25yo Military New Investor

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eindecker
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Joined: Wed Oct 29, 2014 3:07 pm

25yo Military New Investor

Post by eindecker »

My wife and I are new to saving & investing. We feel a little bit behind the power curve, but we just finished reading Boglehead’s Guide to Investing & Retirement Planning, a handful of Wiki articles and are stoked we stumbled upon you when we did. We've scoured these forums for a couple weeks now. Amazed with all of the help, we were wondering if we could join in.

Emergency Funds: $0

Debt:

USAA Career Starter Loan
Interest Rate: 2.99%
Balance $16,000

Roth TSP General Purpose Loan
Interest Rate: 2.375%
Balance: $4,200

Auto Loan
Interest Rate: 4.99%
Balance $6,300

Total Debt: $26,500

Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal | No State
State of Residence: Florida
Age: 25/25
Desired Asset Allocation: 85% / 15%
Desire International Allocation: ?

Current Retirement Assets: His Roth TSP: $4500 (100% L2050 with ER .029%)

Annual Contributions: $6000/yr his Roth TSP (Thinking we’ll be able to get to the max out point in roughly 1-2 yrs)

Available Funds: G, F, C, S, I & L Funds

Some Background Points:
1. I am an O-2 in the military with 2yrs of service. In February we are moving to Japan, so, we have a relatively stable income, but we expect to have some large upfront expenses come the beginning of next year.

2. We were just married in July. Whether it was a good or bad decision, we paid for our wedding by putting $5,000 on a credit card (which we've just finished paying off) and borrowing $7,000 from my Roth TSP, hence, the loan.

3. We’re pretty conservative, not big spenders, live below our means, and are motivated to save raises and promotions from here on out.

Miscellaneous Goals:
1. Emergency Fund: 3 months/$6,000 (Confident we can save by January)

2. Retire at 45 w/ 150k a year: Right now my long term plan is to work 20yrs (or more) and take advantage of the military pension. Assuming conservatively it is averaging $50K a year, my goal is to provide the other $100K. Considering my personality I wouldn’t be surprised if I kept working in some part-time capacity but my biggest goal is to at least eliminate the need to work.

3. Planning on kids in 3-4 years

4. Would like to buy a house anywhere in the 5-15 year range, with the price ranging from $500k to 600k (pretty flexible, but it’s something we’d like to eventually do)

Questions (in no particular order):
1. We want to be pretty lazy investors (1-3 funds at the most) while keeping with our 85/15 AA. Would it be stupid to invest 100% in to the L2050 fund and then roll all of it into the L2060 fund if and when it becomes available (L2050 starts to progress to 84/16, etc…in Jan 2016) or should we just go with 2 or 3 funds and adjust our asset allocations on our own? If so, any recommendations?

2. We’ve sometimes debated changing our buying-a-house goal to 20+ years to wait until we settle where we’re going to retire. Is it a bad idea to go into retirement taking on a mortgage? Would you recommend buying a house while still on active duty to avoid that situation or is it entirely personal and situationally dependent?

3. Thinking long-term would you recommend paying off our debts before we try to maximize the TSP and investments or put as much as we can towards investing and let the loans pay-off on schedule? We can sleep at night either way.

4. Along the lines of #3, we put our priorities in this order: Save for Emergency Fund, work towards maxing out my Roth TSP, max out my Roth IRA, max out wife’s Roth IRA, put extra money towards debt, and then invest in taxable accounts. Would you add, subtract or switch around any of these priorities?

5. Do you think retiring at 45 with 150k/yr is too aggressive or even reasonable (given the military pay scale over 20 years, saving on average 20-30% of total income)? If not, any advice on how to tweak my plan to make it possible?

6. How would you bridge the gap between 45 and 60? We’re thinking it will take a couple years to get the extra income (over other investments) and past the debt, but is the simple answer an index fund in a taxable account?

7. Any questions we should be thinking about that we might be missing?

We appreciate the help!

-Scott & Jean
Grt2bOutdoors
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Re: 25yo Military New Investor

Post by Grt2bOutdoors »

Hello and welcome to the forum!
Thank you for your service.

