Air Force husband and wife retire at age 40 and 44-Interesting Article

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Retired at 40

The Nielsens planned to retire early from the day they got married. Now they've actually done it - and just might be able to make it stick.

By Donna Rosato, Money Magazine senior writer
January 25 2008: 10:47 AM EST




The Nielsens have plenty of time for family - like sitting down to a breakfast home-cooked by dad...
...or twirling around the ice skating rink.

(Money Magazine) -- Eighteen months ago, Todd Nielsen was stationed at Balad Air Base in Iraq, 55 miles north of Baghdad. It was Nielsen's second tour at Balad, where he was fire chief, putting out blazes amid the daily attacks on the base. But the worst part of his deployment wasn't the mortar fire around him or the sandstorms or the boredom at night. For Todd it was knowing how much his wife Julie, a master sergeant stationed at an Air Force base north of London, and their three children - Kayla, Colin and Annika - worried about him.
They're not worried anymore. Last July, after more than 20 years of service - a period in which the family moved 15 times, lived in four countries and endured three deployments - Todd, 44, and Julie, 40, retired from the Air Force. Now they live in a four-bedroom house on a quiet cul-de-sac outside St. Louis, exulting in the ordinariness of their life.
Every morning Todd cooks a hot breakfast for the kids before school. He and Julie are there to greet Annika, 9, when she dashes off the school bus every afternoon. They can attend all of 11-year-old Colin's soccer games, and Julie has time to make hair ribbons for 13-year-old Kayla's middle school cheerleading team. The couple's biggest stress these days? Helping the kids get through the mountain of homework they have each night.
What's unusual about the Nielsens' life these days isn't their decision to leave the Air Force to create a more stable life for their family. It's common for people in the military to retire after 20 years, when they become eligible for a pension and lifetime medical benefits. But usually those ex-military people go on to jobs in the private sector. Todd and Julie, on the other hand, don't plan to work again. Ever.
Can you retire early too?
For most families, quitting work for good in your forties, especially if you have three children bound for college in a few years, is the stuff of sheer fantasy. But for Todd and Julie, it is the fruition of a long-term plan made possible by two decades of frugal living and serious saving.
"When we tell people we're retired, we get one of two looks," says Todd. "First is the 'Oh sure, you'll be bored in a few weeks' look. The other is almost disdain, as if it's irresponsible of us to retire this young and we won't take care of our kids properly."
The Nielsens are out to prove the naysayers wrong. But they do face some serious financial challenges to their goal. Since they left the military, their income has dropped by more than half, from $127,000 a year to just $58,500, so they have to watch every penny - they don't buy much beyond the necessities and whatever they do buy is always on sale. Another concern: They don't have any money earmarked for college for their kids.
True, while they were in the military they managed to save an impressive $400,000 for retirement, which is far more than most couples their age have. But that nest egg has to last them 40 or 50 years. "I know we have all this money, but sometimes I still feel broke," says Julie. "We're still clipping coupons, and I worry whether our savings will last."
A rocky start
Todd and Julie are keenly aware that financial security can be an ephemeral thing. Both were raised in middle-class families - Todd in Minnesota, Julie in California - but saw their standard of living drop dramatically after their parents divorced when they were teenagers.
When Todd's parents separated, his mom had to go to work for the first time in her life and money was tight. Todd recalls being so hungry he would wait in the driveway on the day his mother got paid and went grocery shopping. When he was 16 he got a job in an Italian restaurant so he could eat meals for free. After high school Todd went to college in Corpus Christi, studying criminal justice for two years. He worked in an auto-parts store to pay for tuition, food and rent but still struggled to cover his expenses. At 20 he withdrew from school and enlisted in the Air Force.
Life was also more difficult for Julie after her parents divorced. Though she and her siblings never went hungry, they moved from a house to a small condominium and there was no money set aside for college. Unsure of what to do after high school, she joined the Air Force at 19, training to become a dental assistant.
Julie and Todd met in 1988 when they were stationed at a base in Okinawa, Japan, and got married just nine weeks after their first date. They shared a yearning for financial security and a family and vowed to do everything they could so their children would never worry about money as they had growing up. They knew the military could help provide that safety net, especially if they served 20 years and qualified for pensions. They also knew that a military pension alone wouldn't be enough to fund a comfortable retirement.
So from their first days together Todd and Julie focused on saving money. They agreed that any purchase over $100 had to be approved by both of them. They ate at home instead of dining out, drove used cars, scouted out sales, bought clothes at thrift stores and didn't take vacations. "We focused on how little we could spend and put the rest in savings," says Todd, estimating they managed to set aside 35% of their income. Julie says the adjustment was harder for her than for Todd: "I was an impulsive shopper and was used to spending my whole paycheck."
Investing their savings - first in mutual funds, later in individual stocks - became Todd's hobby. Instead of playing cards or watching TV during downtime at the fire station on base, he read investing books. Within two years of getting married, they already had a portfolio worth $40,000.
Sticking to the plan
Those early years set the pattern for the next two decades. The Nielsens' goal, vague at first, gradually became more focused: They shifted from simply wanting to retire in comfort one day to wanting to retire early (although they didn't decide just how early until later), to wanting Julie at least to be able to quit as soon as she qualified for her military pension.
Looking back, Julie admits there were times she wanted to abandon their 20-year plan, especially once they became parents. The couple had struggled to have children and were married for six years before IVF helped produce Kayla, then Colin in 1996. Julie desperately wanted to stay home with the babies. By then she had eight years invested in her military career and staying on for another 12 seemed like an eternity. But Todd urged her to hang in, arguing that the kids would still be young enough to need her at home if she held off retiring until she'd served 20 years.
Investing for early retirement
When Annika, a happy surprise, was born in 1998, going off to work every day became even harder for Julie. "It was gut-wrenching to drop her off at day care. They had to peel her off me," she says. A low point came when Annika was three and Julie had been in the Air Force for 14 years. Julie was studying for her master sergeant's exam and would return to the base after dinner and on weekends to study.
Promotions were critical to their plan - the higher the rank at retirement, the more lucrative their pensions would be. One morning Julie got a panicked call from Todd saying Annika was missing. The little girl was found a short while later wandering around the base, looking for her mom. "I felt so guilty I wanted to abandon our plan right there," says Julie.
But by then Julie was only six years away from retirement. Talking it over with Todd, she reluctantly agreed not to give up when they were so close to their goal.

