How/Where did you learn?

[HomesteadDreamer]

I'm new to this forum and glad I found it. I enjoy reading about what everyone is doing and learning from each of you. That said, I feel that I'm a pretty intelligent guy who has been relatively successful. However, when it comes to investing and taxes, I'm a little overwhelmed with all of the various options and rules/regulations that go into figuring out what is right for me.

For example, my wife and I both claim zero deductions and even pay extra federal/state tax each month and we still end up paying at the end of the year. We haven't done our taxes yet this year, but I basically cross my fingers when the button is clicked to submit it and find out what the damage is. Also, as we get a little older and start thinking more and more about retirement, I'm not sure which way to go. I don't mean for this to be a long post, but wanted to get some feedback on where we are and what we hope to do. Here is our situation:

My Age: 45
Wife's Age: 43

My military pension: $36000/yr (COLA'd)
My annual salary: $98000/yr
My wife's salary: $55000/yr
401K contributions: $33000/yr

401K balance: $175K (just started with large annual contributions the past couple years)
Real Estate (land): $70K

We still pay a mortgage each month and will for many more years, but probably have about $30K equity in our home.

My wife is currently in the National Guard and is eligible to retire now, but will not get her pension until age 60. I am a federal employee and will be eligible for a 2nd federal pension if I do a min of 10 yrs and hit my MRA of 57. At this time, I plan on working until I'm 57 and then retire. My wife will likely work about 5 more years before calling it quits.

We are fairly conservative with our money and don't need much to be happy. As such, I've tended to lean toward purchasing an annuity when the time comes to ensure we have a steady stream of income to supplement our steady pensions and (hopefully steady) SS. However, I read about those of you that invest in dividend paying stocks and other investment strategies and I want to learn more about what my best options are (while still staying relatively low risk).

All that said, what are some ways that I can get smarter on investment options and taxes. Any good books to read, websites/blogs to follow, classes to take?

 

[mickeyd]

Hey HD,

If you are a reader, please read as many of the recommended books at the Bogleheads site for starters. This is how many (most) of the folks that post here got a foot up. As Dr. Bernstein says "Dieting and investing are both simple, but neither is easy."

Good luck.

https://www.bogleheads.org/wiki/Category:Books_and_authors

 

[phil1ben]

You certainly can read all of the books suggested, however, I would also suggest spending 20-30 minutes per day reading the Wall Street Journal if you are so inclined. After about 6 months you will be substantially more informed. Just my thoughts.

 

[travelover]

Re predicting taxes, try Taxcaster

Three good basic investing books are the set of two, Bogleheads Guide to Investment and Retirement as well as Millionaire Teacher

Re annuities, this is a much discussed topic here and a search will yield much covered ground. We all like low risk investments but we tend to worry more about volatility than inflation. A non-inflation adjusted annuity has a high risk of being eaten away to nothing by inflation.

 

[DrRoy]

Hi. A few comments on some of your topics. Taxes - I also file 0 exemptions and then have more taken out besides. A lot depends on your total income vs just your salary, and what your deductions are. I have a fair amount of investment income and no mortgage interest deduction any more, so I would owe a penalty if I did not have additional $ deducted from my pay.

Annuities - Your various pensions and SS are rather the same as annuities. I would focus my savings on other investements for inflation protection and diversification.

Another book that I would recommend is "Your Money and Your Brain" by Jason Zweig. Learn to manage your own investments using low fee vehicles. There is no point in paying others to do little to nothing, and have worse performance to boot.

 

[rodi]

When I was working I also claimed '0' and still ended up owing some years (depending on lumpy income like stock grants.)

I found that maxing - up to the federal limit - my 401k helped a lot. Increased savings, reduced taxable income. At a certain point my mortgage interest deduction was pretty much useless... low interest and low balance. But it sounds like you're still in part of your mortgage where you are paying significant interest.

Annuities are pretty redundant in your situation. You have one good pension, you're working on a second good pension, and your wife has a good pension coming. All of those provide a very good floor of income for your retirement. You need something that can grow. Stick with low expense index funds and funnel as much in as you can.