I would just stick with L2050 for now, as long as the rolling over takes place in the TSP or IRA vehicles you will be fine. It is not recommended for taxable accounts due to tax implications.
I'll let other posters who are more familiar with relocating comment on the risks of buying a home when marching orders come through or not.
You're just starting out with career and oh let's not forget married life :wink:, good to have and set goals but would not be overly fixated on getting to $100K in 20 years - it is a pretty tall order to add on top of career and family responsibilities. Enjoy the present and keep chipping away at the debt as you save/invest. Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Geronimobro
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Re: 25yo Military New Investor

Post by Geronimobro »

Military here. Are you saying that you'd like to retire after 20 years with enough money invested to provide an additional annual income stream of 100K? On a military salary alone, with a wife and kids, that is very unrealistic. Assuming a withdrawal rate of 4%, you'd need about 2.5 million. Now if your wife works and has a decent job, you might come a little closer. You can live well and max out retirement accounts on a military salary, but recage your expectations for easy street after 20 years.
gator15
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Re: 25yo Military New Investor

Post by gator15 »

As you may know, if you have a 20 year career in the military, you will receive several raises throughout your career including raises due to promotions, time in service etc. Instead of increasing your cost of living, save those raises and you'll have a better chance of reaching your goals.
jereberry
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Re: 25yo Military New Investor

Post by jereberry »

I believe your goals are quite lofty unless your spouse has a professional job. In order to have 2.5M saved up after a 20-yr career as an officer, you would have to save a lot more than 20-30% of your income(total, not just base pay). You have 4,600 now invested. Using a compound growth calculator, if you somehow could start saving 70k/yr starting now for 18 years at 7%, then you would have about 2.5M.

You don't plan on being able to invest 18k/yr until a couple years from now; throw some kids into the mix and a 600k house, and that 2.5M goal gets a little farther away.

As far as buying a house while AD military....I have found that most of the time it is more trouble than it's worth and generally not a good idea. I think an exception would be if you can buy a house for much less than it's worth in a stable area that you can pay off or nearly pay off before you PCS. My advice is to poll a lot of FGOs and SNCOs and see what their experiences have been.
rakornacki1
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Re: 25yo Military New Investor

Post by rakornacki1 »

One important piece of advice that I would like to offer is to leverage/maximize your insurance needs (auto, home, personal property, renters, etc.) with USAA.
From my long experience with them, they are clearly the lowest-cost, customer-friendly, professional, world-class company to deal with. You can rest easy with USAA and eliminate this worry from your list.
Good luck. Thank you for your service, LT.
Frugal Disciple
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Re: 25yo Military New Investor

Post by Frugal Disciple »

Thank you for your service. My wife is active duty as well. AS another poster suggested, I would put serious consideration into whether you need to buy a house while active duty. We have decided that while my wife is active, we will be renting and aggressively saving so that when we settle in a more permanent place, we will hopefully be able to buy a house that we will be in for a long time. There are a lot of costs associated with buying and maintaining a house and holding on to it for only 3-4 years can be risky. Also, if you don't sell, being a landlord form far away has its own challenges.

That said, I love your ambition to be retired by 45. That is also one of my personal financial goals. It will be very difficult to get there saving 20-30%. We are currently saving about 50% with ambitions to increase that to 70%. Also, my wife and I have only been married about a year and I have recently been learning about the TSP and how it will fit in to our strategy.

Regarding your questions:
1. Your strategy isn't bad, but I would consider what we are doing. We have decided to use the TSP for the bond portion of our AA right now and invest 100% of the money in that account in the G Fund. If the majority of your AA is in the TSP, I would split it between G and S.

2. As stated above, I would wait

3. Calculate how your money is going to work best for you. With relatively low interest rates, you may be better off paying the minimums until you are able to max out your tax advantaged accounts.

4.This looks great to me.

5.Retiring at 45 is aggressive but reasonable. However doing it with $150K/yr may be unrealistic unless you take some very drastic saving measures, however if you do that you may not desire to live on $150k/yr.

6.This is something I am working on right now as well so I can't give much informed info. You may look at other forms of income that do not require full time traditional employment. Like the reserves in addition to taxable accounts.

Good Luck!
**Insert witty and/or insightful quote here**
yukon50
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Re: 25yo Military New Investor

Post by yukon50 »

what kind of money do you make now? what kind of money would someone like you be making right now if they have already worked 18-19 years?
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Uncle Pennybags
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Re: 25yo Military New Investor

Post by Uncle Pennybags »

yukon50 wrote:what kind of money do you make now? what kind of money would someone like you be making right now if they have already worked 18-19 years?
Military Pay Chart : 2014
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dratkinson
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Re: 25yo Military New Investor

Post by dratkinson »

Read this: http://www.bogleheads.org/wiki/Military_finances


House. Knew some who bought early and it worked well for them. Knew others with horror stories: housing crash causing new homes to sell for less than their mortgage, wife left behind to sell house when husband PCS'd and bought second home, couldn't sell first house so two mortgages,.... Waiting until I retired was the easy right choice for me.

