How a US Foreign Service Officer Can Retire at 50

via dipsplode:

The Perks of Being a Wallflower FSO

So, FedFIRE? Well, if you’re a federal employee, there are a couple of ways to retire early, and plenty of routes to financial independence, but I happen to be in the unusual (in a good way) position of being able to retire as early as 50 under the Foreign Service (Dept. of State, if unclear).

This special retirement provision applies to State, federal law enforcement, and I think a few other random federal jobs (maybe nuclear inspectors…I’ve never been able to get a clear answer). If you have 20+ years of service andyou’re 50, you can retire with a “pension” of 1.7% times your years of service. The actual value of your pension is based off the average of your three highest annual salaries. For each year worked after 20 years, you only get an additional 1% (not 1.7%). You can also draw down your TSP / 401k with no penalty. This is basically known as FERS Special (or Special FERS, if you nasty).

To keep the numbers simple, if someone with an average high-3 salary of $100,000 retired exactly at 50 with exactly 20 years of service, they’d get (1.7 x 20) 34% of $100,000 — $34,000 a year, paid out monthly. To further clarify, if you worked 21 years, you get 35%, not 35.7%. The government does provide COLA (cost of living adjustments)…most of the time, and there is a formula they use to keep it in line with (but technically less than) inflation.

Additionally, because you can retire early, you also get supplemental payments to make up for Social Security eligibility until age 62 (this supplement gets diminished / goes away if you earn wages in excess of about $15,000, so careful with that side-hustle, I guess). The supplement is calculated by taking your years of service divided by 40 times your estimated minimum social security payment. At 50 years, this would be in the $1000-$1300 range for most people. So, without saving a dime, the hypothetical $100,000 foreign service officer can pull down $46,000 a year. To be clear, we are fully eligible for social security from the minimum age onward, so that income would technically increase even if taken immediately at 62.

Now we have the other leg, TSP…the government’s 401k. Most government agencies match up to 5%, and with 20 years of service, it’s entirely reasonable (at full IRS limits) to put away $400,000, assuming minimal to no growth. A 4% SWR gives you about $1300 a month, or $15,500 a year.

So, boom, over $61,000 of income a year.

Then there’s healthcare…which you get to keep after retirement, and the government still pays their share. I considered this to be the key element of my retirement, as it diminishes an otherwise significant expense. Finally, you also can maintain your life / disability insurance at a discount (though most reduce the coverage).

Oh, and by the way, my wife gets the same benefits (humble brag).

So, boom x 2, over $122,000 per year, assuming we both only make $100k as our high-3 salaries (we actually have made more due to occasional warzone compensation and such), and our TSP accounts have been doing much better. Pretty darned sweet.

Fallout 3: The Realities of Living in the DC Wasteland

It is not all wine and roses (well, there always wine…and liquor, and beer), but not all roses, at least.

When I started in the federal government, and not as an FSO, my salary was about $28,000…GS-07 in the early 2000s, for those wondering. I worked my way up in my career and made some not-great financial decisions like taking on too much student debt, and buying a condo/townhome at the absolute height of the market pre-housing crisis — an ARM too.

Additionally, and this pains me to this day…I was advised by my HR in my first government job to cash out my TSP because I was going back to grad school and I only had a couple thousand in the account. Boo!

Even so, my career hasn’t been $100k+ a year since day one, but a steady slog of promotions, cost-of-living adjustments, and time-in-grade increases. I haven’t been able to contribute the IRS max to my TSP for my entire career, though I have taken advantage of max employer matching since entering federal service.

Both my wife and I had student loans, and they are now paid off in our early 40s.

We still own our underwater condo/townhome, though we are renting it out. Within six months of buying the property, we were almost $100k underwater. This has never recovered, and the neighborhood has gone downhill due to multiple foreclosures and short-sales over the past decade. We have taken a loss on this property, rent-wise, every time we rented it out while overseas (though only a couple hundred a month, so 90%+ of the mortgage was covered. This isn’t so dire, because while overseas, your housing in the host country is paid for, so it was kind of like maintaining a $200 mortgage for X number of years. We intend to sell the townhome next summer once our tenants’ lease is up, likely at a break-even point.

