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Military Officer looking to be like NORDS
Old 06-22-2007, 03:51 PM   #1
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Military Officer looking to be like NORDS

Hi, this is a great website. I have been looking at it for a couple of days now, and I am learning a lot. Let me introduce myself and the fam.

I am 28, and an O-3 in the Army. I am married and have a 14 month old little boy. I am an Engineer officer, with a BS in chemical engineering and MS in environmental engineering. May 2021 is when I reach 20 years in the military. My wife is a stay at home mom(former 03), however she is starting to look for psychology jobs and her goal is to go back to school and get a masters or doctorate degree in Psychology.

Financially here is where I stand:No debt except $108,000 mortgage

Non-tax deferred investments: $55,000 (putting away $760/mo) I plan on using this for money when I get out of the military. 50% mutual funds, 50% savings at 5%.

ROTH IRAs: $33,000(putting away $666.66/mo) 50% S&P index, 50 % other mutual funds

Sonís College Fund need for 2024: $1550(putting away $100/mo) 100% bonds

TSP: $4,000( I am not putting money in that right now)

Home equitity: $18,000(I have a small house that I am renting out near an Army Post. Mortgage, tax, insurance = $775, Rent = $900, what I pay each month =$1100) I should have it paid off in Jan 2020.

My objective is when I retire after 20 years(if I make it) to be like Nords. No, really I just donít want to be forced to work. I want out of the rat race, and I want to do what I want when I want to. I might work but I want the option to do nothing if that is what I choose.

Let me know if you have any advise, or you think I am on the right track. I am interested in knowing if I should put money in the TSP. Right now I am not because I am trying to build up more in my non-tax deferred investments, so I can use it when I am between 42-59.5. But I am interested in what people think.
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Old 06-22-2007, 04:29 PM   #2
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Welcome to the board, RLTW!

Quote:
Originally Posted by RLTW View Post
My objective is when I retire after 20 years(if I make it) to be like Nords. No, really I just donít want to be forced to work. I want out of the rat race, and I want to do what I want when I want to. I might work but I want the option to do nothing if that is what I choose.
Let me start by saying that my grass may look mighty green from where you're standing, but one of the biggest career mistakes I ever made was hanging around until retirement. If you're not having fun then don't stick around.

Even assuming that you don't get your a$$ets shot off enroute that 20, you still pay a high price for staying past the point where the fun has stopped. In my case it was good for the first 10 years and then truly awful for about five years-- right when we started a family. Spouse and I were too busy snorkeling through the daily muck to lift our heads out of the cesspool and realize that we could've left for the Reserves, or for just about any civil-service jobs, or even (*gasp*) civilian careers. We are practically brainwashed to believe that we are worthless & weak to any employer, and that is just not the case.

So when your assignment officers call to point out that you're only xx years away from retirement and can't afford to miss this exciting career opportunity, tell them where you're not having fun and how you've noticed the huge civilian demand for experienced environmental engineers. Even the Reserve life can be better than active duty, and I really regret not noticing that when I was on active duty.

Your assets seem to be piling up nicely for this stage of your life. Here's some general financial comments:

Quote:
Originally Posted by RLTW View Post
Sonís College Fund need for 2024: $1550(putting away $100/mo) 100% bonds
There are two schools of thought on this: one is that a parent is obligated to pay for a kid's college, and another is that kids do better at college when they have their own skin in the game. Most of us fall somewhere in between, for example being willing to pay for a State U degree and letting the kid fund whatever more they want wherever else they want it.

Why 100% bonds? They may be tax-free but if you have a military pension then you're probably gonna be in a very low tax bracket by 2024. You have 17 years until you need the money and you could move toward a more aggressive asset allocation, even if it's just a sort of "Target 2024" lifestyle-oriented AA.

The reason I'm making a fuss here is because you may be diverting retirement funds toward college savings. Saving too much for a full ride at a private school will deprive you of decades of retirement-savings compounding and force you to work years longer. A low return in an over-conservative college-savings account will suck that much more out of your retirement savings.

Quote:
Originally Posted by RLTW View Post
TSP: $4,000( I am not putting money in that right now)
I don't know of any other mutual funds with an expense ratio of three basis points (0.03%). Jack Brennan lays awake at night fantasizing about the business Vanguard would have if they could afford to offer funds like this. You're sacrificing decades of tax-free compounding for the option of withdrawal flexibility.

When you leave the service (resign, retire, however), you can roll a portion of your TSP funds into an IRA and take the money out via 72(t) withdrawals. Even if you pull the ripcord before 20 you may be able to look forward to a Reserve pension at age 60 that will enable you to spend down your taxable accounts in anticipation of a sure COLA-adjusted pension. It'll also conserve your tax-deferred accounts for more compounding. It's worth far more to put the max into the TSP now ($15,500/year) and not worry about 72(t) until you approach the exit.

