hello, new member (active-duty military)

[jwilliamsuscg]

Hello! I am an active-duty Boatswain's Mate in the US Coast Guard. I've taken some steps to prepare myself financially for the future, but my steps have lacked focus and real understanding. So, I'm hoping to learn from this website and better understand my own goals! I expect to retire in 2023, with 20 years of active-duty service. My wife is currently completing her Master's degree, and will start working in her field over the next year or so. Well, on top of studying for the next step in my career, I'm hoping to spend some time on this site while reading a few recommended books and taking positive steps, financially. Thank you!

[frank2009]

Welcome Mr. Williams and thank you for your service to our country.

20 years goes by in a flash. I know because I did about 24 years in municipal law enforcement prior to retiring.

I don't have much advice for you as you indicated that you are doing your "homework". From my reading here, it looks like you have access to the TSP. From what I've learned, it seems like a very good pre-tax vehicle for saving/investing.

Welcome again,
Frank

[Walt34]

Frequently recommended reading is Millionaire Teacher by Andrew Hallam.

The key thing is Living Below Your Means (LBYM) and save, save, save.

[Katiek]

Welcome to the site! So much information here, and feel free to ask if you have any questions.

[jwilliamsuscg]

Thank you all for the welcome. I'm currently reading "The Military Guide to Financial Independence and Retirement". From browsing the topics on this forum, this site is exactly what I was looking for. Now I need to stay motivated for my financial goals, while staying involved with this forum. Thanks again!

[HawkeyeNFO]

1 - Roth IRA.

2 - Max out TSP if you can, I do and just use the C and S funds.

3 - have any kids? If yes, do what is needed for them to be eligible to get your 9/11 GI bill benefits, unless you used it already.

4 - take advantage of opportunities for your own education at CG expense. I know this is tougher for Coasties than it is for Army or Air Force, but see what opportunities come your way.

5 - stick around here!

[Willers]

Welcome to the site and thank you for your service!




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[jwilliamsuscg]

A quick question, since I'm not sure which specific sub-forum I should be posting this in: I'm interested in investing with the potential to access funds in 8-10 years... in other words, after I retire from the Coast Guard in 8 years, I'd like to have access to funds for a house, or travel, or some other goal which I haven't decided upon yet. I already have a Ross IRA that I'm contributing to. What about options for a more short-term (8-10 year) investment? I figure that I can start an investment with approximately $3000, and then make regular monthly contributions. Thank you, and any pointers are greatly appreciated.

[USA]

I don't know where u hold ur Roth but I'd recommend u research Vanguard for mutual funds for any type of investment. Absent the TSP I found them to be my best bet when I started investing on my own 15 yrs ago. Their costs (fees) are low. My spouse is ret. mil & he will also ret fed FERS in 1yr. I will FIRE in 2mo. Also, I recommend some sage advice for FI by listening to Dave Ramsey podcasts. It may come w/religious slant but with spouses war experiences we're "all in". He's a very smart man. Stay safe!


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[Nords]

Quote:

Originally Posted by jwilliamsuscg Thank you all for the welcome. I'm currently reading "The Military Guide to Financial Independence and Retirement". From browsing the topics on this forum, this site is exactly what I was looking for. Now I need to stay motivated for my financial goals, while staying involved with this forum. Thanks again!

Welcome to the forums, and you're on the right track. Send me a PM or an e-mail if you have questions.

Quote:

Originally Posted by jwilliamsuscg A quick question, since I'm not sure which specific sub-forum I should be posting this in: I'm interested in investing with the potential to access funds in 8-10 years... in other words, after I retire from the Coast Guard in 8 years, I'd like to have access to funds for a house, or travel, or some other goal which I haven't decided upon yet. I already have a Ross IRA that I'm contributing to. What about options for a more short-term (8-10 year) investment? I figure that I can start an investment with approximately $3000, and then make regular monthly contributions. Thank you, and any pointers are greatly appreciated.

First, figure out how much you'll want for your goals-- living expenses (including travel), or buying a home, or a kid's college expenses. If you can save up for that goal from taxable accounts then you're good.

But you should also be trying to maximize your TSP and Roth IRA contributions while you can-- once you're out of uniform then you're done with TSP contributions, and once you stop receiving earned income then you're done with Roth IRA contributions. So ideally your saving/investing effort for FI would be at least 40% of your gross income. You'd max your TSP contribution, max out both Roth IRAs, and save even more in taxable accounts.

