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New to the military looking to beat the majority
Old 08-20-2012, 01:31 PM   #1
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New to the military looking to beat the majority

Hello, I've been reading these forums for a few months now, and decided to go ahead and introduce myself, and my situation.

I am 22 years old, and have been in the air force for a little over a year. I plan on beating the majority, and fully retire after 20 years of service.

I am married, with a 2 year old daughter and another due next month. We currently rent and plan to do so until I get out of the air force and move back home. The only debt I have is a 7% car loan that will be paid off in 29 months (I could pay this now but I'm looking to build credit, is this a good idea?).

I am currently investing 50% of my base pay ($860) into the L2050 TSP. I am hoping to have the TSP maxed by the time my car is payed off. I plan on switching to the Roth option of TSP once it becomes available to me. Once my tsp is maxed I don't know if I should start a Roth Ira, or invest in taxable accounts.

I am going to try to keep my new car until I retire, to save money. It only has 3500 miles on it after 6 months, so I think it's very possible. I also plan on saving my GI Bill for my daughters, which should save us alot of money. Both of my daughters will be done with high school by the time I get out, so that should help to.

All said and done, I am hoping to retire in 18 years and 10 months (41 years old). My only concern is having enough in taxable accounts to get me from 41 to 59 1/2. My pension will help, but i konw it wont be enough. Do you think its possible?

All wisdom is appreciated.
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Old 08-20-2012, 01:49 PM   #2
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Hi Murphy!

You have come to the right place! Yes, it is possible to retire after a 20 year military career, especially when you start planning on it from the beginning!

I highly encourage you to read the boards here -- particularly paying attention to our resident expert, Nords.

You should also read his book -- available in many libraries for free, but very much worth buying to keep it as a personal reference.

His website is here:

Military Retirement & Financial Independence | Financial independence & early retirement for veterans every Monday, Wednesday, & Thursday

Thank you for your service to our country, and welcome!
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Old 08-20-2012, 02:55 PM   #3
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Gabieta, thanks for the advice, and the link! I have already read a few helpful articles.
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Old 08-20-2012, 02:56 PM   #4
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All depends on your life style and family size. If you are living on 800 bucks a month now, not sure that is feasible once you have a family.

But either way you should keep track of ALL your expenses and see how it changes over time. As long as you live modestly and combine with your pension and savings, is definitely doable.

Good Luck!
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Old 08-20-2012, 03:30 PM   #5
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Thanks for your advice. 800 a month would be very tough! I am very blessed to have a BAH and BAS (about 1400 a month) which helps a lot.

As far as family goes, it will be complete next month when my second daughter it born! That will be our last child.
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Old 08-20-2012, 04:40 PM   #6
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I would look into refinancing your car loan with Pentagon FCU or Navy FCU. They offer far lower rates and you will still be able to build a credit history.
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Old 08-20-2012, 07:47 PM   #7
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Murphys law, hope all goes well for you in the Air Force. My grandson entered the Navy in March and is schooling at Pensecola NAS. He is enlisted. Are you enlisted or officer? Hope you achieve your goals. Best wishes.
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Old 08-20-2012, 08:06 PM   #8
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Murphys law,
Welcome to the board.

I'm guessing that your income right now is in a lower federal tax bracket than you might be in when you reitire (because much of your income is non-taxable and because you've just entered the service and are at the lower end of the pay scale). While it's tough to know what your income will be in retirement (retirement pay plus portfolio income), if it looks like you'll be taxed at a higher rate at that point than you are being taxed today, you MIGHT want to consider eliminating those TSP contributions and instead contribute to a Roth IRA. I like the TSP a lot, but the later tax savings might be more money in your pocket than you'd gain from the lower annual expenses in the TSP vs low cost funds from Vanguard or others. This is a fairly minor point, and as you said the ROTH TSP will probably be the best deal of all when it's available to you.

Quote:
Originally Posted by Murphys law View Post
My only concern is having enough in taxable accounts to get me from 41 to 59 1/2. My pension will help, but i konw it wont be enough. Do you think its possible?
Yes, it's possible if you guys can keep saving and if you keep your expenses and expectations in check. Also, keep in mind that you can always withdraw your contributions to a Roth IRA without penalty to help fill the gap between age 41 and 59 1/2, if your taxable accounts aren't enough. Also, you can take "72t" distributions without penalty from your traditional IRA or TSP before you reach 59 1/2.
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Old 08-20-2012, 09:17 PM   #9
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Welcome to the board, Murphy.

