Military Investing

[mikeast]

What a great post Emergdoc ! If I had had you around to talk me out of buying a house in Fayetteville years ago or to explain the foolishness of buying a new car at every PCS, no doubt my portfolio would be larger than it is today.

[jamacq]

I understand with the military pay to fund the Roth IRA first. But at what point it makes sense to put first into the TSP. I just put on O-4 in the Navy, and it seems that taxes went up more than I expected. I'm a Florida resident, so I don't pay state tax.

Thank you!!

Navy Chop: I think a lot depends on your taxable income situation. In my case, when I was in your position (Navy O-4, not chop) I was spending time flying in exclusion zones that resulted in tax free income bringing my taxable down into the 15% bracket.

I think a good general rule would be if you are down to the 15% bracket by whatever means you should take advantage of the Roth first. If your income is putting you into the 25% or above, TSP first.

Jeff

[Taylor Larimore]

Bogleheads in the military:

This is VERY useful information for the special needs of military men and women.

Our thanks go to EmerDoc for another of his outstanding contributions.

[HearDoc]

When I was a battalion commander I drove a Dodge Neon. At our headquarters parking lot it was by far the cheapest car.

Still smile at the Jr enlisted laughing at the wrecks officers drove.
Most of them never made E-7. Sr enlisted actually drove crappier cars than
CO and XO. Almost turned it into a contest.
When I was in Germany I drove a 1.2 liter VW. Our Spec 4's were driving
Mercedes Kompressors. Two different mindsets.

[bertie wooster]

There are some great state (not federal) benefits available for education as well.

If your home of record is in Texas (ie. you lived in Texas when you join, not just that you change residency while you are in the military) then, once you have exhausted all of your federal educational benefits, the state will pay for 150 hours of public school if you go to a state school. It's called the Hazelwood Act. You need to have an honorable discharge and, I believe, a minimum of 180 days of service (so this may apply to some reservists as well).

It's a great deal and I think applies to some flight schools and other things as well. I used it to go to medical school for free.

Some financial aid offices aren't fully informed on some of the details. Also, some schools count hours differently, so you may have a lot more benefits than you think. Feel free to send me a PM if you have questions.

I've been told that Illinois has a similar program.

[dharrythomas]

My first post in the website after being reading it for about 4 months. Thanks to all for the comments and advices.

I got a great question about taxes...I understand with the military pay to fund the Roth IRA first. But at what point it makes sense to put first into the TSP. I just put on O-4 in the Navy, and it seems that taxes went up more than I expected. I'm a Florida resident, so I don't pay state tax.

Thank you!!

Neither is an awful option. As an O-4, you should be in a position to max the Roth IRA and put a significant amount in the TSP. While your taxes are significant, the point was that based on the amount of tax free income you've got you are paying a much lower effective tax rate than you'll ever be able to manage on the same amount of earned income as a civilian (unless you're in the clergy). If you reach retirement, your pension will take up the room in lowerst tax bracket pushing your TSP withdrawals into a higher bracket.

You've got three acceptable options, TSP, Roth IRA, taxable investing in low cost index funds each with different costs and benefits. EMergDoc is just giving his best advice, you could do much worse and you'll have a hard time doing much better. In all cases, you pay your money and you take your chances.

Good Luck.

Harry

[EmergDoc]

My first post in the website after being reading it for about 4 months. Thanks to all for the comments and advices.

I got a great question about taxes...I understand with the military pay to fund the Roth IRA first. But at what point it makes sense to put first into the TSP. I just put on O-4 in the Navy, and it seems that taxes went up more than I expected. I'm a Florida resident, so I don't pay state tax.

Thank you!!

Neither is an awful option. As an O-4, you should be in a position to max the Roth IRA and put a significant amount in the TSP. While your taxes are significant, the point was that based on the amount of tax free income you've got you are paying a much lower effective tax rate than you'll ever be able to manage on the same amount of earned income as a civilian (unless you're in the clergy). If you reach retirement, your pension will take up the room in lowerst tax bracket pushing your TSP withdrawals into a higher bracket.

You've got three acceptable options, TSP, Roth IRA, taxable investing in low cost index funds each with different costs and benefits. EMergDoc is just giving his best advice, you could do much worse and you'll have a hard time doing much better. In all cases, you pay your money and you take your chances.

Good Luck.

Harry

I know it seems your taxes are high as an O-4, but really, they're not. I'm paying 7 times what I was paying in the military in federal and state income taxes. An O-4 with over ten years gets paid $6316 a month, or $75792. Assuming married with 2 kids and a standard deduction (and no state tax), your tax bill would be $4599. The next dollar you earn will only be taxed at 15% (your marginal tax rate.) Assuming about $2200 a month in BAH (about what I was getting as an O-4) and another $224 in BAS and no other bonuses, your total income would be ~$104880. So your overall tax rate is only 4.4%. (and that doesn't even look at the value of your free health care and other benefits) Hardly much to complain about. At those kind of tax rates I'd be doing as much ROTH as possible. It seems to me that would be much more valuable to you than deferred TSP contributions, but I suppose if you stop earning upon your military separation/retirement some argument could be made for tax-deferred savings. It seems to me that few go that route however.

Good luck with your decision.

[Barry Barnitz]

Hi:

Taylor Larimore suggested, and Emerging Doc has granted permission for us to try wikifying the OP on our site's wiki. We have started to do this by wordsmithing, formatting, and providing some reference links. But please understand that we are not familiar with military issues.

Also, we can not (by forum rules) and will not (by our own standards) take anything from any forum member's posts without permission by the poster.

So if any of you would like to help add your expertise or experience to the wiki page you can simply ask for wiki access and it will be granted. In addition, new material can be added from this thread, if you are willing to allow us to use it. Thus, if you do not want to directly help edit the wiki, one helpful way all of you can help is by suggesting textual changes and supplying us with anything we can cut and paste into the page.

Here is the first, tentative version of the wiki page:

Wiki article link: Military finances .

regards,

[Taylor Larimore]

Hi Barry:

You have done a beautiful job incorporating EmergDoc's post into our wonderful WIKI.

Thank you both.