$150K per year from retirement income at age 45. Not feasible. Assuming $28.5K annual contributions to tax-deferred space (your TSP: 17.5K; your Roth: 5.5K; wife's Roth: 5.5K) and 7% annual growth, you'll have ~$1M at the end of your 20-year military career. Removing $150K/year would exhaust it in a little over 7 years, if you were allowed to do so, which you are not, before age 59.5.

Taxable investing. Extending your investing into taxable accounts, after filling your tax-advantaged space, is wise. See: http://www.bogleheads.org/wiki/Principl ... _placement . I use a 3-fund portfolio, substituting municipal bonds (intermediate term and long term) for total bond market. Some senior investors caution against muni bond if below the 30% fed tax bracket. But I found them beneficial in the 15% fed tax bracket. Still do in 25%. Do the reading, compute the taxable-equivalent yield (TEY), and decide for yourself.

Suggest reading some of the three recommend bond books listed in the Wiki (Swedroe. Thau. Cohen.)

Age 45-67. Plan on second career and retiring from it at age 67+.

Debt. If your debt interest rate is higher than you expect to earn with your investments, then getting rid of debt is a good first priority. If less, then paying them off on time is acceptable. But being debt-free is priceless, so pay off debt early if you like. Your choice.

To raise 3-4 kids and have a comfortable retirement will require the proceeds from a first and second career and tax-advantaged investing, taxable investing, military retirement, SS benefits, and maybe a second career retirement.




Welcome.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
Laura
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Re: 25yo Military New Investor

Post by Laura »

The first thing you need to do on your long term financial journey is get out of debt and build up some cash reserves. It worries me that you expect upcoming expenses because of a move. You can't afford that right now. You and your wife need to cut back on almost everything to turn your attention to the debt. You have a career starter loan (whatever that is and why do you need a debt to start a career?) in addition to your wedding expenses and car expenses. This is too much even with low interest rates.

You need to look into your car loan if you plan to ship that car to Japan. Many times you cannot ship a vehicle with a lien out of the country. The lender is obviously worried they will not be able to repossess the car if the debtor stops paying. On the other hand, do you actually need a car in Japan? You could sell it and use the money to pay off some of your debts.

You should also look to see if it is possible to increase your income in the time before you leave the country. Holiday season is coming and many places hire temp workers. Could you or your spouse do this? Anything else you can sell to earn some extra cash?

Once you get rid of your debts, saving to pay cash for your next car, and building up your emergency funds then you can start seriously investing. For now, use the TSP L funds but don't add any more money to your retirement account. You don't get matching funds and it would make more sense for you to use that money to pay off your loans.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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Uncle Pennybags
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Re: 25yo Military New Investor

Post by Uncle Pennybags »

Laura wrote: You have a career starter loan (whatever that is and why do you need a debt to start a career?)
I was wondering what the was too. I looked it up and even though I'm a member of USAA it wouldn't tell me what it is. One has to be a cadet at West Point to even access the page. Wile USAA is a good bank it has no connection to the US government of military.
SpecialK22
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Re: 25yo Military New Investor

Post by SpecialK22 »

My understanding is that it is essentially a personal loan with a low interest rate. I think it is only available to officers commissioning through a service academy and maybe ROTC.
Laura
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Re: 25yo Military New Investor

Post by Laura »

What a horrible way to "help" our service members who are already sacrificing to serve their country. Giving them loans right off the bat does tie them into USAA early on. Wow. How about offering a record high interest savings account to add money into their pockets rather than taking money out? I am a USAA member and really find this appalling and disappointing. If people get into a hole from day one it is very difficult to dig out.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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Uncle Pennybags
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Re: 25yo Military New Investor

Post by Uncle Pennybags »

Laura wrote:What a horrible way to "help" our service members who are already sacrificing to serve their country.