 

[calmloki]

We've had rental real estate for decades - learned that just hanging on and persisting in renting them out had a miraculous cascading result - as each place paid off the extra money sped up the payoff on the other places. Then we had everything paid off (well, except for a couple 3% loans we choose to keep) and the bucks started to pile up. We are starting to dump those funds into the market and hope to remember to do NOTHING with them for a long time. I find that my getting smart and cunning works to my disadvantage, so we are mostly using VTI and a California double tax free bond fund.

 

[kaudrey]

I would just mirror the comments about the pensions and SS. That should be enough of a steady stream, I wouldn't add annuities on top of them.

 

[Big_Hitter]

All that said, what are some ways that I can get smarter on investment options and taxes. Any good books to read, websites/blogs to follow, classes to take?

if you really want to go full on, sign up for classes to get the CFP designation - you should be set after you complete those

 

[Nords]

Welcome to the forums, Homestead.

I think your tax "problem" is actually a very good issue to deal with. You have a healthy income now, and the most effective way to lower your taxes would be to quit your jobs. If you're frustrated by the uncertainty of estimated taxes and the amount due on your return, then consider using programs like TurboTax or Taxcaster to estimate your 2016 income and calculate your tax bill. Then you can boost your withholding or make estimated payments throughout the year to lower your final tax bill.

My wife is currently in the National Guard and is eligible to retire now, but will not get her pension until age 60. I am a federal employee and will be eligible for a 2nd federal pension if I do a min of 10 yrs and hit my MRA of 57. At this time, I plan on working until I'm 57 and then retire. My wife will likely work about 5 more years before calling it quits.

We are fairly conservative with our money and don't need much to be happy. As such, I've tended to lean toward purchasing an annuity when the time comes to ensure we have a steady stream of income to supplement our steady pensions and (hopefully steady) SS. However, I read about those of you that invest in dividend paying stocks and other investment strategies and I want to learn more about what my best options are (while still staying relatively low risk).

All that said, what are some ways that I can get smarter on investment options and taxes. Any good books to read, websites/blogs to follow, classes to take?

Well, for starters you could browse the Bogleheads wiki:
https://www.bogleheads.org/wiki/Main_Page
or this reading list:
http://www.early-retirement.org/for...reading-list-with-a-military-twist-46732.html
You could look for "The Military Guide" at your local or military base library.
You can also read excerpts of the book's chapters at the first six months of the blog posts. Check the titles in the archives here:
Post titles by month - Military Guide
And finally, you could buy the Kindle version from Amazon.com.

I retired from active duty (13 years ago) and my spouse is a retired Reservist whose pension starts in 2022. We don't spend a lot for our happiness either, and we have a similar financial situation to yours. I've spent considerable time (and some money) researching different investing styles.

Although you may be a conservative investor, you're already the proud owner of four inflation-adjusted annuities: your military pension, her Guard pension, and two Social Security entitlements. You may even end up with a fifth annuity disguised as a FERS pension. And when it's time to take RMDs from your TSP accounts and her 401(k), you're probably going to be reluctant to start annuities #6 through #8 as well.

Since your asset allocation is already very heavy in COLA'd annuities, you can probably take a more prudent risk with your other investment accounts. You'd want to consider two issues: living with volatility (or ignoring it) and sleeping comfortably at night.

As you read about asset allocation, you might be best suited with a balanced fund like Vanguard's Wellesley, or even an exchange-traded fund that invests in equities like the Dow Dividend ETF (ticker DVY). Wellesley has a fairly stable mix of stocks and bonds that are rebalanced automatically by Vanguard, and it pays a healthy dividend. The DVY ETF (and many others like it) invests in large-cap dividend stocks. You don't have to care how the share price bounces around because the dividends are fairly consistent and grow with inflation. We've been very happy with its quarterly dividend distributions.

You could put your TSP accounts in the longest-dated lifecycle funds (like L2050) and just set those up for RMDs.

Investing in equities might not seem very conservative to the average retiree, but you're already very heavily invested in the world's best inflation-fighting annuity. Overall your income will still have a very low risk even if it's all in DVY. Better yet, your income will grow with inflation to give you more spending power-- and perhaps to enable you to self-insure for long-term care.

 

[LOL!]

Taxes: Read the IRS publications when you fill out your tax returns. Read the IRS instructtions when you fill out your tax returns.