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military retirement funds before 60?
Old 01-05-2013, 09:57 PM   #1
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military retirement funds before 60?

we are 32 and 33. My wife is active duty in the military and she is at 10 years. We are planning to go another 10-15 years. 15 years will have both of our kids in college. When she retirees we will buy a house in Tennessee with at least 75 acres. We have about $200k in Tsp and Roth ira. We also are just starting our before 60 fund and have about $8k in that, this will help to have extra income beyond her pension before our Tsp and ira kicks in. My main question is what percentage should we have between our before 60 and retirement funds? Should we have more in the before 60 fund to help with paying off the mortgage? It will be 11-16 years before we could start tapping our Tsp and ira after her retirement.
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Old 01-06-2013, 05:44 AM   #2
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Originally Posted by rjwassink67 View Post
My main question is what percentage should we have between our before 60 and retirement funds? Should we have more in the before 60 fund to help with paying off the mortgage? It will be 11-16 years before we could start tapping our Tsp and ira after her retirement.
It's not possible to give you a good answer. You'll have to look ahead and make a budget (anticipated spending by year, anticipated income sources by year [Social Security, any penson you have of your own, your wife's military pension,etc]). Also, you can gain limited access to your IRA funds before you turn 59 1/2--research the "72(t)" rule and SEPP (substantially equal periodic payments). And, it's possible (but not always a good idea) to roll the TSP funds into an IRA, so you could get to them early, too, via these 72(t) withdrawals.
If your income tax marginal rate is about the same now as it will be when you retire, you should consider making Roth IRA contributions instead of traditional IRA contributions. While you'll pay tax on the money now, one advantage in your case is that you can access the money you contributed to a Roth IRA (not the gains) at any time, for any reason. So, you could put the dough in there now, let it grow for 15 years or so, then withdraw your contributions over time until you reach 59 1/2 and have unfettered access to your "traditional" IRA money (and the gains in your Roth IRA). There's also a Roth TSP, I don't know much about it but it might also offer you some advantages.
And you'll want to check out the Military Retirement and Financial Independence blog written by Nords. It's a "must see" for folks in your position.
Welcome to the forum.
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Old 01-06-2013, 09:51 AM   #3
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this is a little off topic, but is there a difference between an IRA account and a mutual fund. We have our retirement money in a IRA 2040 and we have our before 60 money in just a 2030 account. Is there advantages in the IRA?
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Old 01-06-2013, 10:07 AM   #4
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Originally Posted by rjwassink67 View Post
we are 32 and 33. My wife is active duty in the military and she is at 10 years. We are planning to go another 10-15 years. 15 years will have both of our kids in college. When she retirees we will buy a house in Tennessee with at least 75 acres. We have about $200k in Tsp and Roth ira. We also are just starting our before 60 fund and have about $8k in that, this will help to have extra income beyond her pension before our Tsp and ira kicks in. My main question is what percentage should we have between our before 60 and retirement funds? Should we have more in the before 60 fund to help with paying off the mortgage? It will be 11-16 years before we could start tapping our Tsp and ira after her retirement.
Welcome to the board, RJW.

We have over 60 military veterans on the board, and SamClem was one of the book's top contributors. He and I are on the other side of the retirement goal line, and at your age we would not have been able to determine an accurate answer to your question.

But we still have opinions, and here are some of mine:
1. Buy that Tennessee home while you both still have employment income. Mortgage companies don't care about assets-- they only care about cash flow. They're a lot happier with W-2s than 1099-MISCs or self-employment or investment income.

2. Get a 30-year fixed-rate mortgage on that property. You're expecting a military pension with a COLA, which means that you'll be able to borrow money for long terms with high expectations of paying it back with inflation-eroded dollars. A 30-year mortgage will give you a much lower payment, and then you can either choose to pay it off early or to conserve cash by making the minimum payment. (That's what my spouse and I are doing with our mortgage, which we'll pay off by the time I'm 80 years old.) If you get a 15-year mortgage then you're handing all your flexibility over to the lender.

3. Roth IRA contributions can be withdrawn at any time for your living expenses.

4. For now, I'd go with the TSP's low expenses. As you approach retirement, you can make a better forecast on your living expenses. (Your spouse's pension might handle most of your expenses.) At retirement you can roll her TSP over to an IRA and start 72(t) withdrawals to support your additional expenses. However consider that at retirement you may also find yourselves starting bridge careers with enough income to make tapping your TSP or IRAs unnecessary. Heck, you'll have 75 acres-- maybe you should rent that out for crops or set up a trailer camp or whatever landlords do with Tennessee real estate.

5. It's better to use your education benefits on active duty (like TA or MyCAA). Of course your spouse could also sign her GI Bill benefits over to you or the kids. When you two adults have all the education that you think you'll need, then you should sign the GI Bill benefits over to your kids for their college funds. Keep an eye on Tennessee veteran's benefits, too-- you'll be state residents and your kids may be eligible for scholarships. If they want to attend Harvard instead of U Tenn, well, that's their funding problem.

6. For the health & happiness of you and your spouse, stay flexible on your plans for a military retirement. There could be several sucky assignments between 10 and 20 years, and she may not want to be stuck with them. (You may not want her to be stuck with them, either.) It's quite possible that within the next few years she could decide that she'd rather transfer to the Reserves or even leave the military completely. You both have skills and you both can achieve financial independence without a military pension. Don't lock yourselves into your assumptions.

7. When you forecast your retirement cash flow, you'll probably want to pay 6.5% of your spouse's military pension for the Survivor Benefit Program. You'll also be able to predict that your Tricare premiums will grow at the rate of the military pension COLA between now and retirement.

Quote:
Originally Posted by rjwassink67 View Post
this is a little off topic, but is there a difference between an IRA account and a mutual fund. We have our retirement money in a IRA 2040 and we have our before 60 money in just a 2030 account. Is there advantages in the IRA?
The IRA is just the bucket into which you put your assets like mutual funds-- or individual stocks, or bonds, or CDs.

You should minimize your investing expenses with cheap index funds that have low taxes and low trading costs. The world's cheapest index funds are in the TSP, so you should try to max that out first (either the TSP or the Roth TSP). Next you should invest in your Roth IRAs for their tax-deferred advantages. This is especially important if you're getting a military pension in retirement that will push you well into the 15% tax bracket. You'd rather pay lower taxes now and invest your after-tax money in a Roth IRA so that you're not subject to RMDs (and higher taxes) of a conventional IRA in retirement.

An IRA 2040 mutual fund is probably an easy way to set an asset allocation, but it's more important to choose an asset with a low expense ratio. The nature of your question makes me think that you should read up on asset allocation at the Bogleheads wiki: http://www.bogleheads.org/wiki/Main_Page
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Old 01-06-2013, 10:09 AM   #5
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Originally Posted by rjwassink67 View Post
this is a little off topic, but is there a difference between an IRA account and a mutual fund. We have our retirement money in a IRA 2040 and we have our before 60 money in just a 2030 account. Is there advantages in the IRA?
You can put mutual funds (or bank CDs, individual funds, etc) in your IRA. Or you can hold the same kinds of investments outside of an IRA. There are tax advantages to having them in an IRA.

I think you'd gain a lot by reading a bit on the fundamentals of this stuff. Check out the FAQ section of the forum, especially the FAQ for military retirees and the recommended reading list. Don't get discouraged/swamped by the quantity of info there--just reading one or two books will put you well on your way to success. Nobody will take care of this task (saving, investing, providing resources for your retirement) better than you can. It's worth studying a bit.

But keep asking questions here, too.
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