Should You Stay for the Military Pension? The Math Might Surprise You

21:36And there's a whole bunch of hand waving going on behind that to make it look about right, but it's essentially retention. If retention in one area, in one service, in one specialty is declining and cratering, well, eventually somebody's gonna come along and start throwing bonus contracts and incentive pay and other benefits. Well, benefits that don't necessarily show up in a pension, but show up in bonus income. And blood money. Yeah, blood money, okay. Sure, sign a contract, get some money, but you gotta give us three to five years. And the whole idea is that you'll raise retention there enough to solve your immediate problem of manning whatever ship or submarine you're trying to get the mission done with.

22:11So these things are able to be looked at if you have the understanding, if you have the experience, if you have the financial literacy to figure out where this comes from. And just like you're doing, Scott, I'm aware of at least another dozen other people who are regularly going to ROTC programs, colleges, and service academies to give these same talks. Now, whether the midshipmen at your talk were all able to stay awake, it sounds like you had a pretty compelling presentation. Normally, There might have been periods like that 45 years ago where I would have just dozed off and not even absorbed any of it.

22:40But I'm glad to hear it's much better now. There was some interest. So I got some, I got like a golf clap. Planting seeds, right? Once you plant that seed, you got to wait for it to grow. Again, going back to the numbers excitement around this, right? It's like a modeler's dream, right? Because everything is right there. The pay is right there. It's all going to be adjusted for inflation. You can see it on the calculator. You know exactly what your career trajectory is going to look like within a few years, you know, unless you're exceptional, you know, that may move through it or get lucky or whatever it is to get ahead in there.

23:10But it's like very clear, like, here's how your progression is going to go and what things are going to look like. You can just map it out into a spreadsheet, no problem for what your career is going to look like. And that's your worst case scenario because you're going to get some kind of like hazard pay or special duty or whatever that's going on there at some point in time as well. Or I've never heard this term, blood money. You sign your blood money contract for another three years and your$15 ,000 bonus or something like that. Oh, way more. Way more. Okay. A really, really big pickup. Yes.

23:37When I was what was called a surface warfare officer dash nuclear SWO nuke. And so my nuke bonus was$15 ,000. That was congratulations. You packed what was then the Richardson test. It was C &O Richardson at the time. And so here's$15 ,000. You know, we'll see you in a couple of years once you get your SWO pin. But on the SWO side of things, their retention was so bad before the pandemic that if you were selected in the first round for the department head bonus, it was$105 ,000. If you were selected in the second round, it was$95 ,000. And if you're selected in the third round, it was$85 ,000.

24:09And they would pay it out to you. I can't remember if it was lump sum for over three years, but you would have to design for a department head tour as a surface warfare officer. I spent a lot of time watching my department heads on my first ship and my second ship. And I spent a lot of time saying to myself, I don't want that job. This just looks miserable. Why would anybody want to sign up for this? No wonder the bonus is six figures out of the first round. This just looks awful. I don't know, Carol. If Scott had joined the Navy, he'd be in a submarine right now. I mean, how was your department head tour?

24:36Because you didn't look like you were happy either. I learned a lot, and it was a valuable experience, and I treasure it, but it was not fun at the time. And I did that to serve off my obligation for having gone to get a free graduate degree from the Naval Postgraduate School. So there are various benefits you can get, and the benefit I got out of that was getting a computer science and a weapons engineering degree right at the dawn of the World Wide Web. That's paid tremendous dividends over the years. Again, though, there is a payback. And I don't know if you can tell, Scott, Mindy, we have this conversation in our family every week.

25:09And right now, I can only imagine how my son-in-law feels when he sits down between us at the dinner table on Sunday nights and listens to this kind of retention discussion. Does he have any plans to leave? Oh, yes, he does. Okay. He's officially classified himself as what's called high risk in his community. He's reached the point where he's gotten his master's degree in computer science, thanks to the Navy. He's a Naval Academy grad, so he also got his bachelor's degree from the Naval Academy. So the military has paid entirely for his schooling at this point. And then on top of all that, he's had a job for almost, what year is this, 2026, 12 years.

25:39We were both year group 14. So except for a sequestration or a budget shutdown or one of those situations, he's gotten paid for the last 12 years. And for my husband and I, we were both teenagers when the recession happened. So to have a college degree and a guaranteed job was a huge benefit. But the problem is we've also been millionaires for quite a while now. And so he goes to work after dealing with accidents on the highway that are slowing down traffic. And maybe the base gates aren't functioning properly. So he has to go in the long line to have his ID checked. And maybe he walks in the building only to find out that three of his sailors got arrested over the weekend and two of them are considering divorce.