Laura
USAA did that to my son when he was in the Coast Guard, they lent him money to buy a Jeep that he couldn't afford. He had to sell it at a loss and might still owe money on it. No money changer is your friend.
trueblueky
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Re: 25yo Military New Investor

Post by trueblueky »

Laura wrote:The first thing you need to do on your long term financial journey is get out of debt and build up some cash reserves. It worries me that you expect upcoming expenses because of a move. You can't afford that right now. You and your wife need to cut back on almost everything to turn your attention to the debt. You have a career starter loan (whatever that is and why do you need a debt to start a career?) in addition to your wedding expenses and car expenses. This is too much even with low interest rates.

You need to look into your car loan if you plan to ship that car to Japan. Many times you cannot ship a vehicle with a lien out of the country. The lender is obviously worried they will not be able to repossess the car if the debtor stops paying. On the other hand, do you actually need a car in Japan? You could sell it and use the money to pay off some of your debts.

You should also look to see if it is possible to increase your income in the time before you leave the country. Holiday season is coming and many places hire temp workers. Could you or your spouse do this? Anything else you can sell to earn some extra cash?

Once you get rid of your debts, saving to pay cash for your next car, and building up your emergency funds then you can start seriously investing. For now, use the TSP L funds but don't add any more money to your retirement account. You don't get matching funds and it would make more sense for you to use that money to pay off your loans.

Laura
+1
You don't mention your spouse's education and job history. With the PCS overseas, civil service is the way to go. Jobs on the economy in Japan are likely impossible to get. Spousal income is critical to having a chance to meet your goal.

Uncle Sam will ship one vehicle for you -- study if that's right for your situation.

Max TSP every year. When you deploy, you have the opportunity to add even more.
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Ketawa
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Re: 25yo Military New Investor

Post by Ketawa »

Laura wrote:What a horrible way to "help" our service members who are already sacrificing to serve their country. Giving them loans right off the bat does tie them into USAA early on. Wow. How about offering a record high interest savings account to add money into their pockets rather than taking money out? I am a USAA member and really find this appalling and disappointing. If people get into a hole from day one it is very difficult to dig out.
Uncle Pennybags wrote:USAA did that to my son when he was in the Coast Guard, they lent him money to buy a Jeep that he couldn't afford. He had to sell it at a loss and might still owe money on it. No money changer is your friend.
I went to USCGA. The career starter loan is offered to cadets during their junior year. USAA offered up to $32.5k at 0.5% and NFCU offered up to $30k at 0.5%. The term was 60 months with the first payment due 3 months after graduation. It was obviously a good deal; how can you complain about 0.5%? Even today, I can get a better yield in a savings account. On an officer's salary, the payments are trivial.

Most cadets use some of the loan to buy a car before senior year, which is the first year they have driving privileges. My truck is still going strong after owning it 7 years. I doubt that cadets would qualify for a traditional car loan and the monthly allowance as a cadet is a pittance. There is a huge upfront cost to attending USCGA; cadets start out with a separate "account" with a huge negative balance to cover the cost of uniforms, books, seabag items, a laptop, etc, so they only keep part of their paycheck. My freshman year, I actually got to see about $120 of my paycheck each month. The system might have some slight variations at the other academies, but try saving for a car and having any social life.

So OP, I wouldn't criticize you for taking a loan at 2.99% which was probably used to buy your first car. Is the other auto loan your wife's car? You have $22,300 in actual debt. This doesn't bother me too much. Maybe you should have had a cheaper wedding to avoid taking a TSP loan. But at the same time, nobody would have anything to say if you had temporarily reduced your TSP contributions and saved to pay for the wedding in cash. The money doesn't care whether it came from your left pocket or right pocket.
Last edited by Ketawa on Fri Nov 14, 2014 12:09 am, edited 2 times in total.
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Ketawa
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Re: 25yo Military New Investor

Post by Ketawa »

eindecker wrote:Questions (in no particular order):
1. We want to be pretty lazy investors (1-3 funds at the most) while keeping with our 85/15 AA. Would it be stupid to invest 100% in to the L2050 fund and then roll all of it into the L2060 fund if and when it becomes available (L2050 starts to progress to 84/16, etc…in Jan 2016) or should we just go with 2 or 3 funds and adjust our asset allocations on our own? If so, any recommendations?

Since you'll have Roth IRAs, I would invest in funds separately rather than using the L Funds. If you are a fan of the Three Fund Portfolio, you could do this with a combination of Total International Stock Market & Total Stock Market in your IRAs, and the G Fund, C Fund, and S Fund in the TSP. C Fund and S Fund would be held in an 80/20 proportion to approximate Total Stock Market. This way you have broader international exposure since the I Fund lacks emerging markets, international small caps, and Canada. You also take advantage of the free lunch of the G Fund.