[MCM 2008]

That looks great. I just sent the link to my young staff-sergeant, who is just getting started in investing.

The BAH entry is a little confusing. It says: "The Basic Allowance for Housing (BAH ) is $2K per annum."

What does this mean? BAH is not a fixed amount, it is calculated based on rank and locality.

Also, I would suggest adding a caveat for Overseas Housing Allowance (OHA), which applies to those service members stationed in Europe the far East (and I suspect other places around the globe). It is contingent upon your actual housing costs, so there is no potential for excess, like you would have with BAH.

I'd be happy to make the changes if you trust me with Wiki access, or feel free to copy anything from my post. I could provide links to the DFAS page where you can calculate BAH rates.

I also suggest an entry for BAS (Baisc Allowance for Subsistence), which is $223.04 per month (officers) or $323.87 per month for enlisted, tax free, if you are not required to eat at the on-pont dining facility. This does not have to be spent on food.

[louis c]

Some additional discussion of the Thrift Savings Plan (TSP):

One can replicate the "Total US Stock Market" with the TSP by buying 76% of the C Fund and 24% of the S Fund. The C Fund is the S&P 500 while the S Fund is the Dow Jones Completion index, which consists of all U.S. equities with available prices minus the S&P 500. The 76/24 ratio is based on total market capitalization of the indexes. If you use the Wilshire 4500 instead of the DJ Completion Index, then it is an 80/20 ratio.

While the F fund is the equivalent to "Total Bond Market," the advantage of the G Fund bears repeating. From the TSP:

"The payment of G Fund principal and interest is guaranteed by the U.S. Government. The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially a short-term security."

The share price of the G Fund never falls or stays the same. It goes up by a fraction every day.

The long term return of the F fund exceeds that of the G Fund, but it has higher volatility and may have negative returns. A mix of the two will likely produce consistently positive returns with reduced volatility within the investment grade bond space. Some allocation to F Fund is needed at all times because its performance can be negatively correlated to stocks during some periods and its long term return is higher than G; another reason is the F Fund provides additional diversification, with exposure to the mortgage-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market.

As some have already said, due the the special risk/reward aspects of the G Fund, some Bogleheads use G Fund for the entirety of their bond allocation, and forgo the F Fund. My allocation is 65% G Fund, and 35% F Fund comprising my "Total Bond Market" space.

Regarding:

"Be cautious when dealing with car dealers (one does not need to buy luxury vehicles). Car dealers around bases will try to induce you to buy expensive cars. They’ll even give free rides to the dealership. Their interests are not aligned with you, the consumer. An expensive car can lead one into a debt cycle that will take half a career to climb out of, if one can ever get out at all."

I would add:

USAA offers a good car-buying service for both new and used cars; if you want assurance you are getting a reasonable deal, this is a good alternative.

[Navy Chop]

Thanks to all for the replies to my question. I will continue to max the Roth Ira, and when then TSP Roth starts next year...I'll put all the extra money into it.

Good idea to include the information on the Wiki page. It's very h ard to find good financial information related to the military system.

Thanks to all again!!!

[Barry Barnitz]

That looks great. I just sent the link to my young staff-sergeant, who is just getting started in investing.

The BAH entry is a little confusing. It says: "The Basic Allowance for Housing (BAH ) is $2K per annum."

What does this mean? BAH is not a fixed amount, it is calculated based on rank and locality.

Also, I would suggest adding a caveat for Overseas Housing Allowance (OHA), which applies to those service members stationed in Europe the far East (and I suspect other places around the globe). It is contingent upon your actual housing costs, so there is no potential for excess, like you would have with BAH.

I'd be happy to make the changes if you trust me with Wiki access, or feel free to copy anything from my post. I could provide links to the DFAS page where you can calculate BAH rates.

I also suggest an entry for BAS (Baisc Allowance for Subsistence), which is $223.04 per month (officers) or $323.87 per month for enlisted, tax free, if you are not required to eat at the on-pont dining facility. This does not have to be spent on food.

Hi MCW 2008:

We have no problem allowing forum members to have editing privileges with the wiki. (We do not have completely open access to the Wiki because the site's administrators insist on manual approvals as a "speedbump" that helps eliminate trouble from "spammers"). Of course, with wiki, one can easily undo mischief because it is easy to revert pages.

It would certainly be easier for us to give you and others access to the wiki so that you can more easily edit the page, or even create additional pages if warranted. We at the wiki can help with formatting or any other help if needed. If you would like to help out just let me know and I will set you up.

Louis:

"The payment of G Fund principal and interest is guaranteed by the U.S. Government. The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. "

Nice quote. I will find the link and include this as a reference.

I would add:

USAA offers a good car-buying service for both new and used cars; if you want assurance you are getting a reasonable deal, this is a good alternative.

Will add this if it is okay with you.

regards,
Barry

[louis c]

Barry, thanks for helping me get set up. I added the car-buying service, and added a reference to TRICARE as well.

[dratkinson]

Do we need a Military finances topic in the Reference Library? How else do I make a suggestion for that Wiki topic?

If you aren’t a resident of a state with no income tax (such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming), examine carefully the advantages of establishing residency in one of these states. Note that if one is stationed in Alaska, the permanent fund dividend distributed to state residents is an additional benefit.

Suggested edit.



Reference: Which states have no personal income tax?
http://www.govspot.com/know/incometax.htm

"Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. ..."

[Barry Barnitz]

Thanks for the suggested change; I have edited it into the page.

Here is the current status of the evolving page:

Wiki article link: Military finances .

regards,

[LadyGeek]

Update to Ron's post: "The Military Guide To Financial Independence and Retirement" is now available for order from Impact Publications and (hint, hint) through the Bogleheads link to Amazon.com at the top of this page. There's also a (much cheaper) 4"x5" 64-page "pocket guide" version available on Impact's website.

Mel, your review copy is in the mail. Reviews are also being posted at the book's Amazon page.

All royalties go to military charities. (Thanks to Taylor & Mel for this "Bogleheads Guide" inspiration!) It'd be great to hear from volunteers who step up with book donations to libraries on military bases and local communities. I'm taking care of the Hawaii State Public Library system and the base libraries at Pearl Harbor, Schofield, & Kaneohe.

