to retirement accounts.

The GI Bill can certainly eliminate your personal cost of getting a degree when you leave the military, especially if you’ve started classes during active duty on tuition assistance funds. However, not every servicemember will have the liberty or the flexibility to obtain a degree on active duty, and some programs (like a MBA) may require a full-time effort.

Again you’ll be able to forecast your spending, estimate any other sources of part-time income while you pursue your degree, and decide when you’ll be starting your bridge career.

Finally, the amount of money you’ll need to “bridge the gap” between military retirement and age 59½ is part of your retirement spending plan. It’s a longer and more challenging prediction because you’ll have a number of unpredictable expenses to support (for example buying a house, raising the family, and saving for the kid’s college fund) but you’ll still be able to build a spreadsheet that you can live with.

So the answer works out to four parts:

Forecast your spending for the period when you’ll draw from taxable accounts
Figure out how much you’ll need from those accounts
Decide how many months you’ll need to contribute those accounts at your current savings rate
Stop contributing to tax-deferred accounts and boost your taxable account to reach that goal

There are several “safety net” advantages working in your favor:

During your military service, your income will rise faster than the contribution limits to your TSP and your IRA. (You’ll also be aggressively cutting your spending to max your savings rate, right?) A few years after you start your career (and your contributions) you’ll be able to max out those limits and continue saving in taxable accounts. By the time you’re ready to spend from your taxable account, you may already have enough.
You can withdraw Roth IRA contributions at any time for any expense. (See page 69 of that PDF.) Ideally you don’t want to reduce the IRA account’s compounding, but you’ll have the ability to tap the contributions if disaster strikes.
You can convert your tax-deferred accounts to conventional IRAs and start a withdrawal plan of “substantially equal periodic payments“. This SEPP (or 72(t) withdrawal) is complicated and may require the help of a tax planner, but it’s a long-term solution to bridging the gap between the time you leave the military and age 59½.
You can make a hardship withdrawal from your TSP or (if your civilian employer’s plan permits) borrow money from your 401(k). In the absolute worst case you could simply withdraw the money from the account, paying both taxes on this income and a 10% penalty for the early withdrawal. These are all bad expensive options that will hurt your savings. Clearly these should be last-ditch tactics when your plan has been disrupted by unexpected catastrophic expenses, and you’ll cut spending or seek employment income (or even borrow money elsewhere) before taking this step.

There’s another side to the “When do you stop contributing?” question. When your plan works out and you’ve maximized your savings in your tax-deferred accounts: someday you’re going to have to start required minimum withdrawals from those accounts, and you’ll pay taxes on the income. (See page 34 of that link– it’s the “deferred” part of tax-deferred.)

You can minimize the RMD taxes by making your contributions to Roth IRAs (which do not require RMDs) and the Roth TSP (contributions have already been taxed). The solution to the “RMD problem” is to roll the account over to a conventional IRA and convert it to a Roth IRA.

You’ll start to execute the rollover/conversion plan when you can minimize the taxes that you’ll pay on the conversion, and the best way to do that is to start the conversion after you leave the military– and after you no longer have employment income. By the time you’ve left both the military and your bridge career, you won’t be contributing to those tax-deferred accounts anyway. You can spread the conversion out over several years to stay in the lower tax brackets.

Summary: You’ll stop contributing to tax-deferred accounts when you need to draw down a taxable account during a transition out of the military.

However, if you’re saving aggressively during your military career then you’ll max out your tax-deferred contributions and already have “enough” in your taxable accounts. When you’re no longer receiving earned income (and can no longer contribute to a tax-deferred account) then you’ll consider converting the account to a Roth IRA by paying conversion taxes when your income (and tax bracket) is lower.

Note: I’ve been asked before if you can convert your existing TSP funds to a Roth TSP. The answer is still “No…“, but it’s been modified to “… not yet“. Here’s the text of the announcement:

TSP examines in-plan conversion option — The President approved the American Taxpayer Relief Act of 2012, on January 2, 2013. This law allows the TSP and other qualified plans to give participants the option to convert their traditional account balances to a Roth balance. The amount converted would be taxable to the participant. We are currently waiting for tax reporting guidance from the IRS and will be studying the actions required to offer a conversion option. After that review, we will make decisions on whether to proceed.

[* But not for the Reserves & National Guard. The Roth TSP may be ready, but DFAS says they need until mid-late 2013 to make their Roth TSP software ready for you.]

