487 | Military FI: Optimizing Your Financial Plan before Military Retirement | Daniel Kopp, CFP

23:33that is really streamlined what was oftentimes a confusing process. So if you have a pension, right, you've got that taxable. So you get a 30 or 40 % rating, for example, that means a portion of so the VA would normally pay you several hundred dollars a month related to that rating. Now that portion of it is going to be tax free. So say simple math, your pension is 3000 a month, and you get a VA rating and that VA rating is going to pay you 1000 a month. That means 2000 of your 3 ,000 pension would be taxable and 1 ,000 would be not relative to your VA rating. Does that make sense, Brad? It does.

24:08It does make sense. The VA rating in this disability, or at least this portion of the explanation, is you're not getting additional money. It's just that a portion of that rating is ultimately what is tax-free. Right. Okay. When you get to the concurrent receipt and combat pay specifics, but once you get about that 50 % rating, now that portion is additive. So you will have your military pension, back to our example,$3 ,000 a month, and now you will get an additional few thousand a month on top of that. And the VA payments are tax-free. So you don't get any 1099 at the end of the year or anything like that.

24:49So 50 % is the magic number for that? Yeah. So just for example, so right now, say you're married and you had one kid under 18, so one dependent that way. If you got a 60 % rating today, 2024, that would be$1 ,578 a month. Gotcha. So that's significant. That's quite significant. I'm completely tax free. Okay. Yeah. Now for those that get a much higher rating, so that 100 % VA rating that is then designated as total and permanent, this opens up some extra educational benefits It's called the VA Chapter 35 or the Dependents Educational Assistance Program, the DEA. So this would allow your children to be enrolled in this and your spouse.

25:28Right now, it's based on academic school year. So if they're in full-time students as well as apprenticeship programs, in fact, that will pay$1 ,488 for each full month. So each calendar week of a month that they're enrolled, which is pretty significant. So that along with things like the GI Bill, which many people do a lot of great planning around for their children, means that a ton of extra education funding for later on, which all plays into the FI journey, which means potentially you need to fund less towards those goals if they're otherwise part of your family financial plan. Yeah. So Daniel, like you said, that is really quite considerable.

26:03And yeah, there are additional benefits. I think maybe we'll put a note for educational benefits and GI Bill back in the military 101 episode that we'll do. Yeah, I've got a good guest idea for you on that topic, who's an expert in all things GI Bill and education funding. Wonderful. That sounds like, yeah, really good episode, a really good segment. So, okay, let's keep moving on because I think there's more with us. So if you have a VA rating, you're also eligible for medical care from the VA. And in fact, all service members who served at some point in a combat deployment have access to free medical care for five years following their date of separation, not retirement.

26:39So now we're talking about somebody who, like me, left at nine years, has the ability to get full medical care. My experience with the VA has been very good. I know that there's some other people's experiences out there, but overall, people that I've talked to and things like that, it's pretty good. You have to be responsible for your own care. You can't wait around for them to do everything for you, but leveraging that has been a help to me and many other people. There's also a host of jobs training and education funding. Something I recently came across helping a client plan for is federal student loan forgiveness as well for those who have that 100 % total and permanent rating.

27:11There is so much to know about the Veterans Affairs programs. I am just scratching the surface here. So this is where you really need to get connected with that VSO, that Veterans Service Organization, and accredited one, ideally, that can help you sort through these benefits, especially to your local community. So go Google accredited VSO and bring up the VA website. you can look through those. But be careful, there's a lot of organizations out there that I hope they mean well, but sometimes they're attempting to work with VA benefits and they'll charge a fee. That's not necessarily inherently bad, but most of these VSO organizations out there will be able to do all this help for you for free.

27:46So just understand that. Yeah, that is wonderful. And now just taking a step back, I think something really important that you said earlier was, quote, you've earned this as part of your service. And I think a lot of people, like you said, feel a lot of squeamish, let's say maybe, or they just, they feel like it's not something that, that they've earned or that they deserve or some such, or like you said, it's for somebody else. But I think really hitting on your words earned as part of your service. And like you said, you have to get this documented. So that's the critical part. But I want to ask about, is there any downside?