I'd love to hear more stories from servicemembers, veterans, & family members. You can contribute to the second edition (and the blog) and help send more royalties to military charities.

Here's the direct link: The Military Guide to Financial Independence and Retirement, amazon.com referral added. It's now in the wiki.

I added a disclaimer noting that this article departs from the wiki's neutrality policy. A few opinions, such as those towards car dealers, are biased (watch out for them). In theory, there should be an opposing viewpoint. However, the intent is to incorporate the knowledge of the forum to help educate military personnel, which is a sorely needed topic.

Keep going; try to be as objective as possible, and use credible sources. I'll help out where I can.

Wiki article link: Military finances

[LadyGeek]

I got a great question about taxes...I understand with the military pay to fund the Roth IRA first. But at what point it makes sense to put first into the TSP. I just put on O-4 in the Navy, and it seems that taxes went up more than I expected. I'm a Florida resident, so I don't pay state tax.

Thank you!!

Welcome! We have a help with personal investments forum area which is geared towards your type of question, so it might have been missed. Hang in there, I PM'd someone who might be able to help. (Update: your help is in the post below.)

Do we need a Military finances topic in the Reference Library? How else do I make a suggestion for that Wiki topic?

If you aren’t a resident of a state with no income tax (such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming), examine carefully the advantages of establishing residency in one of these states. Note that if one is stationed in Alaska, the permanent fund dividend distributed to state residents is an additional benefit.

Reference: Which states have no personal income tax?
http://www.govspot.com/know/incometax.htm

"Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. ..."

First, the wiki is the better source for documenting reference information - that's what it's designed to do. Barry Barnitz is the owner (moderator) for the forum's reference library. PM Barry to see if this topic should be added.

Thanks - I took your state tax info and did some research. I went directly to the source and updated the wiki article on State income taxes. Tip: look at the bottom and you'll see a reference to state sales tax holidays. Where did you find the information about Alaska?

===========
I stumbled across some helpful material at the Federation of Tax Administrators site. Under State Comparisons, you'll find Summary of S. 475 - Military Spouses Residency Relief Act and Special Benefits for Military Personnel Within Combat Zones.

If anyone wants to go into specialized topics, feel free to start a new wiki page, e.g. "Military finances - investing topics" or equivalent. There's an ongoing thread for Military Tax Free Leave.

[retiredjg]

My first post in the website after being reading it for about 4 months. Thanks to all for the comments and advices.

I got a great question about taxes...I understand with the military pay to fund the Roth IRA first. But at what point it makes sense to put first into the TSP. I just put on O-4 in the Navy, and it seems that taxes went up more than I expected. I'm a Florida resident, so I don't pay state tax.

Thank you!!

The important thing is to save money. If you would rather save it in the TSP, that is fine too - that would reduce your taxes some each year. Or you could save some in the TSP and some in a Roth IRA.

Don't confuse the amount of tax withheld from each check with the amount you actually pay each year. The amount that comes out of your check is only an estimation of what you should owe. If you think your withholding is too high, you can change it by changing your W4 form. Don't make it too low or you will owe taxes when you file your return.

[LadyGeek]

To figure out how to change your W-4, the IRS is here to help (really!). Take a look at the IRS Withholding Calculator. It will take into account your salary to date, so all the hard work is done for you. Enter in as many scenarios as you want to see what you want to do.

Anyone who needs detailed help for their situation should use the Investing - Help with Personal Investments forum area. There's a sticky thread: Asking Portfolio Questions. It's designed to make you think about the big picture. I would suggest to include "military" in the subject title so the right people will pick up on it.

Also use that forum to ask questions. Don't worry about the question being "too simple." If you don't know the answer, just ask.

[dratkinson]

...

Do we need a Military finances topic in the Reference Library? How else do I make a suggestion for that Wiki topic?

If you aren’t a resident of a state with no income tax (such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming), examine carefully the advantages of establishing residency in one of these states. Note that if one is stationed in Alaska, the permanent fund dividend distributed to state residents is an additional benefit.

Reference: Which states have no personal income tax?
http://www.govspot.com/know/incometax.htm

"Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. ..."

First, the wiki is the better source for documenting reference information - that's what it's designed to do. Barry Barnitz is the owner (moderator) for the forum's reference library. PM Barry to see if this topic should be added.

Thanks - I took your state tax info and did some research. I went directly to the source and updated the wiki article on State income taxes. Tip: look at the bottom and you'll see a reference to state sales tax holidays. Where did you find the information about Alaska?
...

That Alaska is a no-state-income-tax state? From my linked reference (above). And it is also in your linked reference about state-specific tax rate information on the Federation of Tax Administrators (FTA) website. (The New Hampshire and Tennessee taxation of only dividends is also identified in your reference.)

Suggestion: Barry could change ref #5 in the Military Finance Wiki topic to point instead to your reference on the FTA website and cover more bases, as your's is a more complete reference than mine.

Your better reference:
State Individual Income Taxes (for tax year 2011, as of 1 Jan 2011)
http://www.taxadmin.org/fta/rate/ind_inc.pdf

Path to Reference:
FTA Home Page --->
State Comparisons -->
State Tax Rate Tables Updated through January 1, 2011 -->
State Individual Income Tax Rate (the above pdf)



The Alaskan permanent fund benefit? That didn't come from me. But I did look and found these helpful pages which seem to come from the Alaskan state government (based on URL):

Permanent Fund Dividend Division, Military Information
http://www.pfd.alaska.gov/military/index.aspx

Permanent Fund Dividend Division, FAQs
http://www.pfd.state.ak.us/faqs/index.aspx



/r
David

[Barry Barnitz]

Dratkinson:

Thanks! I have changed reference #5 to the FTA site, with directions to click the pdf file link (thus we will not have to continually update the pdf file.) and have included the two Alaska Permanent fund links.

I have tried to find substantiating links for backing the strong normative judgments expressed in the page, mostly through google searches, so they may not be the best references.

