25 isn't too late to start......right? [Military]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
DMV99
Posts: 3
Joined: Fri Mar 08, 2013 6:46 pm

25 isn't too late to start......right? [Military]

Post by DMV99 »

Hello!

I cannot stop reading through this forum; the amount of knowledge AND the willingness to help others is fantastic. Much thanks already to you all just for the reading material. To put it out there from the beginning, I’ve lead a terrible financial life so far. I understand that I should be much further along in my investments at this point, considering the opportunities I’ve been given. However, if prisoners on death row can claim to be “born-again,” then so can I! Please help me get back on the right track, as I’m in a great opportunity to do so!

Here’s the break down…


Emergency funds: Always used my credit cards/ an easily accessible mutual fund (USAA Cornerstone Fund, mentioned below) as emergency funds, although I’ve never had to actually warrant “emergency” use….
Debt:
1) $11,052 left on “Life Starter Loan” of 30k at 1.49% paying 530 a month
2) Mortgage: About to close on a refinance to VA loan 3.25% or 3.337APR (no points) on $201000; house appraised at 200k flat. Bringing roughly 3900 to closing (from my taxable USAA fund) in order to get the loan. Old Mortgage was 4.75% and was kept for roughly two years.
3) No credit card balance or car payments
Tax Filing Status: Single
Tax Rate: 15% Fed, 0% State (active duty military)
State of Residence: GA
Age: 25
Desired Asset allocation: 80% stocks / 20% bonds? Bonds are part of the funds I currently have money in, but I’ve never actively invested in them
Desired International allocation: ?%


Current retirement assets

Taxable
$4,492.67 (will be only around $500 once I withdraw for the closing payment mentioned above) USAA Cornerstone Moderately Aggressive Fund (USCRX)(1.31%)
$3,340.00 Scottrade Brokerage Account (Stocks)…basically an account that I’ve used as a learning tool. Have withdrawn a good bit from previous gains (shame, I know)

ROTH IRA
$6,124.01 USAA Target Retirement 2040 Fund (URFRX)(0.80%)

Contributions
In 2013 so far….. none. In 2012, only $500 was added to the ROTH.

Available funds
About to receive a $1300 tax return, but other than that, none. However, I’m currently deployed, and after all monthly expenses (already factoring out the 530 minimum loan payment and the 1170 minimum mortgage payment), I am about to have about $3000 a month to invest for the next 2 months; growing to $3500 in May, and around $4200 in October. I will return in December, and my budget will shrink (I eat a lot, and at home its not free!) to around $1500 monthly to invest for the near future. These predicted amounts leave me some wiggle room for still being a stupid 25 year old with a social life.

Questions:
1. I’ve committed some financial sins in the past, but I’ve settled down. Bottom line is that I should have more in investments by now. I paid cash for a $28k car and put $7k into it after around 2 years ago… good news is that I plan on driving it until the wheels fall off. I just turned 25 last week, so hopefully time is still on my side. My main question is how to maximize this deployment as an opportunity to really stack on the investments considering my extra income. It’s a little too easy to just dump money into the USAA funds, but I have a feeling you all know of some much better options, so any advice in that area is more than welcome (bring on the harsh criticism as well, I have tough internet-skin).

2. I have already filed my 2012 taxes, on which I claimed only $500 being put into my ROTH account shown above. Can I still add funds under my 2012 return even though it is already filed to maximize the $5,000 limit? I’m already assuming I’ll be adding the full $5,500 for 2013, but if I can still drop more under the 2012 allocation before April 15th, then that would be even better.

3. I’ve always planned on keeping my home now and using it as a rental property in the future (I picked the home specifically for that purpose) and I have had roommates for the last 2 years helping me pay the mortgage. If put on the market today, I would be confident in being able to secure $1500 a month in rent (before any kind of management fees). I purchased the home in July 2011 at $200,000 and have made a little over $10k in improvements since then. I've always added $125 to principal each month, and I'm thinking larger additions to principal might be a good idea, since I plan on keeping it for a while. I’d really like to hear opinions on the rental idea, since I’m due to change duty stations in about a year from now.

4. I know it’s a lot of money, but a group of my best friends and myself are going to take a cruise when we come back to celebrate; I want to leave $2000 for that no matter what.