Sticking with Target Retirement funds in both IRAs and the TSP would be acceptable as well.


2. We’ve sometimes debated changing our buying-a-house goal to 20+ years to wait until we settle where we’re going to retire. Is it a bad idea to go into retirement taking on a mortgage? Would you recommend buying a house while still on active duty to avoid that situation or is it entirely personal and situationally dependent?

Buying a house only might make sense if you know you will live somewhere for 4+ years. You are probably better off renting.

3. Thinking long-term would you recommend paying off our debts before we try to maximize the TSP and investments or put as much as we can towards investing and let the loans pay-off on schedule? We can sleep at night either way.

I would prioritize paying off the auto loan. 4.99% is too high. Or look into refinancing it with PenFed. If all your rates were 3% or lower, then I would be comfortable investing in the TSP.

4. Along the lines of #3, we put our priorities in this order: Save for Emergency Fund, work towards maxing out my Roth TSP, max out my Roth IRA, max out wife’s Roth IRA, put extra money towards debt, and then invest in taxable accounts. Would you add, subtract or switch around any of these priorities?

My preferred order would be save for EF, pay off all loans above 3%, max both IRAs, max TSP, put money towards other debt, invest in taxable. Use Traditional TSP until in the 15% bracket, then use Roth TSP.

5. Do you think retiring at 45 with 150k/yr is too aggressive or even reasonable (given the military pay scale over 20 years, saving on average 20-30% of total income)? If not, any advice on how to tweak my plan to make it possible?

Not possible.

6. How would you bridge the gap between 45 and 60? We’re thinking it will take a couple years to get the extra income (over other investments) and past the debt, but is the simple answer an index fund in a taxable account?

Consider trying to make O-5 and stay in ~25 years, or O-6 and ~30 years. Retiring at 55 on 75% of O-6 base pay with savings should be possible. Of course, this is way in the future and your plans might change. I am currently an O-3 and have my sights set on O-4 and 20 years. Anything beyond that I will consider gravy.
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Ketawa
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Re: 25yo Military New Investor

Post by Ketawa »

eindecker wrote:2. Retire at 45 w/ 150k a year: Right now my long term plan is to work 20yrs (or more) and take advantage of the military pension. Assuming conservatively it is averaging $50K a year, my goal is to provide the other $100K. Considering my personality I wouldn’t be surprised if I kept working in some part-time capacity but my biggest goal is to at least eliminate the need to work.
Is the $50k "conservative" estimate in today's dollars, or inflated dollars 18 years from now? If today's dollars, you are wildly overestimating what you will get. An O-4 pension at 20 years of service is currently about $44k. If pay raises track inflation and inflation averages 2%, it will be about $63k in 18 years.

It is easier to plan in today's dollars and use expected real returns in your planning.
AFdoc
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Re: 25yo Military New Investor

Post by AFdoc »

Sounds like you're doing well. Couple things:

1. Assume 1% pay raises from here on out - that's what it has been for 2014 and 2015, and just plan on it not keeping up with inflation. That said, after a 20, 25, or 30 year career, you will have a nice pension ahead of you still. Just be careful of assuming too much with the numbers.

2. Some might take issue with this - don't buy a house while active duty, particularly as an officer. You will be moving, as you know, and it's a big risk when you have to move and have to sell or rent and figure out the finances of it. Just rent for your lodging or stay on base, figure out where you want to live in 20 years, and buy a house then when the time comes. It'll make your life so much easier. By then you will have cash and your military pension, so don't be too afraid of having a mortgage in "retirement" at age 45.

3. Work on the debt. I understand that you are savers, but you've taken on some consumer debt that you need to address.

4. Make sure you do your research before planning on taking a vehicle to Japan. I have never been stationed there, but I have friends who have, and if you need transportation there, you should be able to figure it out at that time - there is a big used car market among military moving to and from overseas bases. Depending on what kind of cars you have, they might not be appropriate for Japanese roads. Plus as other posters have mentioned, don't plan on moving a car that you owe money on overseas.