Here is a rundown of these links:

Reference 1, substantiating the rise and fall of home prices links to a Case-Shiller Index report; this is a suitable reference. Link: http://www.housingviews.com/wp-content/uploads/2011/09/CSHomePrice_Release_Sept2011.pdf

Reference 2 substantiates the judgment "that buying and selling costs are huge" , the first link in the reference links to an article discussing selling costs :

What Are The Real Costs Of Selling A Home? link: http://ezinearticles.com/?What-Are-The-Real-Costs-Of-Selling-A-Home?&id=139629

There may be a better link for this reference.

The second link provides closing costs for buyers:, this link seems to me more than adequate.

Closing costs by state link:
http://www.bankrate.com/finance/mortgages/2011-closing-costs/closing-costs-by-state.aspx

Reference 8. I have edited the car buying topic text to a slightly more neutral expression:

Be cautious when dealing with car dealers (one does not need to buy luxury vehicles). Unscrupulous car dealers around bases will try to induce you to buy expensive cars. [8] An expensive car can lead one into a debt cycle that will take half a career to climb out of, if one can ever get out at all. Take advantage of free legal services and have your local legal office review the purchase agreement before you sign.

To substantiate this judgment I have supplied a link to a CarBuyingTips. com article, Car Buying Tips For Our Friends In The Military

http://www.carbuyingtips.com/military.htm

Reference 13 .To provide substantiation for the judgment regarding USAA I have supplied the Wikipedia link . This would appear to be a rather objective source that backs up the claim : "The company has an acknowledged reputation for providing good service and good pricing."

http://en.wikipedia.org/wiki/USAA

Finally, we come to First Command. To back up the page's judgment I have provided a link: TRAPPED! Financial Scams Are Targeting Military Families .

http://www.militarymoney.com/DebtHelp/deceptivepractices/tabid/75/itemId/1721/Default.aspx

There may be a better source.

regards,

[CheyDogFlies]

Found an article that says Roth TSP option delayed until 2nd quarter 2012:
http://www.govexec.com/dailyfed/0311/032811l1.htm

[LadyGeek]

Found an article that says Roth TSP option delayed until 2nd quarter 2012:
http://www.govexec.com/dailyfed/0311/032811l1.htm

Thanks! That article is dated back in March. I checked the TSP site and found this brochure, updated 2011-10-20 (enter "Roth" in the TSP search box, it's the first hit): OC06-5, Is the TSP Offering a Roth 401(k) Feature? Wiki updated in 2 spots.

Wiki article link: Military finances (added in footnote)

Wiki article link: Thrift Savings Plan

[dss8866]

Military Investing

The G fund is a very special free lunch type account. It pays you a bond rate of return, yet with zero risk of loss. Although its expected return is lower than other funds, it is much higher than other similar risk-free investments. As such, many Bogleheads with TSP access use the G fund as their primary bond investment.

Based on reading through Bogleheads over the last few months, I'm in the process of updating my AA. It would greatly simplify things to just follow EmergDoc's advice above and use my TSP G fund for all my bond investing. Are there any disadvantages to this?

[Taylor Larimore]

Military Investing

The G fund is a very special free lunch type account. It pays you a bond rate of return, yet with zero risk of loss. Although its expected return is lower than other funds, it is much higher than other similar risk-free investments. As such, many Bogleheads with TSP access use the G fund as their primary bond investment.

Based on reading through Bogleheads over the last few months, I'm in the process of updating my AA. It would greatly simplify things to just follow EmergDoc's advice above and use my TSP G fund for all my bond investing. Are there any disadvantages to this?

Hi dss:

Welcome to the Bogleheads Forum!

There are advantages and disadvantages to any investment.

In general, stocks are for higher expected returns but with risk of much lower returns. Bonds, cash, and the G Fund are primarily for safety and income. Used together, we can control the expected risk and expected return of our portfolio.

In my opinion, the G Fund can be used for all your bond/fixed-income investing. It offers great safety (and lower yield) in a portfolio thereby allowing us to increase our stock allocation for greater return with the same amount of overall risk. The G fund mixes well with a TIPS fund, if available.

Don't overthink this. Any good quality, low-cost short or intermediate-term bond fund, or the G Fund, should do the job of providing safety and income. No one can predict which will turn-out to be the best for your portfolio during the period you are investing.

Best wishes.
Taylor

[Nords]

I don't get over here often ("Hey, look, new forum software!") but thanks for putting the book in the wiki. The first semi-annual royalty checks are going to Wounded Warrior Program and Fisher House, roughly $568 to each. That's based on sales of 605 copies of "The Military Guide" and 2929(!) pocket guides between June and October. The publisher says the next check should be a lot bigger, especially as the drawdown begins.

If you're in the military, or a veteran, or a military family member: I'm collecting stories and advice for the second edition and the blog. Please send me a PM or an e-mail. You and the other 50+ contributors will help choose which charities receive the royalties, so this is an opportunity to pay your expertise forward while supporting a military charity.

For the Wiki, I was surprised to learn that:
"The TSP services 4.5 million current and former Federal employees and Uniformed Service members with over $289 billion in assets, making it the largest defined contribution plan in the world." (Second page of https://www.tsp.gov/PDF/formspubs/oc10-16.pdf , updated Nov 2011.) I have heard, but not been able to confirm, that the TSP has the world's largest index funds. If anyone can find a link, I'd be grateful.

If you Wiki gurus don't mind, I'll be quoting the "TSP" and "Military Finances" entries in an upcoming blog post on the TSP. There are several other excellent blogs and forums devoted to providing daily updates on the TSP's fund prices, which can be used by website utilities to download data to a TSP spreadsheet. It's not a "ticker" but it's as close as we can get. More importantly to those of us who aren't obsessing over daily prices, the websites include expanded analysis of TSP fund performance. Personally I think the most important factors are "cheap" and "easy" but again, some people really enjoy digging into this.