26:15And at some point he looks at everyone and says, so what am I doing here again? Why do I want to keep going on this? I could be surfing right now. Does any of this sound familiar to the other Vicar Pockets money guests? It resembles your work environment. I did talk to another officer. You think about these things from the outside. You're like, oh, you only have eight more years and you get a full pension. Like, that sounds great. But then you realize like, hey, this is at your 30s. And yeah, like this guy was a captain in the army. And he was like, you know, it's really hard because there's these guys in the barracks and they're 18, 19, 20 years old.

26:44And some of them are really not good actors. And then you got to, you're, you're have to deal with their shenanigans on a regular basis. And that's the job in this particular scenario. And that was very taxing on this particular individual. I have talked about this for years about don't gut it out to 20. Once you feel like you're no longer challenged and fulfilled and you're not having fun, that's a great time to consider your exit. You know, take it one obligation at a time and be ready to get out at the end of every obligation. And one of the best off ramps is going to the reserves and the National Guard.

27:13That's a good way to have some of the military camaraderie and some income and some of the lifestyle without all of the suck. However, maybe going full civilian is the right thing to do. And And so her spouse, her son-in-law is looking at that option. He'll probably end up going into the reserves and seeing how he likes life there. But every time he comes home from a drill weekend, he's got his spouse showing him what their bank accounts look like. A big draw for my husband for staying on active duty is, unfortunately, Grando, you're a little bit out of date on this. There is a way to have TRICARE through the entirety of your life.

27:46And the way it works is you do active duty until you decide to leave for the reserves. And then when you're in the reserves, there's actually something called TRICARE Reserve Select. So while you're in the reserves, then you can buy TRICARE. And for your family rate, it's close to like$260 a month for a family right now. It is like bonkers low compared to most of the civilian world. If it was just you by yourself, it's under$100. I want to say it's somewhere around$80 per person right now. And then this is where there's been an update that most people aren't aware of. TRICARE has something called TRICARE Reserve Retiree.

28:17And it covers the period that they call the gray area. And it's the gray area between you've completed 20 years, age 42, 40, 38, whatever that age is. You've completed your 20 good years of service and now you just need health care from the time that you are starting your gray area up until your pension starts at age 60. And so you can still buy that TRICARE as well as someone who already did your 20 good years and is eligible for the pension, but is not going to receive the pension for what could be another 22 years. The big attraction is that even though I have VA health care because of my service and my husband is going to have VA health care because of his service, unless one of us is 100 percent permanent in total, our kids cannot have VA health care without that rating.

29:00And so that's the big attraction of reserves is being able to buy TRICARE for our kids until they age out. And again, these are all good prices for TRICARE. It's some of America's cheapest, least expensive health care, and it's a wonderful deal. But again, it's those golden handcuffs that you can feel wrapping themselves around your wrists to keep you going up for drill weekends or staying on active duty and gutting it out to 20. We call them gunmetal handcuffs, you know, the color gunmetal. Yeah. Okay. Very good. Yeah. Let's bring this to a financial concept problem, right? So I think there's two parts to this.

29:31One is how did you accumulate, Carol, the wealth you have now to give you this option? And then two, now we have a financial analysis we have to do. This pension is worth something very real. and you're going to give that up. And I think you can beat it, its value in the private market pretty handily over that same time period. And that's a math problem, even if you could give it a very high valuation because of the safety rating and the inflation adjustment for that pension. How do you think about this? Can you tell us how you got here and then how you're thinking about this announcement?

30:01Mindy Jensen:Well, Scott, she said she made$30 ,000. That's how she got here. That's right. Yes,$35 ,000 taxable income, right? That's it. Boom, you save that five years and you become worth a million bucks. So to start, the very first thing that happened was I graduated college in the morning and I commissioned in the military in the afternoon. And by that point, the person on my first ship who was helping me figure out how to get to my first ship, she said, hey, the ship is going to be moving to Spain in two weeks. Are you coming with us? And I'm just like, actually, yes, I am. So by Wednesday that week, I graduate on a Saturday.

30:33By Wednesday, I'm in my car. I'm driving from Houston, Texas to Norfolk, Virginia to get on the ship. And I got on the ship. And two weeks later, the ship actually moved from Norfolk to Spain. and then I was sent back stateside to go to a school for about six weeks and then I went back to the ship. I met it up in Greece this time and then for like the next 19 months I did not have any free time it felt like. I remember out of the 19 months I was stationed on that destroyer, 13 months were spent on the ship which meant that I only had six months on shore. Out of those six months on shore, only four months were continuous because the ship was in a temporary shipyard and needed some repairs so I was actually going home every night except when I had duty once every six days, except when duty was once every three days because everyone was on holiday and they needed to let half the ship go on leave and the other half would stay on duty.

31:19So out of six weeks, I had only one weekend to myself. Every other one of those five weekends, I was spending at least one day on the ship. Six-day workweeks, seven-day workweeks, eight-day workweeks, it felt like it seemed. Out of those six months that I spent on shore, four of them were continuous but without weekends. And then I only had three-week pockets here and there. We would pull back into port for three weeks and then something would happen in the Mediterranean or in the Black Sea. And this is 2014 to 2016. So we had our suspicions, but nothing had actually started yet. And then we were back on the ship.

