Assess me please! (Active duty military)

[navydavey]

Alright everyone,

I discovered this site last night when I was rolling around in bed unable to sleep. I feel like I'm an above average saver for my age/income group, but I also feel like I'm not doing enough when it comes to the crowd here.

Early retirement, life on a sailboat crusing has always appealed to me. I know things like that come and go, but if there's one thing I've learned so far in life, its to leave your options open for as long as you can. I would at least like to give early retirement the best shot I can, and if I fall short, I'll likely still be ahead of the curve.

I would like someone to give me a bit of an assesment as to where I'm at on that road so far...so here are my stats:

Age: Just turned 24
Relationship Status: Single and kinda looking
Income: 48k gross, 42k net
Occupation: Military
Career expectations: ~1.5-3% pay raise per year and a promotion to about an 80-90k income within the next 4-5 years.

Assets:

Roth IRA - $20,500 (5k addition every year since 2009)
TSP (military version of a 401k with no matching) - $4,500 (3500 addition each year)
Stocks/bonds/funds - $28,000
Savings account - $17,000
Checking - $1,000

Total: $71,000

Debt:

35k Student loan (.5% interest on a 60 month repayment plan) - $28000

Monthly Expenses:

Rent - $600
Groceries - $200
Loan - $600
Phone - $70
Gas - $160
Insurance - $80
Random - $200

Total: $1910


I've been working since I graduated college 15 months ago. My best estimate is that my net worth has gone from about $3000 when I graduated college to about $43,000 today. I don't include things like my car, photography equipment, jewelry, or other personal possessions in my net worth calculation since I don't see myself ever selling most of this stuff and therefore I don't think it really contributes to how much I'm worth.

Sorry for the long post and thanks in advance for the help!

 

[Rowdy]

navydavey; welcome! Looks like you are doing great. Keep pumping money into the Roth and TSP. If you can make it to 20 years (or better yet 30 years) in the Navy, you'll be golden. The time will fly by!

Check out Nords' book "The Military Guide to Financial Independence and Retirement" by Doug Nordman. He also has a web site: the-military-guide.com Good stuff!

 

[HawkeyeNFO]

Hi. 15 years in the Navy here, 5 to go. You have a good deal of student debt, but the interest is very low, so keep paying the minimum. Roth is maxed out every year? Excellent. One place to improve is your TSP - Time to max that out also.

What do you do for the Navy? If your going to be deployed, you will have other options like the Savings Deposit Program, and also the potential for months of tax-free, along with some other additional pay like hazardous duty or imminent danger pay.

For now the 20 year retirement offered by Uncle Sam is part of my FI / ER plan, but for you, the military may be a temporary thing or just a stepping stone. In the meantime, take advantage of all the educational benefits if you are able to do so, it's like free money!

 

[navydavey]

I have another 11 months until my 8 year commitment begins. By that time I'll be 33 with about 11 years of service. It's obviously incredibly difficult to predict the future, but I think at that point another 9 years might be tempting, especially if pensions and incentive pay still exist by then. Thanks for the input and thanks for your service on this 9/11.

 

[aaronc879]

Seems like you're off to a great start. If you end up with the income you hope to have you'll get a very nice pension and should be able to FIRE very early or at least have the option.

You say you're single and looking. Make sure your future significant other is on the same page as far as finances go. Best of luck

 

[dessert]

Welcome navydavy.
I can tell you one thing......just the fact that you are on this forum speaks volumes about you and your situation. When I was your age I was not thinking about the future and was not even worried about net worth. There was no 401k or investments either.
So I think you are doing just fine. Continue those saving ways and you will always be glad that you did.
Enjoy your Military time and thanks for your service to our Country.

 

[pb4uski]

....You have a good deal of student debt, but the interest is very low, so keep paying the minimum. Roth is maxed out every year? Excellent. One place to improve is your TSP - Time to max that out also. ....

+1 on TSP. You are off to a great start. Just continue saving and investing regularly in low cost index funds where available and you will be fine. Don't forget to have some fun along the way.

 

[HawkeyeNFO]

Keep this in mind: Naval Aviation has the lowest promotion rates among unrestricted line officers these days, so when you get to your squadron, let your CO know that you want to eventually have his job. Deviating from the cookie-cutter career path even a little bit can mean doom at promotion boards. Despite all the BS about diversity in your career being a good thing, the reality is that it can be career suicide. The other options you will have later on will include re-designating to a different career field, or going into the reserves or FTS. You'll learn all about that stuff later. For now, enjoy flight school. If you're not having a good time there, something is wrong.

 

[navydavey]

HawkeyeNFO, I just started the tailhook pipeline about two months ago. Anticipating another 10-11 months until wings.

FWIW, the student debt is the career starter loan given by USAA. I invested all of it in the Roth, other equities, a CD ladder which has since matured, and kept a 3 month emergency fund in the savings account. I've recently adopted a bit of a cash-heavy mindset as we approach the election. I'm afraid that I might be a little too exposed and aside from maxing my ROTH and contributing to my TSP, have not invested much in equities for the past 6 months.

My attitude towards the Navy is to continue with it until I see a reason not to. Financially, the tax benefits are amazing (I'm also a PA state resident so I pay no state income tax). Quality of life sometimes leaves a bit to be desired, but I can't think of a job I'll consistently enjoy as much as I've enjoyed flying so far.


