Military retirement in 4 years, build up savings or pay off mortgage?[ Edited ]
I retire from the military in 4 years ,Is it better to have your house paid off and have a low checking/saving account or have more in checking/savings and a mortgage payment? What is a good ratio for planning.
Transitioning out of the military is an uncertain time for most people and in times of uncertainty, cash is king! As a result, I'd probably focus on building a small mountain of cash rather than knocking down your mortgage at this time.
Okay...a small mountain of cash is probably a bit of an exaggeration but suffice it to say, you'll want a substantial amount. We typically recommend setting aside a pool of liquid cash equal to 3-6 months' worth of your committed expenses. When you're transitioning out of the military though, pushing that number up to as high as 12 months' worth can often be a smart move.
Lots of Changes
If you think about it, a lot changes when you separate from the military. You may need to move one final time, set up a new residence, and find new employment for yourself and perhaps for your spouse (if applicable). Even if you're staying put, you may find yourself looking for civilian employment to supplement your military retirement and unfortunately, that can sometimes take awhile. The bottom line here is that a large transition fund that you can use to pay bills and keep your life rolling during this process can make it a lot less stressful.
Starting Early is Key
The good news for you is that you're asking this question 4 years before you plan to separate rather than 4 months like a lot of people do. The more time you have to prepare, the better, so it's great that you're getting started early! For addition assistance with your military separation planning, I encourage you to take a look at our Military Separation Tools. They're a great resource for helping to put a transition plan in place and highlighting some of issues you may not have thought about.
And finally, if it turns out that you don't need the extra savings you'll be building, you can always use it to pay down your mortgage at that time.
Thanks so much for your question and for your service. I wish you all the best!