31:49I'm actually not even sure if I ever cleaned the toilet in my first house with how little time that I had. I'm pretty sure we spent more time in your house than you did. Yes, because I left the key in a lockbox for you so that you guys could come and use my Spanish house way more often than I did. Thank you for your service. I had no free time. Now, don't get me wrong. I was getting a port call every three weeks. So we were landing in places like Bulgaria, Romania, Greece, Cyprus, Portugal, Spain, Scotland, the UK, England. We did get a port call in Israel. Our port call in Ukraine was canceled, so we never got to do that one.

32:23Port call in Georgia was canceled, so we never got to do that one. Trying to think, oh, we were supposed to have a port call in Tunisia. That got canceled, too. This tells you how much free time we had, right, is that we had all these promises, and then we only got through about half of them.

32:34Mindy Jensen:So since you don't have free time, you're working all the time. You're getting time and a half, right? You get overtime in the military. Right, right, right, right. How do you, how mechanically does money leave? Like how, how do sailors end up broke in this circumstance? I guess I don't understand. Like, is there any chance to spend money except at the bar on port on leave? There is. And one of the sailors on the back of one of the Liberty buses said it best. He said, well, I'm still paying off the tattoo on this arm. I'm still paying off the tattoo on that arm. Had a really good time at the strip club at the last port call.

33:09And then I, my roommate threw up on my backpack, so I got to go buy a new one of those. And I've heard that the best place to buy diamonds is in Israel. The best place to buy gold is in Turkey. And the best place to buy leather is in Spain. And I'm just sitting there and silent in my head saying, okay, good to know.

33:25Mindy Jensen:Well, just because those are the best places to buy doesn't mean you have any time to go to the merchants. We got to give this guy a podcast. We talk about how when you get underway, you have no free time. But then when you get into a port, you spend all your money because you feel like you have built up the need to do that. You've earned it. You've had a tough deployment. So you really do deserve that pickup truck when you get back home after six months of tax exempt combat zone pay. And you end up getting a very consumeristic lifestyle because you just have no incentive to save. you have no incentive to put money away for pension, especially if you grew up in scarcity or chaos, especially if you don't have the financial literacy that goes with that.

34:04And especially if you join the military in the first place to get out of a bad situation like excessive debt. If you don't get off to a start, if you don't have that financial literacy to make sure you understand where to put the money. Well, the reason that your foundation for financial independence started so early was because not necessarily that you had a high savings rate, Scott, you had an extremely low spending rate. It was piling up in your retirement accounts because you had nowhere else to spend it, right? No other opportunities. I couldn't figure out how to order Amazon on the ship.

34:32There are a lot of people on the ship that would have Amazon coming in once a month. And I'm just like, how do you get your computer to work? Because every time I actually find a computer, it times out after 15 minutes because you don't get bandwidth at sea. So I couldn't even like stress order stuff. We had that same Amazon problem in a submarine force. And so I'm not spending my money. I'm not given the time to spend my money. I'm not getting paid time and a half. I appreciate you making that comment because I actually did not get enough sleep for about 13 months. I was running on somewhere between, if I was lucky, three and six hours of sleep every night.

35:00And I say every night like it actually happened at night. The best time for me to sleep on the ship was between 4 p.m. and 11 p.m. because my watch started at midnight. And after I finished my watch at three in the morning, that was the best time to work out in the day. And the workday started at 6 a.m. underway. And it goes from 6 a.m. until 10 p.m. And so my best opportunity to sleep was after the 4 p.m. early meal until 11 p.m. if I was able to sleep. If there wasn't a drill happening, if there wasn't a long announcement about kinder hippos on the PA system, which has happened before. I was I'm still pissed at my captain about that.

35:31And that was a decade ago, you know. And so what I did was I started automating it. You know, I got back from the first underway, you know, the two and two and a half months that I've been on that underway. And I looked at my checking account and it had five figures in it because I had no time to spend money. And I'm just like, OK, I got to do something about this. So I immediately lump sum dumped a bunch into my Roth IRA for the year. And I've been a lump sum fan ever since. And then I increased my TSP contributions. And so that meant that my TSP was set to something like 25 % for most of my military career.

35:58And as I got further along and started making more money, I'd back it off 24%, 23%, 22%. But it was only ever a little bit. And so I had that automated payment going to my TSP. I would do the lump sum Roth IRA whenever I could. And then every time I got back into port, if I had extra money, that was an automatic dump into my taxable account. As a result of all of that, my TSP, my IRA, so I rolled my TSP into my Roth IRA. And so that between my TSP and my Roth IRA makes up$600 ,000, give or take nowadays, because of all the money that I was saving on active duty, and then all the compounding that has happened since then.