Quote:
Originally Posted by RLTW View Post
Home equitity: $18,000(I have a small house that I am renting out near an Army Post. Mortgage, tax, insurance = $775, Rent = $900, what I pay each month =$1100) I should have it paid off in Jan 2020.
Being an absentee landlord is tough, especially if the market keeps you from raising the rents, but hopefully you have a big pool of high-quality tenant on that base. You especially need to acquaint yourself with Arif, who's a little farther down this road. I don't think he drops by here very often, but if you send him a PM I think he'll be glad to swap sea Army stories with you.
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Old 06-22-2007, 05:47 PM   #3
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RLTW,

Looks like you're contributing to a Roth IRA for your wife also. Excellent.

Regarding the funding for college vs. retirement thing. There are some pretty sweet things about a Roth IRA you should know [though you might already]:

Per Early Distributions of IRS Pub 590, you can withdrawal money from the Roth IRA without penalty for qualified higher education expenses for "you, your spouse, or the children or grandchildren of you or your spouse". It also looks like you can withdraw your contributions to the Roth at more or less anytime since you've already paid taxes on those contributions. See the Motley Fool's The Roth IRA Part III: Distributions and The Roth IRA Part IV: Early Withdrawals.

Given that you're maxing out the Roth IRAs, I think it would be prudent to use the TSP instead of the fully taxable account.

btw - my FIL was in USCG for 29 years, and for some reason he's still working even though his wife is a GS-15.

- Alec
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Military Officer looking to be like NORDS
Old 06-23-2007, 09:10 AM   #4
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Military Officer looking to be like NORDS

Welcome to the board!

I got this message so peer pressure works

Quote:
Hello Tomcat98 it appears that you have not posted on our forums in several weeks, why not take a few moments to ask a question, help provide a solution or just engage in a conversation with another member in any one of our forums?
Yes we all aspire to be like Nords. For me its the hairstyle.

He is one of the true military retirees I know that actually retired. He has some good advice here as do the majority of the folks. And what I like best about the board is that with all the advice there is no one cookie cutter way to get where you want to be.

I have 3 years to go then I can retire at 41. First four were jumping out of planes as a young NCO at Ft Bragg and the last 14 have been in the AF as an officer. When I first started the ER quest my goal was to be able to replace lost income at retirement with investment income. Didn't have a clue how I was going to do it but over time the plan began to come together.

For the most part it has been good and I think if I would have had bad assignments at key points I would have bailed. I've been an exec, Aide-De-Camp, had great jobs but it could have really taken a toll if I wasn't able to keep myself grounded overtime. When I finally looked up I had 6 years to go so I was committed. But if you are not having fun do something else. At the end of the day whatever it is what is best for you? Take advantage of everything they can offer you. If someone tells you no ask someone else. I find the closer I get to retiring the more I try to do thing because I know when its over its over and I will go on to something else.

Assignment officers know they have you near the end and they will definately try to get it out of you. Sometime I will have to tell you about my 1000 mile commute that I have been doing for the last 14 months.

As for TSP, I think you need to do it. Expense rates are low plus I don't like leaving any tax advantage on the table period. I figure if I am smart enought to put it up I will be smart enough to withdraw it in the most tax efficient manner.

Spouse wanting to get a Doctorate huh? Good for her. I admire people who can do this. I have one of those Doctors who can't help you (PhD Statistics) I tell her use this skill for the better cause. World poker tour, Vegas, lottery etc but it hasn't worked out. So she's a realtor and doing well. In fact when I hang it up I plan on helping her.

I think if you can balance two careers and kids you are doing great. My advice here is to live off one income and bank the other. That way there is always flexibility for one to stay home if needed.

Landlord also? We have two rentals. Not to bad but stay on top of them.

So overall my advice would be fairly simple. "Plan you work and work your plan." Of course the best plan goes out window with first contact with the enemy so adapt as necessary. If you are already thinking about retiring you are in great shape as compared to your peers.

Again Welcome!

Tomcat98
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Old 06-23-2007, 09:32 AM   #5
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Welcome to the board. I hung around to 20. My experience was different than Nords, I enjoyed my career except for the first four years and the last 6 months. I got out because of diminishing financial returns after 20 and my absolute refusal to do the things I would have had to do to progress beyond 20. I was very nervous about my finances when I got out, but my technical background and training worked very well in finding civilian employment. I considered retiring back then but looking back I'm glad I kept working at work that I enjoyed. I might have been able to get by but it would have been tough with kids in college. After 10 years of additional work I felt I could retire whenever I wanted to, work was a choice rather than a need. I just work part time now and it's still a choice. Can't really help with your financial situation, it's such an individual thing, but it appears as if you are living below your means, which is a great start. Best of luck!
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Thanks
Old 06-23-2007, 12:51 PM   #6
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Thanks

Thanks for the welcome and advise. I agree I am still young enough(YG01) that if the Army isn't making it fun and exciting I will get out. But right now I love my job and I am learning great skills for civilian life and Military life. So the plan is to save as much as we can(within reason) and stay in for 20.