28:23Because I think we need to always look at all sides. Like, are there any considerations? So it sounds like this is almost a universal good. get this documented, you've earned it. But that said, are there any reasons or anything to consider that if you get 100 % that it might lead to certain ramifications? Are there issues potentially, or is that like a total non-starter basically? The only one that I've come across in my planning practice is what I referenced earlier, right? So trying to get potentially life insurance underwritten, or disability insurance maybe even on the other side, right? You may have impacted your ability to get maybe more preferred rates or maybe even a policy issued based on what is documented.

29:02So the sequence of that is just kind of what's important. Got it. Okay. And then, right, just to dial in one last time on that, because again, everyone needs these precise little details. So the sequence, so you're getting ready to leave. Let's say it's a couple years before this 20. Can you, at that point, lock in your term life insurance for after military or your service. That's the sequence, right? Yeah. So generally, I like to say no later than three years out from military retirement, you want to have done a life insurance needs analysis, whether it's yourself or with a great financial planner who can help with that.

29:37And then knowing what your needs are, that determines what you're going to do for SBB, which we're about to talk about, says survivor benefit plan. Then during those last few years, so you make a decision based on, right, and maybe you get a great class, a great rate, right? Let's lock in that term policy, maybe even for 30 years or more, right? And then you can go into the VA process, get your medical stuff documented, ready to go. So the challenge comes when people try to squeeze all this into like six months, which is not ideal. Okay. You wouldn't need to give yourself plenty of time that life insurance do their thing, medical records, but also the VA process too.

30:12It's the government. Super fast. I'll leave it at that. Yeah, I hear you. So I love that. That timeline is really important. Thanks for listening to Chooseify and for all your support of our mission here. The absolute best way to support Chooseify is when you sign up for your next rewards credit card to use our cards page at chooseify.com slash cards. I keep this page constantly updated, so it should always be the top resource for you. Thanks for being part of our community and for your support. So I think clearly the next step, and you've alluded to this, is this SBP, Survivor Benefit Plan. And this is a massive decision.

30:52Let's just make sure we're setting the stage here. OK, so that pension, right? Say you're that 20 year E7, right? You approach military retirement. Maybe you're retiring for the military at like 39 or 40 years old, right? That government is going to pay you that stream of income for the rest of your life. And based on your SPV decision for your dependents as well, that is worth that net present value. If we calculate some math here is worth more than$900 ,000. right there. Not that the federal government would, but if they came and said, here, thanks for your service. Here's a check for X. Unless it was way more than$900 ,000, you'd be like, forget it, right?

31:29Now, you can't go buy an inflation-adjusted single premium immediate annuity, like a guaranteed check from an insurance company that will show up every month, every year for the rest of your life, plus inflation. So it's probably worth even more than that. And then now on the officer side, so for like an O5, a lieutenant colonel or person in that rank at 20-year retirement, it's worth about$1.9 million. So I'm not overstating this when I say for most military service members, the SBB decision is literally the biggest financial decision they will make their entire life, bar none. So it's critical to get it right.

32:01Yeah, pretty important. And that's quite a setup. So all right, what is this decision? How does someone even approach from a high level? Well, don't listen to the rumors. I guess I would start there. like many things in personal finance this one seems to be more filled with misinformation than most so obviously you're going to have to do your own research but again let me pause here if you're listening to this podcast my suspicion is that you are the financial person in your marriage or relationship right so if you are the one listening to this and your spouse or your partner is not why don't you just go home and ask them a question hey honey what's spb have you ever heard of this thing called the survivor benefit plan, right?

32:41If their answer is a blank stare, okay, well, then you're going to need to bring them along on this education journey too, because legally they are the ones making this decision. They are the ones who ultimately have to sign the form. Okay. Much like other parts of our country, this is governed under ERISA, the Employee Retirement Securities Act, and it relates to this spouse is going to have to sign off if you're going to take anything less than full SPB. All right. So bring them along this journey, maybe have them listen to this podcast. I recently did another podcast talking about this in a bit more detail with Jamie and Spencer over in the military money manual podcast.