36:34But I also have money in my taxable account from that extra little bit that I was squirreling away every time that I was in port. And I'd already had TSP taken care of and I already had Roth IRA taken care of. And I really just needed to go get some more sleep. Like, let me just throw this money in a taxable account and come back to this later. I will point out that dual military, dual military couples, when they both have an income, you can right away start with a 40 or 50 percent savings rate. Now, you guys weren't married at the time, but that dual military, two earners in any family, reaches financial independence much faster.

37:05Right. Two BAHs, two BASs, two paychecks. Our Norfolk apartment was equal to one BAH, and our living expenses were only about$30 ,000 a year. So one paycheck covered all of our living expenses, and the other paycheck went right to our TSPs, our Roth IRAs, our taxable brokerage accounts. So it seems like you need a very specific strategy to not accumulate wealth in this particular setting that you had here, which is the tattoo on the right arm, the tattoo on the left arm, the strip club at that port, this one in there. But then for your approach, there's the basics that many of the financial independence community know, but that you have to go and discover and learn here of investing in the tax-advantaged accounts and actually put it into work in the right, I'm assuming broad-based market cap-weighted index funds are the closest available option inside of that.

37:52Well, that's the thrift savings plan is broad-based index funds with low expense ratios, a S &P 500 fund, a small cap fund, an international fund, and a bond fund, and the G fund. That's the whole thing right there. Pick one or two or three. Or the lifecycle fund, which is basically all six in different denominations. All of them, yeah, yeah. It doesn't sound like this is part of your journey, but if you go back in time, was there an opportunity where in hindsight, it would have been obvious to house hack, which is the bias I bring to these journeys here? I don't know if that's the answer. I would just be curious in your view if that's how you feel.

38:23I watched it backfire in a couple of people in not spectacular fashions, but in ways that you knew could be happening and you weren't quite ready to. One of the predominant thoughts that I had while I was on active duty was I spend time with you people all day. I do not want to spend time with you people at home. And so that was pretty much what shut me down from house hacking. Scott, I was doing this house hacking 1980s style when I knew that I would be underway in a submarine away from home for two or three months. I would rent my condominium, a two-bedroom apartment. It would be essentially a short-term rental arrangement to have somebody come and stay there for two or three months and pay me a couple thousand bucks in the 1980s.

38:59And then our first house here on Oahu, we bought a house that was in a great location that had been terribly cared for over the previous 10 years. And then we basically did the Mindy Jensen model of a live-in flip. I say flip because we still own that place 36 years later. But the whole point was you buy a place that's in terrible condition. And if you have the skills, if you have the time, you can do a considerate rehab on it and build your own equity out of sweat.

39:25Mindy Jensen:The military has slightly different rules for the primary residence sale. I just learned this. It's two out of the last 15, not two out of the last five. Yes. Which is quite nice because you guys get moved around all over the place. You don't have the opportunity to necessarily stay there for two out of the last five years. so they give you a little bit more time, which is nice. I mean, I have taken advantage of the live-in flip rules 10 times. We have a friend who did 34 years on active duty. She had a wonderful career. And back then in the 1970s, 1980s, the conventional wisdom was that you would buy a house with your VA loan at every duty station because real estate always went up.

40:05She followed that rule and had a very successful career. But when she retired, she had five rental properties and a personal residence. And she spent the next decade after she sold that personal resident, moving into each one of those properties to get that minimum two-year stay to be able to get the deduction on her capital gains. She still had paid depreciation recapture, but to us, it seemed like a miserable life at the back end of her career when she retired in her late 40s to have to go back to each one of those properties to do that two out of 15. But it worked for her. It worked out very well.

40:37Mindy Jensen:I was going to say, she chose to. She didn't have to. Yes. The good news is that she bought a recreational vehicle so that when they drive to that house, they could do anything they wanted and sleep in the driveway in the RV. And that was the business plan that worked out very well for her. Very successful. Again, once you know what you're doing, work for it, plan out in advance, that all works very well. I'm sure some of the places she bought in, they did not always go up over the 20 or 30 years that she owned them. And you just have to have that as your primary residence. In my primary residence, I can travel.

41:06Mindy Jensen:I can go do whatever. I just have a primary residence. So she didn't have to stay there for two years. She could, like you said, hop in her RV and travel around. One of these Navy officers, they dive deep into this world. There is an entire Facebook group called Military Landlords. It is a fantastic Facebook group. And it's exactly what it sounds like. It's all the folks that have become landlords, accidental or on purpose, while they're in the military. And they're handling things like, help, I'm stationed in Florida and my off-foot Air Force base house is having these issues. Anybody know a good lawyer?

