Question on military TSP

[tomc5179]

I noticed several ex-military people here, so I am aiming this question at you folks. My fiancee's 19 yo son has graduated Navy boot camp as of a week ago and is now in "a" school. This past week, his instructors have been talking about budgeting and the "TSP" among other things. Well, he called to visit a couple nights ago and much to my excitement, talked at great length about what he was learning about saving. I think someone evidently put on a presentation about the power of compounding and got that sailor's attention!

Now my questions - I browsed the tsp.gov website and noticed the L2040 (lifecycle) fund that I believe I will recommend to him for simplicity. I will have to do more investigation and talk with him some more, but it looks like an expense ratio of .06 and I couldn't find any minimum balance or purchase fees listed on the site. Do you know of any other fees?

Also, looking at the limited information on the site, I couldn't tell if his maximum contribution per year was either 10% of his pay or $15,000.00? I am going to recommend he set up a emergency fund of approximately $5,000 to $10,000 in a money market account while he is getting his TSP going. Anybody know if the limit is 10% of pay or $15,000?

If the contribution limit is 10% of pay and he wants to contribute more, I think I'll recommend a Vanguard life cycle fund.

BTW - Sailor is 19yo, single, doesn't appear to want to get married anytime soon, no house, probably about $1,000 in cash savings and no debt that I'm aware of. At this point, he is thinking about making the Navy a 20 year career. I know that that is subject to change, but so far, he really seems into the Navy lifestyle. Also, I am a regular old civilian with no experiance in the TSP or other Uncle Sam programs.

Thanks for the input

 

[JDARNELL]

Hello,

That is the only fees and there is no min amount to invest. The 15.5k cap is set by Uncle Sam but he can contribute up to 100% of his income if he chooses. In the past we were limited to x% a year of our salary.

Tomcat98

 

[martyb]

The $15,500 max for '07 & '08 are IRS maximum limits for fed tax deferred income. If he was 50 yrs old or older, he could contribute an additional $5000 per year. Also, for military personnel deployed under certain circumstances, there are some greatly increased upper limits. I would agree that the L-2040 would be a great place for him to invest his money. If he contributes regularly (every payday) to the TSP and sticks with it, he'll have a nice pile of money down the road. The only negative I know of with the TSP for miltary folks is that they don't get any matching funds from the govt. Federal civilian employees do, seems like the military needs to get off the pot. The .06 admin fees are the only costs for TSP participation.

 

[ats5g]

fyi - the fees have dropped to 0.03%.

- Alec

 

[Nords]

Now my questions - I browsed the tsp.gov website and noticed the L2040 (lifecycle) fund that I believe I will recommend to him for simplicity. I will have to do more investigation and talk with him some more, but it looks like an expense ratio of .06 and I couldn't find any minimum balance or purchase fees listed on the site. Do you know of any other fees?

http://www.tsp.gov/forms/comparison.pdf

Nope, that's it. It's really that simple. I haven't seen that the "L" fund is down to 0.03 but in general the TSP fund expenses have dropped over the last decade. 0.03 is pretty darn low but believable.

Also, looking at the limited information on the site, I couldn't tell if his maximum contribution per year was either 10% of his pay or $15,000.00? I am going to recommend he set up a emergency fund of approximately $5,000 to $10,000 in a money market account while he is getting his TSP going. Anybody know if the limit is 10% of pay or $15,000?

http://www.tsp.gov/curinfo/qsas-limits.html#Q1 has the contribution limits. It's essentially $15,500 for 2007 and up to 100% of his pay, whichever is lower. If he goes to a combat zone and starts getting tax-free pay then he can contribute up to $45K but in that case he'll have a lot more things to worry about than TSP contributions.

Spouse is contributing 92% of her pay to the TSP. (She still has payroll deductions for Social Security & Medicare.) They promise that they'll cut her off if she reaches the $15,500 limit but we won't know how well that works for a few more months.

I'd hesitate to recommend a $10K emergency fund to a junior active-duty sailor. He's unlikely to lose his job before his obligation expires and without a house it doesn't sound like he's able to rack up a surprise expense of that amount. $1K-$5K might be more reasonable and achievable at his current paygrade. (Of course he may still want to pile up cash for a new vehicle or a house down payment, too.) But if he puts 10-20% of his pay in the TSP he'll lay in a foundation that will compound impressively for four decades.

BTW - Sailor is 19yo, single, doesn't appear to want to get married anytime soon, no house, probably about $1,000 in cash savings and no debt that I'm aware of. At this point, he is thinking about making the Navy a 20 year career.

I'd have to say "Good luck with all that, be flexible!" If you'd told me at his age that someday I'd be ER'd, living in Hawaii, and sharing a home with two gorgeous women then I would never have believed it.