33:15We can have that in the show notes as well. For sure. But don't do this decision alone because they have to make the decision, right? So don't pressure them. Don't make them do it. So let's start there. What is SPB, right? This is a pension protection plan. It's going to pay your spouse if something happens to you. So if you're the military triary and you live well into your 80s, 90s, 100s and be on? Great. You're going to keep collecting that check. But what happens if something happens to you before that? Well, if you don't choose SPB, the pension stops. It's done. So if you elect into SPB, which by the way, is the default choice, that is the default option you have to opt out, then your spouse will be paid 55 % of what you did.

33:52Now that doesn't come for free. So we can talk about the costs and the pros and the cons, but that's as simple as to it. Protecting your spouse and or potentially your children with a lifetime guaranteed check for them for the rest of their lives as well. Okay. So you said 55 %? Did I hear that right? Yes. So 55 % of the pension benefit that they were already getting. Correct. Okay. So the retired military member, as we talked about, they get their pension based on a multiplier, which most likely is somewhere between 40 and 50 % depending. So they get their pension every month for the remainder of their lifetime, right?

34:31So they get that full amount for the remainder of their lifetime. Like you said, it's inflation adjusted. Now, SBP is automatic. So you don't have to opt into it. But we'll dive into that a little bit more. But assuming that SBP is active, when the retired military member passes away, then you basically take that monthly amount that they were getting in their pension and multiply it by 0.55. Is that high level how we're approaching this? Yes. Yeah, so that's right. Okay. Got it. Now, my natural question is, this is automatic. So therefore, I wouldn't assume that it would reduce anything being the actual monthly pension.

35:15But that is, you know what happens when you make an assumption, right? So who's paying for that, Brad? This is the question, right? Exactly. So this is where it comes into. And I hear this question all the time. Is SPB worth it? Is SPB expensive? Should I take it? That seems like a lot of money, right? So let's talk about what it costs. So if you opt into the full SPB, then you will pay six and a half percent of your monthly pension check as the premium. Okay. So let's look at a recent client example that I had for an 05 at 20 year pension. So she was going to be getting$5 ,083 a month for her monthly pension check.

35:54So her monthly SBB coverage was going to cost$330 and 45 cents. All right. So that was for spouse and children. We'll break down that in a second, but majority of that cost in this case, $330 and 45 cents or 40 cents was the spousal cost, five cents a month was the child cost. So big difference in cost here, right? So, and that would entitle the spouse to collect, in this case, 55 % of the premium or the pension, which was$2 ,795 a month, right? So that's a lot of money, right? Now you're going to pay this SPV premium if you opt in for 30 years. So back to how much is this a decision? Is this expensive?

36:33Well, in comparison to what, right? What would happen if you died and your spouse got nothing? I'd say that's pretty expensive, right? At the same time, 30 years of payments, so this 05 is probably going to be paying around$120 ,000,$130 ,000. And that E7, 30 years of example I gave earlier, is probably going to be paying about$60 ,000 to$70 ,000 over that time period. That's real money. So let's look at the other question. Is it expensive? Well, compared to what? It is cheaper than similar FERS. So if you're a federal employee and you're in the FERS system, you have a somewhat similar calculation.

37:07It's more. It costs more over there. So actually on the DoD side, the DoD is subsidizing this cost. So that 6.5%, you're not paying the full cost. All right. The federal government is actually subsidizing a portion of it. Okay. Yeah. I mean, that seems to me, it seems fairly reasonable, especially because if this is what your family is relying on, and maybe, maybe you haven't saved as much for FI because you have this pension coming in, this is guaranteed because life is not guaranteed, right? As you know, with certainly personal experience and the people you work with, I mean, things happen, right?