41:39That's exactly what the group is for. I just think real estate is such a good option to be open to for military folks because you have the income you can borrow against. Unlike an entrepreneurial pursuit or a real side hustle, the project at the house can wait until the next break you have there. And you don't really lose a ton if you delay it by a week, where you lose a ton if you have it vacant for two months. But It's just very conducive to the ebbs and flows, I think, of the military work life for some people who are interested in that. And the borrowing is very beneficial. But I want to go back to two parts.

42:10So we've learned here that we saved our$30 ,000 salary, and that's how you became a millionaire here. And I assume that these numbers just began to stack over the five years, and you invested them aggressively, and you had some extra – whenever you got extra cash from hazard pay or seed duty or whatever they call it, the terminology here. You stacked all that up and that ended up really nicely and compounded over the last couple of years. Is that generally the story of how we got to this multimillionaire status? Yes, I was active duty. So I had base pay. I had an overseas housing allowance. I had a cost of living allowance for Spain, which was probably$400 or$500.

42:42And then when I was stateside Norfolk, that went away. So that was BHBAS, base pay. I already mentioned that. I had deductions for SGLI, the service group members life insurance, service members group life insurance. So that was maybe somewhere between$25 and$30 a month. That number has gone up and down over the years. deductions for my TSP. And I'm trying to think of what else I had. I did have CPAY when I was, as they say in the Navy, haze, gray, and underway. And when I started, that was about$100 a month. By the time I finished in five years, that was maybe$220 a month. It wasn't really high.

43:12But you'll run into some people on sea duty that have been at sea for 16, 18, 20 years. And you're looking at numbers that are like$1 ,000 a month,$1 ,200 a month. It all depends on how many years of sea duty you've racked up. And especially in the Navy, everybody is really adamant about paying attention to their C duty counter. It's a number that's actually includes on every single one of your paychecks, every single one of your LESs. And that number translates from your LES onto your DD-214. The final paperwork actually tells you how many days you spent at C while you're in the military. I noticed with the play around the calculator, you'll also see the pay jumps very nicely from 01 to 02 and 02 to 03.

43:47And it increases with your years of service, right? So those all stack up to compound, right? Yes, but no one talks about the tax brackets. When you put on O3, you jump the tax bracket. Most people forget about that. Now you join the real world. You join the real world. You go from that 10 or 12 % and you go at the time, it was either 10 or 12 % and then it jumped into 22%. And so that first paycheck, my withholding increase, I was like, wait a minute, I'm getting less money than I got last month. Even though I was getting paid more this month, what just happened? And I actually went online and found that, yeah, when you put on O3, because it's such a high pay jump, it also jumps you up the tax bracket.

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46:04Get your free quote at ethos.com slash bpmoney. That is E-T-H-O-S dot com slash bpmoney. Application times may vary and rates may vary. I want to go back to the second part of our question. So we had how we got there and now we have, I think this is a problem facing million, hundreds of thousands of active duty service members here, which is, do I gut it out to get my pension or not? There's the how I feel about it, how, you know, that's different. Let's do the math. This pension for your husband is going to be what when he in eight years, and he's considering giving that up. And I think you can beat it.

46:40I think you can beat it in the private market, even after tax in there. But I want to actually hear how you think about it from a mathematical standpoint, because that's the other part of it. Yes, my husband is in 04 right now, which is the same rank as Grand Doug. Grand Doug, can I talk about your pension numbers for a minute? Sure. So Grand Doug gets about$3 ,400. I think it's still$3 ,400 a month in his pension. And there's different ways that the pension changes its taxability depending on your VA disability compensation. I am not going to go into that today. That is super complicated. But basically, if your rating is less than 50%, they'll actually make your taxable pension lower.

47:15And if your rating is more than 50%, then you get both your VA disability compensation and your pension side by side. And so this is one of the reasons why they tell you apply for your VA disability claim because you actually could get the pension and VA disability compensation side by side. But Grand Dog gets about$3 ,400 a month. Oh, he has the numbers right there on his ERAS. Grand total of$4 ,828. Some of that is tax exempt due to VA disability compensation. Yes. So the pension number does not always equal the taxable number. And so that's one of the big things about the pension to begin with.

47:45And then the other calculation is Grand Dog does not pay for health care. Well, I guess you pay about$13.20 a month, or was it$20.13 a month for your TRICARE? Used to pay about$15,$20 a month. But now that I'm on Medicare, I'm getting$200. No, no, no complaints. This is awesome health insurance. And you're right, the health insurance is very, very cheap. It's really a rounding error in your compensation if you're a military retiree. But we've already got the health insurance and we've already got the disability. That's not going to change, hopefully. It's going to increase. It rises with inflation.

48:14I'm sorry, the decision about whether to leave the military now or in eight years does not presumably affect the disability pay your husband would receive. Is that a correct statement? It's all an inflation-adjusted dollar, so it's pretty much a constant amount. When you look at the forecast, you don't have to worry about inflation. So on your check, Doug, that$4 ,800, let's strip out all the other stuff here, what's the pension amount? That's the math problem that Carol's husband's got. And he's looking at the same problem. And so hypothetically, he'd be looking at about$3 ,800 a month of taxable pension income after VA disability compensation.

