Retiring from the military after 35 years of service is a major achievement. But what happens next? One retired veteran, now 57, has built a $5.5 million portfolio and earns $220K per year from his investments. His income comes from an Army pension, VA disability, a Thrift Savings Plan (TSP), and dividends. But with a large net worth comes financial decisions—how to minimize taxes, when to sell stocks, and how to pass wealth to future generations. This article dives into how this veteran has structured his finances and the strategies he’s using to maintain financial stability.
How a Military Veteran Earns $220K Per Year in Retirement
This retired veteran enjoys financial freedom thanks to multiple income sources. Here’s a breakdown:
- Army Pension – A steady pension for his 35 years of service.
- VA Disability Benefits – Tax-free income that provides additional financial security.
- TSP (Thrift Savings Plan) – A government-backed retirement savings account.
- Dividends & Investment Income – Earnings from a diversified portfolio.
With these income streams, he doesn’t need to rely heavily on withdrawing from his $5.5 million investments.
Does He Need to Sell Stocks?
Despite having $5.5 million in investments, the veteran only spends around $10K per year. However, with plans to build a house, he may need to tap into his portfolio.
If he sells stocks, capital gains taxes could take a significant portion. Instead, there are strategies he can use to minimize taxes and still cover expenses.
Minimizing Capital Gains Taxes on Stock Sales
1. Selling Stocks with the Lowest Capital Gains
Some stocks may have lower appreciation, meaning less tax when sold. Choosing to sell these first can reduce overall tax liability.
2. Harvesting Tax Losses
If he holds stocks at a loss, selling them can offset taxable gains from other sales. This strategy, called “tax-loss harvesting,” helps reduce taxes owed.
3. Borrowing Against Investments (Margin Loans)
Instead of selling stocks, some wealthy investors borrow money using their portfolio as collateral. This allows them to access funds without triggering capital gains taxes.
Why 401(k) Withdrawals Need to Be Planned Carefully
If the veteran leaves his 401(k) untouched, it will be taxed heavily when passed to his children. Current laws require heirs to withdraw the entire balance within 10 years, possibly pushing them into a higher tax bracket.
How to Reduce 401(k) Tax Burdens:
- Gradually Withdraw Funds Now – Smaller withdrawals each year reduce overall taxes.
- Convert Some 401(k) to Roth IRA – Paying taxes upfront can save his heirs from future tax burdens.
- Use 401(k) Funds for Necessary Expenses – Instead of selling stocks, tapping into tax-deferred accounts first may make sense.
Managing a Brokerage Account for Maximum Tax Efficiency
Beyond his 401(k), the veteran also holds assets in a brokerage account. Smart planning can help him avoid excessive taxation.
1. Selling High-Growth Stocks Last
Since brokerage stocks are taxed on capital gains, holding onto them longer can be beneficial.
2. Using Dividends as Passive Income
Instead of reinvesting dividends, using them as spending money helps avoid selling stocks unnecessarily.
3. Gifting Stocks to Family
If the veteran plans to pass wealth to family members, gifting stocks instead of cash can provide tax advantages.
How Policy Changes Could Impact His Retirement Plan
Tax policies under different administrations can significantly impact retirement planning. For example, if future laws eliminate income taxes and replace them with tariffs, withdrawing from a 401(k) early could be a smart move.
Staying informed on tax policies is key to maximizing retirement funds while minimizing unnecessary tax payments.
This retired military veteran has built a financially secure retirement through smart investments and multiple income streams. With a $5.5 million net worth, he has the flexibility to live comfortably while strategically managing taxes and investment withdrawals. The key takeaways from his plan include:
- Using a mix of pensions, VA benefits, and investments for steady income.
- Carefully planning 401(k) withdrawals to minimize future tax burdens.
- Exploring tax-efficient strategies like tax-loss harvesting and borrowing against investments.
- Staying updated on tax law changes that could impact retirement planning.
Financial independence after military service is achievable with smart planning. By implementing these strategies, other veterans can learn how to manage their own wealth effectively.