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Military Officer and working spouse retirement
Old 03-13-2013, 06:31 PM   #1
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Military Officer and working spouse retirement

Hi everyone,

What a great forum! My spouse and I are 30 y/o and I've got 7 yrs active duty and she works full time. I wanted to get everyone's opinions on the military TSP as well as other retirement solutions. Our goal is to be fully retired at 49. We have 2 girls that 1 will be out of college and the other will almost be finished at the time of retirement. I will be eligible for an active duty retirement at 44 y/o, but at our investment rate, I wouldn't be fully comfortable fully retiring at 44 (I may or may not go past 20 in the military, but I will continue to work until 49). Currently, we are very blessed to be in a good financial position and I want to capitalize on this by making smart financial decisions with the extra money.

Current cash assets:
Roths: $33500
401k: $42400
taxable account: $43200

Over the next 3-4 years, we will be able to save approx. $4k to $5k every month. My question is really what is the best way to invest this money. Right now, I don't put anything in the TSP. I have vanguard mutual funds (wellington and wellesley) and then my fidelity account, I trade only individual stocks and etf's. I'm getting more and more interested in mutual funds and I try to focus on interest and dividends and take the capital appreciation as it comes. I've been thinking about vanguard star, and other vanguard mutual funds (st invest grade, total stock market, etc), but also the TSP.
What all do you suggest?

Thanks,
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Old 03-13-2013, 07:31 PM   #2
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Welcome! It's always nice to get more military people here, especially when you're young enough to really take advantage of some if the benefits. My DH is military with 17 yrs, We're planning to ER when he gets to 20 and are really excited that it's getting "close". I'll let others provide more detail, but the TSP is a great deal. You can't beat the costs, and if you're happy with index funds (most here are, though not all) that's one of the main things to look for.

It sounds like you're off to a great start!
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Old 03-13-2013, 07:32 PM   #3
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Quote:
Originally Posted by moneymaker View Post
Hi everyone,

What a great forum! My spouse and I are 30 y/o and I've got 7 yrs active duty and she works full time. I wanted to get everyone's opinions on the military TSP as well as other retirement solutions. Our goal is to be fully retired at 49. We have 2 girls that 1 will be out of college and the other will almost be finished at the time of retirement. I will be eligible for an active duty retirement at 44 y/o, but at our investment rate, I wouldn't be fully comfortable fully retiring at 44 (I may or may not go past 20 in the military, but I will continue to work until 49). Currently, we are very blessed to be in a good financial position and I want to capitalize on this by making smart financial decisions with the extra money.

Current cash assets:
Roths: $33500
401k: $42400
taxable account: $43200

Over the next 3-4 years, we will be able to save approx. $4k to $5k every month. My question is really what is the best way to invest this money. Right now, I don't put anything in the TSP. I have vanguard mutual funds (wellington and wellesley) and then my fidelity account, I trade only individual stocks and etf's. I'm getting more and more interested in mutual funds and I try to focus on interest and dividends and take the capital appreciation as it comes. I've been thinking about vanguard star, and other vanguard mutual funds (st invest grade, total stock market, etc), but also the TSP.
What all do you suggest?

Thanks,
I can speak to this somewhat. First thanks for your service. I cannot talk about the wellington and wellesley funds but I can to TSP. First off it is an awesome deal If you are in FERS putting money away they match up to 5% of your pay. So putting 5 in and getting the match is 100% interest in my book. Second TSP is one of if not the least expensive funds to buy into. Maintenance fees are way below others that I have seen. You can research lots of info on it. Google will put a lot of info at your fingertips. So to the funds somewhat. There are lifecylcle funds that do all the work for you. They are somewhat conservative but they do make sense for those who just want to invest and forget. They are set up by investment years. You can adjust as you get closer to retirement to the straight lifecycle fund.

There are 5 funds that are the basis for even the lifecycle funds and you can invest in those straight out as I did. G is the government bond fund and it will be where you want to have your money if you are getting ready to take the money and run. F fund is munis and other bonds. I cant answer to much of that because I never saw much movement in it so I didnt invest long there. C fund is the S&P fund. Follows that market in fairly good order. The S fund is the Welshire 4500 following the stocks that the fund runs. I is international and I forget which fund it follows but it is out there.