37:44And very unexpected things happen, certainly. And you might be planning on 50 years of a pension, but what happens if you get hit by the proverbial bus two years in, right? Like the money stops at that point had you not had SBP. Yeah. Now, fortunately, you don't have to make this decision alone. There are some tools out there. One is actually one of the best ones is provided by the DOD Office of the Actuary. Now, the first reaction oftentimes when I get that is, what? There's an Office of the Actuary with the DOD? Yes. They do a lot of great work. But one of the things they do is they provide some Excel calculators that they populate every year with real world data from real retirees based on life expectancy and longevity and things like that.

38:24And so you can go and put in your information, your demographics, your spouse, your family, things like that. So let's talk through the pros and cons because there's a lot to consider with this decision Obviously the pro of sticking with SPB is that again that same guaranteed monthly payout for the lifetime of your beneficiary Generally the spouse index for inflation. It's that longevity insurance You know, we don't talk about that as much as I probably think we should in the fi community Which is what happens if you live a really long time or in the case of you're the one with the pension What happens is your spouse without the pension lives for a really long time without you, right?

38:56especially as we continue to live longer and longer. It's predictable. It's easy. It's automatic covered with no medical or eligibility requirements. So maybe you've had some health challenges, especially over the course of your military career. There's no underwriting. It's automatic. You get it. Boom. Once in paid up status. So after those 30 years, it is done, which is 360 month of premium and reaching age 70. So I didn't mention that caveat earlier. So in the case of like a younger enlisted retiree who say maybe you're retiring at 38 or 39, they might pay a little bit more because they've not yet reached that age 70 mark there.

39:30But once they reach that, boom, it's done. So even if you're, say, living well into your early 80s, and then your spouse lives well into, say, their early 90s, right, that still may be worth it at that stage of time. It's much cheaper than, like I said, the first cost, and the payments are made from pre-tax income. So it does reduce your federal income tax liability the way it's actually paid out. So generally when I'm working with people, it comes down to this is not just a math decision. This is a swan decision that sleep well at night. Nice. Yeah. And that's that is critically important, right?

40:05It's funny because I was going to ask you like, oh, is there a break even calculation? But I mean, frankly, it's beside the point. I think the sleep well at night test is really what you're purchasing here. And let me emphasize, that's the sleep well at night, not for you, not for your spouse, not you, the financial person, right? It is the other person in your relationship. Yeah. Just a little sidebar on this. So this premium amount paid, like is it something you have to actually cut a check for? Or is it just net out of your pension benefit? It's automatically taken out of your monthly check.

40:37Yep, your retirement check. And is that 6.5 % of that current check? or is it by some freak chance guaranteed locked in that first day? When your pension goes up for inflation, your SPV premium goes up with that as well. So it's not the first year, it's the every year. Gotcha, gotcha, gotcha. And then, yeah, just doing back of the envelope math, I'm thinking like, I was trying to figure out that 30 years. So, right, let's say hypothetically an officer who went to ROTC or a service academy, they get out at about 22, they've worked for 20 years, they're 42. That's why the 30 years, they'll be 72 at that point.

41:11Whereas you said there are some edge cases for young enlisted, somebody enlisted at 1819. Yes, yes, exactly. So they'd have to probably pay for 32 years. But I mean, that's so almost irrelevant. It's just you're essentially paying for 30 years. Yeah. So that's some of the major considerations here. Now, in one of those DOD offices of the actuary calculators, you'll input your information and your spouse's information, right? So this is when we start to look at things like, well, actuarial tables, like men in our country, on average, tend to live less years than women. So if we look at an average military retiree, more often than not, it's a man married to a woman.

41:48And so when you're looking at that, especially if there's age differences. So I did recently a client plan where the male military retiree was married to his spouse. His wife was about 12 years younger than him. Now we're starting to look at some major demographical differences holding all else equal family history and life expectancy and health and all that kind of stuff, it is likely that she is going to outlive him. And back to the widow side. So I work with a nonprofit, Modern Widows Club. They've done some research. Right now, the average age for widowhood in the United States is 59. Wow.

42:20So let me let that sink in. The average age is 59. So when you're thinking about like, what is this going to look like for your spouse? Wow. That could be a long time. So you can input this data into the actuarial calculator based on your age, genders of your spouse and you. and it will tell you if you elect SPB with real world data for demographic data, the probability that your spouse will outlive you by one month, five years, 10 years, 20 years, and 30 years. So I did it recently for a client, husband and wife were the same age. There was a 24 % chance that she was going to outlive him by at least five years.

