Can I Retire at 62 with My Military Benefits?
Daniel writes “Hello, I am wondering if I have done enough to retire. I am eligible to receive my pension from my years of service as a reservist in the military. I also have a pension from work and some veteran’s benefits. All of these are considered cost of living adjusted, but I only have about 300,000 in my TSP sitting in the G fund. Have I done enough? I am turning 62 next month and my wife is 58, and between social security and my pensions I should be making about $98,000 per year in retirement (28k from social security, about 10k tax free from the VA, and my other two are about 30k a year). What would my situation look like if I decided to put it off a year or two? Thanks in advance.”
Thanks for writing to us Daniel, I will need more information to make a formal recommendation. However, I can provide some analysis on your current situation. I will make a couple of assumptions, the first one being that your wife has no retirement plan at her work, or pensions, and the second one being that your health care benefits are provided by tri-care/VA benefits. The third assumption will be that you have no kids or are an empty nester with no dependents. The final assumption will be that the TSP money is in a traditional account, meaning it is fully taxable. I will not be able to tell you if you can retire or not, since I don’t know what your yearly expenses are. What I can do is provide a quick analysis of what your $300,000 can supplement your pensions with, and how much it would be able to supplement if you waited a year or two to retire.
We use the rule of 4%, this is the idea that you can pull money out of your retirement savings at 4% a year and not run out of money, due to market performance helping you keep up with inflation. 4% of $300,000 is an additional $12,000 a year to add to the $98,000 in pension, bringing your yearly income to about $110,000 a year. If this is enough for you and your wife to live off? I don’t know. I also don’t know what the market will do over the next couple of years, but we can use the average rate of a 60/40 portfolio (60% stocks and 40% bonds) to get an idea of what the numbers look like if you push retirement off by a year or two. That average rate is about 7.5%, and if we add that to your $300,000 you increase to $322,500 at age 63, and $346,687 at age 64 with this assumed rate of return. If we continue to use the rule of 4%, we see an increase of what we can pull out per year going from 12,000 to 12,900 if you work one more year, and $13,867 per year if we push out to age 64.
What we would look at, if the original $110,000 is not enough to cover expenses would be to take the military pension, and use that supplement of income to contribute more to our TSP. If we contribute the max to the TSP with the 5% match, these numbers look a lot different. As of 2023 your max deferral is $30,000 (22,500 plus the 7500 50+ catchup). After one year, with the assumed rate from above, you are at $352,500, and after two years of this strategy we see a total of $408,937. Run the rule of 4% on this and we see an annual withdrawal of $14,100 in year one, and $16,357 in year two.
The other area to consider here is social security. Every year you put off social security we can see about an 8% increase in our benefits. So, if we are expecting 28,000 at age 62, we can expect a rough estimate of $30,240 at 63, and $32,659 at age 64. This added in with the fact that you might have an expense falling off in the next couple of years (mortgage, kids, etc.) could help in retirement. Another area to consider would be a Roth conversion while in retirement to avoid the dreaded RMDs.
At the end of the day, it all comes down to personal preferences, and annual expenses. If you can comfortably live on the $110,000 a year that we project with the 300,000 in traditional, then you can retire now. However, if that isn’t enough, you can follow these quick steps, and see an increase in retirement income going from $110,000, to $119,016 over the next two years. This does not include if your pension at your current job increases from continuing to work. I hope this helps Daniel, and if you are reading this and have a situation you would like to discuss, use the contact us portion at the bottom of the page. If you would like my market insights sign up for my email list here and receive a free eBook. As always thanks for reading!