Using those funds you cover the market in all the funds. The lifecycle funds use them all. Now as for the yield it has done me well. Since 1988 when I started investing to today I have made a very nice nest egg. It didnt bring me millions but on top of the two pensions I am going to get it will match each of them so minus SS the pension so far is bringing in 1/3 of my income.
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Old 03-13-2013, 07:59 PM   #4
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Quote:
What all do you suggest?

Welcome here moneymaker. Thanks for your service to our nation.

Anything that has Vanguard in front of it is better than 99% of the rest. I have never been a big fan of the STAR fund for the simple reason that it is a fund-of-funds of actively managed VG funds and I am pretty-much an all index guy after many years of trying to find my way. That said, if you love STAR, go for it.

If you have not already done so, pick up Bogleheads Guide to Investing at the library or bookstore. It will show you a clear path.
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Old 03-13-2013, 11:34 PM   #5
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Thank you for your service. It looks like you are doing very well on the saving so far. There was no TSP when I was in but I have heard only good things about it.
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Old 03-14-2013, 09:49 AM   #6
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Here's another vote for TSP, though you don't get the matching like Civil Service employees. You can't beat the expense ratio (~.025% most recently), the array of funds has decent coverage of the major markets, Lifecycle funds are available if you like that option, there's now a Roth version and you have the ability to roll your funds into an IRA at a later date.

Also, the value of your military retirement benefits is huge, both the annuity and health care. If you enjoy your profession as a career, it provides a great foundation as you build your retirement plan.
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Old 03-14-2013, 12:31 PM   #7
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Thanks for all of the replies. A couple of thoughts:
1. I guess I'm not understanding the benefit of maxing out the TSP and Roth's if I can't touch the money until I'm 60. I plan to be well retired before then. Can someone explain options that I may be missing here.

2. Am I being too conservative for my age by investing in balanced funds such as wellington, wellesley, star, life strategy moderate growth? I've become conservative because I got burned back in 08 when I finally got heavy into the markets. Thoughts?
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Old 03-14-2013, 01:04 PM   #8
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Probably just going over stuff with which you are familiar, but...

Benefits:

1. TSP and Roth - Tax deferred growth of your investments
2. TSP - Low cost vehicles for index-based investment strategies
3. Roth TSP or IRA - No income taxes on money when you withdraw

Disadvantages:

1. Both - Like any tax deferred program, limitations on using the money for other purposes or prior to certain ages without penalty

Some other thoughts...unless it's different from the Civil Service TSP, you can begin withdrawing your money at age 55. Roth IRA is 59 1/2.

For Roth IRAs, you can always withdraw up to the amount you've contributed without penalty. You can also tap your Roth IRA without penalty for first time home purchases, qualified higher ed expenses and some other limited categories. An option that may dovetail with early retirement; you can use Rule 72(t) to withdraw money without penalty over your expected lifetime per IRS tables. You must continue that distribution scheme for 5 years or until age 59 1/2, whichever is longer.

You're on target that you don't want tie up money needed for other purposes in programs designed for retirement assets. However, as you can see, there is even some wiggle room in these options.

My impression was that much of the money you intended to save was for retirement and therefore my focus was on TSP and Roth. If you intend to avoid these programs, there's lots of info here and on the Bogleheads forum about investing for maximum tax efficiency.

As always, only you/your family can truly judge the right allocation based on your priorities, needs and wants. You're in a good financial position to consider and make those choices. Best of luck.
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Old 03-14-2013, 02:03 PM   #9
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Welcome, and congratulations on having such a strong plan so early in your career. If you can continue to save over the next 13 years at the rate you project, you shouldn't have any problems meeting your goal.

What I wish I had known earlier was that I needed to save more in taxable accounts. My spouse has been a stay-at-home Mom throughout our military career, so on one income (and 2 kids), all of our early years savings went into retirement accounts. Only later did I realize the irony of having to put off early retirement a few extra years because the majority of my funds were tied up in retirement accounts!

I'm still retiring this summer at the 26 year mark, but had I not tied so much up in IRAs/TSP early on, I would have paid cash for our retirement house. As it is, we bought our house with a mortgage, and will pay it off once we hit 59 1/2 (now age 48) when we can withdraw from the IRAs. Of course, with you and your spouse working, and at your projected savings rate, you can have the best of all worlds, IRAs, TSP, and considerable taxable savings invested each year.
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