Once you ER, you only have to bridge the gap to age 59.5. Some military retirees do this by starting a bridge career, either full-time or part-time. You'll have surprising employment offers come your way ("even as a Bosun's Mate!") or you'll figure out ways to turn your interests into income.

Others live off their military pension, augmented by dividend/interest income or by income from rental property. That's all an asset-allocation decision.

If you decide that you're done working, then you'd spend down your taxable accounts first. Next you can withdraw your Roth IRA contributions at any time for anything, with no taxes or penalties.

While you're spending those funds, you've also started a Roth IRA conversion ladder for five years from then.
1. Upon leaving the military, transfer your Roth TSP to a Roth IRA. After it sits in your Roth IRA for five tax years, that principal of the transfer (but not its gains over those last five years) can be withdrawn free of taxes or penalties.
2. Upon leaving the military, transfer your traditional TSP to a traditional/rollover IRA. Every year, convert some of that account from a traditional IRA to a Roth IRA. (You might have to pay tax on the conversion amount, so you'll try to convert only what you need for each year that's five tax years in the future.) After five tax years, the amount of the conversion (but not its gains during those five years) can be withdrawn free of taxes or penalties.

That's the theory.

In practice, you might not ever need to do more than withdraw your Roth IRA contributions, or possibly transfer your Roth TSP to a Roth IRA (and then wait five tax years). The reason I say this is because you and your spouse will both have plenty of assets saved in taxable accounts (even after maximizing your TSP and Roth IRA contributions). By the time you quit working you'll have lined up your expenses with your values, eliminated wasteful spending, and have most of your budget covered by your pension as well as your dividend/interest income.

So my primary advice would be to keep maximizing those TSP and Roth IRA contributions (and saving even more in taxable accounts) while knowing that you'll be able to tap the tax-deferred money if you really need to. You'll ensure that you enjoy years of the world's lowest expense ratios in the TSP, along with more tax-deferred growth in your Roth IRA.

Here are some more posts with the excruciating details:
Early Withdrawals From Your TSP and IRA After The Military - Military Guide
Funding The Gap: "I Need Money From My TSP!" - Military Guide
When do you stop contributing to tax-deferred accounts? - Military Guide

How Do You Survive A Stock Market Crash? - Military Guide
How Should I Invest During Retirement? - Military Guide (even more spending details)
How much cash in a retirement portfolio? - Military Guide

[surferLife]

Yes, that's the theory, but TSP transfers can be quite tricky with traditional tsp contributions, Roth contributions, and tax-free contributions. Also, for someone who has several hundred thousand in TSP, the one-time move that the govt allows is not for the faint-of-heart. I do hope that in the future, there are some rule changes that make TSP transfers much easier for the participant.


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[Nords]

Quote:

Originally Posted by surferLife Yes, that's the theory, but TSP transfers can be quite tricky with traditional tsp contributions, Roth contributions, and tax-free contributions.

Yep. The biggest challenge is tracking the basis. I've also read that not all IRA custodians will accept tax-exempt contributions.

Quote:

Originally Posted by surferLife Also, for someone who has several hundred thousand in TSP, the one-time move that the govt allows is not for the faint-of-heart. I do hope that in the future, there are some rule changes that make TSP transfers much easier for the participant.

We're in the middle of transferring my spouse's TSP to her rollover IRA so that we can convert it to a Roth IRA. It's going far better than I expected. The TSP website has a transfer wizard that makes sure the correct paperwork gets filled out (and not just defaulting to "all" of the paperwork). The Fidelity IRA was easy to set up online (just to establish the account number for the transfer) and Fidelity had no problem completing their share of the paperwork.

We mailed out the paperwork on 16 May and Fidelity finished their part by 22 May. She got her TSP notification last week that the transfer was in progress, so we expect to get the deposit alert from Fidelity any day now.

[nash031]

Quote:

Originally Posted by Nords Yep. The biggest challenge is tracking the basis.

Isn't that basis required to be tracked by your financial institution now (Fido in your case, Vanguard in mine)? Or does that not apply to rollovers and/or conversions?

