28-year-old military spouse starting to dream

[jexy103]

Hello!
I'm 28, DH is 24, and we've been married about 1.5 years. He's an E-5 in the military, and I'm currently looking for a job in our new location. (We just moved to Nords' island four weeks ago. Please don't hate me! ) We've been following Dave Ramsey's "Total Money Makeover" plan for just over a year, and we're looking at being debt free with a three-month EF by the end of December. I found this website while starting to research how to invest for retirement and I've been reading the various threads ever since. There's so much great information here- thank you all for your insights and ideas (and humor)!

We're really just starting out as far as retirement goes- I have $10,000 in my military TSP and DH has nothing. The plan is to fully fund 2012's Roth IRAs before April 2013 (probably through Vanguard) and of course fully fund them every year from here on out. DH is paid about $30,000 before taxes and I'm looking for a GS-7 federal position which will be about $40,000 before taxes. If/when I get a GS-7, I will get a company match of 5% (DH doesn't get one) and I will have access to a civilian TSP, so DH and I will both save in TSPs. I'm thinking a 50/50 split between the Roth and the Traditional TSP, but DH and I haven't discussed how much we'll save per month or per year- he has a project he wants to pay for before we hit retirement savings too hard.

I still have quite a bit of research/learning to do, so I don't have a good AA thought out yet. I know we're young and can afford to be aggressive, but I'm a pretty cautious person, so we'll see. My $10,000 now is 40% large domestic, 20% international, 20% small domestic, 10% fixed, and 10% government securities. I know I should re-allocate those last two; I just don't know my "ideal" AA yet- it's on my to-do list over the next 2-3 months. And I have no clue on bonds or "cash equivalents" or anything like that (although I am starting to read about them!) We do have a lot of good things going for us (age, LBYM, military benefits), but I'm finding it intimidating to start investing- mostly because of all the options out there!

I don't know at what age I'd like to RE at yet, but mid/late forties would be nice and probably quite feasible! I think a year from now- when I've seen how 2013 goes with truly saving for the first time in our lives- I'll have a better idea of when.

Sorry for the long post- I just wanted to be as specific as possible in case anyone had any advice for us. Thanks in advance, and I look forward to "meeting" all of you!

 

[REattempt]

Welcome to the board!

Best books I've read that have some component of AA that make it simple to understand and cheap to implement:

The Investor's Manifesto, William J. Bernstein
Work Less, Liver More, Bob Clyatt

You won't go wrong by going to the library and reading these over the next 2-3 months as you are planning. If the Library doesn't have them, typically they have a "state network" of other libraries that they can borrow from, ask them if they can get them elsewhere for you.

 

[martyb]

Hi. I'm assuming that since you said you want to RE in your 40's, you're not planning to make a career until retirement of civil service. You won't be able to do that very well unless you work until your MRA (minimum retirement age) under the FERS (Federal Employee Retirement System).

I'm a GS-11, very close to my 55th birthday, but under the old Civil Service Retirement System (CSRS) that doesn't exist anymore for new federal employees. You most likely would have to continue working until your 56th or 57 birthday or else you would forfeit 5% per year for each year under your MRA.

If you feel like you're really close to getting the GS-7 job, you might want to go to www.opm.gov and do some searches on the federal retirement system, TSP, FERS etc. to learn how things work and will affect you. I wish you well, welcome to the forum.

This is the best place you can be for retirement info & ideas/advice. You might also take a look at Federal Soup (federalsoup.com) & FedSmith (fedsmith.com).

 

[catccc]

I wouldn't delay retirement savings for whatever project DH has in mind. Can you guys do both and cut back elsewhere, or at least do less than "hitting retirement savings really hard" but still hitting it "kinda hard?" You guys are doing well since you are even thinking about this kind of stuff.

You do have your age going for you, but you also have a blank slate in front of you that could possibly filled with things that could throw a wrench in your plans- mortgage if you don't already own a home, kids, etc. Kids is a big one. Our children cost us very little, meaning we haven't needed to buy lots of stuff for them. But having a family has cost in other ways- we can no longer live in a 1 BR apt, we will have to pay for college, we value a SAHP so we are down to 1 income, etc.

4 years ago at your age I had 60K in retirement savings and another 100K in other savings. It looked really good for mid 40s retirement for me. Then I got married and had children. So now we are looking good for late 40s or 50 retirement.

But, I work in the private sector, and it looks like you are both govt/military, so you will get pensions, I assume. Lucky for you guys!

I personally don't get too fancy with the investments/AA, but probably should work on that. 401K goes to a target fund and Roth IRA is scattered in a variety of mutual funds.

I highly recommend "Your Money or Your Life" By Joe Dominguez and Vicki Robin.

Best of luck and welcome to the boards!

