Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Active Duty Army officer looking for advice
Old 07-04-2009, 09:05 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2009
Posts: 81
Active Duty Army officer looking for advice

I have really enjoyed lurking in this forum over the last few months and reading all of the great advice posted here. I have certainly benefited from the collective wisdom of this forum’s members and I hope to get some advice on my own situation. I am a 35-year-old active duty Army officer (O-4/just went over 12 years of service). My wife and I have three small children under the age of six and my income is the sole source of income for the family. My ultimate goal is to fully retire as soon as possible, but with kids at home I do not figure that it will happen before 55 or so. My income and asset allocation are as follows:

Income: currently ~ $115,000/yr…housing allowance varies by assignment
401K/TSP: ~$75,000 (evenly split between the L2030 and the L2040 funds)
My Roth IRA: ~$25,000 (Vanguard Target Retirement 2035 Fund)
DW Roth IRA: ~$15,000 (Vanguard Target Retirement 2040 Fund)
Taxable Accounts: ~$20,000 (Vanguard Windsor II…any suggestions for a better fund?)
Cash: ~$35,000 (savings account)

We have no debt and live comfortably on our budget. We contribute what we feel is a sufficient amount to 529s for all three children (we also plan to utilize the transferability option with the new GI Bill). We currently max out the TSP/401K and both of our Roth IRAs and put back an additional $15,000/yr as savings for a future home purchase. As you can probably tell by the abundance of targeted retirement funds above, I am not a very sophisticated investor. My logic is that by putting my money into these types of accounts I can ensure that I have the proper asset allocation. Is there a better method for me to use?

My wife and I also hope to be able to buy a house outright when I retire from the service in about 10 years or so. Whether or not this is a realistic goal, of course, depends upon where we decide to settle down/where I get a job (low cost vs high cost area) and how much we’re able to save by then. I’d like to get some advice on what we should do with the money that we are saving for this purpose. As stated above, we currently put back $15,000/yr (which I hope to increase with each longevity raise as well as with tax savings/combat pay from each deployment). I have considered putting this money into a CD ladder or into one of the tax efficient funds at Vanguard (Tax Managed Balanced VTMFX or Tax Managed Growth and Income VTGIX?). We currently have no plans to purchase a home prior to retirement in 8-10 years…we move too often to make it worthwhile from our perspective and neither of us have any interest in being long distance landlords. Any advice on where this money should go or general comments on how we might better prepare to FIRE someday?


I apologize for the long post, but your insights are greatly appreciated.
__________________

__________________
av8er is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-04-2009, 10:43 PM   #2
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Welcome to the board!

You're already well on your way. Keep maxing the TSP and the Roths and keep an eye on the eventual implementation of the military's version of the Roth TSP, which is still in the rumor-mill stage. Being able to dump extra money into the TSP at such low expense ratios is the nation's best mutual-fund deal, perhaps even better than Vanguard.

You probably already know to save your longevity/promotion raises. And if you can hold down expenses now, then when you make O-5 the savings are going to start pouring in.

You don't mention whether your spouse has her own income, but with three kids I'm guessing that SGLI may leave you a tad underinsured. It's been quite a while since I had to look at life insurance but you may want to read up on that in Milevsky's "Are You A Stock Or A Bond?" (He'll give you some thoughts on asset allocation and retirement income, too.) And when you plug your pension numbers into FIRECalc you'll probably take the maximum SBP.

You may already be at or beyond this level of knowledge, but you might want to review "The Armed Forces Guide to Personal Financial Planning" and Military.com's "Your Military Advantage". They're the best military benefits guides around and they'll help you plug any gaps in your planning. West Point alumni handed out free copies of the Armed Forces Guide to my nephew's 2007 class.

Quote:
Originally Posted by av8er View Post
I am a 35-year-old active duty Army officer (O-4/just went over 12 years of service).
You probably know already not to take the REDUX Career Status Bonus. But share your thoughts if you're eager to get your hands on the money.

Quote:
Originally Posted by av8er View Post
We have no debt and live comfortably on our budget. We contribute what we feel is a sufficient amount to 529s for all three children (we also plan to utilize the transferability option with the new GI Bill).
The board has different schools of thought on saving for college, but conventional wisdom claims not to defer your retirement for the little darlings' college savings. It's probably more than enough to save for a state university and let them figure out how to fund a private school-- or a military academy/ROTC. But you're starting plenty early and the new GI Bill gives you a lot of help. Is your spouse interested in using any of that now?

