Retirement
Guest Post – How to Collect Important Documents When You’re Separating/Retiring
By CAPT(r) Nathan Almond, MC, USN
For personnel separating or retiring that wish to obtain documents from their service, below are some recommendations.
1. Get a copy of your Official Military Personnel File.
To get a copy of your military files such as fitness reports, SGLI elections, and other files from your career (besides your orders) go to BOL
https://www.bol.navy.mil/
Login with CAC
Click on ‘Official Military Personnel File (OMPF) – My Record’
Click on the ‘yes’ button
Click ‘download OMPF’ button
Wait for ‘save as’ folder to pop up as the zip file is downloaded and save as a zip file
That’s it! Now you have your OMPF files.
2. To get copies of all of your orders (besides IA ones), in NSIPS click ‘Employee Self Service’, then ‘Electronic Service Record’, then ‘view’, then ‘orders history’. You can then click on ‘select all’ and then ‘Print Selected Orders and Transfer Information Sheets’ to get a pdf of all your orders written in your career.
3. If you deployed IA, get a copy of your IA orders for future reference. In BOL click on
Navy-Marine Corps Mobilization Processing System (NMCMPS) – View IA/ADSW orders
Click the ‘show orders’ button, then click on the orders you want. You may have to click on the ‘popup blocker’ in the address bar and then again on the link that was blocked in order to get the file, depending on your computer settings, but you don’t have to change the settings, just click on the ‘popup blocker’ in the address bar in Chrome and then the website that comes up and your file will download.
4. Also I found helpful to get a history of my career assignments. In NSIPS click on ‘view professional history’, then ‘history of assignments’, then ‘print form’ to get a pdf list of your assignments. Again, you may have to click on the ‘popup blocker’ in the address bar in Chrome followed by the address that was trying to download the file, but you should be able to obtain the pdf list.
5. I think getting the current pdf of your ODC, OSR, PSR is also helpful but CAPT Schofer has already outlined how to do that in the Promo Prep document.
How retirement plans for dozens of Navy officers were upended by a new law
I you want to retire as an O4, you now have to stay in 3 years instead of 2:
No, a SECDEF Memo Did Not Change the Time-in-Grade Retirement Requirements
There has been a SECDEF memo flying around the interwebs that is being misinterpreted. People think it might let them retire at the 2-year mark as an O5 or O6, but there has been no change to current policy (which requires 3 years). Here is the response from PERS:
“Some of you have been fielding queries about the attached memo so wanted to address this for everyone. The memo does delegate authority to the Service Secretaries to reduce time in grade requirements. However, this delegation does not equate to Service policy. We are still awaiting on how the Navy will implement any changes in time in grade requirements.
So for now, please inform any folks inquiring about it that no formal Navy policy has been promulgated based on the new authority. And current policy stands.”
I did not attach the memo because this guy is not in the habit of posting SECDEF memos on a public blog.
Save Some for Your Future Self
Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get (free) on his blog Humble Dollar. Here is one piece of advice from his site:
“SAVE SOME FOR YOUR FUTURE SELF. Looking to lose weight? At restaurants, transfer half your serving to a second plate and ask the waiter to box it up. If the food will make good leftovers, it’s easy to do, because you know you’ll have a treat tomorrow. Want to save more? Think about it the same way—and set aside some of today’s spending money for tomorrow.”
If you are wondering how much to save for your future self, here are a few ways to figure that out.
To start, you have to figure out your gross (pre-tax) income. Include every dollar you get, even the non-taxable allowances. If you’re not sure exactly, take your best guess.
The Minimum
In my opinion, the absolute bare minimum you need to save for retirement is 10% of your gross income. You can include all of your employee contributions in this, like the DoD match in the Blended Retirement System. This doesn’t have to all be your money.
That said, 10% is the minimum. You’ll likely work into your 60s unless you stay in long enough to have a pension.
The Most Common Recommendation
Most commonly people recommend you save 12-15% of your gross income for retirement. If you read this article from Vanguard about how much to save, you’ll see:
If retirement is decades away, setting a specific goal amount is probably unnecessary. For now, focus on:
1. Immediately saving at least enough to get the full match offered by your employer plan, if you have one. This is free money—don’t let it pass you by.