5. I do think your goal of 100K of income from your investments is a overly optimistic. By all means do what you're doing and plan on the pension but realize you will most likely need to work after military retirement to meet your lifestyle goals. But that can be a very good thing - look forward to being able to find the job YOU want, work the hours YOU want, because you have the pension to back it up and the skill set you obtain while active duty. You're in a great position for the future.
Laura
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Re: 25yo Military New Investor

Post by Laura »

Also you should plan for what to do if you cannot have a full career in the military. With downsizing in the military, I know people who are being selected out because of a reduction in the number of people at their rank or in their specialty. Be prepared for this in case it happens.

Laura
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BL
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Re: 25yo Military New Investor

Post by BL »

Laura wrote:Also you should plan for what to do if you cannot have a full career in the military. With downsizing in the military, I know people who are being selected out because of a reduction in the number of people at their rank or in their specialty. Be prepared for this in case it happens.

Laura
+1
It is fine to plan but have a plan B as well.
TomTX
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Re: 25yo Military New Investor

Post by TomTX »

$12,000 on a wedding doesn't say frugal to me.

Inflation adjusted, our (white dress, church) wedding was under $800, with maybe 100 of attendees. Admittedly there was no booze and it was finger foods, a grocery store sheet cake and punch that I prepped - and the DJ was a mix tape my wife made. Friends did the photography. Most of the cost was use of the church and pastor.
Grt2bOutdoors
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Re: 25yo Military New Investor

Post by Grt2bOutdoors »

22 posts later, the OP hasn't been back, must have scared him off. :?:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
eindecker
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Re: 25yo Military New Investor

Post by eindecker »

Hey everyone!(@Grt2bOutdoors still here!) Sorry it's taken so long to get back to you. Work got the best of me and sure enough, it's been a week. Coming back to 20+ posts though has been encouraging and I appreciate all of the responses!

I guess first things first, retiring at 45 with 150k/year? :oops: Per usual, I discover something new and right out of the gate: overambitious and unrealistic. I'm sorry for that one. I'll sit down again, reevaluate and come up with a more realistic goal.
-@Laura I realize the military is downsizing, and I'd like a full career, but if anything happens I'm staying competitive for plan B: flying for the airlines & Plan C:being a professor (2nd dream job).

Second, as far as our AA, for at least the next couple months I'm going to stick with the L2050. I feel like I have to digest these posts and do some more reading.
-@Frugal Disciple, saying a majority of our AA is in the TSP and we're just sticking with the G fund and one other fund, why choose the S fund over the C fund?
-@dratkinson, I appreciate the links; I've started reading through them. I like the 3-fund idea, but realize I need to, again, do more reading. I ordered the Swedroe (Winning Investment Strategy...) first because it said it was a good overall classic, but of course the bond books, I'm assuming, will help me more in depth with figuring out municipal bonds, so they're next.
-@Ketawa, so in the TSP this would look like 20% G Fund, 80% C/S Fund (80/20%)? Then when we get the money for the IRA's it's just a matter of 2 funds in each IRA that cover the total stateside and international stock markets, 50/50 split?

Third, in regards to the house, we appreciate all of the advice and we agree with everyone. We're going to rent unless we can find a house, like @jereberry mentioned, in a stable area for much less than it's worth. After Japan and if things go as planned we anticipate being in the same area for 4/5+ years close to where my wife and I are originally from (and where we'd like to settle). Granted that's 3+ years away, and we know that. We were, not being homeowners, just curious and thought we'd ask.

Fourth, I think I've re-prioritized the flow of money in the order of EF, car loan, max TSP, max IRA's, USAA loan, taxable accounts. As far as my wife working or getting a second income, she left her career because mine is the more uncompromising (I'll probably be working for her in the end) and we weren't sure of the job landscape in Japan so we figured we wouldn't even mention anything.
-@Ketawa, I'll check out PenFed, thank you. Also, what's the reasoning behind putting the IRA's before the TSP? And I'm currently in the 15% bracket, you're recommending switching to traditional (TSP & IRA's) once I graduate to 25%?

-@Laura The USAA Career Starter Loan is something that USAA offers to each of the service's qualified cadets. Unfortunately, I joined ROTC too late to apply for a scholarship, so money for college was kind of a problem. I was however offered the "no questions asked" loan entering junior year. I took it, payed off my 1st and 2nd years of school and used it to cover tuition and rent for my 3rd and 4th year. Personally I love USAA ( :beer rakornack1) and yeah, a lot of guys go buy a corvette with the money, but in some circumstances, like mine, it was very helpful and I don't know how I would have managed without it.

