The Request

A few months ago a military member from a mid-career service school approached me through my blog with a request. He’s an instructor, so let’s call him Professor X. One of Professor X’s topics is personal finance as it relates to effective management of one’s career. He’d read my blog and believed several of my articles were appropriate material for his students. As a result, he asked me to speak via video to his class. After we exchanged a few emails on proposed topics, legal conflicts of interest, and technical hurdles; I agreed to appear in uniform as a military member, smart in the ways of finance, but without mention of my blog.

With this scheduled event now only a few days away, I thought it prudent to script my remarks. I also thought it would be worth turning those remarks into a blog post. Since Professor X’s request forced me to distill numerous blog posts into one coherent speech about my financial philosophy, I figured some of my readers might find it useful. As a result, this post doesn’t cover any new territory. It simply synthesizes a lot of what I’ve written previously in one place. Who knows? If I ever write a book, this article might form a good basis for the first chapter.

Terms and Conditions Apply

Before we get to my scripted remarks, let’s discuss the left and right boundaries Professor X and I set for this engagement. Like I said above, it took a few emails narrow down the topics. Professor X’s initial thoughts included this quote (sanitized to protect the innocent of course):

“In terms of what to discuss, I know I sound like I’m blowing smoke, but I truly believe that you could present on any of your topics, and the class would get something very important out of it … The things you discuss in your blog are all relevant to our students who will be facing the “10 years till retirement decision” once they finish this [course].”

My gut reaction was to tell Professor X to blow as much smoke as he wanted. Not only does it inflate my fragile ego, but it also feels good! In reality, though, I asked him for some specifics, and below is what I got in return:

“I would recommend starting with explaining the Golden Albatross FI decision tree (with an explanation of the importance of a “Gap Number”). It creates a really good foundation for people to put their decision points in perspective. By extension, it might be helpful to cover TDV [Total Dollar Value] of the pension and healthcare; compared to jettisoning from this family-unfriendly lifestyle … and what the opportunity cost would be (yes, I realize I just rolled up about four separate blog posts into one long run-on sentence, but they all seem to be the critical components of the math to make an educated decision).”

Professor X’s request looked reasonable to me, so I wrote him back and told him so. The remainder of this article is what I developed. While I already showed it to Professor X, I’ve yet to deliver it to his class. I’m curious as to how my comments will go down. While my readers are a sympathetic audience, these students aren’t necessarily. I’ve no idea how they will react, and obviously no idea if any are receptive to what I have to say. It may prove an interesting experiment.

Stick to the Script

Good Afternoon everyone. I’m (insert GM’s name and rank here) I’d like to thank (insert Professor X’s name and rank here) for providing the chance to speak with you today. It’s my understanding that after the Active Duty Service Obligation (ADSO) you incur through attendance at this course, that many of you will reach the ten-year mark in your career. As with numerous active duty career fields, the ten-year mark represents a major decision point — not only from a professional but also a financial standpoint. Thus, I hope certain parts of my story resonate enough to assist each of you when you hit that career milestone.

You may be wondering why I am speaking today on this topic? The answer is in my story. I’ll warn you up front, you may find parts of what I’m about to say upsetting. I’ve purposely chosen not to gloss over troublesome events because I want this story to stick. So much so, that each of you walks away determined to plan better, or at least set yourself up for better choices than I did.

Hit ‘Em Hard

I sit before you almost two years (to the day) after I suffered a mental breakdown. In the Spring of 2016, I was diagnosed with mixed depressive-anxiety disorder due to Post-Traumatic Stress (PTS). The primary cause of my PTS was a decision I made in December 2012 to deploy to Afghanistan … a week after my wife miscarried our second pregnancy. As events unfolded, I was afforded the choice to skip the deployment. At the time though, I believed I owed it to the person I was relieving to deploy. I also felt compelled to go for the good of my career and the long-term financial stability of my family. Without the deployment, my next promotion was questionable. Failing to promote would have subjected me to the risk of a Continuation Board.

