Investment Guidance Requested : Army Officer

[Nords]

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Originally Posted by nash031 Nords' guidance certainly helped when I read it the first time about 5 years ago. It taught me some new things and reinforced a lot of what I had been doing since I was an O-1.

Thanks, glad it helped!

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Originally Posted by nash031 Many military members believe that their pension and modest contributions to TSP are enough to retire at their 20 or close to it.

I'm a member of a number of military spouse groups on Facebook, and the spouses regularly freak out about trading a paycheck for a pension.

A few of them admonish the rest of the group that there's just no possible way the pension could ever be enough to live on and they should have their spouses either stay to 30 or "OMG get a job right now".

I see these types of comments often enough to wonder how much spouse communication happens in their household.

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Originally Posted by nash031 I hear a lot of young officers talk about how they want to save all their pay raises, and I don't think that's a wise plan because I don't think it's truly sustainable. You have to live your life a little bit, and O-1s don't make much. The "half my pay raise" worked well for me in striking a balance.

Years ago, SamClem inspired this post:
https://the-military-guide.com/savin...motion-raises/

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Originally Posted by nash031 Most years, probably 90% of my annual retention bonus (could be nuclear officer incentive pay, or aviation retention bonuses, or similar in the Army, etc.) money goes into taxable savings, and that's nothing to sneeze at.

Those bonuses were pure investment gold. We occasionally partied with submarine pay and sea pay but bonuses went straight into our asset allocation.

[nash031]

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Originally Posted by Nords Thanks, glad it helped! I'm a member of a number of military spouse groups on Facebook, and the spouses regularly freak out about trading a paycheck for a pension. A few of them admonish the rest of the group that there's just no possible way the pension could ever be enough to live on and they should have their spouses either stay to 30 or "OMG get a job right now". I see these types of comments often enough to wonder how much spouse communication happens in their household. Years ago, SamClem inspired this post: https://the-military-guide.com/savin...motion-raises/ Those bonuses were pure investment gold. We occasionally partied with submarine pay and sea pay but bonuses went straight into our asset allocation.

Interesting write up. I see that you graphed the outcome for 100% of promotion raises. I wonder what my “at least” 50% of all raises would come out to including Longevity, COL, and promotions. For example, this year, I hit 18, increased BAH, and COL raise amount to nearly $500 per month. Add in sea pay and command pay and that’ll be an additional $500 in a few months. I’m going to aim to save all of it, as I usually have, but will likely end up closer to $750 additional per month as DD is growing and the nanny probably gets a raise. That’s without a promotion, and is nothing to sneeze at!

[NgineER]

Great comments from everyone. Your son is doing great IMO. Only thing I would add is to open and fund a Roth from his emergency cash this year, or before April 2018. The contribution can be withdrawn penalty and tax free at any time. So if he can’t contribute the full amount to a Roth IRA in any year, use his emergency cash to fill his account for the year. The money is still accessible, but he might want to keep it in a money market fund so that it is still available.

[Snidely Whiplash]

I'm sorry I haven't replied sooner. Christmas has kept me away from the computer and a visit from our son has made for one of the best Christmas' ever!

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Originally Posted by OldShooter Wow! Very detailed response. I think we are flattered.

I'm grateful for the time everyone took to reply. Its a big help to me knowing I'm nudging him in the right direction.

As to the internati0nal and total stock market options, I'm still researching those. I think he will maintain a big portion of his portfolio in an S&P500 index (and over 20 years I'm hopeful that any current overvaluation will smooth itself out) and maybe I can suggest that he adjust slightly by diverting some towards the TSP international fund and maybe the Fidelity Roth IRA into a Total Stock Market fund.

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Originally Posted by nash031 I'm not allowed to advise anyone at work about whether or not to take the BRS, but I can here!

And I'm grateful for your comments here about the BRS! I think my son has pretty much decided to opt in. I guess if he finds it was a huge mistake down the road he can consider staying in 22 years total to get back to the higher fixed payout ratio (and those last 2 years at a significant pay rate isn't the end of the world). If you and Nords are both suggesting it, I'm listening and in agreement with my sons decision.

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Originally Posted by Nords Snidely, your son is doing better than about 99% of my O-2 readers. I'd suggest that he continue maximizing his contributions to the Roth TSP ($18,500 in 2018) and his Roth IRA. If he can contribute even more to a taxable Vanguard account and achieve a 40% savings rate then he'll be financially independent before he pins on O-5. .............. He's welcome to e-mail NordsNords@Gmail.com if he has more questions.

Nords, that affirmation on your part that he's doing OK is a big relief to me. Thank you. He will probably max out both the Roth TSP and Roth IRA by the end of 2018 (he's maxed out the TSP and starting now on the Roth IRA). I encourage him to do as much as he can but still have money to do things and see things he otherwise wont have a chance to. I don't want him to have to live like a hermit. As it stands now, by the end of this year he will be knocking on the door to his O3 promotion and that raise will give him some additional spending and allow him to max his IRA and TSP, and allow him to continue contributing a respectable amount to his taxable account during deployments. I'm comfortable with that investing trajectory.

Your offer to help is very kind of you. Thank you. I have listed your email address as one he can go to for help with some of the calculations if I should be unavailable when the time comes for him to adjust his contribution amounts.

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Originally Posted by nash031 - Save 50% of your tenure and promotion pay raises. - Save most of your retention bonuses. ------- By the time I was halfway through my O4 time, wife and I were well over 50% gross savings rate, getting all the way to 59% the year before DD was born. -------- You have to live your life a little bit, and O-1s don't make much. The "half my pay raise" worked well for me in striking a balance.

I deleted a lot of great information when quoting your post that I took note of. Your ideas about saving most of raises is exactly what i have been stressing to my son to do. Its easier to not miss the money if you never got used to having it to begin with. I'm not sure I can convince him to get to the levels of investing you were able to achieve. Having a 50% plus percent savings / investing rate is pretty impressive. Through last year as an O2 my son was at 30% of his base pay and at maybe 25% overall when factoring in his BAH. Maybe those higher percentages are easier to hit as an O3.

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Originally Posted by NgineER Great comments from everyone. Your son is doing great IMO. Only thing I would add is to open and fund a Roth from his emergency cash this year, or before April 2018. The contribution can be withdrawn penalty and tax free at any time. So if he can’t contribute the full amount to a Roth IRA in any year, use his emergency cash to fill his account for the year. The money is still accessible, but he might want to keep it in a money market fund so that it is still available.

That is great advice that I had never considered. Knowing he can get to the $$ if he absolutely needs to via the Roth IRA withdrawal might make some sense for him to move his emergency fund to the IRA. That's an option I'll have to discuss with him. Thank you!

[PoorOldCountryBoy]

I defer to Nords and others as to the fine points of saving in the military, but just talking about the general situation your son is in the top 1% for sure. Congratulations!


This is more fine tuning than criticism: He'll need to think about liquidity in the age 35-59.5 range. If he wants to hold long term blue chips in a taxable account that could help. Saving isn't just for 65+, It gives you choices you otherwise would not have. So he should think a very tiny bit about what he'd want to do if he needed $20,000, or $50,000 for whatever reason. It may still go in tax free savings, but he needs to look at withdrawal options in emergencies.