48:51Okay, so that's 45 grand a year. I'm not going to use the 4 % rule. That's better than a 4 % rule, right? Like, I think that a lot of the rest of society is going to collapse long before you guys lose your military pensions. And I think that's got to be one of the safest income streams on the planet you're ever going to see adjusted for inflation. If we were to say that this income stream divided by the 4 % rule, that's about$1.1 million,$1.14 million income stream. But I'm going to give it a better rating than that. I'm going to give it a 3 % guy there. So I think it's worth$1.5 million easily, this income stream.

49:24Do you guys agree with that very loose back of the napkin map? I've been doing this analysis for 24 years off and on. And yeah, I concur with all those numbers. And that's a synthetic net worth number. You add that to your net worth, that's the value of that. Keep in mind, longevity might be an issue. Also, keep in mind that there is some tinkering of the system from time to time, but those are good numbers to start with. The big obstacle is not the money. The big obstacle is quality of life, family, work-life balance. Again, take it one obligation at a time. If you're challenged to fulfill to stay on active duty, there will be sacrifices.

49:57But eventually, you have to make a priority over, do I want to continue this job and promote, or do I want to spend more time with my family and watch my kids grow up? I think that that's exactly right. The question then is, how can I make this opportunity cost as low as possible? So maybe you can beat that number, which I think you can over eight years, depending on what you do in business or real estate or other stuff. That's possible or even likely for someone with a master's degree and an undergrad from the Naval Academy who's 04. This is not someone who's going to go get a$70 ,000 a year job at entry level in marketing.

50:28This is somebody who's going to get probably a job that starts with two, I would imagine, external to that, maybe more in the private sector. The second part, I think, of this is if I can't beat it, how close can I get so that that cost is low over those eight years, right? Is that how you are framing the problem here? It's a mystery to me why he's still showing up for work. Oh, so I'm accidentally helping you guys, I think. Not exactly, but the downshifting aspect is another thing. You know, my husband, for example, had to leave for work at about 7 this morning. He hopes he'll be home at 3 p.m.

50:55Something always happens at 3 p.m., so really he's home at like 6 p.m. So from the time he left the house at 7 in the morning to the time he makes it home at 6 p.m., you're still talking an 11-hour day, and that includes traffic. We're fortunate to have electric vehicles. We are all part of the EV club now, and so our burn rate while sitting in the middle of traffic is really, really low. But most duty stations aren't EV-friendly, so imagine burning gas while you're sitting in traffic with all the people you were just sitting on base with on your way home. Are you paying for after school care or before school care or summer care for your kids because you're at work?

51:28Are you paying for nannies? Are you paying for extra care when you can't take a day off work when your child is sick at home? Are you paying for extra meals out? Are you paying for different kinds of drop off and pickup services for your kids to go to their different sports? And so one of the big things that we've been seeing, and it's mainly because I'm in my early 30s, is that a lot of our peers are having the same consideration of leaving active duty because they have a family now and their minds are elsewhere. Their minds are not in the ship. They're not on the mission all the time. They're really more concerned about their toddler at home that has the ear infection or their kid that just picked up COVID and has to be home from school for 10 days, which was a real reality a few years ago.

52:06was the fact that you're going to have to figure out how to find some leave or find someone to watch your kid with something as at the time dangerous as COVID. How are you going to handle that? And those were some of the real situations that we had covered because I was the stay at home parent. I was the on-call parent. I was the part-time parent. So you talk about the possibility of entry-level marketing versus$200 ,000, you know, computer science background. But the reality is that my husband also does not have to work full-time anymore. I've not worked full-time since I left the military. My work at RWS has all been part-time, usually somewhere between 10 and 15 hours a week.

52:39There was one tax season, it was 25 hours, but we're not going to talk about that one. Most of the time, it's been enough for me to work for an hour or two or three in the morning and to be there to drop off my daughter at school, to pick her up as soon as the school day ends and not have to sign up for the after-school programs or have the nanny or have the pickup service. Let me ask another question here. So we have this$1.5 million asset that we're working towards over eight years. You said 15 % of people make it. Doug, how about from here? This is not a 15 % situation. This is farther beyond that.

53:06So the odds are certainly higher than 15 % that Carol's husband will get there. I'm sure he's exceptional, but let's assume he's average for this particular thing as in terms and relative to his cohort in the officer set right now. What percentage of people make it from here to there on average if they're trying for it without getting like a, hey, we're moving you to not Bermuda, but like some remote island that's not fun. Diego Garcia. Yeah, there you go. What percentage of people make it from here to there without one of those things coming up along the way? We have the studies. Rand Corporation does this work for the Department of Defense.