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Navy: women are joining the crews of VIRGINIA-class attack submarines

Posted on February 7, 2013 by Doug Nordman

Let me start this post with a couple of our household’s famous naval sayings:

“You are such a freakin’ nuke.”
— My spouse, USNA ’83, to me, USNA ’82, many times over the last 30 years.

“You hear her? Someday soon you could be a freakin’ nuke too…”
— Me to our daughter, NROTC ’14.

The Secretary of the Navy has formally announced the news that the Chief of Naval Operations (a submariner) has been quietly sharing with submariners for months: women officers are joining the crews of VIRGINIA class submarines. Enlisted women are joining soon after that. It’s expected that women will be joining the rest of the OHIO class submarine force as well.

That news led to an interesting conversation with our daughter. It’s possible that there might be far more women midshipmen interested in joining the submarine force than there would be billets for women submarine officers. The competition could be brutal.

Let’s see if we can put some numbers on that speculation.

My fellow nukes are smirking right now. They know there won’t be much competition. They know that it’s hard enough to find men willing to join the submarine force, and research has shown many times that women are the smarter gender. If the assignment officers already have to bribe the guys with large buckets of money just to join (let alone to stay in) then why would they think that the women would be eager to join too? Equality of choice is long overdue, but does that make the submarine force a good choice? As always, you have to ask why the military is being so nice to you. “Nice” as in $25,000/year bonus money.

Nukes are an analytical bunch, and that carries over to the subject of financial independence. For example, there are about 75 posters on Early-Retirement.org who have identified themselves as military veterans. At least five of those 75 posters (me included) have gone to sea on a submarine. When I left the Navy, the submarine force was less than a tenth of the Navy’s personnel and the Navy was less than a quarter of the total strength of the U.S. military. By those fractions, no more than two of the military posters on Early-Retirement.org should have been submariners– yet we’re more than twice the expected population. Admittedly a small sample, selection bias, math geeks, and other disclaimers. But financial analysis attracts nukes like flames attract moths.

Nukes do a lot of math. I don’t know why it was such a big deal in nuclear power school and again in the submarine force, but we were taught to do all sorts of math in our heads– “mental gymnastics”. Ironically on a submarine we’re surrounded by expensive MILSPEC fire control systems and dozens of personal computers. (Plus our cool calculator wristwatches.) But junior officers are expected to correctly determine a watchstander’s radiation exposure or the range to a target. They have to do it in their heads, and at least as fast as the executive officer. If they can’t consistently be both correct and fast then they may lose their privileges to take a shower– let alone watch the evening movie. Oh, and they’ll have the midwatch too.

I can guarantee that the subject of women crewmembers is being discussed in dozens of submarine wardrooms and watchstanding spaces now, and the entire submarine force is trying to quantify the estimates. So let’s do some of every nuke’s favorite retention analysis: billet math. How many women officers will the submarine force need in order to comply with the SECNAV and CNO announcements?

I’m going to pull my numbers from public sources. All of this data is (or should be) available to everyone. If you have better data, please correct my estimates.

Each submarine crew has (so far) three women officers. Only two of these officers will have nuclear training and the potential for an entire career in the submarine force. The third billet comes from the Navy’s Supply Corps for just one submarine tour of 2-3 years. Most of the Navy’s new women officers will not be eligible to join the Supply Corps, so we’ll focus on each sub’s two nuclear-trained billets. There are 18 OHIO-class submarines, and each submarine has two crews. There are also eight VIRGINIA-class attack submarines in the water or on the builder’s docks, and attack submarines have only one crew. Each of those VIRGINIA crews will also probably have three women officers (one from the Supply Corps), since that’s how many are berthed in an officer’s stateroom.

That’s 44 submarine crews and 88 women officer submariner billets. 16 of those billets are already filled with women (the first four OHIO-class submarines), leaving 72 billets yet to be filled.

Junior submarine officers typically have a three-year tour on their first submarine, so a third of the officers in those billets will roll ashore every year. Assuming that there are at least 88 billets for the next few years, then every year 29 of them will open up.

The Navy needs at least 72 women officers to show up on those submarines beginning in October 2014, and another 29 every year after that. Let’s assume that new VIRGINIA-class submarines are commissioned as quickly as OHIO-class submarines are decommissioned, and that wardrooms stay at three women officers (instead of six or more). The reality is that these numbers are minimums and will grow, however, let’s assume that they stay steady for a few years.

But wait– before those nuclear-trained women submariners can walk across the brow, they have to finish 15 months of training: six months in Nuclear Power School classrooms, another six months qualifying at watchstanding on shore-based military nuclear reactors, and three more months at Submarine School partying studying the rest of the sub’s systems.