On a specific somewhat off-topic note: Can anyone confirm that TSP withdraws in the state of Pennsylvania are exempt from state income tax? I have heard that federal retirement pensions are tax exempt in PA, and am wondering if I will essentially be able to avoid every paying state tax on my TSP money since it is pre-tax money.

 

[ejw93]

NavyDavey -

Congrats on your savings.

Looks like you're pretty disciplined- You took a 'car loan' at 0.5% interest and put it in to a Roth Acct. Smart decision - No Mustang or Camaro for you.

You're well on your way to financial independence. When the Roth TSP option shows up for Active Duty (any week now), MAX IT OUT. You're still in a low tax bracket at $48k gross. Later in life when you get in to the 25% bracket (typically O-3 with bonuses), that's when it usually begins to make more sense to do the 'traditional' TSP.

Each time you get a promotion or bonus, try to put as much as you can in savings. You never know when you'll want to go to grad school/retire/resign, so it's good to have a 'war chest' available to ensure you are not making career decisions based on financial duress.

Dunno about TSP withdrawal taxation in the state of PA. It's likely treated the same as income. I'd do a web search for how 401k withdrawals are taxed in PA, as TSP/401k are treated essentially the same by the IRS.

Oh, and grab a copy of Nords' book. Now.

 

[timwalsh300]

navydavey,

You can see some of my old posts; we have a lot in common. I'm only a couple years ahead of you in terms of career and savings, but I'll offer some thoughts.

1. You are doing great.

2. As you said, your income is going to jump over the next few years. The risk associated with that is lifestyle inflation. Right now you are probably still accustomed to living like a student: having roommates, sleeping on a futon, and no big expenses. As a single guy in flight school I spent less than $20k/year. I only bought something if I really had to, and I got it as cheap as possible, preferably second-hand. When your income doubles, especially if you marry, it's hard to continue living that way, and you probably shouldn't. You should eventually get a real mattress, make your place look decent, and do some traveling. My wife and I now spend about $40k/year. That allows us to live more comfortably than I did before: eating at nice restaurants on occasion, traveling whenever we get time (went to Italy this summer), and buying things as needed from places other than Goodwill and Wal-Mart. But we live in a simple 1-bedroom apartment, we don't have smart phones, and we don't have cable TV, so we are still putting more into savings than we are spending each year. I think you just have to be aware of your spending in the context of the big picture, and continue to ask yourself, "do I really need to buy this?" and "is this really worth the cost?" instead of "can I afford this?"

3. Speaking of getting married, I think that whomever you find, and how you talk about money together, will either make or break you in terms of early financial independence. If you find the type of girl who doesn't feel the need to work as an officer's wife, and who simply wants the biggest house that the bank will let you buy, you are doomed. And divorce is financially devastating, from what I hear. If you find a girl who has her own earning potential and shares your goal of early financial independence, you can accomplish a lot together. I feel enormously lucky that my wife has her own career as well as a strong propensity to save. The best thing we do is dream about our life together 20+ years from now while updating one balance sheet (everything is "ours") each month to see our progress toward those dreams. I think it strengthens our bond as well as our resolve to keep saving.

Tim

 

[navydavey]

Tim,

Thanks for the reply. Flight school has taught me the value of having a friend slightly ahead of you to double check yourself against, so its nice to have found you.

I've certainly identified the risk of lifestyle inflation. For the first year of commissioned life, I've been able to find furnished rentals which has helped in a number of ways. I've saved money not buying furniture obviously, and I can fit everything I own into my 1996 Subaru wagon, which makes moves much easier. Now that I've gotten to a year-long duty station in an unfurnished rental, I've started to think about slowly purchasing some of those 'real person' things. I got a nice bed after biding my time on a mattress pad for the first few weeks here. I think that upgrades like that, spread over my year here, are easier to absorb into my budget when I still have an appetite for student life.

At this point, I foresee myself being able to keep the lifestyle inflation to a minimum, but I'm sure a lot of people would say the same thing at my juncture. After all, I survived on $100/month freshman year as a Midshipman, and actually had a few hundred dollars of savings at the end of that year. Now that would certainly be impossible for me and I assume the same might hold true for my future.

Marriage is something that is in the back of my mind, but not on the front burner. I agree that my future spouse's feelings towards FI and smart money management should be part of the discussion when I reach that point. I also think smart money management and an ability to plan ahead rather than living in the moment reflects a maturity and vision that I would hope to find in a wife. It would also make that transition from "mine" to "ours" easier to stomach as I'd have trust that she would be a good steward of our future.

Thank you for your guidance and sharing your experience so far with me. I appreciate being able to hear from someone who's only a few steps ahead of me in this process. On another note, have you deployed yet, and if so, how has that affected your finances? I've lived under the assumption that deployment is generally a good thing financially, but it'd be nice to have that corroborated.


Dave

 

[timwalsh300]

I actually just finished a 10-month deployment. I earned about $10k extra over the course of the year in per diem, family separation, hostile fire pay, hardship duty pay, tax exemption, and my 10% interest through the Savings Deposit Program. I also spent virtually nothing on myself while I was over there: literally just $50/month for internet and a few Kindle e-books. However I took full advantage of the R&R program (perhaps a once-in-a-lifetime opportunity) by going to Italy, and the cost of my wife's airfare to meet me as well as two weeks of expenses ended up being a good chunk of that extra money. Like I said, you have to look at things in the context of the big picture and ask, "is this really worth the cost?" and in that case it definitely was. Despite the vacation, our spending for the last year was about equal to the previous year ($35-40k) and we each earned a lot more money, so it was a very good year for our balance sheet.

Tim