-@AFdoc, we only have one car (no need for 2) and do not plan on shipping it to Japan. We're going to Kadena AB and have been told that with the ocean and heavily corrosive environment, buying a junker there is the best deal. It's a pretty brand new Nissan Versa; we were planning on keeping it at my wife's parents, paying it off and when we get back, driving it until the wheels fall off.

-@TomTX, we didn't get married in a church and our pastor was free...but we did get a buuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuunch of booze. :sharebeer

Huge thanks again to every response!
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Ketawa
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Re: 25yo Military New Investor

Post by Ketawa »

eindecker wrote:-@Ketawa, so in the TSP this would look like 20% G Fund, 80% C/S Fund (80/20%)? Then when we get the money for the IRA's it's just a matter of 2 funds in each IRA that cover the total stateside and international stock markets, 50/50 split?
My suggestion was just one potential way to build a three-fund portfolio. It would not necessarily be 20% G Fund, 80% C/S Fund. It could be:

Bonds: G Fund
International: Vanguard Total International Stock Market
Domestic: Vanguard Total Stock Market, C/S Fund in 80%/20% proportion

Hold whatever percentages meet your target allocations. This is just one way to do a three-fund portfolio; using an L Fund or Vanguard Target Retirement Fund would also be fine, it just depends how hands on you want to be in fine tuning your portoflio.
eindecker wrote:Fourth, I think I've re-prioritized the flow of money in the order of EF, car loan, max TSP, max IRA's, USAA loan, taxable accounts. As far as my wife working or getting a second income, she left her career because mine is the more uncompromising (I'll probably be working for her in the end) and we weren't sure of the job landscape in Japan so we figured we wouldn't even mention anything.
-@Ketawa, I'll check out PenFed, thank you. Also, what's the reasoning behind putting the IRA's before the TSP? And I'm currently in the 15% bracket, you're recommending switching to traditional (TSP & IRA's) once I graduate to 25%?
There are a few reasons I listed the IRAs first. It is easier to access principal in the Roth IRA in the event of an emergency. While the G Fund is unique, the other TSP offerings can basically be found in more convenient (Total Stock Market vs C/S Fund) or better (Total International Stock Market vs I Fund) versions at Vanguard. You could also put your emergency fund in your Roth IRAs so that the tax-advantaged space doesn't go unused: Roth IRA as an emergency fund.

I don't know whether you would qualify for a Traditional IRA. But anyway, if your income becomes high enough, I would use Traditional accounts each year until you can deduct enough taxes to be at the top of the 15% bracket.
navyasw02
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Re: 25yo Military New Investor

Post by navyasw02 »

You're doing ok. Military here and just came back from living in Japan. Here's some tips I wish someone had told me when I was your age.

1. Dont sweat your career starter loan. It's on autopilot, just let it ride.
2. When you go to Japan, sell that car and pay off that loan. You'll either not need a car in Japan or just buy a beater on the lemon lot. Debt gone, no sweat.
3. Lock in your lifestyle. What do I mean by that? After every pay raise from here out, save the difference in pay. I save every promotion and 2 year increase in pay automatically, I dont even think about it. I'm basically living on O-2 pay and I'm an O-4.
4. You will make a lot of money in Japan with COLA, housing allowance, etc. Dont live on base if you can help it, you'll lose money. Figure out a budget before you get there and stick to it. Max your rent to meet your OHA. Use COLA as your monthly spending cash. Bank your Base Pay and BAS.
5. Get out of the L funds. Put your money in C and let it ride, you've got 18 more years ahead of you. Take risk, those lifecycle funds are way too conservative in G and F balances for my taste.
6. Max your Roth TSP and Roth IRA as soon as possible.
7. Dont buy a house unless it's a house you're willing to rent it out for the long haul or live in it for the long haul. I bought a house planning to get a shore tour in Norfolk. That didnt happen. I expected the market to be healthy. It's VA beach, what could happen? Tons of military influx. Nope, didnt happen. I rented that sucker for 6 years, never got stationed there again, and lost money every month to property management fees and repairs. Oh yea, I had to lower the rent too after the housing market crashed cause rental markets were also affected.
8. Dont buy a house or take on any more debt until you're sure you want to commit to the military.
9. Build an emergency fund. This will be the money you use in case you want to punch out of the military when your commitment is up. If you stay, invest it.
10. Dont have kids until you're sure about the military. Kids change everything and make the risk that much bigger if you decide to leave.
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eindecker
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Joined: Wed Oct 29, 2014 3:07 pm