To put this story in full context, my breakdown didn’t go without warning signs or some sort of build up. By October 2009 I was susceptible to future traumatic events due to the fact that I was almost killed on a deployed mission. I chose to ignore the now obvious side effects that resulted from that close call. Looking further back in my career, that susceptibility may have begun as early as mid-2003 when a co-worker, friend, and mentor of mine was killed in the nascent stages of the insurgency in Iraq. Not only did I choose to ignore the potential impact of these events on my mental health, but I failed to heed the personal doubts that started to develop about my calling and chosen profession.

It’s important to note that at this point in my career I hadn’t educated myself financially. As a result, I didn’t understand my alternative financial or career choices. Strangely, my family’s financial situation at the time was healthy enough to absorb the impact of those alternative choices; I was simply ignorant of the options. In hindsight that elective ignorance appears costly. It took a few years for the PTS to finally manifest, but manifest it did. By Spring 2016 my deployment decision had cost me a good bit of my health and happiness.

The Financial Problem

Ironically, I’ve always been a good saver. Once married, despite a few hiccups, my wife and I both became good savers. However, there’s a difference between simply saving, and saving with a purpose. As with many financial decisions in my life up, my decision to save wasn’t something intentional. Saving money was something I simply believed people were supposed to do. Like buying a house, or paying cash for a car; saving seemed like the responsible thing that adults do.

Beyond saving though, I never took the time to educate myself on what my money could do for me or my family. I always assumed I would serve 20 plus years, earn a pension, retire from the military, and then find some sort of second career to see my family through to proper retirement age (i.e. 65). Thus, investing my money for maximum effect never entered my thought pattern. The idea that I may need it if I reached a point where I no longer wished to serve never occurred. As already stated, that willful financial ignorance played heavily into my decision to deploy to Afghanistan in December 2012.

Golden Albatross Explained … Again

I’ve appropriated a term from the internet for the inflection point that many people who work in pensionable career fields inevitably hit. It’s the point where they must decide if pressing onward to their pension is actually worth it, and it’s called the Golden Albatross. That term represents both the blessing and the curse that is a Defined Benefit Pension (DBP). Like the albatross around the neck of the Ancient Mariner, the sacrifice and determination that a pensionable career often requires can weigh heavy. So heavy in fact, that people may develop serious mental or physical health issues as they toil on towards completion. It’s not always like that, but it certainly happens to some.

On the other hand, the security in retirement that a DBP represents is hard to walk away from … even when the career causes mental or physical pain and suffering. Certainly, some pensions are worth more than others. That calculus depends on numerous factors I won’t bother to explain here but is easy enough to research online. For those of us in the U.S. military, the iron clad safety provided by a federal pension makes it hard to turn down after a certain number of years of service. Thus, the golden aspect of the albatross metaphor.

Golden Albatross inflection points differ from person to person depending on the circumstances. For some unfortunate percentage who fail to save and invest; there will be no choice — they must continue until pension eligible. Even then, a second career may not be enough to save them from their continued bad financial decisions. Others find that no amount of monetary compensation is worth the continued cost of work in their current field. Thus, they look for other options and make their move at the appropriate time … or when they can’t take it anymore. For yet another percentage, working until pensionable age is not only easy but all they ever want to do. A large percentage of the rest probably fall somewhere in the middle — happy to do the job (or in our case serve) until they no longer enjoy it.

Unfortunately for me, I blew through my real Golden Albatross moment at 13 years of service in December 2012 without realization. How could I? Since I always assumed I was in the military for the long haul, the term Golden Albatross, let alone the concept, wasn’t even in my vocabulary. There was no thought of finishing out in the reserves or looking for a civilian career. My misplaced belief that my savings didn’t allow me to face a continuation board without fear for my family’s future financial stability, virtually guaranteed I would deploy.

On the Way Down

Acting out of financial ignorance and fear doesn’t typically end well, and it certainly didn’t for me. By the time I broke down mentally in 2016 (17 years into my career), there was no real Golden Albatross decision to make. Even though I wanted to leave, I felt compelled to stay for the pension. When I ran the numbers on the Department of Defense’s retirement calculator page and saw how much I would lose if I resigned, it sealed the deal. The sum was literally in the tens of millions of dollars in future pension payments.

Therefore, my decision was not if my pension was worth it, but how to maintain my sanity while I stuck it out three more years. It was truly horrible, and mercenary, feeling. I hadn’t joined the military for the pension. I joined because I wanted to serve and give something back. However, in the end, I stayed … for the money.