[Nords]

Quote:

Originally Posted by nash031 Isn't that basis required to be tracked by your financial institution now (Fido in your case, Vanguard in mine)? Or does that not apply to rollovers and/or conversions?

Yep.

Hopefully the TSP reports that to the successor custodian, or maybe it's part of the 1099-R that they send out during the next tax season. Otherwise we'd all have to search through old LESs, TSP statements, and tax returns.

In my spouse's case there were only deductible contributions. (No Roth TSP and no tax-exempt pay from a combat zone.) So I guess the basis for this Roth IRA conversion would be "zero". If everyone is really on the ball then ideally the TSP would've passed the information to Fidelity, who'd enter it into the account data on their website. We'll find out in the next week or two.

Again, a good problem to have.

[jwilliamsuscg]

Thank you for the information! I've been putting in some homework the past few days, and getting back on track. I think one of my next challenges will be to better understand taxation, in regards to various investment strategies.

I currently have a Roth IRA (through USAA), as well as a TSP account. The TSP account was started as a traditional account. I will need to review the exact differences between Roth/Traditional, and the pros and cons of each. I've considered transferring the traditional TSP into a Roth, but I do not have a great understanding of the process and potential difficulties. I will put in some more research, and take a look at the 'transfer wizard' that TSP has on the website.

My USAA Roth fund is allocated 100% into a S+P 500 index fund. My TSP fund is the Lifecycle-2040 fund. Without question, I have a great deal to learn. I'm hard at work determining my financial goals, with regards to retirement, and also communicating those goals/ideas with my wife!

In addition: I know I mentioned in an earlier post that I wanted to save for a potential house down payment or other larger purchase, upon retiring in eight years: I've rolled my money for this goal into laddered Certificates of Deposit, rather than investing in stocks/bonds. So, this will be money that I'll add to as each CD matures. I have set a goal of $60,000 for these various CDs, upon reaching retirement from the Coast Guard. Not too much, I know (I'm a financial rookie), but this is achievable given my current outlook, and can always be increased.

The only debt I have is a car loan, which I'm going to focus on paying off immediately. My wife and I decided that this debt was worthwhile, for purchasing a new, safe, all-weather vehicle (nothing extravagant, of course). We are accelerating our payments on this.

Thank you again for the assistance. I have about 8 years to go until I reach the 20-year mark in my career and am retirement-eligible. I fortunately started automatic payments to my TSP and Roth IRA a few years ago, and had basically forgotten about them- so although my financial picture isn't perfect, it has been growing. I'm also looking at various retirement or semi-retirement options for the future, so we'll see how things take shape. Take care!

[nash031]

The common answer you'll read for Roth vs. Traditional is that if you expect to be in a higher tax bracket when you retire, do Roth (after tax, gains tax-free). If not, go traditional (tax-deferred).

I'd caveat that by saying if you need the deduction from a traditional ($18,000 for TSP) to keep you in a lower tax bracket, you should consider that. I have a Roth IRA and a traditional TSP. DW had a traditional IRA but when we married, she opened a Roth IRA. Her 403(b) is traditional. So we effectively have a $36,000 tax deduction which has kept us in the 25% tax bracket the last two years. Based on current income and savings rate, we don't expect to be above the 25% bracket in retirement.

There is also an income limit above which the traditional IRA is no longer deductible, in which case you should do a Roth IRA (I'd do a Roth IRA either way!).

Based on your info, I'm going to guess you'll want a Roth TSP. But yes, spend the hour or two to learn all the differences and make an informed decision. That's what this DIY FIRE stuff is all about! Good luck!

[jwilliamsuscg]

nash031- that's a great overview and puts some things into perspective, and I'll also do some additional research. I had considered finding a professional financial planner, but I feel that I'm interested enough to learn all of this and go the DIY approach to FIRE... for now, at least. Thank you!

[alistair]

Quote:

Originally Posted by nash031 <snip> ...a $36,000 tax deduction which has kept us in the 25% tax bracket the last two years. Based on current income and savings rate, we don't expect to be above the 25% bracket in retirement.

Far be it for me to question the sage wisdom of the more senior members of the FIRE community, but given that we're talking about marginal rates, I would think that going into a higher tax bracket is not the end-of-the-world scenario that it is sometimes portrayed as. Yes it's more tax, but not necessarily (IMHO) an effort that will always require pulling out all the stops to avoid (obviously this definitely varies on a case by case basis).