42:52So if you're thinking about running breakeven, right, that can start to help you do that. But again, it's not really what this is about. It can help you analyze a variety of things, but just think about it. So in a scenario where say you're the same age or maybe in a same sex couple, you start to look at things a little bit differently. Or in the case of say, maybe the military retiree is much younger than an older non-retired spouse. Now this starts to really play into the other factors, but all else being equal, the default choice is generally best for what's been the classic case, male military retiree married to a younger female spouse.

43:26So most people benefit from opting into that. So if you start to stray away from that scenario and have age differences or things like that, now it starts to get a little more complicated. My mind immediately goes to something like contingent beneficiaries. Like on a normal, let's say, hey, I have my primary beneficiary on my 401k and then contingent. Let's just say, hypothetically, the beneficiary predeceases the military retiring. And I mean, I guess I have a couple of questions. If you're still within that 30-year period, do you stop paying the 6.5 % if there are no contingent beneficiaries?

44:03So the questions actually tie together here, right? Is it conceivable if your significant other spouse predeceases you that you can give the benefit to somebody else? Or is it just a simple contract, that is the person, and if they do die before you, then there's no additional benefit? Yeah, you're really pulling out the edge cases today, Brad. So in that scenario, the SPV would be able to be stopped because you're not married anymore. Exceptions would be like if you had a prior spouse, an ex-spouse who ended a divorce decree, there was some allocation related to SPV. But another classic scenario is you leave the military, retire, and you're not married.

44:41And then sometime later on, you do get married. There's an opt-in window that you have to go and enroll in SPV and start paying premiums to protect your spouse. But if you are married at the time of service, you know, and you make an option, it only can change based on a marital status change later on. The other thing is like, so it's a one-time decision. So you make this, it's an irrevocable decision. There have been a few open seasons where Congress has come back and changed the program. One just ended last year. That was because of some very specific changes related to the dependency indemnity compensation offset, which is beyond the scope of this conversation.

45:15But short version is before you weren't able to get both SPV and DAC, now you can. Okay. So Congress went and changed the rules and then allowed people to opt back in if they had previously opted out. In my professional opinion, I don't think Congress will do that because there's nothing left to change. So in other words, once you make this SPB decision, it is final. There is one small window of opportunity between the 24th and the 36th months between year two and three where you opted in and then you change your mind. You don't get back any of the premiums you paid, but you can quit the program at that point in time.

45:41Okay. All right. So you need to make that decision then by that 36th month. Okay. Yeah. So I guess my question about contingent beneficiaries, it sounds like there are none, but are there considerations for children in any way? Yeah. So if you have minor children when you're opting into SPV, then they're covered. So I just gave that example a moment ago where the child coverage was ridiculously cheap. So rule of thumb, always, always, always, always, always, always, always, always, always, always opt for child coverage because it's so cheap. All right. And because it covers them. One of the best parts of choosing child coverage, whether you choose child only or child coverage, you definitely want to include your children is because also if something happens to them where they place into a status of secondary dependency.

46:24So think of this as a child who maybe is never going to be fully independent. There's a whole DOD process to do that where they can also get access to TRICARE and things like that for the rest of their life. Think like a special needs kind of planning scenario. So in that kind of case, now if something happens to you and an adult child is in a secondary dependency status, now they get to collect that SBB check for the rest of their lifetime. So always, always, always, always, always opt for child SBB. And now unlike SBP, which is automatic, you have to opt out. You have to opt in to the child?

46:58When you're making the decision which kind to get spouse's automatic child, you're choosing to enroll them as well. Okay. So right. It's because it's so inexpensive. It's hard for me to envision a scenario where you would not do that essentially. Like you're saying, always, always, always, always, always, right? Got it. So let me pull up another scenario that I did recently for an E6 who were retiring at 22 years. So they had four children at the time. He was going to pay$7 a month for child-only coverage. So he didn't cover his spouse. Okay. I cannot emphasize enough how inexpensive it is relative to the payoff and the opportunity.