Discovery of FI

Fortunately, all was not lost. Two years prior to my breakdown, I had started a personal finance journey — possibly spurred by a subconscious brain that knew all was not well. Thus, only months after my breakdown, be it through serendipity or divine intervention, I discovered the concept of Financial Independence (FI) as well as the Financially Independent Retired Early (FIRE) movement. For the uninitiated, Wikipedia states that:

Financial independence means you have enough wealth to live on without working. Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses.

FIRE is simply the term for the people who follow through with retirement from “a real job” after achieving FI. While some choose to never work again, many others choose to do something they love without consideration for the need to generate money. That may include volunteer work, blogging, arts, or any number of passion projects made possible by the end of a W2 career.

Some of you may be skeptical and believe it takes millions of dollars for a person to achieve FI. I can understand the skepticism because I was skeptical too until I did the research and the math. The key to FI is in the definition, and it’s the term “at least equal to their expenses”. Every person or family spends a certain amount of money to live a happy life based on their values and judgment of wants versus needs. For some, that may be $40,000. For others, it may be $400,000. It’s different for everybody but the lower a person or family can make that number, the fewer assets they need to accumulate in order to generate the cash flow required to cover the expenses.

Now, in what I call the “mainstream” FI movement there’s typically a combination of two ways to achieve FI — frugality and the accumulation of assets. Some choose to emphasize one path over the other, possibly to the extreme. Yet most people find some sort of happy middle ground that works for them. That may include a medium-sized investment portfolio and a modest lifestyle. Or it may include a rental real estate empire and an upper-class lifestyle in a high cost of living area. Honestly, the interplay between the types of assets accumulated, versus the management of expenses, in order to achieve FI, are almost endless.

A Brief History of Pensions

However, I’m here to tell you there’s a third way for the pensioner. In fact, it used to be the primary way people achieved FI. Prior to the 1980s in the U.S., a company or government Defined Benefit Pension (DBP) was potentially all a person or family needed for retirement. Certainly, a DBP in conjunction with social security and a moderate amount of savings in a high-interest savings account saw millions of people across the FI goal line by retirement age.

Times have changed though. The Defined Benefit Pension is an anachronism. They are only found in a few hold-out industries which are typically unionized, or government work at the Federal, State, and Local level. The primary reason for the decline of DBPs is their expense. In a day and age when people are living longer, paying them to not work from their voluntary, or mandatory, retirement age until death incurs a future cost that most companies and many governments cannot afford. Couple the exploding costs of healthcare to a pension, and the expense grows even faster.

These factors drove the transition from DBPs to the Defined Contribution (DC) system in the U.S. in the 1980s and 1990s. That trend continues to this day. For those that don’t know, a DC system is typically based around a 401K, or some other tax-deferred savings/investment vehicle sponsored by an employer.

The rise of the DC system for retirement represents a transfer of risk — specifically the risk of running out of money in the future — from the large organization to the individual. On the other hand, the upside of DC plans includes their transferability. This allows workers to take the value of the DC plan with them whenever they change employers. As a result, Golden Albatross moments are almost non-existent for the majority of U.S. workers these days. If they decide they don’t like their current job, they can simply switch jobs without agonizing over it and take their retirement money with them.

The Gap Number

As already mentioned, only a few industries, companies, or governments currently provide pensions. The hold-out career fields often require some sort of sacrifice; be it potential life and limb, or forgone earnings due to government pay scales, or both. On one hand, pensions can be viewed as an expensive tool that entices workers to stay in a job when it may not be in their best interest to do so. However, looked at differently, they are also a tool that provides a serious boost to anyone looking to achieve either FI or FIRE. This certainly includes those of us in the U.S. military who make it to a pensionable age.

In personal finance terms, a pension typically provides an “income floor” which a retiree will (hopefully) never fall below. The more of their mandatory and discretionary expenses a retiree can cover with their pension, the less income they require from their other accumulated assets. This, in turn, translates to a smaller total nest egg required for retirement. In other words, the smaller a person can make this “gap” between their projected retirement expenses and fixed-income, the more easily they can achieve FI. Ideally, a pension would cover all mandatory and discretionary expenses to include healthcare. However, that’s no guarantee these days. Certainly, though, the goal for future pensioners seeking FI should be to make their “Gap Number” as small as possible.