53:38And what happens at about the 10 years of active duty, between 10 and 20 years, the retention rises every year. And it's a fairly constant slope from 15 % up to about 40 to 50%. In other words, if you've been on active duty for 10 years, you're probably going to have a one out of three, a 30 % chance of going to retirement. If you've been on active duty for 15 years, well, maybe it's a 40 or 45 % chance that you're going to continue serving until retirement. That's it? 45 to 50 % at 15 to make it the last five? Yes. And two things. Well, okay, medical is definitely a medical issue or some physical disability or medical illness that keeps you from serving on active duty.

54:15And you've seen a lot more of that. The other issue is that at that point, you have an impending sense that this is the time to get out or to go to the pension. You've got an angel on one shoulder saying, oh, stick it out for the pension. You've got the devil on the other shoulder saying, oh, you're so much more worth your human capital in a civilian career. And so it doesn't rise as you would expect to, you know, 16 years, only got four more years to go. Maybe my chances are 80%. It doesn't rise like that because, again, the penalties you pay, the prices you pay and quality of life and lack of family time become ever more severe the more senior you are.

54:51Another issue is that when you start out in the military at a low rank, there's plenty of places to go because there's plenty of jobs like that that are open. As you climb the billet structures, you climb in rank. Now you get to the point where there's a pyramid effect and the billet choices you have are more restricted. And we all know that if we're at 14, 16 years of service, that not only are our choices more limited, but the assignment officer is making a calculated bet that you're going to stick around no matter how mean they are to you. And they're going to solve their own problems by saying, yes, you do have to go to that one year on a company tour in Diego Garcia.

55:26After you do that, we'll give you your choice of your next duty station and maybe even your next home port. And, you know, never know. You might meet your next spouse at that next home port after you lose your first family during the year in Diego Garcia. So those are the choices. That's the calculus you go through to decide, hey, I'm going to get that million and a half dollar payoff. I think your point, the point you made earlier on, Scott, is the biggest factor is that many people in the military look at where they are on active duty and they can't imagine that anyone would pay them that much money in the civilian world.

55:53And then they work around with their peers. They network. They talk to their friends from high school, college, wherever they've got peers who are now succeeding in the civilian world. And they realize what their human capital is really worth. And so at that 12 to 14 to 16 year point, just as the assignment process, just as the detailing is getting a little coercive on your career, and just as you're running out of choices, you also become aware of all those soft skills that are so valuable in the outside world. And your friends who left active duty earlier, 8, 10, 12 years are telling you, hey, come on over to Amazon.

56:23I'll teach you everything you need to know. But really, I need somebody who can get stuff done. And I know you can do that. Could you please? And that's how it works. So I would say that the chances rise linearly. And by the time you get to 16, 18 years, there's probably a greater than 50 % chance that you're going to stick it out to 20. If you're at 18 years, you're federally protected to be allowed to stick it out to 20. But again, lots of other things can pop up. One example is my spouse. She left at what turned out to be 17 years and 11 months of active duty into the reserves, strictly because of one of those unrefusable offers from the assignment officer.

56:56We can do all the math. And you know I am focused on the math and I can do it. But we also have to look at quality of life and sacrifices. I love how there was just this actual island in the middle of nowhere that they do send you to, which I invented fictionally for this example. It's real. It exists. It's not fun. Yeah. And on top of that, I happen to be a millennial. And one of the medical anomalies that's been happening with my generation is there's been a lot more cancer cases in my generation. And if you see it in America, you see it in the military. I've actually relieved a couple of folks on active duty because they had cancer.

57:29Then they needed to be reassigned to the local military hospital for their treatments. And so I was taking over their job. I actually had, he was not my captain. He was the captain of the command that was in charge of my command. And he died on active duty from his cancer. And so you talk about making it the 20. One of the real issues is medical issues. There is a point where you've had either enough industrial exposure or you've had oil fields or Mount Pinatubo. In the case of my dad, you know, if you've had some kind of industrial exposure that actually, depending on your genetics, depending on where you were raised and what you were exposed to in the past, could actually mean that you don't make it to 20 years.

58:04We call that occupational hazards. I have to discount the pension, right? I said it was worth 1.5 million back of the napkin, you know, 3%, you know, if you consider it equivalent to a portfolio that could withdraw 3%, you know, from that asset. You got to ding it by these probabilities, right? Based on your tenure out. So if there's only a 30 % chance, you're going to be able to stick around to get it because you know that at that 17, 18 year mark, it's not more likely, it's more likely because you're closer, but you have every reason to believe you're going to get stationed to God forsaken Island in the middle of nowhere at great personal cost at that point by somebody whose job it is to make that happen for you before you get through that hurdle.

