MISSION REPORT: FORT FUBAR
(CLASSIFICATION: THE MAN DOESN’T WANT YOU TO KNOW THIS)
I will be 43 years old when I can retire on salary of over $160,000 a year, and that salary will only increase by inflation. I will never have to save another penny, which means the $160,000 a year I make in retirement represents nothing but spending. So how did I pull this off? Did I start a business like Facebook or Amazon? Was I a CEO of major corporation? Did I win the lottery? The answer is that I joined the Army National Guard. And anyone who works full time for the military can do the same thing. Let me teach you how.
A few years ago, financial professors at a university did some research to see how much money you could withdraw every year from an investment account and never run out of money (basically living off of both the principle and the interest).[1] Based on being invested in 75% stocks (represented by the S&P 500) and 25% bonds (represented by a total bond market fund), you could withdraw 4% of the total money each year and never run out! For example, if you had $1 million, you could take out $40,000 a year (plus inflation) and never run out of money until you died.
So, to find out how much money you need to retire, you can apply this same principle. If you know how much money a year you spend (mortgage/rent, utility bills, car payments, food, gas, entertainment, insurance, clothes, etc.) and you multiply that by 25, you get your financial independence (FI) number. This is the amount of money you need to have saved and invested, in order to never work again and live off of the interest that your investments will make.
Quick example, you calculate all of you yearly expenses and find out that you spend $100,000 a year. You multiply that by 25 which comes out to $2.5 million. 4% of $2.5 million is $100,000. So now that you know how much money you need to retire, you can then see how much a year you need to save and invest to reach that amount. In this example if you save $3,500 a month at a 10% compounding rate per year, you could hit $2.5 mil in a 20-year military career. However, $3,500 a month is a lot! But wait, there’s more!
Because in the military, after 20 years of active federal service you get a pension, this lowers the amount you need to save. Let’s say your pension will be $50,000 (including your VA disability pay). Now you only need to save up $1.25 million in order to make up for the other $50,000 of income. That’s half of the $2.5 million you needed to save up! So instead of having to save $3,500 a month for 20 years, now you only need to save $1,740 a month which becomes way more doable.
Still sound like a lot of money? Perhaps you can’t save that amount at first, but as your income increases, so should your amount that you save so that you can make up for it. You could also start with $1,225 a month and then increase your monthly amount by 5% each year. Now you will have a pension and investments that will yield you $100,000 a year (plus inflation) for the rest of your life! How exciting! And this is just accounting for 20 years. If you work longer or get a higher pension, you won’t need to save as much (just backwards plan the math).
And this is precisely what I did. In fairness, I started investing at 19 years old, so I had a little bit of a head start. But I didn’t make much. In fact, my annual salary as an E1 in 2003 was $22,651.32. When I began working full time for the National Guard as an E4 in 2005, my annual salary was $30,261.36. Why do I share this? To show you that it can be done and done on any salary. The key for me was to start early. The earlier you start, the less you have to save thanks to our good friend compound interest (definitely Google this).
So why do this at all? Right now, you are a slave to the man. You trade your most precious non-renewable resource (aka your time) for money. You go to work; give them 40 hours (or more) and they give you a paycheck in exchange. True wealth is owning your time. It’s being able to do what you want, when you want, and how you want to do it. You can always get more money, but you can’t get back the time that is gone. A recent stat that blew my mind was that 90% of all the time you will spend with your children happens before they turn 18.[2] On your death bed will you be like “man, I sure am glad I spent all that time at work” or will you regret not spending more time with your family or doing the things that you love?
Remember too, that you not only have a life span (example you live to be 100 years old), but you also have a health span; a defined period of time where you can actually do things. Putting off your Appalachian trail hike until you are 80 years old is not a recipe for success. The quicker you can buy your freedom through financial independence (pension plus investments equaling 25 times your yearly expenses), the quicker you can do the things you love unincumbered by worrying about how you will support your lifestyle.
So how did I manage to have a retirement of around $160,000? Military pension + VA disability + consistent savings into an investment account. There will be more to follow on this article about the specifics, but for now be thinking about the concept of financial independence and how you can reclaim your time.
Love this article? Great! Let me know and I’ll produce more. Hate this article? Well, it’s probably ‘cause you either are the man or like working for the man. Why don’t you go ahead, respond, and let me know why I am wrong.
*This article was written by FUBAR 6. All opinions expressed in this article are that of the author. This article is not endorsed by the Department of Defense, the United States Army, or any other state or government agency. Comments to the author can be submitted below.
[1] Trinity Study, https://www.whitecoatinvestor.com/the-4-rule-safe-withdrawal-rates/
[2] Don Felker, https://www.donnfelker.com/make-the-most-of-your-time/