Quote:
Originally Posted by Murphys law View Post
I am 22 years old, and have been in the air force for a little over a year. I plan on beating the majority, and fully retire after 20 years of service.
It's a good plan, but that's an awful big commitment to make right now.

Give yourself a break and decide to reassess at the end of your service obligation. Your spouse may have quite a bit of feedback for you, and your kids may completely change the way you feel about the military. (I speak from personal experience.) When you get to the end of this obligation you can always recommit. But you can also transfer to the Reserve or Guard, or you can use those military skills to start a civilian career. You don't want to find yourself deployed to the desert at the six-year point with a 14-year "short-timer's chain" looking forward to the thrill of dropping below 5000 links.

Quote:
Originally Posted by Murphys law View Post
The only debt I have is a 7% car loan that will be paid off in 29 months (I could pay this now but I'm looking to build credit, is this a good idea?).
I'm not sure that's a good idea. You've been making payments for six months, so the credit reporting agencies probably already have enough data. You can probably continue to build your credit the old-fashioned way: by using your credit card and paying off the full balance every month.

Right now you're paying 7% APY for something you may already have, and will certainly get soon enough. I think you'd rather have that monthly income to spend on investments. Or diapers.

Quote:
Originally Posted by Murphys law View Post
I am currently investing 50% of my base pay ($860) into the L2050 TSP. I am hoping to have the TSP maxed by the time my car is payed off. I plan on switching to the Roth option of TSP once it becomes available to me. Once my tsp is maxed I don't know if I should start a Roth Ira, or invest in taxable accounts.
50%! Awesome. Keep it up.

At your income level there's probably not much benefit to maxing out the TSP when you can use the Roth TSP. But once you hit the max for the TSP, then start maxing your Roth IRA and your spouse's Roth IRA. You can withdraw those Roth IRA contributions anytime you want (for example, at age 41) and you can also withdraw up to $10K of the Roth for buying your first house. Of course the best action would be to max the TSP, max the Roth IRAs, and save up a separate fund for the house.

When you deploy to a combat zone, make sure you understand Ryan Guina's advice at The Military Wallet about putting your money in the TSP and in the Savings Deposit Program:
Thrift Savings Plan - The Military Wallet
Note that the link is an archive of about a dozen different posts on TSP features.

Once you max out the TSP and two Roth IRAs then you can start putting money in taxable accounts. My suggestion would be to save up a few months' pay in PenFed $1000 CDs for unexpected car repairs (or plane tickets for family emergencies). You could buy 3-5-year CDs in $1000 increments at a less-than-pathetic return, and only break into them if you have an emergency.

Quote:
Originally Posted by Murphys law View Post
I also plan on saving my GI Bill for my daughters, which should save us alot of money. Both of my daughters will be done with high school by the time I get out, so that should help to.
You might want to keep your options open there, too.

Kate "Kashman", a very smart military spouse with four daughters, points out that you and your spouse could use your GI Bill to obtain advanced degrees/certifications now, which would hypothetically boost your pay. Over the next 15 years you'd earn far more in higher pay (to save in a college fund) than your GI Bill would ever be worth to your daughters.
http://paycheck-chronicles.military....-to-your-kids/

The big payoff here would be if your spouse wanted to start her own career, but it'd also help you for promotions if you wanted a graduate degree without the additional service obligation.

Quote:
Originally Posted by Murphys law View Post
All said and done, I am hoping to retire in 18 years and 10 months (41 years old). My only concern is having enough in taxable accounts to get me from 41 to 59 1/2. My pension will help, but i konw it wont be enough. Do you think its possible?
You'd have to run the numbers for yourself, and at this stage of your life it's awful hard to predict expenses like raising a family.

However if you can live on your current paycheck and keep saving those pay raises & promotions, then within five years you'll easily be maxing your TSP & Roth IRAs. You'll be piling up the savings in taxable accounts, and you can tap those when you retire. You'll be in a much lower tax bracket at ER, too, so selling taxable investments for cap gains (or harvesting their dividends) will still leave you plenty for expenses.

It's easier for you to start piling up the money now (and letting it compound) while deciding to review your age 41 future every few years. At that age you may decide that you want to work at a bridge career for a while, or your spouse may launch the kids from the nest and decide that it's her turn to have a career, or you may be living a frugal lifestyle with a very small budget.