Also for the wiki, please feel free to harvest any of the posts on The-Military-Guide.com. WordPress makes it easy to search the archives and I try to back up every assertion with a link, even if it's weak. Some of the more useful analysis topics for the Military Finances wiki could be:
http://the-military-guide.com/2010/12/09/comparing-an-e-7-active-duty-pension-to-an-e-7-reserve-pension/
http://the-military-guide.com/2010/12/15/retiring-on-multiple-streams-of-income/
http://the-military-guide.com/2011/03/14/effect-of-inflation-on-a-redux-military-pension/
http://the-military-guide.com/2011/03/21/asset-allocation-considerations-for-a-military-pension/ (three parts!)
http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/
http://the-military-guide.com/2011/03/16/saving-base-pay-and-promotion-raises/

[tibbitts]

I know nothing about the military, but it seems like you would owe income tax in whatever states you physically earned income in. So if the military sent you to 17 income tax states last year and you did work in each one, no matter where you were "stationed" or where your residence was, you'd owe non-resident income tax in each of those 17 states. Whether you'd practically have to pay taxes in every jurisdiction is another matter, but I do know of some employers who used to provide their employees with detailed breakdowns of exactly where they earned income based on their assignments each year.

Paul

[LadyGeek]

If you Wiki gurus don't mind...

From a "wiki guru," the Bogleheads' wiki follows the GNU Free Documentation License 1.2. You don't need anyone's permission, quote whatever you want. I added your blog and RSS feed link to the Military finances page.

Here's your list reformatted as links:

• Comparing an E-7 active-duty pension to an E-7 Reserve pension
• Retiring on multiple streams of income
• Effect of inflation on a REDUX military pension
• Asset allocation considerations for a military pension (part 1 of 3)
• Asset allocation considerations for a military pension (part 2 of 3)
• Asset allocation considerations for a military pension (part 3 of 3)
• “Present value” estimate of a military pension
• Saving base pay and promotion raises

(Update: Inserted asset allocation parts 2 and 3 per correction below.)

[Nords]

You don't need anyone's permission, quote whatever you want.

Just a courtesy heads-up.

Here's your list reformatted as links:
(Three parts? I could only find the first.)

Asset allocation considerations for a military pension (part 2 of 3)
Asset allocation considerations for a military pension (part 3 of 3)

[LadyGeek]

Thanks. I corrected my post. I don't have the background to help with your articles, but I'd be more than happy to insert any updates or corrections.

[HearDoc]

I know nothing about the military, but it seems like you would owe income tax in whatever states you physically earned income in. So if the military sent you to 17 income tax states last year and you did work in each one, no matter where you were "stationed" or where your residence was, you'd owe non-resident income tax in each of those 17 states. Whether you'd practically have to pay taxes in every jurisdiction is another matter, but I do know of some employers who used to provide their employees with detailed breakdowns of exactly where they earned income based on their assignments each year.

Paul

States recognize the active service person's home of record as the taxing authority for state taxes. That's why so many of us used Texas after being stationed there.
In addition many states do not tax military pensions and some states tax at lower rates than ordinary pensions.

[tibbitts]

I know nothing about the military, but it seems like you would owe income tax in whatever states you physically earned income in. So if the military sent you to 17 income tax states last year and you did work in each one, no matter where you were "stationed" or where your residence was, you'd owe non-resident income tax in each of those 17 states. Whether you'd practically have to pay taxes in every jurisdiction is another matter, but I do know of some employers who used to provide their employees with detailed breakdowns of exactly where they earned income based on their assignments each year.

Paul

States recognize the active service person's home of record as the taxing authority for state taxes. That's why so many of us used Texas after being stationed there.
In addition many states do not tax military pensions and some states tax at lower rates than ordinary pensions.

I was aware of the military pension exclusions/reduction in some states. I just can't believe that every state agreed to give up out-of-state income tax. Certainly they don't for anybody except the military. It must be the first time every state agreed about anything. As a practical matter, of course, not everybody reports income correctly in terms of where income was actually earned. Probably in many cases, that's not so much due to intentionally evading tax, as much as it's due to the huge logistical problem of reporting taxes to multiple states. I wish there could be an equitable solution for everybody, including the military. It's not a bigger problem for the military than it is for many people in the private sector.

So, in the case of the military, how do you get around not having a physical address to report? Every residence requirement I know of requires a physical address.

Paul

[Nords]

I was aware of the military pension exclusions/reduction in some states. I just can't believe that every state agreed to give up out-of-state income tax. Certainly they don't for anybody except the military. It must be the first time every state agreed about anything. As a practical matter, of course, not everybody reports income correctly in terms of where income was actually earned. Probably in many cases, that's not so much due to intentionally evading tax, as much as it's due to the huge logistical problem of reporting taxes to multiple states. I wish there could be an equitable solution for everybody, including the military. It's not a bigger problem for the military than it is for many people in the private sector.
So, in the case of the military, how do you get around not having a physical address to report? Every residence requirement I know of requires a physical address.
Paul

It's less complicated than it seems. You use the address you lived in when you were stationed in that state.

The military are federal employees, so the states don't tax their pay. Instead the federal govt passes out "impact funding" to compensate the states for military kids in public schools and other military-family uses of state resources. It seems to me that if a state got aggressive about taxing U.S. military paychecks then servicemembers would complain and Congressional Armed Services Committees might suddenly decide to send a whole bunch of appropriations dollars to some other state.

Non-military income earned in the state is taxable by that state. It's not unusual for a career servicemember stationed at the Pentagon (but living in Virginia) to have rental income from California (the house they bought 10 years ago and might retire to someday), spouse's income from a Maryland job, and the servicemember's side-hustle revenue from selling nutritional supplements (in VA). Oh, and they're considered Florida residents because 15 years ago they filed a "Declaration of Domicile" in that state.

One of my shipmates died on active duty (heart attack) in that situation above. Probate was a nightmare.