From a real estate perspective, this property has kicked our butts, as the ARM was okay for a few years, but now with rising rates, the rental loss is going up every year, especially as HOA fees have risen with no improvement in services. Contrary to what many claim, it is entirely possible to not “win” in real estate in Northern Virginia (and no, I’m not discounting the reality of the ARM or the housing crisis). I would not have predicted the neighborhood we were in to turn to low-income in less than five years, but it did. To be clear, the neighborhood is still perfectly safe, as ethnically diverse as it ever was, but the schools went downhill due to the tax base, and the property values never recovered post-crash. We have a secondary e-fund set up to cover paying the mortgage for up to a year, in the event it doesn’t sell in the first few months. By that point, we might consider refinancing (assuming we have enough equity to satisfy investment property re-fi requirements), and renting it out again (though I reallyloathe being a landlord).

Living in the DC region as a whole is expensive and difficult…groceries, commutes, high cost of living for everything else. This isn’t uncommon for any metro area, but it’s a constant reminder of what we’re missing overseas. We made a decision to move farther out into Loudoun County and bought a second giant house (cliche), but now we have a kid, and we expect to be a multi-generational family, with (hopefully) grandparents moving in very soon. We want this for the kid, and difference in mortgage between our crappy townhome and the new place is only $900, but a difference of 1200 to 4200 sq ft (I imagine some people choking at this on this sub!). We also moved strategically within a few miles of the future Ashburn and Dulles metro stations, but for now the commutes are an hour-plus via bus. That said, our property values have increased by 10%+ over the past year, and the metro won’t even be here for two years or so, so we’re doing waaay better than our last attempt at real estate (and to be honest, if it never went up, I’d still be totally cool with that).

We would like to go overseas at least one more time, though the realities of grandparents in their late 60s / early 70s and a kindergarten-aged child mean we need to be very strategic about that. We took the kid with us to our last post in Brussels, but they don’t remember any of it, as they were 1.5 to 4.5 during that time frame (the kid spoke French first, but doesn’t remember a word now that we’ve been back for a year).

Regardless, we have planned for the “worst” case (really not that bad, just not ideal) of continuing to live and work in the DC-region until retirement eligibility as early as 7 years from now.

What RE means to ME

Okay, so here’s some real numbers…

We are 42 and 43.

Kid is 5.

Our expenses are $90k a year. (Shock! Horror!) This includes a rental property (and associated expenses) losing us money and childcare (technically also losing us money…darned unemployed 5 year old!), which is about 18% of that total. Both of these expenses will go away before retirement.

Our only liabilities are a $500k mortgage (new house) and the remaining $250k mortgage on old townhome. That seems like a lot of money, but not really for NoVA. We got rid of student loans, cars are paid off, and have no credit card debt.

We have about $600k in our TSP. Assuming literally no growth, just base contributions, we will have $900k by the earlier eligible retirement date.

We have about $100k in stock investments. We contribute about $10k a year to that, so, again, assuming no growth, about $170k by minimum retirement. I view this as the kid’s college fund, assuming they want to go to college, or college exists in its current form.

Running out the retirement benefits, our pensions alone will cover 90% of our current expenses. The social security “supplement” will cover the rest with room to spare. This ignores drawing down on the TSP funds.

Our annual pre-tax income would be about $140,000. After taxes (effectively in the high teens, likely), probably about $118,000. That leaves us with about $2300 of “whatever” money per month. This is all based on current salary, no expectation of real retirement fund growth, and the assumption of our current expenses of $90k.

Man Plans and Spouse Laughs

“You want to retire at fifty? You’re crazy. The kid will be 13! What will you do? We can’t afford that!”

Technically, in the government, there’s no real “FU” money point. I mean, even if I had a significant windfall (let’s say $1 million, though I have no wealthy relatives), I would not give up my pension or health care. I will work until at least 50…I kind of want to, so I have that going for me. That said, I’m technically eligible to retire beforethen, I just wouldn’t be able to collect a pension or anything until 50.