Quote:
Originally Posted by av8er View Post
… and put back an additional $15,000/yr as savings for a future home purchase.
My wife and I also hope to be able to buy a house outright when I retire from the service in about 10 years or so. Whether or not this is a realistic goal, of course, depends upon where we decide to settle down/where I get a job (low cost vs high cost area) and how much we’re able to save by then. I’d like to get some advice on what we should do with the money that we are saving for this purpose.
If you know that you're at least 10 years from buying the home then hypothetically you could even put the money in stocks. But I would have hated to have told you that in 1999.

You're correct in thinking that since you're on active duty then you probably don't need much of an emergency cash stash. (If you needed a quick few thousand dollars then you'd just draw advance pay or use a credit card and wait for the paychecks to catch up.) If you wanted to get more aggressive then you could put half of your house savings into one of your Vanguard funds and the other half in seven-year PenFed/NFCU CDs. Since you absolutely positively want all of the cash in 10 years, then that's probably the most risk/reward you want to take.

The psychological trap to avoid here is "chasing yield". By saving a large down payment you're going to be in a very strong home-buying negotiating position, able to make a lowball cash offer or at least get lower mortgage rates with no PMI. You'll be giving up 1-2%/year in returns for the comfort factor and low risk, but you'll probably make up for it by being able to buy a great home at a fantastic price. Focus on the payoff instead of sweating out the extra tenth of a percent and ending up in something too volatile for your tastes.

Quote:
Originally Posted by av8er View Post
As you can probably tell by the abundance of targeted retirement funds above, I am not a very sophisticated investor. My logic is that by putting my money into these types of accounts I can ensure that I have the proper asset allocation. Is there a better method for me to use?
Depends on how much time you have and how much you want to do on your own. What you have is more than "good enough" and you may not be able to do much better. But you could read "The Bogleheads Guide To Investing", which you're already doing most of, or Bernstein's "Four Pillars". Your advantage is that you can put your current system on allotment autopilot and go live in the desert for 15 months without worrying about it.

If you were going to change anything then you could probably go for a higher stock asset allocation. (That decision involves comfort factor as well as asset-allocation math.) You're probably planning to stick around for your pension, which is the equivalent of gold-plated TIPS or I bonds and slews your asset allocation to something like 80% bonds/10% stocks. If you don't mind the additional volatility then you could put more of your IRAs and taxable savings in Vanguard large-cap blue-chip stock funds. You could split your TSP between the "S" and "I" funds, which are way cheaper than anything anyone else can offer. But your time and effort may be better spent with your family and on your occupation than on learning how to pick next year's hot stocks/mutual funds.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 07-05-2009, 12:41 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Welcome to the board. For what it is worth, I think you're doing a great job of saving and of choosing good investment vehicles. I don't have much to add to the good advice/suggestions offered by Nords.

Quote:
Originally Posted by av8er View Post
My ultimate goal is to fully retire as soon as possible, but with kids at home I do not figure that it will happen before 55 or so.
You might be surprised. A lot hinges on your anticipated spending after retirement. I'm sure you've probably built a "strawman" budget, but keep refining it as time goes by and as you become more familiar with the life you actually want to live after retirement.

Don't forget that you can withdraw all your contributions to a Roth IRA (not the gains) without tax penalty. So, that money will be available for use to purchase a home. By having it a Roth when you retire you've got more options when you are considering the home purchase--it's possible you'll look at interest rates and expected inflation and decide that you would prefer to have a mortgage than to pay cash. Or, you might decide to rent for a few years after you hang up the uniform and take a short-term contractor position somewhere other than your intended final retirement spot. If the $$ is in a Roth the'll be earning money tax-free, whereas if the funds are in a taxable account you'll be paying tax on the money every year (possibly at a high rate--the money to pay for the current USG spending has got to come from somewhere, and you'll be on the cusp of "richness" by the definiton we'll be using at that time). So, definitley keep saving at the present rate, but consider contributing to the Roth to the max before funding the taxable accounts.

Insurance: As Nords mentioned, look into this. Term insurance is cheap (I got mine at USAA) and will cover your extra needs above SGLI.

I think you are smart not to buy a house. If your career is typical, you'll be moving even more frequently as you progress.