 

[timwalsh300]

$30k before taxes for an E-5 in Hawaii? According to my calculations that should be more like $55-60k...

Going forward I would concentrate entirely filling up your TSP accounts before putting anything into an IRA. Vanguard is great, but the TSP is even better (funds in the TSP are a fraction of the cost of similar funds at Vanguard).

Tim

 

[obgyn65]

Welcome to the forum, jexy103.

 

[jexy103]

Thank you all for your suggestions and advice!

marty, I haven't read up on all the federal retirement regulations yet, but the primary reason I'm job hunting for federal positions is because DH is active duty, and we expect to move every three years. I'm looking into Human Resources and Contracting, so when he gets orders, those positions are on just about every base so I should be able to find a similar series/level every time we have to move. I also have four years active duty service that I can "buy back" my time, so that will give me a jumpstart on my time towards retirement.

catccc, we definitely not putting retirement savings on hold, but I don't think we'll be able to max out our TSP and IRAs and fund DH's project. And yes, we do expect to have kids in the next few years, but the military provides housing and reasonably priced daycare (based on income), so we'll have it a bit easier than the private sector.

tim, we just arrived in Hawaii, so we're currently receiving TLA and BAH while we're in the on-base hotel. We have a lease out in town for December while we wait for base housing, and our BAH will about break even. Once we get a house on base (hopefully Jan or Feb), we will no longer receive BAH (but we also won't have to pay for housing/utilities). I expect DH's E-5 take-home to be around $2,600/month, including COLA.

As far as TSP vs. Vanguard, from everything I've heard/read, the TSP wins every time. But I want to fully fund our Roth IRAs in addition to contributing to our TSP/401(k)s. The TSP now has a Roth version, but my understanding is that it still qualifies as a 401(k) contribution, not an IRA contribution. With the TSP, I can't choose individual stocks, only different funds. And I think everything is securities- we don't have the ability to have a percentage of our asset allocation being bonds, so I like the IRA for that. I just want to have the flexibility of money in an IRA so we have more control over it. Do you recommend fully funding DH's TSP before we open Roth IRAs? I'm hoping/planning to get a federal position, but I don't have a job at this time. I could still fund 2012's Roth IRA because I had earned income, but I can't contribute to the TSP until I get a federal position. So should DH max out his TSP (if we can afford the $17,000/yr) while I max out my 2012 Roth IRA? Or since it's so late in the calendar year, should we max out both 2012 Roth IRAs and start fully funding DH's TSP come January?

REattempt and obgyn65, thanks for the advice and welcome!

 

[timwalsh300]

I figured you were excluding BAH. That's just an odd method of accounting, and it's a habit I think military families should break. First, you could probably rent something off-base for less than BAH, so it's important to recognize that you are in fact getting BAH and simply choosing to spend it all to live on-base. Second, if you ever want to compare opportunities in the civilian sector then you absolutely need to count it as part of your income.

You are correct that next year you could put $17.5k into each Roth (or traditional) TSP, plus another $5k into each Roth (or traditional) IRA.

Also correct that you can't buy individual stocks inside the TSP, although in my opinion you have no business buying individual stocks. Even professional money managers who have teams of analysts and vast computing power at their disposal find it very difficult to outperform their benchmarks. There is a lot to read on this topic: search "index funds."

You are incorrect regarding bonds in the TSP. Only the C, I, and S-funds are stock funds. The G and F-funds are bond funds. The L-funds roll them all together into a mixed stock/bond asset allocation.

If you set up TSP contributions for your husband now it won't even take effect until December or January, and then it's limited to his monthly base pay anyway. So I would get the process started while you max out your IRAs for 2012. If you both have access to the TSP in 2013, I wouldn't bother with the IRAs until you guys fill up all $35k of space in your TSPs.

Tim

 

[Nords]

First, you could probably rent something off-base for less than BAH, ...

You appear to have outdated information on the cost of rental real estate in Hawaii.

 

[Coolius]

My son was stationed in Hawaii ( Schofield ) for a couple of years before PCS to Fort Bragg, NC in early 2012 for Special Operations training.

During his time, he rented a room in a single family home in Waipahu, cost him about $800 a month, which he said was a reasonable figure.

So I agree with Nords. The BAH will not be enough.

C

 

[timwalsh300]

Well of course there are a lot of factors (namely the individual real estate market, a service member's rank, and number of bedrooms needed) but in the places where I've looked into it, needing only one bedroom (no kids), I've always found there to be a premium for living on-base.