I grew up in PA. I started college (U.S. Naval Academy) the same week my family moved to CO. 1980s CO was a better tax deal so I switched residency using their address, even though I'd never been there. I bought a car in MD but when I lived in VA for six months after USNA, VA was all over me to register that car in VA despite my military employment. (They actually cruise the apartment parking lots checking for out-of-state plates.) When I lived in FL for six months of nuclear power training, I switched my residency to FL using my apartment address. They even let me back-date it to my 1 Jan arrival so that I didn't have to file a CO tax return that year. I never went back to FL but I was a FL resident for nearly 20 years (using that address, even though it must have rented many times over) and voted absentee ballot the entire time. (A decade later I actually had to update some paperwork when that apartment was assigned a new postal ZIP code.) When I married my spouse (a MD resident) in SC and we transferred to CA, we drove through Tallahassee so that she could take the driver's license exam and do the paperwork to become a FL resident too. For two decades our FL driver's licenses had a block of text where the photo goes stating "VALID WITHOUT PHOTO". We bought a condo in CA and sold it three years later when we moved to HI, and CA came after us for state capital gains tax. We filed the appropriate CA forms to show that we were FL residents, and CA quit bugging us. We drove our cars in HI with FL plates for years, but we had to do annual HI safety inspections. Every year we also had to pay $5 for the appropriate out-of-state sticker or pay 50 cents to switch to a HI plate. We bought a home in HI but when we did a second tour in CA and rented the HI home, we had to file HI non-resident tax returns on the rental income-- which was zero after expenses. (Luckily we rented a CA home during our second tour so we didn't attract the attention of the CA tax authorities.) When we returned to HI and eventually retired, within 30 days we took our driver's license exams and registered to vote in HI. And I started doing residential state tax returns for the first time in two decades.

See how simple it is?

I've read that 12% of Florida's population is military residents. I bet that pays off when they apportion the House of Representatives.

Our daughter attends college in Texas on an NROTC scholarship and could become a Texas resident. However she likes being a HI resident because she's heard scary things about Texas driver's license exams & paperwork. When she graduates and starts earning taxable income, she'll pay a heavy price for staying a HI resident instead of converting to Texas.

State taxes were simple compared to the IRS. My first submarine made Cold War ballistic-missile deterrence patrols from Holy Loch, Scotland. The BLUE and GOLD crews were stationed in Charleston, SC, but between the 90-day patrols and the 28-day upkeeps out of Holy Loch we ended up spending about seven months of the year out of the U.S. For that reason we were considered overseas residents of Holy Loch even though we trained in SC and our families lived there. This meant that not only did we not pay SC state tax, we were eligible to declare a federal "boomer deduction" on expenses paid in the U.S. We paid federal income tax but first we could deduct all of our U.S. living expenses-- including mortgage payments & utilities.

These sorts of military benefits help solve a lot of retention problems. It makes it very difficult to compare military compensation to equivalent private-sector occupations. And I don't think the private sector gets the same attention to recruiting and retaining...

[scubacat]

For your physical address you claim the same address that you had when you claimed the residency. It doesn't matter that you don't live there anymore. When I joined, I was renting an apartment in GA. GA was my state of residence for the entire time and I used that address for the enire time as well. The logic and legal theory is that when you are in the military and you move to a state because of orders, it is not a choice and therefore you don't have the intent to change residency (ie if you decide you don't want to move, you can be thrown in jail). The case law is well established on this point and even 'we think we should be able to tax everyone who has spent 5 minutes in our state' Virginia respects it.

In any other job, you have a choice (even if doesn't always feel like it) and therefore if you move to a different state you change your state of residence.

[ChapMan]

For your physical address you claim the same address that you had when you claimed the residency. It doesn't matter that you don't live there anymore. When I joined, I was renting an apartment in GA. GA was my state of residence for the entire time and I used that address for the enire time as well. The logic and legal theory is that when you are in the military and you move to a state because of orders, it is not a choice and therefore you don't have the intent to change residency (ie if you decide you don't want to move, you can be thrown in jail). The case law is well established on this point and even 'we think we should be able to tax everyone who has spent 5 minutes in our state' Virginia respects it.

In any other job, you have a choice (even if doesn't always feel like it) and therefore if you move to a different state you change your state of residence.

As I see it, the one big factor militating against states taxing you because you happen to live in a certain place is the lack of choice. If a civilian doesn't feel like going to work and wants to move to another state, at worst he gets fired, maybe he gets sued if things are really bad. If we do, it's literally a federal offense punishable by time in prison.

As an aside, I'm looking for speakers in the Washington DC area to give short 30-minute to one-hour talks about military investing for the general military population of DC (mid-level to senior enlisted and all sorts of officers). Anyone know a good resource I could find?

[HearDoc]

For your physical address you claim the same address that you had when you claimed the residency. It doesn't matter that you don't live there anymore. When I joined, I was renting an apartment in GA. GA was my state of residence for the entire time and I used that address for the enire time as well. The logic and legal theory is that when you are in the military and you move to a state because of orders, it is not a choice and therefore you don't have the intent to change residency (ie if you decide you don't want to move, you can be thrown in jail). The case law is well established on this point and even 'we think we should be able to tax everyone who has spent 5 minutes in our state' Virginia respects it.

In any other job, you have a choice (even if doesn't always feel like it) and therefore if you move to a different state you change your state of residence.

As I see it, the one big factor militating against states taxing you because you happen to live in a certain place is the lack of choice. If a civilian doesn't feel like going to work and wants to move to another state, at worst he gets fired, maybe he gets sued if things are really bad. If we do, it's literally a federal offense punishable by time in prison.

As an aside, I'm looking for speakers in the Washington DC area to give short 30-minute to one-hour talks about military investing for the general military population of DC (mid-level to senior enlisted and all sorts of officers). Anyone know a good resource I could find?

Check the MOAA.org

[Nords]

For your physical address you claim the same address that you had when you claimed the residency. It doesn't matter that you don't live there anymore. When I joined, I was renting an apartment in GA. GA was my state of residence for the entire time and I used that address for the enire time as well. The logic and legal theory is that when you are in the military and you move to a state because of orders, it is not a choice and therefore you don't have the intent to change residency (ie if you decide you don't want to move, you can be thrown in jail). The case law is well established on this point and even 'we think we should be able to tax everyone who has spent 5 minutes in our state' Virginia respects it.

In any other job, you have a choice (even if doesn't always feel like it) and therefore if you move to a different state you change your state of residence.

As I see it, the one big factor militating against states taxing you because you happen to live in a certain place is the lack of choice. If a civilian doesn't feel like going to work and wants to move to another state, at worst he gets fired, maybe he gets sued if things are really bad. If we do, it's literally a federal offense punishable by time in prison.