Retired at 40 (p. 2)

Frugal living

In 1999, a year after Annika was born, the Nielsens were posted to Scott Air Force Base outside St. Louis. Expecting to be stationed there a few years, they bought their first home for $189,000 in 2000. But the day they closed on the house, Todd and Julie got orders to ship out to Portugal. In 2003 they were transferred again, this time to Germany, then to London in 2004.
Todd had always considered staying in the service beyond 20 years. But with the constant moves and two deployments to Iraq (in 2003 and 2006), the Nielsens decided the extra money Todd would earn by serving longer wasn't worth the risks. Their goal sharpened again: When Julie retired at the 20-year mark in 2007, Todd would too.
But the new plan had a hitch. Their portfolio, worth about $200,000 in the late '90s, had lost nearly half its value during the stock market downturn in 2000 and 2001. "I switched into tech stocks at the worst time," says Todd.
So they went into savings overdrive. It helped that Todd had just been promoted to chief master sergeant and gotten a big raise, bringing the couple's combined income to $127,000 a year. They banked Todd's take-home pay (he earned $75,000 a year) and lived off Julie's more modest paycheck.
"We probably saved more the last three years before we retired than the previous 15," says Todd. Grocery lists were based on the coupons they clipped. "It became almost like a game to see how much we could save," says Julie. They cooked all their meals at home, shopped at yard sales and bought the kids' clothes at the thrift store on base. By the time they left the Air Force, their retirement nest egg was up to $380,000 and they were confident they could live comfortably on their pensions in low-cost St. Louis.
Freshman retirees
Last August the Nielsens finally returned to their house in suburban St. Louis. They call themselves "freshman retirees" and say the motto for this new phase of their life is il dolce far niente - the sweetness of doing nothing. Once a week Todd and Julie go to the café at the local Barnes & Noble after dropping the kids at school. "We have coffee and read the paper while the rest of the world works," says Todd.
But there hasn't been that much down-time. Todd, a three-handicap golfer before his children were born, has yet to play a round. And Julie's crafts table in the basement is covered with boxes. They're fixing up their home after seven years of renting it out, and sorting through countless boxes of belongings that had been in storage.
The biggest difficulty has been helping their children acclimate to going to school in the U.S.; they get far more homework than at the British schools they attended overseas. "If we worked, I don't know how we'd get it all done," says Julie.
The Nielsens are determined not to touch their retirement nest egg for another 10 years at least, so their savings will continue to grow and they won't have to worry about running out of money when they're older.
To get by on their military pensions of nearly $60,000 now, the couple are sticking to a strict budget. They do most of their shopping at nearby Scott Air Force Base, where they can buy everything they need for 20% less than retail. Todd changes the oil in their Ford trucks himself. Julie still clips coupons and scouts out the brand-name clothes the kids crave at the thrift shop on base.
A nest egg for early retirement
There are definitely sacrifices. Julie talks wistfully about the neighbor who bought all new furniture when she moved into her home. The only furniture the Nielsens have purchased recently is an $800 breakfast table that they researched for over a year. And, says Todd, "we have to be the last family in America without a flat-screen TV."
The Nielsen children only chafe a little at the tight rein on spending - at least for now. None of them has an iPod. Kayla has a cell phone but can't text message. When one of the kids clamors for Julie to splurge (they know better than to ask Todd), her standard response is, "Sure, I can buy that but then I'll have to go back to work."
For now at least, the kids clearly prefer having their parents around full time. "I get a lot more help with my homework," says Kayla. When Annika gets home from school, Todd jumps on the backyard trampoline with her. "My parents are at every one of my soccer games," Colin pipes up. And they have a few splurges: season passes to Six Flags amusement park and season tickets to watch the St. Louis Blues.
Todd and Julie don't want to live as frugally as they do now forever. They'd both like to travel and look forward to the day when they don't have to strategize over every penny they spend. Their biggest worry: how they'll pay for college for all three kids.
"We want to give them the opportunities we didn't have," says Todd. But they don't have any money set aside specifically for college. They hope the kids will go to state schools to keep costs down and that they'll be able to cover the bills through a combination of current income and financial aid. But they concede that may not be realistic. Still, Todd and Julie are determined not to return to work. "As hard as it was working when the kids were younger, I can see how much they need us now," says Julie.
The advice
Money consulted Jack White, a St. Louis financial planner, Ellen R. Siegel, a certified financial planner in Miami and Mark Kantrowitz, publisher of FinAid.org. Here's what they recommend:
GROW THE NEST EGG... At ages 40 and 44, Julie and Todd need to make sure they'll have enough money to live on for the next 40 to 50 years. Fortunately, their pensions will be adjusted for inflation. But for a more comfortable lifestyle, they need to keep adding to their portfolio for the next 10 to 15 years at least and keep a lid on spending.