Banking a big chunk of your longevity and promotion pay increases is key to building your nest egg and keeping a lid on your cost of living. You guys are comfortable now, right? This will get tougher as the kids get older--you probably already know about the materialistic pressure kids face as they get older. Counter this with constant messaging that helps them resist the pressure and you'll be setting them up for success and doing your family harmony (and your finances) a world of good. Don't count on success--it's you and DW against the world on this. Be sure to live your life and do enjoy the time that your kids are kids--take that vacation, do the fun stuff. It doesn't need to cost a lot of money and you'll never regret it.


Quote:
Originally Posted by av8er View Post
As you can probably tell by the abundance of targeted retirement funds above, I am not a very sophisticated investor. My logic is that by putting my money into these types of accounts I can ensure that I have the proper asset allocation. Is there a better method for me to use?
As you already know, it's important to not confuse a "sophisticated" plan with a "good" plan. Your investments reflect the same philosophy as mine--low-cost and well diversified index-based choices. Like you I also have a dose of Windsor II (actively managed, but low expenses. I bought it when there were no other god "vale alternatives at Vanguard and just have not gotten around to reinvestigating my current choices). You've got a career and a family, you don't need to be trying to beat the market by chosing the next hot stock or sector--especially when the pros can't reliably do it. History shows your apraoch will do better than the large majority of active investors.

Welcome to the board!
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 07-06-2009, 10:14 PM   #4
Recycles dryer sheets
 
Join Date: Apr 2009
Posts: 81
Quote:
Originally Posted by Nords View Post
Keep maxing the TSP and the Roths and keep an eye on the eventual implementation of the military's version of the Roth TSP, which is still in the rumor-mill stage.
I’m looking forward to the TSP's new Roth option. I saw that it finally got signed into law a couple of weeks ago (it was part of the bill that gave the FDA oversight over tobacco companies). Unfortunately, the TSP board has indicated that the Roth option won’t be in place for another year or two. I'm hoping that there’ll be some way to pay taxes on our current balance and transfer it onto the Roth side once it is in place…if I can do it while I’m deployed for a year or so then my tax bill likely wouldn’t change that much from a regular tax year.

Quote:
Originally Posted by Nords View Post
I'm guessing that SGLI may leave you a tad underinsured.
Quote:
Originally Posted by samclem View Post
Insurance: As Nords mentioned, look into this. Term insurance is cheap (I got mine at USAA) and will cover your extra needs above SGLI.
That is a great point and one that I’ve been planning on resolving for a few months now…I need to get off of my rump and get it done. I’m currently looking at AAFMAA, but I’ll give USAA a look as well.

Quote:
Originally Posted by Nords View Post
you might want to review "The Armed Forces Guide to Personal Financial Planning" and Military.com's "Your Military Advantage". They're the best military benefits guides around and they'll help you plug any gaps in your planning. West Point alumni handed out free copies of the Armed Forces Guide to my nephew's 2007 class.
I also got a copy of the “Armed Forces Guide to Personal Financial Planning” at the Academy back in the 90s…I really wish I hadn’t let it sit on my shelf for so many years before actually reading it. There really is a lot of good advice in there. I’ll have to give “Your Military Advantage” a look as well.

Quote:
Originally Posted by Nords View Post
It's probably more than enough to save for a state university and let them figure out how to fund a private school-- or a military academy/ROTC.
We’re definitely planning for state schools. And we do not plan to pay for everything either…tuition/books/fees is our goal. We’re hoping that the little darlings will pursue and get scholarships/attend a service academy…then they can use the money that we have saved for them for grad school (or it could be handed off to their children one day).

Quote:
Originally Posted by Nords View Post
Is your spouse interested in using any of that now?
No, DW has no interest in graduate school and since I suckered the Army into paying for mine a few years ago , all of the new GI Bill can go towards the kiddos.

Quote:
Originally Posted by samclem View Post
You guys are comfortable now, right? This will get tougher as the kids get older--you probably already know about the materialistic pressure kids face as they get older.
That is a very good point and we’re already actively working now on expectation management with the kids. It’s relatively easy now that they’re young, but I know that it will get more difficult as they get older.

Quote:
Originally Posted by samclem View Post
Be sure to live your life and do enjoy the time that your kids are kids--take that vacation, do the fun stuff. It doesn't need to cost a lot of money and you'll never regret it.
This has always been our philosophy. Since we move around so frequently we try to make the most of it by exploring the local area as much as possible. It’s kind of like vacationing on the Army’s dime.