As an aside, I'm looking for speakers in the Washington DC area to give short 30-minute to one-hour talks about military investing for the general military population of DC (mid-level to senior enlisted and all sorts of officers). Anyone know a good resource I could find?

Well, the first place to start might be the Bogleheads wiki. Nobody will complain about you showing people how to do their own low-cost indexing.

The next place might be the Fleet & Family Readiness office in your area. Financial responsibility is one of their support areas, but by the time they get called in it's usually too late. They'd be thrilled to get a chance to do the training up front. I don't know whether the Transition Assistance Program (TAP) speakers are part of your FFR office but they also help with topics like saving for retirement or saving for the transition out of the military to a civilian career.

As HearDoc says, you could try Monique Rizer at MOAA's spouse program. (http://www.moaa.org/Main_Menu/About_MOA ... Rizer.html ). Family Readiness Groups in our area have tapped into MOAA chapters for these sorts of talks, and she might be able to steer a financial speaker your way without putting you in the hands of a sales guy.

Check your PMs for other suggestions!

[LadyGeek]

As an aside, I'm looking for speakers in the Washington DC area to give short 30-minute to one-hour talks about military investing for the general military population of DC (mid-level to senior enlisted and all sorts of officers). Anyone know a good resource I could find?

You could try PM'ing members who post to the local chapter thread: Washington DC Area Bogleheads. Also, the wiki's Boglehead® Local Chapters will point you to the DC Area Yahoo Group.

[oldman77]

When considerung a "no income tax" state of residence:

1. California: Back in my day (probably still true) CA did not require income tax for active duty serving out of state. My first active duty assignment was a few months training in California before going overseas. While there I got a CA drivers license and registered to vote. When I arrived at my first - and all subsequent overseas duty stations - I put CA down as my state of residence. I continued to vote in CA elections, and kept the CA drivers license for 10 years (fine print said "no expiration date for active duty military"). Leaving the service after 10 years they moved me back to CA where I discovered another benefit:

2. State college tuition discounts. You, or your kids, probably qualify for in-state (subsidized) tuition at state colleges & universites based on having been a resident of that state for some period of time prior to applying to the school. (The assumption is that a state resident has been paying to support the state school system through income and/or sales tax, an applicant from outside the state will pay much higher tuition.) As a legal state resident you probably qualify even though you've been stationed outside the state - and not paying state income/sales taxes. I had never paid a dime of state income tax, and no sales tax for 10 years, but I qualified for in-state tuition at UCLA. That benefit was worth many thousands of dollars to me; if my kids had been college age it would have been worth even more.

[Flyin Devil Dog]

For all those in the Navy, Marine Corps, and Coast Coard, when considering life insurance in addition to SGLI and Navy Mutual Term, consider whole life from Navy Mutual (Called Permanent Plus). What a great deal! Get it anytime, but cheaper if you are young. You can't lose. Cash out value is NEVER less than the sum of premiums paid and after one year will almost always be more. In fact their current crediting rate is 6.8%. Unlike other companies that have high fees and charge commisions, nobody can beat Navy Mutual ( a non-profit unlike USAA). The best part is that premiums can be paid over a period ranging from 7 to 20 years, then the policy is paid in full, but the insurance continues for life and can be used as long term health car insurance. Most term insurance expires when one reaches their 70s or it becomes very expensive into your 70s and 80s). For example: I purchased a $20K policy at age 22 for $12/ mo payable for 20 yrs. (total sum of premiums $2880). Today (25 yrs later), I don't pay anymore premiums, the cash value is over $6500 (I could cash out any time), and the death benifit is over $26K and growing every year (in fact it is project to be over 80K when I'm 70). If I need long term health care in 30 or 40 years, I can tap that. I can borrow against the policy (at interst rate of less than 1%), cash out anytime, or leave it to my beneficiaries when I die. What a great investment that has averaged around 8% annually. Currently NMA is giving 6.8%. My advise is to max out SGLI on Active Duty, supplement with Navy Mutual Term up to an addition 500K depending on your family needs, AND also consider anywhere from $20 to 100K in Navy Mutual whole Life. Talk to them and do the math. Best wishes and thanks to all who have served.

[Flyin Devil Dog]

PenFed is now 1% on everything else, and the payments are applied to your bill each month, no year end check needed.

Navy Fed Flagship Rewards for travel is 2%. Chase Miltary rewards is 2% for MCX, BX, NEX, and commissary and 1% all else. Shop around for no fee or small fee military friendly cards where you should be able to average a minimum of 1.5 to 2 % cash back or reward. $1,000 for every 50K. Not hard to spend 50K in 2 years if you put most of your expenses on the card. OF COURSE, pay off the balance every month or it is not worth it.

[materielgrrl0608]

I don't get over here often ("Hey, look, new forum software!") but thanks for putting the book in the wiki. The first semi-annual royalty checks are going to Wounded Warrior Program and Fisher House, roughly $568 to each. That's based on sales of 605 copies of "The Military Guide" and 2929(!) pocket guides between June and October. The publisher says the next check should be a lot bigger, especially as the drawdown begins.

If you're in the military, or a veteran, or a military family member: I'm collecting stories and advice for the second edition and the blog. Please send me a PM or an e-mail. You and the other 50+ contributors will help choose which charities receive the royalties, so this is an opportunity to pay your expertise forward while supporting a military charity.

For the Wiki, I was surprised to learn that:
"The TSP services 4.5 million current and former Federal employees and Uniformed Service members with over $289 billion in assets, making it the largest defined contribution plan in the world." (Second page of https://www.tsp.gov/PDF/formspubs/oc10-16.pdf , updated Nov 2011.) I have heard, but not been able to confirm, that the TSP has the world's largest index funds. If anyone can find a link, I'd be grateful.

Since TSP is a defined contribution plan you would need to look at investment related publications that cater specifically to this type of institutional investing.
In fact there are publications titled "Institutional Investor", or "Pension and Investments", etc. EBRI is a good source of institutional benefits information.