I know that’s a novel about someone you’ve never even met, but even 10 seconds of your time and opinions would be absolutely fantastic. I love learning everything that I can find on investing, but I know the knowledge base on these forums could be more productive with my scenario in a few minutes than I could in months. If I forgot any important information, please let me know and I’ll respond as soon as possible. Again, thank you in advance for everything you can offer!
Occupier
Posts: 284
Joined: Wed Feb 01, 2012 9:21 pm

Re: 25 isn't too late to start......right? [Military]

Post by Occupier »

I would not worry about starting at 25. I am now retired, but at 25 I owned a couple of sets of clothes and a motorcycle - no money at all. First rule to learn is costs matter. That fund in taxable account is costing you 1.31% a year. Vanguard total stock market is about one tenth of that cost and should do about the same over time. hat extra 1% a year will add up to a lot of lost appreciation over 30 years. I would open a Vanguard Brokerage account for that or the roth just to get costs to be reasonable or buy the ETF form of the Vanguard fund - VTI. Note if you just investing small amounts it's better to go with a fund rather than an ETF because no commision when you buy. Target retirement is fine for you 2) I think you can still add to a Roth even though you have filed your return. The place to check by searching "roth limit" is at www.irs.gov Dave
ABQ4804
Posts: 424
Joined: Sun Jul 24, 2011 4:08 pm

Re: 25 isn't too late to start......right? [Military]

Post by ABQ4804 »

First, thank you for your military service and fighting to maintain the freedoms we all enjoy.

Starting at 25 is fine; many on this forum started much older than you are! First question: I certainly hope you are taking advantage of investing in the TSP - you didn't mention it. TSP funds are very cheap ER expense ratios, and will supplement your retirement. Even if you don't get any matching funds, the TSP is still a very good deal - one of the Lifestyle/Target funds would be a good start.
2comma
Posts: 1241
Joined: Thu Jul 15, 2010 11:37 pm

Re: 25 isn't too late to start......right? [Military]

Post by 2comma »

Your age is not a problem at all and the fact that you are here asking these questions is as good an indicator of future success as I can think of.

First concentrate on rebuilding a real emergency fund - using credit cards and an expensive moderately aggressive mutual fund won't cut it. See http://www.bogleheads.org/wiki/Emergency_fund

I'd recommend setting up a budget, maybe once you are back and your pay stabilizes, and include a category for retirement investing. It really helps to control expenses when you see where you are spending your money. Living below your means, aka no life stopper loans, is an important goal.

The TSP, as alisa mentioned, is the lowest cost vehicle available on earth, setup automatic deposit. The old adage of pay yourself first is true.

The amount you contribute will have more affect on your results than anything else you can do. Investing in yourself (skills and education) is a good way to increase your contributions in the future.

Suzy says take that cruise and have a blast but after that get to work setting the wheels in motion for a low stress successful financial future.
If I am stupid I will pay.
lucky3
Posts: 205
Joined: Thu Apr 12, 2012 9:21 am

Re: 25 isn't too late to start......right? [Military]

Post by lucky3 »

Most definately NOT too late....I have suits in my closet older then you!

Become a consistant reader of this forum....a wise group of people that tend to be on the financial conservative side. Have an emergency fund, then slowly plan your "core funds" using index funds...read the wiki...and thank you for your service.

Lucky3
User avatar
SteveNet
Posts: 288
Joined: Tue Jan 22, 2013 9:06 am

Re: 25 isn't too late to start......right? [Military]

Post by SteveNet »

I retired at 50 comfortably am now 59, I would trade all what I have built up to be 25 again and be able to start THAT early. (or just be 25 again) :sharebeer
Being frugal is hard to learn, but once learned is hard to stop.
User avatar
mickeyd
Posts: 4898
Joined: Fri Feb 23, 2007 2:19 pm
Location: Deep in the Heart of South Texas

Re: 25 isn't too late to start......right? [Military]

Post by mickeyd »

25 is just fine. Like all good things, keep doing it until it hurts. Then, do it again.

As others have mentioned, thanks so much for your service to our nation DVM99.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
User avatar
SkolVikes7
Posts: 69
Joined: Mon Jul 18, 2011 4:07 pm

Re: 25 isn't too late to start......right? [Military]

Post by SkolVikes7 »

1. I run a financial blog specifically for US Navy Sailors.. I recently wrote an article on ways to maximize deployment investing. http://www.deckplatedollars.com/2012/10 ... h-tsp.html

2. You can make a contribution for the 2012 tax year as early late as April 15, 2013.

3. I have been in the military for 11 years and have many friends who chose to rent their home after they rotated. I can’t think of many good stories. I have looked into this several times, and I always end up choosing not to become a landlord. You may make a little money (probably not as much as you think), but for me it wasn’t worth the extra stress, work, etc. I have rented many houses and can tell you that the average property management company does not do what you would want them to do when it comes to screening for tenants and keeping an eye on your home. If you choose to do it yourself, don’t underestimate the amount of work it is to secure quality tenants and to keep the income coming in. Every time I picture someone a management company puts in my home, I picture a guy changing the oil of his motorcycle in my living room. Not for me.