47:35Now, if there are ordinary children, right, getting off into life on the graduating on their own, then for most of them, it's going to stop at either 18 or in full-time student status a little bit longer than that. So just from that standpoint, it's not a forever benefit from them unless they are in a secondary dependency status. Okay. Okay. And Daniel, I'm curious, are there other resources that someone could consider, podcasts or blogs or anything from the DOD itself? Yeah. So we talked about the DOD Office of the Actuary Calculators. A colleague of mine, Forrest Baumover, wrote a book several years ago.

48:05You can buy it on Kindle, Military and Transition's Guide to the Survivor Benefit Plan. So again, a fellow CFP just walking through all the financial planning considerations that we talked about in more detail. It's a great starting point. Another friend of mine, Kate Horrell, she's got probably one of the most extensive blog collections about articles about SPB. So we can link to that in the show notes. And again, like going through the TAP class, the transition program, many people have found that that is helpful. and then again, bring your non-financial spouse alongside this decision to help make it together.

48:37And that transition class, the top class, is that something that people are kind of forced to take or is that another kind of, hey, you need to look for it? I don't actually know all the service rules if they require it. Absolutely. But it is certainly offered and encouraged across everyone. And especially those approaching military retirement, you can take it multiple times as well. Okay. Awesome. So that's something, again action steps for everybody listening look out for that it's important daniel's recommending it it's a free resource it's there just take advantage of it yeah all right daniel so i think we pretty much covered that where do we move from here there any other considerations you want to talk about today well these are the big ones right sbb i mean that's the get it right or potentially your entire financial independence journey is thrown off but there's a few others along the way, right?

49:24Which is, I know Doug Nordman talked about this back in his episode, which is basically, you know, maybe you're approaching military retirement and it sounds so great, but the whole idea, Grumpas and Machimas covered this as well, right? It's just too far. So maybe you're at that 15 year point and you're like, oh, it's so close, but it also looks so hard. And maybe this is where you step back and you evaluate that reserve career, right? It's still a great path to financial independence, still have the ability to earn a pension. It just starts later at age 60 for most scenarios. And then you still have access to TRICARE, just a slightly different version of TRICARE Reserve Select.

49:55Having worked with a lot of clients who left active duty, especially those with dual military careers, and one spouse is often having to make the decision about, do we both keep doing this or want to just step back? I've seen firsthand the way the quality of life can improve when making that decision. Not something to be done lightly, especially as you're closer to retirement, but it still can be a powerful tool along the path to file. So for reservists, how does a pension work for them? Is that something that's worth talking about? I guess just real high level, is the 20-year pension only for active duty or is there a way to get a pension if you're in the reserves?

50:30There's one special category called AGR or active guard reserve, which is very, very similar to military service of active duty, but you're in a guard unit. Those positions are hard to come by. Okay. I have some friends who have done that. So yes, you still can get the 20-year. But what I'm talking about here is more of a traditional reservist. So this is the one weekend a month, two weeks a year, drilling status. And somebody who's in that position, they're going to vest under a points-based system, but not start immediately upon separation of military service. Gotcha. All right, Daniel. So I think going down this incredible set of bullet points that you sent me, I think we're pretty much getting ready to wrap up.

51:09There's one last section. So it's on tax planning. Now, we talked a little bit about taxation, just very much in passing about taxation of pensions and potential estates. But I want to throw it to you for when people approach you about tax planning and military retirement, where do you start? Taxes are probably one of my absolute favorite pieces of financial planning. I'm a nerd. I love the tax code, you know, or at least understanding it to help clients. Right. So we've talked a little bit about the way VA offset and integration with a disability work with pension. The biggest question I often get, though, is like, OK, I'm now going on to my second act career post-military retirement.