I'd advise staying in as long as it's fun. When it stops being fun then there's more fun to be found in the Reserves instead of wherever the detailer wants to send him.

Oh, and one more thing-- there's a reason that the submarine force is only allowed to take volunteers. Submarine pay looks like a good deal, but it ain't cheap. Same with hazardous duty & combat pays...

 

[RetireEarly50s]

I am currently investing in the L2040 fund it is a good mix and just a little aggressive. I was checking the TSP site recently and the expenses have dropped to 0.03 won't get that anywhere else. You can see the xpenses at www.tsp.gov

 

[Nords]

I was checking the TSP site recently and the expenses have dropped to 0.03 won't get that anywhere else. You can see the xpenses at www.tsp.gov

Hunh, there it is. Looks like all the TSP funds are now 0.03%. Thanks!

http://www.tsp.gov/rates/fundsheet-lfunds.pdf

I guess they haven't updated their comparison sheet.

 

[trixs]

I'd hesitate to recommend a $10K emergency fund to a junior active-duty sailor. He's unlikely to lose his job before his obligation expires and without a house it doesn't sound like he's able to rack up a surprise expense of that amount. $1K-$5K might be more reasonable and achievable at his current paygrade...

Completely agree with your statement. I dont think the general population understands how little the vast majority(ie junior members) of the military make. The current paychart says an E-1 makes $1301 a month while an E-3 brings home $1534 a month. Take out social security, medicare, taxes, MGIB, SGLI and they willl bring home $900 if they are lucky. Should the person purchase a vehicle they are now left with almost nothing after the payment and insurance.

At any rate 10k will seem like a hurdle that is not possible.

 

[martyb]

LOL....when I separated from active duty in 1981 as an E-5/Staff Sgt, my base pay was a whole $747.60. Seemed pretty good at the time, when I added in my BAQ & BAS non-taxed money that I got on top of that. Of course, it didn't cost me $75 to fill up my gas tank back then either. :

 

[trixs]

Most younger military members dont get bah, bas ect unless they get married. Ever wonder why the military has such a high divorce rate? :

 

[deserat]

I second Nords info and the earlier he starts, the better. I'm like Nords wife - 92% of my Reserve pay goes to TSP and with a projected small activation this year (LRO school for my new Reserve job - yes, I'm still working, but trying to accumulate as much as fast as possible so I can ER very soon!) I will go over the $15.5K limit with my military pay - I'm going to watch to see if the Air Froce does stop the contributions.

As for submarine or other duty - your young seaman may end up in the "narmy" as I was told this January by a naval officer who'd spent some significant time in the 'sand' - the current situation is making deployment situations very different from typical service oriented expectations.

Deserat

 

[tomc5179]

As for submarine or other duty - your young seaman may end up in the "narmy" as I was told this January by a naval officer who'd spent some significant time in the 'sand' - the current situation is making deployment situations very different from typical service oriented expectations.

Deserat

Thanks for the info, fellas and ladies. You bring up a good point of not setting the emergency fund real high based on pay. I'll take that into account with him.

Hmmmmmm..... I had heard some rumors from other people of a possible "narmy" duty. I will keep my fingers crossed for him.

 

[RetireEarly50s]

Actually a junior member with just a high school education is starting out pretty good. If you go to www.defenselink.mil/militarypay/ it shows that a single E-1 with one year actually makes 32K. Of course that is including base pay, Bah, Bas and tax advantage. Even though junior single members dont get the Bah and Bas you have to remember they are living for free and eating for free so no expenses at all there. So that leaves 900-1000 a month take home but besides for a car that is all spending money. I do agree there is no need for such a big emergency fund with such a secure job.

 

[martyb]

Retireinmy40s, I'm glad you pointed that out about the actually decent pay that younger enlisted members of the armed forces are getting these days. I always had to bite my tongue when I would hear some politician whining and making a political issue out of the poor, underpaid military folks blah blah blah. I came up through the enlisted ranks in the Air Force, first as a single airman living in the barracks, then as a married E-3 living first off-base with BAQ/BAS and later in on-base housing. Separated after 4 1/2 years & have been in the reserves ever since, for a total of just over 30 years. Even when I was an E-2 in the barracks, I never felt underpaid, and always seemed to have some cash in my pocket, not to mention a brand new 1977 Monte Carlo in the parking lot! ($5700 in 1977! ) Once or twice I took a part time job just for the extra $$ either bagging groceries in the commissary or washihg cars at a used car lot, but it wasn't for survival money, just some extra bucks. Once I got married at E-3, I never needed to work part time, & my spouse had a part-time job. We did fine. I never needed food stamps, welfare etc. I always wondered what was really going on when I heard or read about how impoverished military personnel were. I heard some/many were on food stamps! If that was the case, I've got to believe it was more related to poor financial skills than inadequate pay. I'm not dissing the military, because that's where I come from, but I do believe the services should put a bit more effort into educating it's young troops about finances. When I was a 2 striper, I got a 2 hour course in personal finance. That's it. I learned nothing. Good thing my parents took care of that before I went to be with Uncle Sam.