Tim

 

[jexy103]

In Hawaii, my husband receives $1,899 BAH as an E-5. It sounds like a lot, but we were fortunate enough to just sign a month-to-month lease for $1,850 for a 450 sq. ft. studio while we wait for on-base housing. It's within biking distance of base, but just barely. And it's difficult for me to convince my husband to bike to work now, and we're currently in a hotel on base. The rental is easily 4-5 times further away, so when we move there, we'll be paying much more than $49 in gas for him to commute to work every day. And the added cost of driving back onto base to shop at the commissary, whose prices are 38-55% cheaper than a civilian grocery store here. So it is worth the trip, but if we were already on base, that would be less time and gas or I could do frequent small trips by bike.

When we were in Georgia, there was a wide range of prices to choose from, and I know of a good 2-br townhouse for $525/mo when BAH was about $960. So even after utilities, you saved quite a bit. It was 10 miles off base, so even with the added gas costs, we would still have been under or about even. So you're correct that BAH should be enough to live on, but they really need to re-calculate the BAH here because it's way off.

For the TSP, I used the phrase "individual stocks" incorrectly. I don't plan to invest in individual stocks- what I should have said is that I can't choose specific index or mutual funds. My choices are limited to C, S, and I. I could get a prospectus and see what I actually have, but I can't choose where my money goes. Thank you for clarifying what the F and G funds are. I knew they were much lower risk, but I didn't realize they were actually considered bonds.

If you set up TSP contributions for your husband now it won't even take effect until December or January, and then it's limited to his monthly base pay anyway. So I would get the process started while you max out your IRAs for 2012. If you both have access to the TSP in 2013, I wouldn't bother with the IRAs until you guys fill up all $35k of space in your TSPs.

Tim

Should I be less concerned with the ability to choose specific index funds? If so, perhaps we'll start with this ^ strategy. I'm still learning a lot, so I appreciate all the advice and information from everyone!

 

[timwalsh300]

I can't choose specific index or mutual funds. My choices are limited to C, S, and I. I could get a prospectus and see what I actually have, but I can't choose where my money goes.

Not sure what you mean by this. You can choose to put however much you want in each fund. The C fund is an S&P 500 index. The S fund is basically the same as Vanguard's Extended Market Index. The I fund is equivalent to Vanguard's Developed Markets Index. Other than maybe some emerging markets exposure, that's about all I think an investor needs.

Tim

 

[jexy103]

Not sure what you mean by this. You can choose to put however much you want in each fund. The C fund is an S&P 500 index. The S fund is basically the same as Vanguard's Extended Market Index. The I fund is equivalent to Vanguard's Developed Markets Index. Other than maybe some emerging markets exposure, that's about all I think an investor needs.

Tim

I guess you answered my question/concern. I figured the C, S, and I funds were index funds for their respective funds, but I didn't know what index fund they were. I didn't know if they were S&P 500 index, DOW index, etc. Thank you for the specific comparisons between the TSP and Vanguard.

After reading some more and thinking through it more, I'm leaning on leaving my TSP as is. 40% in C, 20% I, 20% S, 10% F, and 10% G. These are all slightly off due to earnings, but when I can begin contributing to a TSP again, I'll adjust my contributions to the funds to even out the 1-2% that they're off from the AA percentages. And for the 2012 Roth IRAs, I think I'm going to keep it simple and put it entirely into a Lifecycle fund. Since there's a $10 annual fee for accounts with under $3,000 in it, our entire first year's $5,000 would have to be in the same account to avoid the fee, so the Lifecycle just seems like an easy solution until our IRAs have a little more in them to work with (and I have a little more investing knowledge).

But for 2013, we'll fund our TSPs before the IRAs since I now have a better understanding of what the TSP actually is in comparison to other products.

Thank you!

 

[Nords]

I guess you answered my question/concern. I figured the C, S, and I funds were index funds for their respective funds, but I didn't know what index fund they were. I didn't know if they were S&P 500 index, DOW index, etc. Thank you for the specific comparisons between the TSP and Vanguard.

The Bogleheads wiki also lists Vanguard's rough equivalents of the TSP funds:
Thrift Savings Plan - Bogleheads

If you really want to [-]waste time[/-] dig into it then there are a few other TSP forums, populated mainly by non-military TSP contributors:
TSP tips and trivia

I think you're probably better off trying to max out your IRA(s) and the TSP, setting an asset allocation, and then going surfing.

Just to be painfully clear, your payroll deduction (DFAS' MyPay) into the TSP can only be adjusted for the percentage of pay or the dollar amount. Your actual allocation into individual TSP funds is set up through your TSP account, which is a separate activity from MyPay & DFAS.

I think the TSP's low expense ratios make it a compelling choice over every other mutual fund out there... even Vanguard.

 

[jexy103]

If you really want to [-]waste time[/-] dig into it...

I think you're probably better off trying to max out your IRA(s) and the TSP, setting an asset allocation, and then going surfing.

Haha, very well. Thanks, Nords!