This is just a list of top 10 DC plans in the US.

http://www.pionline.com/gallery/2012021 ... =itemnr=10

Even if you factored in other DC plans or other similar investment related employer plans (where did CALPERS go? and TIAA-CREF), TSP is the largest of this type of employer plan by dollars and number of participants.

There are DB plans, which have been around many decades; those still in existence, that are larger than the TSP.

[desertbandit442]

I retired from active duty Air Force last year after 34+ years... I suggest keeping SGLI while still in... over the course of my career it increased coverage at minimal cost. While perhaps not optimal now, it has the possiblity of getting there through future increases.

Also, I found the best deals for additional outside insurance often come from the various professional military associations, like the Reserve Officers Assn, Military Officers Assn, NCO Assn, Naval Reserve Assn, National Guard Assn US, Army Assn (AUSA), and many others. It is good to check out a few of them and compare rates. In my case, I picked up a policy through one of my associations before retiring, which is a great level term policy and it beat out VGLI (easily) and even USAA.

Good to do some research!
Best Wishes,
Cheers,
Ray

I second this. I am retired AF and researched term life insurance options prior to retiring. Don't assume SGLI is the cheapest. I found MOAA (Military Officer Association of America) had the best term insurance rate at the time I retired (14 years ago), even better than USAA. So do shop around for term life insurance when you are getting ready for retirement

[desertbandit442]

This is just food for thought on actual investing for military if you are planning on staying at least the 20 years and obtain the military retirement pay. I didn't/don't worry a great deal about the AA (asset allocation) rules of thumb you may hear about regarding stock/bond portfolio, because the government retirement pension is about the most secure you could have. I think if your military retirement pension went down the tubes, then just about everything else you could invest in would be down the tubes (just my opinion).

You may hear 80/20 stocks to bonds or 70/30, 60/40, etc. depending on age. As you get older and into retirement you should be moving more towards the bond or fixed income side of AA. Well, the way I see it is my military pension provides a big part of my fixed income for retirement so I can be more aggressive toward the stock side in my AA, even in retirement. I think the stock to bond ratio "rules of thumb" that are generally seen are more for investors that do not have a "secure" pension for their retirement.

With that said, everyone's life situation is different and you may need to generate more income to supplement your military retirement pay, and eventually your retirement pay plus social security benefits. Then, your AA may need to be 60/40, 50/50, or 40/60 stocks to bonds to generate that extra income in retirement.

This is just information to think about when working your AA for investing. Happy planning.

[ChapMan]

I'm not sure if this is worthy enough to go into the Wiki, but I was thinking about this the other day:

The Saver's Credit, assuming it survives in coming years, is probably most applicable for the active duty military population. Along with things like the Earned Income Credit, it phases out at certain income levels (it's pretty low for the Saver's Credit). In most circumstances, people who would qualify for a good chunk of the credit probably wouldn't be able to save much for retirement anyway. For the military, however, so much of a service member's income is non-taxable (BAH/BAS, other allowances, etc.) that it's quite possible to be mid-level enlisted or a junior officer and contribute enough into your TSP so as to put you within range of the 50% Saver's Credit. It's something worth considering for tax planning purposes, since it's a good $1000 credit you can potentially get against your taxes. You'll need to work out the numbers specifically on your own, but I thought it was a good idea.

[LadyGeek]

Are you referring to this? Get Credit for Your Retirement Savings Contributions

If you think it should go in the wiki, I'll put it in for you. Can you rephrase your suggestion into a bullet point format (like the article is written now)? I'm not military, so I may not get what you intended. If not, I'll take a crack at it.

Wiki article link: Military finances

[gwrvmd]

Re: desertbandit post on 2/28/12
I am also retired military, National Guard that do not start to receive their retirement pay until age 60.
I agree with desertbandit that career military can be more agressive with their asset allocation. I also went through life with an AA of 80-90% stocks which have treated me very well because I started when the Dow was below 1000. I always looked at my Guard retirement as my safety net. It was a government sponsored, deferred, indexed annunity that was going to start when I was 60.
Along the same line. Social Security is a government sponsored indexed annunity, military pensions are government sponsored indexed annunities and corporate pensions are fixed income annunities. When someone tries to sell me an annunity I say "No thanks, I already have plenty"
Again along the same line. An illustration of the value of an indexed pension. It is generally accepted among Guardsman that, after 75, many Guardsman's military retirement pay (from their parttime military service) exceeds the the income from their fulltime job non indexed corporate pension. In my case it appears that will happen several years from now when I am 78 to 80. To LadyGeek: I have no reference for that, it is "bar knowledge" but pretty accurate I think unless you have an indexed civilian pension which is pretty rare unless you worked for some level of government. Gordon

[ChapMan]

Are you referring to this? Get Credit for Your Retirement Savings Contributions

If you think it should go in the wiki, I'll put it in for you. Can you rephrase your suggestion into a bullet point format (like the article is written now)? I'm not military, so I may not get what you intended. If not, I'll take a crack at it.

Wiki article link: Military finances

The Savers Credit, previously known as the Retirement Savings Contributions Credit, may be especially compelling to service members because of the nature of military compensation. Since much of military compensation is untaxed (BAH/BAS/etc.), service members often enjoy a much lower adjusted gross income (AGI). Many, if not most, people who would otherwise qualify for the Savers Credit are unlikely to be able to put away too much of the money to make the credit very worthwhile, but service members have an "artificially" low AGI, and so might qualify despite being paid relatively well. For example, this "cliff" of the Savers Credit can be seen here:



An O-2 living in a metropolitan area who maxes out her TSP could theoretically only have an AGI of around $17-18k, qualifying for a nice tax credit despite having an effective income of around $60-70k.

Shorter version: The Savers Credit is something worth looking into for service members as their AGI is "artificially" lowered due to many of the forms of their compensation (BAH/BAS) being taxable and counted against their AGI.

[LadyGeek]

Thanks. That's a nice graph and good explanation. I added your suggestion to the wiki as a footnote in the BAH / BAS paragraphs, which points back to your post.

I also threw in a reference to IRS Publication 3 (2011), Armed Forces' Tax Guide, as it covers military specific situations. Tax time approaches...

Wiki article link: Military finances