58:38And taxpayer pays this pension for life, right? Or whatever it is, right? Or that's just how the cards get dealt to you. So that means if there's a 30 % chance that your husband will make it there, just a cold calculus of what that looks like, then this pension is now worth 500 grand, which definitely changes. is that that's a very different number when you contextualize it that way. That's a number you can achieve with saving 50 grand a year, you know, for the next eight years and investing that at a very average, non-interesting return on there in the private sector, which is probably very achievable.

59:09So is that the right way to think about valuing this asset, which I think is very challenging, I imagine, for a lot of military officers? We do this math all the time for our peers. Carol used to do it at work for her clients, and I do this all the time with military families. And the very first thing I say when I'm giving one of these financial seminars is I am not a member of the command retention team. I am here to help you plot your exit ramp out of the military. And it's for those issues. So, yeah, you can do the math and math works. And that$50 ,000 a year number looks an awful lot like what a lieutenant commander who is on active duty now knows that they could earn at a drill weekend and some active duty for training that they would do in reserves anyway.

59:50I think you should gut it out in that journey if you're like, my calling is to command a billion dollar aircraft carrier and like I'll be out at sea for most of my life. But that's what I'm good at. And I'm going to defend this country for the rest of my life because I'm better. I'm just good at it and I'm going to be better than the next guy. That's what I'm going to do. That's a great reason to go and stay in the military. It sounds like not that I'm going to gut it out to get this pension if I if the opportunity cost is just really not that large when you weigh these probabilities, it seems.

1:00:16But challenging and fulfilling. If you enjoy what you're doing and then someday you think you might become CEO of that project, well, okay, that eventually happened. So to you, it was worth whatever sacrifices had to be made along the way. Sometimes you might feel like you end up getting promoted just by the vacuum of attrition sucking you higher in the ranks. But again, it's a personal choice, highly personal choice, and your family does have a vote. Doug, Carol, thank you for sharing this wonderful detail about building wealth in the military and then making the irreversible decision of whether to slog it out to the pension or to give up early and go into the private sector.

1:00:52I'm surprised at how more compelling the math of not slogging it out is that I would have biased towards coming into the conversation. So thank you for sharing that. That was really illuminating. Where can people find out more about you? So I need to get back into social media, but you can find me under my name on Facebook. And we also have a Facebook page for the book that my dad and I co-authored, Raising Your Money Savvy Family for Next Generation Financial Independence. The reason I need to get back into writing is because my daughter has an allowance now and I have so many stories. So I will get around to that eventually.

1:01:19And Doug? I'm at militaryfinancialindependence.com. And my email address is all over the internet already. nordsnords at gmail.com. Please reach out. I get these emails every day.

1:01:31Mindy Jensen:And he loves answering these questions. So please reach out to Doug or Carol. They're a wealth of information and they are generous with their time. So Doug and Carol, thank you so much for talking to us today. And we will talk to you soon. Thanks, everybody. All right, Scott, that was Doug Nordman and Carol Pitner. And that was a masterclass in benefits of the military and how to grow wealth as a military member. What did you think of this episode? I thought it was great. The intergenerational wealth building psychology that's been transferred here is awesome here. Carol has a wonderful life and situation.

1:02:08I love the challenge that her husband is facing. It's a really high stakes financial decision about how to value this asset. And I think it's not as simple as, here's what it's worth, let's go slog it out towards it. There's probabilities that weight towards achieving that too. So I thought it was a fantastic discussion. And I think the numbers light you up from a military perspective and the life is very hard. The benefits that you receive for military service are well earned.

1:02:32Mindy Jensen:Absolutely. Anybody who has a problem with the military members getting the benefits that they get can send me an email and I will be happy to chat with you and I will not be nice. Hey, Scott, has anybody ever taken a shot at you at your job? Well, I'll also say this. The fact that folks like Carol and Doug serve in the military and some of our finest people serve in the military and defend the country are the reasons we get to debate things like what health care policy ought to be like or what the tax code ought to be like. So these guys really make a big difference. And we record this two days before the 4th of July here on America's 250th birthday.

1:03:05So shout out to all the military service members. Hopefully this episode was helpful for you. We love the folks in the military. We'd love to help you with any problems. There's lots of great groups out there as well that are specific to the military members trying to build wealth. So we love it. And thank you for your service. We appreciate it and hope you can use those benefits. It's a real educational process, I think, to be able to access them. But I hope you use those benefits to live a life of well-earned financial freedom.

1:03:28Mindy Jensen:Yep. Check out Doug's website, militaryfinancialindependence.com. He has a ton of articles and a ton of information about the benefits so you don't have to just figure it out yourself. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the BiggerPocketsMoney podcast. But just because the show is done doesn't mean you have to stop learning. Hop on over to our website, BiggerPocketsMoney.com, where you can sign up for our newsletter. Check out our new forums. You can find resources like calculators and templates to help you on your FI journey. Scott is busily typing away with our tech team, creating all new resources all the time.

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