2. Working your way up to 12%–15% of your pay, including any employer match. For example, you could increase your savings rate 1% every year until you reach your target rate. This should get you in the ballpark of what you’ll need.
The Early Retirement Recommendation
If you want to achieve financial independence or have the option of retiring early, you probably need to save more than 15%. Mr. Money Mustache’s amazing post about the shockingly simple match of early retirement has this table that shows you how long you’ll need to work based on your savings rate:
The Bottom Line
Start with your gross pay. You need to save a minimum of 10% of that, but you should try to save at least 15%. If you want to achieve financial independence and have the option to retire early or go to part-time work, you need to save more than 15%. I’d recommend 20% or more. I’ve done 30% my whole career.
If you want out help saving for retirement, start here where we discuss it in more depth.
The Basics of Saving for Retirement
Here is a review of the basic principles of investing for retirement:
- Start saving as early as possible because to get rich slowly you need to take advantage of compound interest. Albert Einstein (might have) said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t pays it.” Compound interest is earning an investment return not just on your initial investment or principle, but also on your previous return. In other words, if you invest $1,000 and earn a 10% return yearly, after the first year you’ll have $1,100. The second year you’ll earn 10% on your initial $1,000, but also on the $100 you earned during the first year, leaving you with $110 of earnings during the second year instead of $100 like the first year. Over a long period of time, this phenomenon greatly increases the amount of money you can accumulate with your investments. Because of this, time spent in the market is much more important than trying to time the market by buying and selling at the right times. The long-term return of the stock market is approximately 9.5% per year. Adjusting for 3% inflation, $1 invested grows to: (Ref: Bogle)
- $1.88 in 10 years
- $3.52 in 20 years
- $6.61 in 30 years
- $12.42 in 40 years
- $23.31 in 50 years
- If you find it difficult to save, set up an automatic investment plan so that the money is automatically removed from your pay and you never get a chance to spend it.
- Investment costs and taxes matter in the long run and will never end; therefore both must be minimized as much as possible. You can minimize both by investing in low-cost stock and bond index funds and maximizing your contributions to tax-preferred retirement accounts.
- Long-term investment in the stock market is the surest way to make your investment grow over time and beat inflation. By owning stocks you own businesses, and the long-term return of these businesses is what will increase your investments and net worth. Trading stocks is not the goal…owning them is.
- As you progress toward retirement, you will decrease your investment risk by decreasing the amount you invest in stocks and increasing the amount you invest in bonds.
- The optimal allocation of investments depends on your age, financial situation, risk tolerance, and how soon you will need to utilize the investment. If you are young, you have longer to ride out the inevitable market swings. The more financially secure you are, the better you can deal with the swings as well. Your asset allocation should also reflect the amount of risk tolerance you have. My opinion is that early in your career you should take as much risk as you can tolerate. If you can’t sleep at night because you are worried about your investments, it is time to dial down the risk, but you should take as much risk as you can up to that point. More risk yields a higher return over the long-term.
- You should utilize dollar cost averaging to decrease your investment risk. Dollar cost averaging is when you purchase the same dollar amount of investments periodically over a long period of time. It provides time diversification, ensuring that you don’t buy all of your investment during a time of temporarily inflated prices. In volatile markets that are going up and down, it will actually increase your investment return because it ensures that you purchase less shares when the investment is expensive, and more when it is cheaper.
- The market will go down, and when it does you need to resist the temptation to sell investments or stop investing. The best time to buy an investment is when it is cheap and you can get the best deal. When the market recovers, which it will, you will reap the rewards. Focus on the long-term and just keep investing.
- Every time you get a raise, bonus, or income tax refund, use it to increase the amount you invest for retirement. You should save at least 15% of your gross or pre-tax income for retirement, but if you want to be rich or retire early you’ll need to save 20-30%.
- How much money will you need to retire? Most retirement planners state that you’ll need approximately 70% of your pre-retirement income to maintain your current standard of living once you retire. This number, though, is heavily dependent on what you consider to be a “good retirement” and what type of a lifestyle you intend to lead. For example, since I save 30% of my gross income for retirement, I’m already living on only 70%, so I highly doubt I’ll need that much when I retire. If you are frugal and pay off your mortgage, you may find that you need as low as 25% of your pre-retirement income to retire comfortably. You won’t be staying in the Ritz Carlton, but there’s nothing wrong with the Hampton Inn.