51:46I'm collecting this pension. Now I've got this W-2 job or self-employment or something like that. Why am I getting killed in taxes now? It's like, well, you know, that was all the tax-free allowances you were used to getting housing allowance, the substance allowance, combat pay when you're deployed, setting aside your taxation of your regular basic pay. All these things can often create a distorted sense of tax reality until you get to the other side. So I'd say it's probably the number one, number two, most frequent question I get is like, why am I getting killed in taxes after military retirement?

52:17Well, oftentimes you're now in a higher tax bracket and certainly your effective rate, your average tax rate across all your compensation is much higher. So that's just, that's often the way it is. So rerunning some of those analysis or getting help from a qualified tax professional can help, especially in that first year post-military retirement. Now, how does that relate while you're still on the path? So you're still in that three to five years, right? Recognizing that, especially if you're planning on working in a career post-military, more likely than not, right, the average is that you're going to be paying more taxes then.

52:48So if you're still in your savings, probably not a huge surprise, especially while we're still under the Tax Cuts and Jobs Act here in 2024 and 2025, the average scenario is more Roth now, right? So Roth TSP has been a great option for several years, Roth IRA, backdoor Roth, things like that to analyze, you know, now versus future tax free income. and maybe even I've had some recent scenarios where it might even make sense to do Roth conversions now while you're still on active duty to potentially use up the bottom of say the 12 or the 22 % bracket to optimize compared to where you might be down the road and just give you.

53:23And the last piece is probably one that I think most people are aware of, but just in case they're not, the section 121 home sale of capital gains exclusion. So, right, those of you familiar with the real estate planning that 24 months in the prior 60 months, getting to exclude either 250 or 500 ,000 of your primary residence, blah, blah, blah. The military has the ability to extend that window by an additional 10 years with the appropriate paperwork. So if you have accumulated houses over the course of your military career, we often refer to those as accidental landlords. As you are approaching military retirement, recognize the ticking clock is approaching that, right?

53:58Because that is an extension while you are on active duty. So I'm helping a client right now where they're about four years out from military retirement, and we are starting to sell some of those homes in order to still take advantage of the section 121 sequence, but yet not stack them all up right away when they leave active duty. So something to be aware of there. Taxes are a key piece of financial plan, and especially those in the FI community, right, recognizing now versus future. So that's the key. Looking at where you're at today while you're still in active duty, but first where you'll be in a post-career and or just general FI timeline when you're withdrawing from your portfolio.

54:34Yeah, I love that. So right. Everyone's situation is different. I think that's one of the cool parts about the FI community is we survey the scene and the world as it is, right? These are the rules, not how we want it to be, but these are the rules. And like you're saying, many people who are military retirees might moan, oh, I'm paying so much more in tax. But somebody who's hearing you talk about this is saying now, oh, that's interesting. So my current benefits and my current pay just before I get to retirement, I'm getting maybe some of these tax-free allowances. Maybe I'm down in that 12 % bracket.

55:08So instead of putting into a traditional retirement account and getting the guaranteed tax savings then, but if you're only at the 12 % bracket, you might say, oh, Roth, right? That's what I'm hearing from you. That's just such a cool rethink on this of, all right, you have to understand the practical realities. And in this case, there's a reasonable chance that a Roth contribution makes more sense because of those tax-free allowances. And I guess the further extension, I'm thinking of just somebody who's on the path to FI, they're getting this military retirement. Hey, maybe they're coming out.

55:40They don't need that second act. There are a lot of people in the FI community who, hey, if you're getting a, You're maybe in 05 or 06. You're getting a$50 ,000,$60 ,000,$70 ,000 pension. Or who knows? It might be slightly more. And that might be enough, right? And you talk, hey, we spent this whole time talking about somebody who has a spouse. You're getting the standard deduction. I mean, your tax liability, your taxable income could be really, really low. You might come out and say, damn, I'm paying virtually nothing. This is a bonanza. Yeah. I mean, I'd say across a lot of my clients, the average tax rate, the effective tax rate for so many people on active duty is single digits even, especially when you factor in child tax credits for a lot of these families.