Thanks for the IRA info, I wasn't aware of that. I don't think we will withdraw from our IRA however it is something to look at.

As far as the TSP, I understand that the expense ratio is low, and there is a tax advantage for using it. However, right now I think fully funding my wifes and my IRA is most important. Then the goal is to have enough in my non-tax deferred investments to make up the difference for my pension so I can live off that from 42-59.5. Next priority for me would be TSP for long term retirement. Right now I don't have enough money after expenses to fund the TSP, but I don't think it is that be of deal, because I think I will have enough money in the IRA's to live off of after 60. However, for some reason everybody tells me I need to fund the TSP, I just don't see it. Am I missing something?

Thanks again
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Old 06-23-2007, 02:53 PM   #7
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Quote:
Originally Posted by ats5g View Post
RLTW,

Looks like you're contributing to a Roth IRA for your wife also. Excellent.

Regarding the funding for college vs. retirement thing. There are some pretty sweet things about a Roth IRA you should know [though you might already]:

Per Early Distributions of IRS Pub 590, you can withdrawal money from the Roth IRA without penalty for qualified higher education expenses for "you, your spouse, or the children or grandchildren of you or your spouse".
- Alec
Should this read Traditional IRA instead of Roth IRA? The exceptions (such as for college expenses) to the 10% penalty apply to the Traditional IRA. There is no penalty for withdrawing your contributions from the Roth, since it's already been taxed.

Please correct me if I'm wrong.
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Old 06-23-2007, 03:26 PM   #8
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Quote:
Originally Posted by RLTW View Post
However, for some reason everybody tells me I need to fund the TSP, I just don't see it. Am I missing something?
You don't have to take somebody's word for it. Run a spreadsheet.

Put your annual savings (up to $15K/year) in the TSP for the rest of your career and compound it out until age 60. I'd suggest 7% for equities and 5% for bonds, minus the ER of 0.03. Remember to include subsequent annual contributions to your 20th year of service as the spreadsheet is compounding the previous annual contributions.

Do the same with the same amount in your favorite non-TSP mutual fund. However this time reduce the 7% compounding by the fund's expense ratio. If you can't put all the contributions into IRAs ($8K-$10K) but have to put some into taxable accounts, then reduce the taxable compounding by another 10-15% of the annual compounding (you choose) to account for taxes.

After your 20th YOS then start withdrawing what you think you need to cover the expenses that aren't already handled by your COLA pension. You can roll the TSP over into an IRA with a 72(t) SEPP or you can take out the Roth contributions. You could leave the TSP compounding tax-deferred in the TSP or you could roll some of it over to an IRA. I guess you'd have to change the TSP-->IRA compounding to subtract your favorite mutual fund's expense ratio instead of the TSP's 0.03%.

I'm betting that at age 60 you'll have the most money by putting your contributions into the TSP and leaving them there the whole time. (Which you feel you may have difficulty accomplishing.) You'll have the next-most amount of money by doing the IRA 72(t)s or withdrawing Roth contributions, and you'll have the least amount of money with taxable accounts.

It's astounding what a 0.5% expense ratio can do to your compounding.
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Old 06-23-2007, 05:04 PM   #9
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Quote:
Originally Posted by Sue J View Post
Should this read Traditional IRA instead of Roth IRA? The exceptions (such as for college expenses) to the 10% penalty apply to the Traditional IRA. There is no penalty for withdrawing your contributions from the Roth, since it's already been taxed.

Please correct me if I'm wrong.
Under ordinary circumstances I believe the Roth is subject to the usual age 59 1/2 limitation.

Ha
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Old 06-23-2007, 08:04 PM   #10
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Check out Are Distributions Taxable? in the Roth section of Pub 590, particularly Additional Tax on Early Distributions, and I quote:

Quote:
Other early distributions. Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Exceptions. You may not have to pay the 10% additional tax in the following situations.

*

You have reached age 59Ĺ.
*

You are disabled.
*

You are the beneficiary of a deceased IRA owner.
*

You use the distribution to pay certain qualified first-time homebuyer amounts.
*

The distributions are part of a series of substantially equal payments.
*

You have significant unreimbursed medical expenses.
*

You are paying medical insurance premiums after losing your job.
*

The distributions are not more than your qualified higher education expenses.
*

The distribution is due to an IRS levy of the qualified plan.
*

The distribution is a qualified reservist distribution.

Most of these exceptions are discussed earlier in chapter 1 under Early Distributions.
Hence, see Early Distributions from Chapter 1.

- Alec
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