- There is a lot of uncertainty in life, but the 4% rule is a nice rule of thumb to use when assessing how much money you’ll need to accumulate before you can retire. The 4% rules says that you can take 4% from your retirement savings annually, adjust for inflation each year, and never run out of money. The devil is in the details, but use the 4% rule and assume that you can get approximately $40,000 per year of retirement income from every $1 million you have saved.
- Saving for retirement is your top savings priority, even over funding the college education of your children. You can borrow money to pay for college, but you can’t borrow money to retire.
- You must maximize your contributions to tax-preferred retirement accounts, such as 401(k), 403(b), Simplified Employee Pensions (SEPs), or Individual Retirement Accounts (IRAs) every year. The tax benefits of these plans are staggering over the long-term: (Ref: Malkiel and Ellis)
- If you invest $5,000 per year over 45 years and earn an 8% return with no taxes paid until withdrawal during retirement, you will have a final portfolio value of over $2 million. If you pay 28% taxes at withdrawal, you’d have almost $1.5 million.
- The same savings without the benefit of tax deferral will top out at about $750,000.
- If you work as an independent contractor you have more options than a physician who works as an employee, so hire an experienced tax or health care attorney, accountant, or fee-only financial planner to set up the best options for retirement investments if you are uncomfortable doing this on your own. It is probably going to be easy, though, and you just need to open of a solo/individual 401k with an investment company.
- NEVER use retirement savings for anything other than retirement unless it is absolutely unavoidable. Again…you can’t borrow money for retirement.
References
Bogle, John C. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. Hoboken: John Wiley & Sons, Inc., 2007.
Malkiel, Burton and Charles Ellis. The Elements of Investing: Easy Lessons for Every Investor. Hoboken: John Wiley & Sons, Inc., 2013.
Throwback Thursday Classic Post – A Simple and Military Specific Summary of How to Save for Retirement
I’m a huge fam of Jim Lange. He’s a noted expert in financial management, saving for retirement, and estate planning. He’s written a number of books
He sends out a monthly newsletter that I get via snail mail, and it usually has a useful article in it. If you want it, you can get it here.
A previous edition had a section called “Jim’s Point-by-Point Summary of the Whole Retirement & Estate Planning Process.” It was simple but extremely useful. Below in bold are each of the points he lists for people who are still working, which is most of my readership. Let’s take each bolded point and militarize it for you so it is specific to those of us in the military.
Contribute at least the amount to your retirement plan that your employer is willing to match or partially match.
For those under the legacy retirement plan, this is not an option. For those under the new Blended Retirement System (BRS), you need to contribute 5% of your basic pay to the Thrift Savings Plan (TSP) to get the pull 5% DoD match:
You also need to make sure you contribute 5% every month and don’t fill the TSP too early. If you max it out in October, you won’t get a match in November or December.
If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match.
This is $19,500 in 2021. You can do an extra $6,500 if you are 50 or over. You can even do more if you are in a combat zone.
Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it.
If you are able to fill your TSP account, next you’ll need to open an IRA at an investment firm. Vanguard is the obvious choice due to their across the board low investment fees and unique non-profit structure, but you can do this anywhere (Schwab, Fidelity, etc.).
If you make too much to contribute to a Roth IRA, you just use the back door Roth IRA option.
Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
With a traditional plan, you take a tax deduction now and pay taxes later when you take the money out. With a Roth plan you pay the taxes now and the withdrawals are completely tax free.
The general principle is that if you are in a lower tax bracket now than when you are retired, you do the Roth. If you are in a higher tax bracket now, you use the traditional.
No one really knows what the future holds, though, making this decision tough. Here are some resources for you to check out when making this decision:
Traditional and Roth TSP Contributions
Roth vs. Traditional IRAs: A Comparison
Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
While the TSP allows loans, I refuse to link to any information about it. Once you put money away for retirement, you don’t borrow from it unless it is an ABSOLUTE EMERGENCY.
Period.
The Bottom Line
Here are the point-by-point summary of steps Jim Lange suggests you take if you are saving for retirement:
- Contribute at least the amount to your retirement plan that your employer is willing to match or partially match, which is 5% of basic pay in the BRS.
- If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match, which is $19,500 in the TSP ($26,000 if you’re 50+).
- Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it. Use a back door Roth IRA if you need to.
- Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
- Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
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