4. This is a personal decision. I choose to live debt free, maintain a solid emergency fund and invest 20% of our gross income for retirement. You deserve to go on vacation and take a little break coming home from deployment, but personally, I get more satisfaction by knowing that I took care of business first so I could take some really great vacations with my entire family later.
User avatar
woof755
Posts: 3263
Joined: Sun Aug 05, 2007 2:03 pm
Location: Honolulu

Re: 25 isn't too late to start......right? [Military]

Post by woof755 »

When I was 25 I had a yearly income of negative $25,000.

You're doing great.

Stick around this place and you'll be in good shape!
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: 25 isn't too late to start......right? [Military]

Post by Duckie »

DMV99 wrote:2. I have already filed my 2012 taxes, on which I claimed only $500 being put into my ROTH account shown above. Can I still add funds under my 2012 return even though it is already filed to maximize the $5,000 limit? I’m already assuming I’ll be adding the full $5,500 for 2013, but if I can still drop more under the 2012 allocation before April 15th, then that would be even better.
This puzzles me. Direct contributions to a Roth IRA are not reported on your tax form. Where on the form did you claim it? Did you perhaps contribute to a Traditional IRA and take a deduction, or contribute to the Roth IRA and mistakenly take a deduction?

You will have ~$500 in your Cornerstone Fund after the down-payment, $3,340 in the Scottrade account, and $1,300 coming from a tax refund. That adds up to $5,140. If you subtract $2,000 for the cruise that would leave $3,140 you could quickly add to you Roth IRA for 2012. This also would empty your taxable (for retirement purposes) account.

Start contributing to your Thrift Savings Plan. That and your Roth IRA are all you need at this time for retirement accounts. If you want an AA of 80/20, in your TSP get the Lifecycle 2040 Fund (0.027%) and in your Roth IRA get (VTHRX) Vanguard Target Retirement 2030 Fund (0.17%). You pick the fund not by the date in the title but by the AA inside.

You do need to set up not only an emergency fund, but also a short-term needs fund for expected upcoming expenses. The assets will be in a mix of savings accounts, CDs, money market accounts, 
I Savings Bonds through Treasury Direct, and possibly a short-term bond fund.

If you haven't already, check out this thread on Military Investing and this Wiki article on Military finances.

Just some possibilities.
ChapMan
Posts: 149
Joined: Wed Nov 24, 2010 7:53 pm

Re: 25 isn't too late to start......right? [Military]

Post by ChapMan »

First, you've probably already found the military part of the Wiki, but it's pretty useful: http://www.bogleheads.org/wiki/Military_finances There's a lot of good and pretty up-to-date information there. Now, to your specific questions:
DMV99 wrote: 1. I’ve committed some financial sins in the past, but I’ve settled down. Bottom line is that I should have more in investments by now. I paid cash for a $28k car and put $7k into it after around 2 years ago… good news is that I plan on driving it until the wheels fall off. I just turned 25 last week, so hopefully time is still on my side. My main question is how to maximize this deployment as an opportunity to really stack on the investments considering my extra income. It’s a little too easy to just dump money into the USAA funds, but I have a feeling you all know of some much better options, so any advice in that area is more than welcome (bring on the harsh criticism as well, I have tough internet-skin).
I'm more or less in your situation as well. I like TSP and Vanguard because of its low expense ratios. Since you're deployed, the Savings Deposit Program is basically free money.
2. I have already filed my 2012 taxes, on which I claimed only $500 being put into my ROTH account shown above. Can I still add funds under my 2012 return even though it is already filed to maximize the $5,000 limit? I’m already assuming I’ll be adding the full $5,500 for 2013, but if I can still drop more under the 2012 allocation before April 15th, then that would be even better.
Like others have said, you can still contribute for the 2012 tax year until April 2013.
3. I’ve always planned on keeping my home now and using it as a rental property in the future (I picked the home specifically for that purpose) and I have had roommates for the last 2 years helping me pay the mortgage. If put on the market today, I would be confident in being able to secure $1500 a month in rent (before any kind of management fees). I purchased the home in July 2011 at $200,000 and have made a little over $10k in improvements since then. I've always added $125 to principal each month, and I'm thinking larger additions to principal might be a good idea, since I plan on keeping it for a while. I’d really like to hear opinions on the rental idea, since I’m due to change duty stations in about a year from now.
It can be a good idea, but it can be terrible too. It also depends a lot on your geographical proximity to the rental. For instance, if you can manage to bounce around DC for a while and have the rental as well as another house it may be useful. If you're going to be a long-distance landlord indefinitely, it becomes significantly harder. There are some housing services that try to link up military-to-military landlords and tenants, but they are... of varying quality.
4. I know it’s a lot of money, but a group of my best friends and myself are going to take a cruise when we come back to celebrate; I want to leave $2000 for that no matter what.
I have about $2000 per year for one vacation usually as well. You may, however, want to look into the exact cruise you're going to and look at whether or not you can score any military/group discounts. Especially now, after that disaster in the Gulf, you may be able to get away with spending less than $2000, if you want.
Topic Author
DMV99
Posts: 3
Joined: Fri Mar 08, 2013 6:46 pm