FIRE in My Belly

As I struggled to recover from my mental breakdown in mid-to-late 2016, I started educating myself with as many FI related books and blogs that I could read. Then I started to make some calculations. With the assistance of 16 years worth of spending data stored in my preferred money tracking program; I ran my projected retirement expenses including the benefits of a DoD retirement with its subsidized healthcare. In doing so, I had an epiphany. I realized that with a few adjustments to our savings, and a sound retirement plan, that FIRE was a real possibility for me and my family. More importantly, it was obtainable with as few as 21 years of service.

I can honestly say that my FIRE realization did more to alleviate my PTS linked anxiety than any amount of therapy I’d undergone up to that point. It didn’t solve the depression, but it still transformed my mental state for the better. The simple realization that in four short years I could move beyond the need to ever work for money again nearly made the deployment and its aftermath worth it … nearly. Although not totally healed, I am certainly in a much better mental state today than I was two years ago. A big reason for that is my FI and personal finance realization.

Speaking of personal finance, it’s important to note that all the saving over the years, while not directed towards anything specific, helped tremendously when it came time to make my retirement calculations work. More importantly, through deliberate financial planning, my family’s efforts to save money in the future has a clear purpose. It’s not as if we “sacrifice” all that much either. My two children want for nothing, although we certainly don’t spoil them with material possessions. We rent a nice house in a nice neighborhood, and we travel whenever we want. Yet, we still net a 25% savings rate, just as we’ve done for many years.

My Financial Tools

All this talk of personal finance reminds me of the three financial tools I intend to leave with you today. The first is my list of seven financial guidelines. The guidelines are:

1. Track your money
2. Don’t spend more than you earn
3. Save a significant amount of what you earn
4. Eliminate debt
5. Purposefully educate yourself on personal finance
6. Deliberately plan for your financial future
7. Invest

The list is nothing groundbreaking or new. It’s mostly just financial common sense. However, it’s the type of common sense I wish someone had pounded into my skull much earlier in my career. I purposely call them guidelines as a nod to the Pirates of the Caribbean joke about rules vs. guidelines. Other than the first guideline, I’m not even convinced of what order they should flow. You could easily employ several of them concurrently.

Yes, the guidelines are vague for a reason. Take “invest” as an example. Notice I don’t tell you what to invest in. That’s a personal decision which requires (some) education on your part. Several of you may choose low-cost index funds, while others might choose real estate. Others still may prefer picking individual stocks or bonds. There is no one size fits all process. Instead, I simply advise that you consider the guidelines and apply them appropriately to fit your life and career.

The other two financial tools I leave with you are a pair of decisions trees built around the idea of the Golden Albatross moment. I designed the first decision tree to assist people with answering the “Is the pension worth it?” question. I designed the other decision tree to assist people if they decide “yes” to the first question. Like the guidelines, these decision trees are based on financial common sense. I’d be happy to take any questions you may have on these tools.

Unicorns and Rainbows

With all that said, my parting thought for you is this: despite everything I’ve discussed today, I remain extremely grateful for the opportunity to serve. Military service was my dream since the age of six. I never wanted to do anything else. Yet, as happens in life, my priorities changed over time. The need to serve gave way to a need to be there for my family. Unfortunately for me, I never prepared properly for that change. I compounded that mistake by ignoring my mounting mental health issues. As a result, everything crashed down on me at once.

That mental crash was my fault. It remains my burden to bear, but it doesn’t have to be yours. My hope is that none of you need to put any of this “be prepared just in case” financial advice to use. I’d rather you serve 20 or more blissful years, get out with nothing but great memories, a better pension, a fat bank account, and the option to do anything you want with the rest of your life. I hope that one day you can joke with your classmates about that crazy officer who tried to scare all of you with his personal finance horror story.

However, I regret to inform you that most military careers don’t end with unicorns and rainbows; which is why I urge each of you to plan now in case your experience starts to sour. Give yourself options, even if you never intend to use them. Consider alternative paths and plan financial goals in order to make them viable. That way you will never find yourself stuck in the belief that you have no options like I did.