I’ve had a draft version of this article sitting in my inbox for some time. It never gelled, so I left it alone. However, a blogging friend and mentor of mine, Doug Nordman, recently published an excellent article at his blog The Military Guide entitled “Don’t Buy A Home When You Leave Active Duty“. The article challenged several of my planning assumptions and acted as a catalyst to complete this post.
I consider challenges to my retirement plan a good thing. They force me to re-examine and update it as I gain more knowledge, and as facts on the ground change. As such, this article isn’t so much a riposte to Doug’s article, as it is an acknowledgment of it. It’s a confirmation that Doug’s article contained great points which forced me to re-examine my planning assumptions, but despite the challenge, my plan still passes scrutiny. It’s a healthy, Bayesian inference exercise that everyone should conduct with their plan routinely. Continue reading →
A reader, whom I’ll call Lady J, recently asked me if I could value her future insurance annuity scenarios vs. her current cash-out value. She wanted an annuity valuation done in the same manner as the Pension Lump Sum Case Study I wrote for the Pension Series. The question intrigued me. My initial reaction was, yes, I could. Since a Defined Benefit Pension (DBP) is just another phrase for an annuity; I didn’t think it would prove too hard if she could provide the appropriate details. I told Lady J as much, and she promptly supplied me with details I needed.
Surprisingly, the annuity valuation proved both easier and harder than I initially thought. Easier in the sense that based on the numbers provided by Lady J, my Master Pension Value Calculator spit out an answer to her question in no time. Harder in the sense that once I reviewed the terms of her annuity policy, and the facts surrounding her initial investment, it forced me to ponder numerous “what if’s”. Thus, consider this article in two parts. First, I walk through the facts surrounding Lady J’s situation and the process of annuity valuation. Second, I address a few different issues, both good and bad, I noticed with this annuity. Continue reading →
This article is a follow-up on the lump sum case study I conducted for the ChooseFI listener, Tess, in Part 11 of the Pension Series. If you missed it, that case study also aired as Episode 58R on the ChooseFI Podcast. I mentally debated if I should make this Part 11a considering the links between the two articles. However, given this article’s length, and the alternate pension lump sum analysis method it outlines, I decided it warrants its own part in the series.
I’ll warn you now, this article is another deep dive into the world of pension lump sum offers. It won’t be my last either. Pension lump sum analysis is a rabbit hole. As I pointed out in my previous article, there’s no one correct method. A lot depends on what the pensioner values and the questions they are trying to answer. Proper analysis is also based on the strings attached to either the lump sum or the annuities.
Hello? Can anyone up there hear me? I got stuck down here analyzing my pension lump sum!
Fortunately, as a result of my appearance on ChooseFI 58R, several people reached out to discuss methods of calculating pension value and conducting lump sum analysis. We are currently in the process of compiling a spreadsheet with many of those methods baked in. It’s not quite ready though. So, for now, you have to put up with another wordy pension lump sum analysis from yours truly. Forewarned is forearmed. Continue reading →
This is an updated version to my article originally posted 04 October 2017. This version includes a substantive correction. The previous version of the article failed to accurately describe all the calculations required when comparing a pension with an inflation-linked Cost of Living Adjustment (COLA) to life insurance. I noticed my omission today and reworked the affected paragraphs. I also took the opportunity to clean up some grammar. You will see substantive changes noted in red text. I believe the changes make the comparisons between life insurance and survivorship more competitive.
The incomplete calculations I described in the previous version of my article appeared weighted towards survivorship. That was not my intent. Since the intent of the article changed, and I believe in full disclosure with my readers; I felt this mistake warranted a revision with new publish date.
This is a first for me in the blogging sphere, although in the military we routinely strive for this level of transparency when an official report, memorandum, or instruction contains a major mistake. The primary purpose for issuing a correction is to prevent anyone from acting on erroneous information. It’s also important that the historical record reflect accurate information. I’ve decided to hold myself to the same standard on this blog.
As a result, I advise anyone who read and used the methods described in the previous version of this article to read this update and adjust your calculations accordingly. While I apologize for the inconvenience, and always strive for 100% accuracy in my articles; I would remind everyone I’m not a professional. Nor am I considering your case specifically. No matter how comfortable you are with your retirement numbers and plan; it’s always best to run your them by a professional like a fee-only Certified Financial Planner who adheres to the fiduciary standard. Again my apologies.
KJH, we honor the fallen in the Grumpus Maximus family.