The graduation rate of this pipeline is not 100%. It’s not even 90%. In fact, 30 years ago a few of my classmates actually ended up hospitalized for treatment of stress-related exhaustion. Hopefully, Millennials are made of sterner stuff than us Baby Boomers (good luck with that!).

I’m going to assume that only 80% of the officers make it through the training. The military is pushing through a large drawdown, billets are tight, and nobody wants to be perceived to be cutting any slack for the women students.

When attrition is 20%, then those candidate numbers are now 90 in October 2014 (which means they start training in summer 2013) and 36 every year afterward. The real question on the assignment officers’ minds is: From where are these women officers going to appear?!? They need to find the first 90 in the next six months, and mostly from the college Class of 2013.

Women have been at military service academies since 1976, and today women make up approximately 20% of the graduates. I’m going to assume that the U.S. Naval Academy will graduate roughly 1000 midshipmen per year for the next few years, and the women from other commissioning sources (NROTC, OCS, NUPOC, the surface fleet, and a handful of other acronyms) will make up another 1000/year. At least 800 of that second thousand will be NROTC.

At this point, the assignment officers might heave a sigh of relief– problems solved. 200 women officers will be coming from USNA and another 200 from other sources, so that’s plenty!

Well, not so fast. USNA Class of 2010 had over 800 male midshipmen, and only 127 chose the submarine force. (The linked article gives the impression that the submarine officers wish they’d enticed more into the service.) I’m not sure how many men volunteered from NROTC or the other commissioning sources, but USNA usually has at least half of the total number of officer submariners from all sources. Let’s assume that 130 men volunteer from USNA (out of 800 men) and another 130 from all the other commissioning sources (out of another 800 men). That’s about 16% of the total of all officers who are volunteers for the submarine force, not voluntold.

I was a military training instructor for nearly eight years. I don’t know about you civilian professional teachers, but I only want eager volunteers in my classrooms. I can just imagine what will happen when a “drafted” officer shows up at nuclear power school and makes it their mission to convince the chain of command that they’re only suited for aviation… or for the Marine Corps.

The assignment officers expected all of those sources to commission 400 women. If only 16% of those 400 women officers volunteer to be submariners then the candidate pool shrinks to… 64.

32 of the 64 volunteers would come from USNA, another 25 or so from NROTC, and the rest from those other sources. We already decided that women are generally smarter than men, so 64 seems like a pretty optimistic number.

If I was an assignment officer, I’d be just a tad worried about filling those initial 72 billets with 90 candidates from the Class of ’13. I’d need a bunch of extra volunteers from the Class of ’14 to catch up, and I might need a few extras from the Class of ’15 as well. Even after I caught up I’d still have to steadily recruit another 36 per year. It wouldn’t take much to screw up my plans for the subsequent classes, either, if volunteers are consistently fewer than the billets.

If I was a male or a female hard-chargin’ engineering major with a decent GPA at a top-ten college, with impressive military leadership performance (perhaps owning a ballistic missile submarine deterrent patrol pin from my midshipman summer training aboard a sub whose CO gave me top grades)… then I’d feel pretty confident that I could get picked for submarine duty. If I thought that the assignment officers were already sweating the quota then I’d be downright optimistic.

My daughter is smarter than me. (My shipmates are smirking again.) She’s also more mature, more organized, with better leadership skills, and better study habits than I had at that age. (She’s also much more sober than I was at that age.) Three decades ago I managed to stumble through the nuclear training pipeline. I lurched through the qualification gauntlet on my first submarine, and (much to my XO’s surprise, let alone my own) I actually qualified for command. Frankly, I’m a little jealous of my daughter’s opportunity to go to sea on one of the Navy’s newest submarines, perhaps out of Pearl Harbor. I think she’ll do a lot better at it than I did.

Maybe my daughter’s question shouldn’t be “If?” she’ll make the cut for the submarine force. Maybe the question should be “Why?!?” she’d want to join the submarine force.

That’s a question only she can answer.

But while she’s waiting for the chance to volunteer, she won’t slack off.

And she’ll keep saving as much as she can for her own financial independence.

[Disclaimer: If a retired geezer can come up with these numbers, I hope you active-duty experts can provide better ones (with public links when possible). I’m standing by these numbers until we get more credible data. Let’s see how close my mental gymnastics come to the actual 2013-14 numbers.]

Related articles:

Join the military to get rich and retire early?: the rest of the story
Will the military pay off your student loans?
Sea story: Simulate submarine life at home
Getting rich in the submarine force

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