Re: 25 isn't too late to start......right? [Military]

Post by DMV99 »

First off, thank you to everyone that took the time to read and offer some advice, I appreciate every bit of it.

Been on the TSP website for about 2 hours now, and it looks like the L fund 2050 is my best bet. I know that dropping the USAA Target 2040 with a .80 ER and moving to the L fund with only .027 will pay off in the future. One problem though... on the TSP enrollment form, you can only contribute a percentage of your pay, and not a dollar amount per month. I'm trying to do the full $5500 a year into a ROTH, but I have a base pay that will change twice over the next 8 months. Any of the military folks on here (which I had no idea were so many!) know if they automatically divert your allottments elsewhere once you've reached your cap on a ROTH for the year? It would be kind of a pain to re-calculate my contributions each time my base pay changes in order to avoid exceeding $5500.

I'm following through on each post in here, so sorry if it seems like I'm ignoring the advice, I promise I'm not! Internet access isnt always on demand in the middle of nowhere up here. Thank you again!
jaxxmjd
Posts: 184
Joined: Wed Jul 27, 2011 9:29 am

Re: 25 isn't too late to start......right? [Military]

Post by jaxxmjd »

The TSP is more synonymous to a 401k than a Roth IRA. It has recently added the Roth feature, but again that mirrors a Roth 401k, not a Roth IRA. You can actually contribute up to $17,500 toward your TSP account and an additional $5,500 in a Roth IRA if you have the funds to spare (as well as the remaining $4,500 toward your 2012 Roth IRA). So that's up to $27,500 you can still put in Roth accounts ($17,500 TSP + $5,500 2013 Roth IRA contribution+ $4,500 for 2012 Roth IRA contribution). That's how you maximize the combat zone tax exclusion while you're deployed. Stick as much money as you absolutely can into Roth accounts now while that money isn't being taxed. The contributions will grow tax free and you'll withdraw the contributions + growth when you're retired without ever having paid a cent of tax on that money. It's extremely rare to be able to do so. Unfortunately, when I was still in the service and deployed, the Roth TSP didn't exist yet. But I still maximized my Roth IRA contributions.

Also, if you still have the additional cash reserves, you should consider contributing to the Savings Deposit Program (see the link below) while you're still deployed. It's the only time you'll have access to a guaranteed 10% annual interest on up to $10,000 of principle with no investment risk.

http://www.dfas.mil/militarymembers/pay ... s/sdp.html
ABQ4804
Posts: 424
Joined: Sun Jul 24, 2011 4:08 pm

Re: 25 isn't too late to start......right? [Military]

Post by ABQ4804 »

On your question regarding TSP participation and only seeing a % of pay enrollment option: I know civilians can do either $ amount or % of pay from each paycheck. If you're really only allowed to use % of pay, that is OK - just figure out what percentage (now) will give you the max investment allowed ($17,500) for the year; divide by your remaining paychecks that will arrive in 2013. When you reach that maximum, they will just stop taking your money; it will just remain in your paycheck, and your paycheck will show the increase. At least that's how it happens with civilian pay.