As long as you're not depriving yourself, keep socking as much money away as you can... compound returns will probably solve your forecasts for you.
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Old 08-21-2012, 12:52 PM   #10
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Murphys Law

I'm also in the Air Force so it's good to hear from another like-minded airman. A few things I will try to point out to see if you can extend some of your income:

1. What is your state of residence? Many states will make you exempt from paying state income tax if you are active duty working outside of the state. Make sure you check your state's tax law regarding this and take full advantage of it.

2. Check to see if your state has a veteran's bonus. I'm a resident of Ohio and got a tax free $500 bonus just for being active duty.

3. Make sure you aren't over paying taxes each month. As a young airman, single income I presume, and with a child, you probably owe little to no income tax at the end of the year. Make sure you run the withholding calculator on the IRS website to figure out your proper deductions.

It's funny you say you are ready to do a career because I have been there as well. Before I came in (while still in ROTC) I just wanted to do my 4 years then leave. Once I was in about a year, life was good (good assignment, low stress job as a butter bar) and I thought, hell I can do 20 years easily. I'd be 42 with roughly a $50K pension plus my wife and I are frugal so I can easily augment that with savings and be very close to fully retiring at that age. About 6 months later I got tagged for an unaccompanied short tour (1 year) remote. Wife wasn't too happy about that. Lucky for me I wasn't qualified and it was a glitch in the system but it put some insight into what the next 20 years would be like and our attitudes quickly shifted back to getting out after our service commitment. 20 Year of question marks for us and our future children didn't look so appealing anymore. We felt like we had little to no control over the direction our lives would take over that two decade period.

A few short months later I got short notice orders to PCS to a new base where my Gucci job was no more. I was now in charge of 60+ personnel and a headache of inspections/airfield construction issues/Air Traffic issues. 12 hour days (minimum) have become a norm and my stress level is very high especially lately as we have a large inspection next month that I am the lead as it is my flight which is being inspected. Needless to say this has expedited our family's decision to call it quits in 2 years.

YMMV, but always have a plan B. For me, maybe the grass is greener, but my military career field pays 2-3x on the outside with an 8 hour work day (and overtime pay, something foreign in the military), no PCSes/short tours/remotes/TDYs/deployments, and none of the stresses of being in management. It will likely delay my retirement date to age 50, but I can live with that. That's still a pretty young age to retire and when I consider the added quality of life over the next 25 years, I think it is worth it.

Don't get me wrong, I will miss the uniform when I hang it up in 2014, but I think it is the right choice for us. Like Nords said, don't necessarily lock yourself down just because of the 20 year pension. Keep playing until it is no longer fun. The guard and reserves are always there and I am still contemplating those options as well.

On the other hand, I watch people retire only because the USAF has forced them out. It all has to do with you and your family's threshold for change and how much you enjoy your job.

Other than that, you are on a really good start saving 50% of your base pay. Keep it up and try to save as much of your pay raises as possible. This should get you close to your goals if you stick with it.
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Old 08-21-2012, 02:27 PM   #11
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Penfed.org for their 1.49% no cost auto refinance. That will free up some more cash flow
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Old 08-21-2012, 09:04 PM   #12
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Thanks for your advice, much appreciated! I guess I am getting ahead of myself, and probably focusing a little to far ahead. Although, the thought of being able to enjoy an early retirement (even though so far away) keeps me going. I am very goal oriented, and need a goal I can focus on for nearly every stage of my life. This, of course, is the last! Thanks again for your help, gave me much to think about.
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Old 08-21-2012, 09:14 PM   #13
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ATC Guy, I am from Wisconsin. I am going to do some research on this topic, and hopefully save some money. I will also keep this in mind when ever i move, to see if its worth changing my state of residence. Thanks.
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Old 08-21-2012, 09:42 PM   #14
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Having built this plan is a good start, but much can happen. It makes me think of the Eisenhower quote, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Over my 36 year military career, I consistently looked ahead and made plans for life both in the AF and after the AF. Those plans served as a great foundation for the new, changed ones I always had to make. I probably exhausted the alphabet with all the modified plans, but without Plan A, I never could have put together a good Plan B. So...great beginning to have the end in mind and a method to get there. Remain flexible and open to change as the unexpected happens and/or you get new opportunities, whether in or out of the AF, as life happens.
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