 

[RetireEarly50s]

MartyB, I also have come up through the enlisted ranks in the AF I am still in and have served 12 years now. I also get irritated hearing politicians bring up undereducated, poor military. They always only use the base pay and of course that would look like all military members are poor. I have lived really good in the military, I have been married the whole time so I have always drawn the bas and bah on top of my base pay. Now I am an E-6 and with base pay, bah, bas and tax advantage and a small bonus make over 60k a year that is pretty decent I would not be able to make that on the outside for what I do. Luckily I learned on my own to LBYM and have done quite well with my salary plus my wife's. They do have a few more courses in financial management for the younger troops but most are voluntary. I try to talk to the younger troops and tell them to save and that they can retire after the military but they don't want to hear it. They want to drive a lexus or Bmw.

 

[Nords]

Well, RIM40s, you might not have experienced the "good ol' days", but Marty you may remember in the 1970s that the Norfolk base used to organize shuttle buses to take the families downtown for batch processing of their food stamp applications. And remember shortly after Reagan took office when everyone's base pay went up 25%? I was only a midshipman then but I was dimly aware that the force was having problems and that the pay raise was just the first step in a long series of corrective actions.

Remember when 1990s VHA was "use it or lose it"? Remember when overseas COLAs weren't adjusted for currency exchange rates? In the 1990s as the dollar dropped (and the yen rose) people in Yokosuka stopped spending as much in town. The COLA surveys noted that off-base spending was down, so the COLAs were cut. This vicious cycle continued until the four-star pointed out that the COLA should just be cut to zero to save everyone a lot of time & trouble. Stars & Stripes and Navy Times picked up on his comments, cooler heads prevailed, and COLAs went up.

The military has spent the last decade raising housing allowances to cover all expenses, not just 85%. A similar effort is finally linking military pay to the ECI instead of to whatever political wind is blowing. Re-enlistment bonuses are at an all-time high and yet judging from the re-enlistment rates they're not high enough.

I agree that politicians wrap themselves in BDUs (or in Jack Webb's case, his son's jump boots) and cheer on the troops whenever they need a publicity shot. But for every politician standing up to deliver a message, however whiny it may be, there's a military advocacy organization like MOAA or TMC making sure they have the facts. I'm glad that people can feel comfortable with their pay, but it wasn't always that way and it didn't get there without a lot of hard work. The organizations that played a large part in making it happen will continue to need our support.

As for financially educating our troops, I used to be in a position to determine what training would take place. Somehow I always felt that it was more important to make sure my troops were able to accomplish their missions of breaking things & killing people before we had to worry about saving for retirement. Then we could move on to anti-terrorism awareness, prevention of sexual harassment, avoidance of sexually-transmitted diseases, and proper use of your government travel card.

It was also hard to deliver financial-management training to sailors whose pay was screwed up, whose travel claim hadn't been paid yet, whose barracks room reservation was "lost", whose chow pass hadn't been issued... you get the idea. When I was at a training command I used to see far more bureaucratic screwups than personal.

 

[RetireEarly50s]

Nords, I agree things have come along way for the better. As long as the military associations stay strong they will keep improving.

Martyb, wish cars were still $5700 WOW!

 

[trixs]

It was also hard to deliver financial-management training to sailors whose pay was screwed up, whose travel claim hadn't been paid yet, whose barracks room reservation was "lost", whose chow pass hadn't been issued... you get the idea. When I was at a training command I used to see far more bureaucratic screwups than personal.

Ah, so it isnt just the Air Force that does this! Last month the fine AF decided to overpay me 20k and let me pay it back in installments. Great, I love collecting 5% in a money market.

I do agree that their needs to be alot more financial education in the military. We have plenty of E3's and O1's who cant seem to make the minimum payments on their credit cards. This problem is not just the military but society in general.

 

[Bimmerbill]

I work on a Navy base and the Navy is really pushing financial education. It seems many sailiors get over their head in debt and lose their security clearences. This makes them undeployable.

The Navy started a new program of mandatory financial education and has even designated a full time financial petty officer to give classes and help.

The fleet and family services office has just hired a financial specialist to do the same due to the huge number of problems caused by sailors overextending themselves.