PS Edited to add that the $5500/year for a Roth IRA is different - if you can afford both, you can invest both $5500 for a Roth and $17,500 for TSP, whether you choose the regular TSP or Roth TSP. So total investment of $23,000/year, if you can. Plus you mentioned still making your 2012 Roth contribution, up until April 15 deadline. Whew! Many of us here wish we were smart enough to start investing as you are, at age 25.

Stay safe over there; hope the sand isn't blowing too bad!
User avatar
SkolVikes7
Posts: 69
Joined: Mon Jul 18, 2011 4:07 pm

Re: 25 isn't too late to start......right? [Military]

Post by SkolVikes7 »

DMV99 wrote: One problem though... on the TSP enrollment form, you can only contribute a percentage of your pay, and not a dollar amount per month. I'm trying to do the full $5500 a year into a ROTH, but I have a base pay that will change twice over the next 8 months. Any of the military folks on here (which I had no idea were so many!) know if they automatically divert your allottments elsewhere once you've reached your cap on a ROTH for the year? It would be kind of a pain to re-calculate my contributions each time my base pay changes in order to avoid exceeding $5500.
Roth TSP contributions are separate from traditional TSP contributions. The Roth TSP option wants you to specify an exact dollar amount you would like taken out per month vice the traditional wanting a percentage of your base pay. Example: You can specify that you want to contribute 0% to Traditional TSP and $458 per month to Roth TSP.

HOWEVER>>>

Your assumption that you cannot contribute to more than $5500 per yer to the ROTH TSP is not correct. The Roth TSP is not a Roth IRA and is not bound to the $5500 limit. You can contribute up to $17500 in your TSP (Traditional TSP and Roth TSP combined). The money sits in the same pot, the difference comes on when it is taxed.

PM me if you have any other questions...
Topic Author
DMV99
Posts: 3
Joined: Fri Mar 08, 2013 6:46 pm

Re: 25 isn't too late to start......right? [Military]

Post by DMV99 »



Roth TSP contributions are separate from traditional TSP contributions. The Roth TSP option wants you to specify an exact dollar amount you would like taken out per month vice the traditional wanting a percentage of your base pay. Example: You can specify that you want to contribute 0% to Traditional TSP and $458 per month to Roth TSP.

HOWEVER>>>

Your assumption that you cannot contribute to more than $5500 per yer to the ROTH TSP is not correct. The Roth TSP is not a Roth IRA and is not bound to the $5500 limit. You can contribute up to $17500 in your TSP (Traditional TSP and Roth TSP combined). The money sits in the same pot, the difference comes on when it is taxed.

PM me if you have any other questions...

Ok... thank you again to all the help! I'm trying to focus on setting up the TSP right first. I've read that while deployed, annual contributions to the TSP can total 51,000 for 2013. Obviously I cannot reach that number, but between the ROTH and the normal TSP, I should exceed the 17500. I'll have to double check to make sure.

As far as the ROTH/traditional contributions, I just completed my forms to put 40% of basic pay, as well as $611 a month into just the ROTH allocation. This should put me right at 5500 for 2013 into the ROTH, as well as about $15,000 into the traditional. I've also planned to put $500 per month additional towards principal on my mortgage. My goal is still to keep the property for an extended period, so the amount saved in interest over the long term should be substantial. I understand that having a rental property is time consuming/ultimately risky, and I'm hoping I dont one day regret it, but I think the pros outweigh the cons for now. Is the extra money towards principal ultimately a waste when it could be going into the TSP? My ratio of contributions would be about 80% invested into the TSP/ROTH and 20% into the mortgage payments.

I cant say it enough, thank you again for the help. I'm spending as much time as possible reading through the Wiki and every source thats been posted, the only constraint is how much time I get on the internet!
User avatar
Toons
Posts: 14467
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: 25 isn't too late to start......right? [Military]

Post by Toons »

Age 25 you have decades of compounding on your side! :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: 25 isn't too late to start......right? [Military]

Post by Dandy »

Don''t panic about not having enough time to invest. at 25 you are in pretty good shape. You can always file an ammended fed tax return if you decide to contribute more to your Roth - a good idea by the way.

I advise new investors to start off with a more moderate investment allocation more like 60% equities not 80%. If the investment are in a tax advantaged account such as a Roth or Traditional IRA you can change your investments later without generating any taxes. Once you get more experience you can better judge your risk tolerance. I know that age in bonds and some of VG's Target Date funds encourage higher equity allocations but your need to take big equity risks at this young entry point is not really there - if you decide to up you equity allocation in a few years you will still have decades of performance at that level.
Post Reply