56:21Now, the switch often flips. So post-military career, and now you're, say, earning good income in that post-military job plus salary, and maybe your spouse is now earning income too based on age or stage of kids. It often happens. I see that happen regularly. Now the script might flip. So now you might be switching to saving if you're still in that and not a coast fire scenario where now you're doing traditional savings post. military service. So something to keep in mind there. Yeah, no, indeed. Daniel, this has been amazing. Absolutely amazing. Thank you so very much for coming on. Thank you for all the care you took and putting together this outline and really just explaining it so clearly.

56:58I think we've littered throughout the hour plus here, just a series of action steps. And I think we really slowed down on them. For anybody listening, if this is pertinent to you, if this is pertinent to a family member, someone you know, send it to them, but also sit down with a piece of paper and pen and write down all of these action steps that Daniel just so beautifully explained. I think it's, this is really important and can make a massive, massive difference. So Daniel, thanks again for coming on. Where can people reach you? Is there, I know, obviously I mentioned your financial planning, but where can people find you?

57:36Well, my firm is Why Stewardship Financial Planning. So it's wisezeergefp.com. I'm also a founding board member of an organization called the Military Financial Advisors Association or MFAA. It's a group of all fee-only fiduciary financial planners who are either veterans ourselves or military spouses. And we all specialize in working with some segment of the military population. So we've got somebody who specializes in the unique needs of like the reserve component or those who are more in like the special forces. I work with a lot of dual military spouses as well as gold star widows. We've got something for everybody and that helps to do that.

58:10So if you're looking for some advice in that standpoint, I'm also pretty active in a lot of these personal finance Facebook groups, including the, there's a group choose FI us military. So happy to help answer questions there. And of course you can find me on LinkedIn or Twitter. I also have a podcast called military to financial planner, which is entirely attended. Like if you are thinking about becoming a financial planner, then this is for you. I created this to kind of have conversations at scale that I've been having one-on-one about people who also made the jump. Because I'll tell you, Brad, I mean, nine or 10 years ago, I did not even know that there was such a thing as a CFP.

58:41I had no idea that there was the fee-only world. I just thought everybody sold everything on commissions, right, and had the ability to work with clients. So this has tried to help that career process just be a little bit easier for veterans, for military spouses, for anybody who's thinking going into financial planning as a career. So I encourage you to come check it out. I love it. We're going to put all the resources in the show notes. And Daniel, we're going to do a part two, which is actually going to be a case study on one of our community members who reached out. But I think what I also want to do is throw this open, throw this open to the community.

59:10Like I said, it's such a huge percentage of our audience is military, is either current or former military. And this is really, really important. So the best way to send questions in, if you're listening to this, is to get on my newsletter. So just go to choose a by.com slash subscribe, and then literally hit reply to any of the emails that come to you and just send in your questions. And I'm going to curate and collate that entire list. And Daniel, we're going to do either one or more follow-ups, a series of follow-ups, because I think this is really, really important. So again, thank you so much, my friend.

59:43I really appreciate it. Thanks. It was a pleasure. Thank you for listening to today's show and for being part of the Chooseify community. If you haven't already, the best ways to get involved are first subscribe to the podcast. So you're listening to this on a podcast player and just hit subscribe and then subscribe to my weekly newsletter. I actually sit down every Monday and write this by hand and I send it out Tuesday morning. So just head over to choosefi.com slash subscribe. And it's really, really easy to get on the newsletter list right there. And I would greatly appreciate it. It's the best way to get in touch with me.

1:00:17You can actually just hit reply to any of those emails and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsourced personal finance show. And finally, if you're looking to join an in real life community, we have choose a local groups in 300 plus cities all around the world. So head to choose a by dot com slash local and you'll find a list of all of those cities in 20 plus countries all across the world. And if you're just getting started with FI or you have a family member or a friend who you think would be interested, two easy ways.

1:00:51Choose a Vi episode 100 is kind of our welcome to the Fi community. And even though it's a couple years old at this point, it still stands up. And it's a really great just starting point to get an understanding of what is financial independence? What are we doing here? Why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life? And then Choose a Vi created a financial independence 101 course that's entirely free. just head to choosefi.com slash fi101. And again, thanks for listening.