Military Retirement planning

[moneymaker]

Hi everyone,

Just wanted to get some thoughts.
Me: Married (both 31 y/o) with 2 kids (4, 1y/o). 9 years active duty army officer. Just made MAJ. Plan on doing atleast my 20 years which should give me a nice pension (50% of my base pay at retirement)

Investments:
Thrift savings plan (gov't 401k) - Just started it since they began the Roth option. $6k in C 50%, S 35%, I15% funds.
Wife 401k: $19k
Trad IRAs: $30k
Roth IRAs: $36k
Taxable: $51k

We save about $4k/month right now. Trying to have enough investments in the bank at retirement that I can generate just as much or more in interest and dividends than what my Army pension will be. Goal is to retire from the Army at 42 and retire for good at 49 when my oldest finishes college.
Right now, I'm heavily weighed in some Vanguard funds (wellington, Wellesley and dividend growth). I also have some conservative funds (blackrock dividend achievers, Fidelity GNMA). I do some stock trading too, but beginning to tier that down as I just don't have the time to do research - although I do enjoy it very much. I mainly invest in conservative dividend payers and MLP's that generate a nice dividend.

At my age, should I be more aggressive since I will receive a military retirement in 11 years? Also, are there any other core funds that anyone recommends (preferably vanguard or fidelity).

Thanks everyone and I look forward to hearing anyone's thoughts!

 

[mickeyd]

Hey moneymaker MAJ (P),

Welcome here.


You seem to have a much more well defined Plan that I had at your age. KISS~save/invest as much as possible. Live below your means (LBYM).

You did not mention healthcare, but Tricare is the solid gold standard especially when you consider the current cost to beneficiaries. Future costs? Who knows.

 

[Brat]

Start here: http://www.early-retirement.org/forums/f27/psa-i-wrote-a-book-or-have-a-blog-64204.html#post1261673

The author is retired Navy but I think you can handle that.

 

[haloFIRE]

Hey MoneyMaker,

Welcome - sounds like you are doing all the right things! Saving 4K a month on a )4 salary is impressive! Our situations aren't that far apart. I'm in the Army also, about to hit 25 years. Big dividend MLP fan. Fav is KMP - I'm 10 years long in it.

My investing style is very aggressive - I'm about 97% stocks. I feel I can afford to be since I've got a $6500 a month pension awaiting as soon as I retire. If I didn't have that, I'd be a bit more conservative. Recommend you keep a bit of flexibility until you hit the 20 year mark and vest. That said, I think you can be aggressive, but might not want to be as skewed as I am until you hit 20.

Wish you all the best, and Welcome!

HaloFIRE

 

[haloFIRE]

P.S. I just purchased Nords' book (see the link in Brat's post above). Well worth the investment.

 

[av8er]

It looks like you all are doing well, and definitely appear to be on a good glide path to a comfortable early retirement. My only recommendations would be: 1) do not go too aggressive on your portfolio until you get to 20...you never know what might happen, especially during a significant drawdown/RIF; 2) sign up now for the transferability option of the post-911 GI Bill if you haven't done so already. It's a phenomenal benefit, but does carry a four year ADSO. The sooner you sign up, the sooner you start serving off that service obligation.

 

[haloFIRE]

Well said av8er!
X-fered mine before the ADSO. Good counsel to remind folks about the extra time

 

[Nords]

At my age, should I be more aggressive since I will receive a military retirement in 11 years?
Thanks everyone and I look forward to hearing anyone's thoughts!

Welcome, Moneymaker, and congratulations on making Major. That pay raise can really boost your ego.

You're probably already planning to save/invest most of that raise, but there's another reason to avoid lifestyle expansion: 11 years is an awfully long time to plan to stay in the military. Your priorities may change over that time (or the assignment officer may change them for you), and the closer you are to financial independence then the less of a hostage you are to your next set of orders.

However as long as you're planning to stay Army, you have a relatively high assurance of employment. I think you can afford to be aggressively invested in equities. My spouse and I stayed >90% equities during our active-duty time and continued that when I started drawing my pension. No bonds-- just cash for an emergency fund. In retirement we've boosted that cash to two years' expenses, which we expect to get us through most bear markets.

Also, are there any other core funds that anyone recommends (preferably vanguard or fidelity).

Trick question.

You should decide on your asset allocation, and then pick the cheapest passive equity index funds that will meet your allocation. Since you're looking at Vanguard & Fidelity, once you pick your asset allocation then that's a pretty short list. If you're comfortable with the equities that you're buying now, then buy more of them and less of the GNMA/Wellesley/Wellington stuff.

Since you're saving in both taxable and tax-deferred accounts, it's probably best to focus your efforts on maxing out the TSP and your IRAs now. You only have 11 years left to buy TSP shares (unless you start a bridge career in federal civil service) and you won't find lower expenses than the TSP funds. Later during your career you can start building up taxable accounts to live on until you can tap your tax-deferred accounts.

