INtro and a Question!

[trixs]

Ok a little short info about me...

Goal: Retire at 40 years old!! Would be nice...
Age: 24
Job/Income: Military and about 40k after tax

Expenses: None except for utilities and housing( about 1300-1500)
Above does not include Food and Entertainment.

Savings: 15k-20k a year

Currently I have about 70k saved but it is all in taxable accounts. I have no contributed to an IRA because I want to start withdrawals at 40 or 41. I understand there is an exception where you can withdrawl the same amount every year. However, this does not fit into my current withdrawal plan of just using the dividends/intesrest with a 3% max.

Does this pass the logic test to anyone else?

 

[Cut-Throat]

A little light on Information.

If your Expenses are none except Utilities and Housing. What about Medical Costs and clothing. Furniture. Have you really thought about what your expenses are?

If you are planning on a 3% withdrawal rate on $1500 in todays dollars not including food and entertainment. I think you need to throw in about $400 for food and another $500 a month for entertainment. That would make your monthly withdrawals at $2400 in todays doillars - Which is about $28,800 per year. And then you've got the Tax Bill Which could be another $5,000 per year.

This brings your total income needs to about $33,800 per year. With a 3% Withdrawel rate you'd need about $1.15 Million. At a savings rate of $17,500 per year with a current net worth of 70K, you'd need to get an average annual return of 18%. Not very doable!

If my number guesses are incorrect, please correct me and I'l re-calculate for you!

 

[JPatrick]

Are you planning to graduate from the military's 20 year program??
You might want to mention where and what you are doing with your savings, which are commendable by the way.

 

[trixs]

Sorry so short on the information. Im generally just a lurker but these forums seemed interesting

Being in the military I will have a pension with COLA at 40 years old. This will be equal to about 20k in todays dollars. Of course this could easily be more or less depending on final rank aquired. Medical bills will also covered.

Cut-throat, your very close to what I spend on food/entertainment a month. Going over quicken for the last year it averages $700 a month; way more than I want to!

JPatrick,
All of my savings are currently in vanguard. I have equal distributions between strategy equity fund, wellesley, wellington, windsor, and S&P 500. In december, when the new Div Achiever vanguard fund opens, I plan on transfering the S&P500 portion into that.

Anyway, does anyone think I should start an IRA or just keep taxable investments...

 

[Cut-Throat]

Anyway, does anyone think I should start an IRA or just keep taxable investments...

Well, with a $20k Pension. You should be fine. Yes I'd start a Roth IRA definitely. Remember, you can only save about 3-4K per year in a Roth, So you will have plenty of Taxable investments right now.

I would concern myself at this point with maximizing your return and minimizing the Tax Bill currently. Do not concern yourself with Withdrawal Strategy at this point. That is a long way down the road!

 

[JPatrick]

I was glad to hear you say Vanguard.  For a moment I was afraid you might say you were investing with some of those so called financial planners that seem to haunt military bases.  :
I'd say you'd be better off with a Roth than a traditional IRA.  Also, be certain you don't get to conservative in your investing.  Save that for when you retire.  You sound like you are interested in investments, so take the time to figure out what the current or next "big thing" is and throw some bucks that way.  For example, 2005 has been the year of energy and Latin America.  Lots of money made there, but whether it will repeat is left to you to decide.
As you know, the military seems to come up with a decent, risk free savings plan every time we get into a long term conflict.  I believe there is a high interest savings plan in effect now that pays a good rate.  Worth checking.

 

[Nords]

Goal: Retire at 40 years old!! Would be nice...
Age: 24
Job/Income: Military and about 40k after tax
Savings: 15k-20k a year

Currently I have about 70k saved but it is all in taxable accounts. I have no contributed to an IRA because I want to start withdrawals at 40 or 41.  I understand there is an exception where you can withdrawl the same amount every year.  However, this does not fit into my current withdrawal plan of just using the dividends/intesrest with a 3% max.

Does this pass the logic test to anyone else?   

Welcome to the board, Trixs. I'm retired Navy and we have several other military posters here like GD-ER (also retired but doesn't post very often), TomCat98, Deserat, FlowGirl, & Otako. (I'm sure that I've forgotten a few.)

Hopefully you're already contributing to the Thrift Savings Plan. Beginning in 2006 your contributions are no longer limited to 10% but instead can go to the IRS max of at least $14K. There's no match-- yet-- but expenses are only 0.10%. The military may eventually provide for the additional sheltering of bonus & incentive pay. The TSP may even beat Vanguard's fees.

After you fund the TSP, if you meet the income limits then a Roth is probably a better deal than a conventional IRA. Your pension will put you in at least the 15% federal tax bracket at retirement and you may be in an even higher tax bracket from other income or pensions, but Roth IRAs don't require minimum withdrawals and won't result in taxing your Social Security. Roth IRAs don't have to use a 72(t) plan if you're withdrawing only the original contribution amounts.

After you fully fund the TSP & IRA accounts then you'd look at taxable investments.

JPatrick is referring to the obscure "Savings Deposit Program" which pays a guaranteed 10% (before taxes) on up to $10K. However to be eligible for that program you essentially have to be serving in a combat zone. There are some weasel words in the qualification so if you're on a deployed ship or anywhere near supporting a combat zone then talk to your pay office or DFAS. However there are far better (and safer!) ways to earn an extra $1000/year.