Death Sucks
In late Summer 2003, a member of my unit and one of its seasoned mentors was killed in the early days of the Insurgency in Iraq. We were both part of a tight-knit group of young officers that worked and played hard. While I would not have called him a close friend, many in our group did, and I often sought advice and guidance from him. His death was a blow to everyone in our group and the unit as a whole. Nothing was the same after it. Most of us were not prepared mentally and we all took it personally. Each of us dealt with his death in our own way, and I am sad to say it splintered the group in ways I never could’ve foreseen. Continue reading →
Like what I did there with the title? I created what’s called click bait. Most of the time my titles are boring, other times they are obscure. This time though I created an “action” title to capture readers’ interest in the Gap Number Method, because it gained some recent publicity. That’s about as creative as I get, adding the word “action” in all caps to a title.
How’s that for action? Mrs. Grumpus hiking in Kauai
Yes, I know. You’re wondering how, with only two readers who aren’t related to me, did I gain any publicity? Well, it turns out I have a face built for radio — or podcasting as the case may be. Not so sure about the voice though.
In any case, on a recent (and so far my only) podcast interview on ChooseFI, the hosts asked me to explain my concept of the Gap Number. For those of you who need a refresher on the Gap Number, you can find the post where I coined the term here. In general, the Gap Number is the difference between your fixed income in retirement and your expenses. Expressed mathematically it looks like: Continue reading →
In case you can’t tell from my title, this article is a follow-on to my previous two “Tracking Your Money” posts. In the first article, I reviewed my historical use of various software applications to track my money over the past 20 years or so. In the second, my brother (Grumpus Brotherus the Younger) reviewed the software application called You Need A Budget (YNAB).
If you did not read the first post in this series, you probably should. I don’t just say that because my brother’s post sucked (it did), and I think mine is much better (it was), or I want the extra site traffic (I do). No, I say that because I actually made a few worthwhile points in the post … if I do say so myself. However, if you’re unwilling or unable to go to the post, let me provide you a re-cap. Continue reading →
***This is an updated article. See Post Script at the bottom***
Today’s topic comes from one of my Facebook group followers. I recently solicited my Golden Albatross group on subjects to research and write about, and Mr. Yankee responded with the following question:
Has there been discussion of how to shelter your pension benefits from federal tax? When I retire I expect to receive about $60,000 a year from my pension I’d hate to give a large portion of it back to the government.
I told Mr. Yankee I would look into it since I’d yet to conduct an in-depth analysis of pensions and taxes. It’s a bit premature considering the fact that U.S. tax law is undergoing its first major overhaul since the 1980s. Currently, the House and the Senate are working on reconciling their two different bills into one in order to approve and send to the President for signature. However, my research only shows one proposal in the House bill with the potential to impact this conversation in any meaningful way, and I believe I can address it appropriately. If something radical happens in the reconciliation process, I will simply update this article when the dust settles. Continue reading →
“Exactly What Do You Think Is Happening Here Captain?”
“Fists in the air in the land of hypocrisy.”
Raise your hands if it’s hard to determine where I come down on some of the issues I address in this blog. You’re not alone. I do it on purpose. The way I see it, for some topics, all I can do is describe the problem and provide some options to solve it. The choice is yours as to how to use the information I provide. I was reminded of that this past week as I interacted with several of my Golden Albatross Facebook group members about topics I should include in a money manifesto if I chose to write one for the blog. Continue reading →
Americans abhor failure, or so we’ve been led to believe. I joined the U.S. military in the late 1990s and can remember the Zero Defect Mentality the post-Cold War peace dividend bred into our military leaders. While I would like to think the longest-running armed conflict in U.S. history (Afghanistan), and the most controversial since Viet Nam (Iraq), bled our military leadership dry of the Zero Defect Mentality, I’ve watched it slowly creep back into prominence since 2010.
My current Commanding Officer (CO) is an exception to that trend. He uses a term to describe his willingness to accept failure: Recoverable Training Failure. It essentially means he allows people to learn from their mistakes, as long as those failures are recoverable (i.e. no one died or was seriously injured). He’d rather people fail in a training environment, take the hard lessons learned, apply them, and succeed operationally when it matters most. It’s a combat veteran’s mentality and is a good leadership philosophy in my opinion.
Sister, I killed Colonel Grumpus in the Drawing Room with a lead pipe.
Grumpus The Confessor
I have a confession to make. I put off writing this post for a while. When I first started my blog, I had always intended to demonstrate how to test your retirement plan. I wanted to do this by using a high powered retirement calculator. Doing so would complement what I consider the biggest strength of my website: the series of practical “How To” retirement plan articles in the Planning section. However, I needed to tackle some other topics first. I wanted to walk financially novice readers up to a point where they could understand the subject matter of this article. Yet, I essentially hit that point weeks ago, and still, I delayed.
Part of that delay was due to the complexity of what I intended to describe. It’s hard to write effectively about the steps needed to test your retirement plan. A technically savvy blogger would simply post a video of how to do this, but that is beyond my capability at the moment. As a point of reference, I was happy enough when I figured out how to embed a spreadsheet into this post. Maybe someday I will circle back and create a video once I obtain the skills, and find the time. Continue reading →