If the couple can boost their savings to $8,000 to $10,000 a year (from $5,000 a year now), White calculates, their $380,000 portfolio will grow to about $1.3 million in 12 years, assuming an 8% rate of return. At that point, he says, they could start withdrawing $50,000 a year to supplement their pensions without depleting the portfolio - and they'd still only be in their fifties. But even if they don't add to their $380,000 nest egg, it will grow to $1.2 million over the next 15 years or so, White says, as long as they refrain from making withdrawals in the meantime.
...AND PROTECT IT Todd and Julie risk blowing their hard work by not having a more diversified portfolio, says Siegel. "What Todd has done lately with their portfolio - concentrating it in large-cap value stocks - has worked well," says Siegel. "But for the best shot at surviving any shocks in the market, they need to be more diversified." She recommends this mix: 30% large-cap growth stocks, 30% large value, 20% in bonds, 10% small-cap and 10% in foreign stocks. "By spreading their investments among assets that aren't correlated with one another, they'll reduce their risk and volatility," says Siegel.
STRATEGIZE FOR COLLEGE Even though their income is fairly modest, the Nielsens' assets are significant enough to have a big impact on their eligibility for financial aid, says Kantrowitz. The assets that aren't in a retirement plan will be taken into account when colleges decide how much aid to offer, and their expected family contribution could be as much as $20,000 a year at a private school.
The couple could lower that assessment if they use some of their savings to pay down their mortgage before Kayla enrolls, since home equity is not counted in the federal aid formula. But that would mean giving up growth in their portfolio.
Alternatively, if they could reduce their taxable income below $50,000 through the use of deductions and credits, their assets would be ignored entirely in the aid analysis, says Kantrowitz. But that strategy will have to wait until Kayla is already in college and qualifies for tuition and student-loan tax breaks, since the couple aren't eligible for any other write-offs.
Best bet, under the circumstances: Once the kids are in college, divert the $8,000 to $10,000 currently earmarked for savings to paying tuition bills. That's enough to cover the tab at an in-state public school, and the Nielsens' portfolio will continue to grow, albeit more slowly.
CONSIDER PART-TIME WORK The Nielsens don't really want to hear this one. But as a dental hygienist and a fire fighter they both have skills that are transferable to the private sector, and the extra income could help them pay down their mortgage faster and cover any unexpected expenses, says White. Plus they'd be able to put savings in a tax-advantaged account like an IRA, since these retirement plans can only be funded with earned income.
Todd is eager to work on rejiggering the mix of investments in the couple's portfolio, and he and Julie are weighing the various college strategies proposed. But while they say they'll consider taking a part-time job down the road if they must to help with college costs, they are for now, as suspected, completely resistant to the idea of working for pay again.
Their new life is simply too sweet. Todd is coaching Colin's soccer team and has plans to fix up a '65 Barracuda. Julie hopes to volunteer at a pediatric ICU and is eager to put together scrapbooks of family photos from their stints around the world.
"We love the freedom we have with our time," says Julie. And they're particularly looking forward to the day 10 or so years from now, when the kids are in college and they can finally start tapping their savings and spending a little more freely - traveling, perhaps, and decorating their home. Says Todd: "That'll be when our real retirement begins."