For example, I wouldn't cut back on hours on a part time retirement job, just because I may have pushed into a higher bracket.

Am I missing something?

I'll going back to trying to figure out what the heck dryer sheets are now.

[Nords]

Quote:

Originally Posted by jwilliamsuscg I currently have a Roth IRA (through USAA), as well as a TSP account. The TSP account was started as a traditional account. I will need to review the exact differences between Roth/Traditional, and the pros and cons of each. I've considered transferring the traditional TSP into a Roth, but I do not have a great understanding of the process and potential difficulties. I will put in some more research, and take a look at the 'transfer wizard' that TSP has on the website. My USAA Roth fund is allocated 100% into a S+P 500 index fund. My TSP fund is the Lifecycle-2040 fund. Without question, I have a great deal to learn. I'm hard at work determining my financial goals, with regards to retirement, and also communicating those goals/ideas with my wife! In addition: I know I mentioned in an earlier post that I wanted to save for a potential house down payment or other larger purchase, upon retiring in eight years: I've rolled my money for this goal into laddered Certificates of Deposit, rather than investing in stocks/bonds. So, this will be money that I'll add to as each CD matures. I have set a goal of $60,000 for these various CDs, upon reaching retirement from the Coast Guard. Not too much, I know (I'm a financial rookie), but this is achievable given my current outlook, and can always be increased.

I think you're doing fine.

The TSP does not currently offer a way to convert a traditional TSP account into a Roth TSP account. The legislation allows it, but the TSP has not spent the money to build the infrastructure to make it happen. You could be happily retired before they get around to it.

Your fund choices look fine too-- the key is to decide on your asset allocation, and then pick the passive index funds with the lowest expense ratios. You could find a cheaper S&P500 index fund at Vanguard or Fidelity, but if you have other business with USAA then you might favor the consolidation and convenience. You could go all "C" fund in the TSP because you you have a military salary and don't "need" an allocation to bonds, but you also have to sleep comfortably at night. There's more than one way to reach financial independence.

The key to your house down payment CDs is to not get itchy about chasing yield. Stick with the insured return for the goal date. Your real "yield" will come when you have a cash down payment (for a lower mortgage interest rate) and more negotiating power. You'll save thousands of dollars on the home purchase price and on mortgage interest. That's well worth investing in 1%-2% CDs for a few years.

Quote:

Originally Posted by jwilliamsuscg nash031- that's a great overview and puts some things into perspective, and I'll also do some additional research. I had considered finding a professional financial planner, but I feel that I'm interested enough to learn all of this and go the DIY approach to FIRE... for now, at least. Thank you!

Ask us here anytime, or send me a PM/e-mail. You can DIY to FIRE, and you'll be more motivated than any planner.

I can also recommend a fee-only financial planner like MilitaryFinancialPlanner.com. The key is to pay someone for their experience & labor without having to deal with product pitches. You could do an initial consultation (free), decide what projects you want help with, and just pay for that.

Quote:

Originally Posted by alistair Far be it for me to question the sage wisdom of the more senior members of the FIRE community, but given that we're talking about marginal rates, I would think that going into a higher tax bracket is not the end-of-the-world scenario that it is sometimes portrayed as. Yes it's more tax, but not necessarily (IMHO) an effort that will always require pulling out all the stops to avoid (obviously this definitely varies on a case by case basis). For example, I wouldn't cut back on hours on a part time retirement job, just because I may have pushed into a higher bracket. Am I missing something?

If the decision is whether to invest in a traditional 401(k) or a Roth 401(k), then it's worth considering what tax bracket you'll someday be in. Many ERs can convert a little every year at the 0% bracket, like Jeremy at GoCurryCracker.com. Many military servicemembers have enough tax-free compensation and tax credits (like EITC and childcare) to pay zero taxes up through the E-6 rank, so it might make sense for them to contribute to a Roth TSP now and not have to worry about conversions later.

I agree with you about the part-time retirement job. Paying more taxes on more income is a great #FirstWorldProblem to have.

Quote:

Originally Posted by alistair I'll going back to trying to figure out what the heck dryer sheets are now.

http://www.early-retirement.org/foru...ets-44456.html