I am in the slow and steady process of convincing my wife that the numbers associated with our finances are, you know, real. She handles the budget (daily expenses), but I handle the big picture / retirement. Other than an actual 4% SWR, my numbers are crazy conservative. I assume no gains in any of our current accounts. I’m not Warren Buffett (or Jimmy, for that matter), but even if all our money was just in the G Fund under the TSP, we’d be guaranteed bond-level rates of returns. In reality, the bulk of our money is in the C, S, and I Funds (Large Cap, Small Cap, and International stocks).

My plans include leaving NoVA, possibly to the Carolinas, Georgia, or Florida near (but not on) the beach to a single-level, single-family home. I’ve been watching a lot of Island Life on HGTV, and it is probably detrimental… 😉

The going rate for these places right now is anywhere from $200-400k, which seems crazy cheap to me coming from DC area (we’d be able to buy in cash if we wanted). We plan to spend about 90 days (max no-visa required in most countries) a year overseas in short-term rentals, maybe not every year, but close to it in the first decade or so. We’ve traveled a ton, so our vision is basically enjoying the day-to-day life overseas without having the hassle of real ex-pat issues (having worked American Citizen Services, I have no desire for the type of troubles real ex-pats run into).

Random Considerations, Questions, and Miscellania

  • If we retire at 50-ish the kid will still be in middle school / high school. Should we move to warmer climes at that point or stick it out until graduation (could still be retired, just living in crappy NoVA)?
  • We don’t have to retire at 50, but there is max date in FERS Special. There is some flexibility in the event the market goes kablooey (sorry for using technical terms).
  • Retiring before the kid is in college means we can’t sneak her in the back door at State (or not as easily). Passing up a possible “easy” career entry for the kid is significant concern (for me, at least; who knows, the kid may be a libertarian and hate the government / civil society). First world problems, I guess.

EDIT EDIT EDIT There is no backdoor to be an FSO. Did not mean to imply it. There are internal nominations for civil service and internships, though.

  • People talk about “side-hustles”, but I have no freaking clue if there’s something I want to do. I can’t really blog about State stuff, which seems to be the default thing, but I really do need to spend some time thinking about what real retirement would look like.

What Motivates You to Be a Lazy Bum?

Why retire so early, when the life of a diplomat is so totes awesome? It is and it isn’t. My wife and I both had an involuntary “come to Jesus” (the hard way) moment during the metro bombing in Brussels. I had just exited the metro in Arts-Loi and was entering the US Embassy when the bomb went off. My wife was exiting at Schumann. These stops are at either side of the Maelbeek explosion. If I hadn’t skipped a coffee that morning and my wife hadn’t had an appointment at the EU, well…my username is unintentionally ironic.

The thing is, I’ve been shot at in a warzone, been in a pretty bad car accident, was accidentally driven into a minefield (got out safely, though), all with work, but you don’t expect this stuff in the “easy” posts. The things that seemed “part of the job” a few years ago don’t necessarily seem worth it these days. A good friend of mine lost his arm a month ago to infection while serving in Africa. It was from a scratch, not a severe injury. Another colleague of mine was stabbed repeatedly in Latin America for trying to escape an extortionate cab driver. Dead now. A classmate of mine from my early FSO training was assaulted when she decided to come home early from work and walked in on her house being burglarized. She was beat up, but otherwise okay. This isn’t always an easy job, let alone a fun job. We’ve all served places where our lives are literally on the line…and while I can’t avoid “life”, generally speaking, I do feel safer in the US than in Nicaragua, Russia, or, Nigeria.

Less than a decade…that’s the way I see. I’m doing my job (and then some), but the light at the end of the tunnel…that’s in sight.

Thanks for reading. Feel free to ask almost anything. I’m happy to add more depth to whatever I touched on, though I will be a little coy about exactly where I served in some instances (dates, in particular), as you can very quickly dox me like this.

tl;dr: FSO and FSO wife can technically retire at 50.