Thanks again for the great advice!
__________________
av8er is offline   Reply With Quote
Old 07-07-2009, 04:25 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Welcome to the forum
At your age 35, I am astounded at your planning and savings. Wow!
I didn't get on the ball til about age 37.
Very good call not to buy a house if you PCS frequently. I've seen that become a real albatross to my friends from the past.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 07-07-2009, 07:55 PM   #6
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
If you use target funds, I would use one fund, and put all investments (401k-Roths-taxable) into that one fund.

I like Windsor II- part of my kids 529 is in that one fund, and I used to own it in my 401k before my company was bought out by a bigger fish.

You are clearly doing many things right. IMO I think you should focus a little more effort into the investments you choose (have a consistent philosophy throughout all retirement accounts). What that philosophy is could be many things

1) one target date fund
2) a general asset allocation model
3) something more specific to your situation (for example muni bonds in taxable account)

We have 401k for wife, another 401k for me, a rollover for wife, another rollover for me, a Roth for wife, and a Roth for me, plus a taxable account too. Our logic is this- we have an asset allocation we follow (30% large cap-15% mid-15% small-15% foreign large-10% foreign small-15% bonds) and most accounts have this allocation shown in them. This way when wife leaves her job, or a bigger fish buys my company (again), we do not need to rebalance all accounts, just make sure the money in each account is allocated properly. Keep in mind over last 12 years I have had 4 401k providers and wife has had 3 or 4... so I do not want to constantly be picking new funds, new investments or selling my Roth and buying something else because the 401k choices suggest a certain asset class is bad or worse than something else.

Only exception to above is that with wife's Roth we use sector funds to achieve the allocation (it is still 55-25 domestic-foreign), and it is still 15% small cap, but to get this allocation we overweight some sectors (like tech and emerging markets) relative to other sectors.

My point is we have a system, that system accounts for all new money being contributed, and its flexible to allow a job change or other investment change without disrupting a 6 figure portfolio which is spread across at least 7 accounts.

Know your situation
pick funds consistently (my impression from reading first post was this is not being done as well as it could be)
keep saving (you are doing well setting aside so much money, this above and beyond anything else is going to make you retire successfully IMO).
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 07-09-2009, 11:09 PM   #7
Recycles dryer sheets
 
Join Date: Apr 2009
Posts: 81
Quote:
Originally Posted by freebird5825 View Post
Very good call not to buy a house if you PCS frequently. I've seen that become a real albatross to my friends from the past.
I’ve had similar experiences. In fact, since I’ve been in the military I’ve only met a handful of service members that actually made any money from buying homes at their various duty stations and a whole lot more that either barely broke even or ended up losing money. I’ve PCSed seven times in the last 12 years…there’s just no way to build enough equity to make home buying worthwhile IMO when the moves happen so frequently (unless you’re comfortable being a long distance landlord, I guess).

Quote:
Originally Posted by jIMOh View Post
If you use target funds, I would use one fund, and put all investments (401k-Roths-taxable) into that one fund.
There is some method to my madness with regard to fund picking. For the most part, I’ve tried to stick with targeted retirement funds to ensure proper AA and to ensure that those accounts will become most conservative in the year that my wife and I will turn 59.5. I know it may not be the best solution, but I chose these types of funds because I'm not confident that I know enough to balance/rebalance my investments properly.

The reason that my taxable (non savings) account is in a non-targeted retirement fund (Windsor II) is because I hope to use that money for a future home purchase in 8-10 years or so…it was actually about $30,000 when I first put it into that account. After the 33% loss from the market downturn, though, I sort of wished that I’d put a part of that into CDs instead . Hopefully that account will look better over the next few years. I like Nord's idea of splitting the house savings between CDs and equity funds. Since most equity type funds are kind of on sale now compared to about this time last year I might even feel like a bargain shopper .

Thanks again.
__________________

__________________
av8er is offline   Reply With Quote
Reply

Tags
military


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Active-duty military: investing the promotion pay raises Nords FIRE and Money 28 09-07-2009 11:29 AM
over-zealous police officer tmm99 Other topics 63 04-02-2009 04:14 PM
18 years active duty facing medical retirement board lso1963 Hi, I am... 2 07-20-2008 02:48 AM
Navy Chief Petty Officer reporting for duty (or lack off) Boxkicker Hi, I am... 13 06-02-2008 10:49 AM
Active-duty military looking for information USAFDream Hi, I am... 8 04-14-2008 02:59 PM

 

 
All times are GMT -6. The time now is 12:51 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.