Either fund company should be fine. Servicemembers used to have trouble managing their Vanguard accounts from overseas deployments, while Fidelity has been much more flexible about logins from around the globe. The expense ratio difference between Fidelity & Vanguard has narrowed, while they're still both way more expensive than the TSP.

Let me know if you have more questions.

 

[HawkeyeNFO]

However as long as you're planning to stay Army, you have a relatively high assurance of employment.

That may have been true just 3 years ago, but now the pendulum is swinging the other way and I suspect that there is less of an assurance of a 20 year career than before. SecDef is talking about a RIF, and while he is primarily talking about government civilians taking the biggest hit, he is also talking about reducing force structure and the service which can expect the biggest hit is Mean Green, followed by the USMC. Many contractor employees in my office are already taking sizable pay cuts.

The DoD funding situation right now is no joke. The sequester and furlough mean that my office at the pentagon is just guys like me wearing a uniform every Friday right now (about 15% of the staff), and the expectation is that it continues into FY14.

For the OP, yes you'll probably be able to do your 20, but do whatever you can to remain ahead of the pack, so that the Army doesn't force you out early. It's not the guarantee it was when Iraq and the 'Stan were both going on.

 

[JDARNELL]

Your priorities may change over that time (or the assignment officer may change them for you), and the closer you are to financial independence then the less of a hostage you are to your next set of orders.

I completely agree. At the 16 yr point the assignment officer began messing with me. At 20.6 yrs I got the call congrats you are going to make Colonel however......

I just laughed and told her that thanks for the offer however I was going to pass on the assignment and go on with my life. She laughed and said I was the 10th person she had contacted for the position all the others told her what I did and retired.

Being FI is a huge benefit as I now choose what I want to do not have to do something because I need the $$.

BTW Congrats on being an Iron Major. They will suck the life out of you if you let them as most of us were all type A adrenalin junkies. Good times. However Balance Balance Balance!

JDARNELL

 

[rjwassink67]

My wife has 11 years in right now. We have just a little more then the OP, but just about the same numbers. Right now we are backing down on our TSP and IRA's and hitting our taxable investments heavier. That way will will have more money available between our 45-60 years. We plan to buy our retirement property around or after she retires. So the taxable account will pay for part of that and anything else we might want to do in those prime years.

 

[BLS53]

Just saw Secretary Nagal at a press conference on C-SPAN. He was discussing how lean the budget will be going forward. Among other things, he mentioned compensation and retirement reform as being a priority.

Seems to be a push to separate the "warriors" from the "admin" types as far as pay and benefits go. We already have combat, sea, and flight pay. Maybe they'll go a step further and have two retirement systems.

 

[chief04010]

Just saw Secretary Nagal at a press conference on C-SPAN. He was discussing how lean the budget will be going forward. Among other things, he mentioned compensation and retirement reform as being a priority.

Seems to be a push to separate the "warriors" from the "admin" types as far as pay and benefits go. We already have combat, sea, and flight pay. Maybe they'll go a step further and have two retirement systems.

If you look at the civilian side of the Government you will see that they already have two retirement systems regular MRA +30 years 1% X years service and Law Enforcement 50 with 20 years 1.7%, that may be over simplifying it but the FEDs on here will understand. anyway just saying the president is there for a double system.

 

[Greg V]

Chief, there's even more flavors out there in the Civil Service arena.

FAA guys can get the 1.7% if they meet job and longevity requirements. Even us "regular" folks can get 1.1% per qualifying year vice 1 % if we have at least 20 yrs and wait until 62 or later to retire.

IMO (and we all have one), current retirees, and maybe current workers at some duration of service, will be grandfathered in their respective system, but we can still be impacted by COLAs (or lack thereof) and changes to FEHB and/or Medicare programs.

It will be interesting...

 

[timwalsh300]

Seems to be a push to separate the "warriors" from the "admin" types as far as pay and benefits go.

Did Hagel say something specific to this effect, or are you referring to what you've heard elsewhere? I've seen proposals, but I haven't seen anyone high profile throw their weight behind them yet.

I am sympathetic the idea. It pains me to think that a service member who spent much of the last decade driving around waiting to hit an IED gets roughly the same total compensation as another service member of the same rank who never faced such hardship or danger. On the other hand, I think letting market forces determine pay is more rational: jobs/assignments for which it's more difficult to recruit/retain should get paid more, and that isn't necessarily correlated with the level of hardship or danger involved.

Tim

 

[moneymaker]

Nords, I really appreciate the info. Does anyone have any other suggestions as far as AA, core holdings, etc? I realize that the military pension may change - but that's life and just like my pension can change, I trust that it will be there much more than any private company's pension nowadays

I think I'll stick to what I've been doing.