Re: 25yo Military New Investor

Post by eindecker »

Ketawa wrote:There are a few reasons I listed the IRAs first. It is easier to access principal in the Roth IRA in the event of an emergency. While the G Fund is unique, the other TSP offerings can basically be found in more convenient (Total Stock Market vs C/S Fund) or better (Total International Stock Market vs I Fund) versions at Vanguard. You could also put your emergency fund in your Roth IRAs so that the tax-advantaged space doesn't go unused: Roth IRA as an emergency fund
Thanks for this. I never thought about this way.
navyasw02 wrote: Max your rent to meet your OHA.
Do you mean as opposed to here stateside, where I'm getting paid $1200 BAH and renting a place for $550? Overseas, match the two? I think I'm missing something.
navyasw02 wrote: 3. Lock in your lifestyle. What do I mean by that? After every pay raise from here out, save the difference in pay. I save every promotion and 2 year increase in pay automatically, I dont even think about it. I'm basically living on O-2 pay and I'm an O-4.
5. Get out of the L funds. Put your money in C and let it ride, you've got 18 more years ahead of you. Take risk, those lifecycle funds are way too conservative in G and F balances for my taste.
8. Dont buy a house or take on any more debt until you're sure you want to commit to the military.
9. Build an emergency fund. This will be the money you use in case you want to punch out of the military when your commitment is up. If you stay, invest it.
10. Dont have kids until you're sure about the military. Kids change everything and make the risk that much bigger if you decide to leave.
I'm really glad I heard all of this sooner rather than later. I appreciate it.
BogleBoogie
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Re: 25yo Military New Investor

Post by BogleBoogie »

You'll get solid advice from others on this site - I know I have. What I would like to say is THANK YOU for your SERVICE!! :beer
Laura
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Re: 25yo Military New Investor

Post by Laura »

I disagree with the recommendation to skip the L funds because they are too conservative. Everyone should have some bonds and the aggressive L funds don't hold very many bonds. At times that can be the top performing asset class. You also benefit from the diversification to international and mid/small cap stocks.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
navyasw02
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Re: 25yo Military New Investor

Post by navyasw02 »

Yes, BAH (called OHA overseas) is different from in the states. If your rent is $1000 and your housing allowance is $2000, you get to keep the difference in the states. Not so overseas. If you find a place for 1000 and your allowance is 2000, the Navy will only pay you $1000. So there's no advantage in getting a smaller place or trying to save on housing. Live like a king and enjoy it. Also negotiate on your rent, you may be able to include a parking space if you need one or utilities. I'd actually recommend looking for a place over your allowance and talking them down to your housing limit. Also you get utilities money as well. My utilities were far under my allowance, so you will get to keep that.
navyasw02
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Re: 25yo Military New Investor

Post by navyasw02 »

Laura wrote:I disagree with the recommendation to skip the L funds because they are too conservative. Everyone should have some bonds and the aggressive L funds don't hold very many bonds. At times that can be the top performing asset class. You also benefit from the diversification to international and mid/small cap stocks.

Laura
I disagree. Currently between the G and F fund portions of the L2050, there's roughly 14% and growing. Additionally the I fund makes up 25% of the fund. I fund has 66.8% holdings in Europe which is struggling right now and is the only fund currently in the red. Despite lower volatility, L funds consistently trail C funds year after year with no L fund beating C over 1, 3, 5 year, or beyond averages. Sure, they're set and forget funds, but given the G fund is only a click away in case of financial crisis, there really is no significant risk avoidance by staying in L. Additionally in a prolonged downturn, you would be losing an opportunity to buy on the upswing due to the fact that the allocation shifts more towards bonds without taking into consideration market factors.

Bottom line: A 25 year old investor has 29 more years before he can withdraw without penalty and has significant time to weather volatility. I don't see the value of owning any bonds in a long term portfolio like that or by having 25% of an allocation in a weak market sector. Setting and forgetting with C, or potentially with a mix of C and S will more effectively track with the broad market and likely have a higher rate of return.
Laura
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Re: 25yo Military New Investor

Post by Laura »

I think we will need to agree to disagree on L vs C. You cannot invest for the future by looking backward. Investing only in large cap firms in the US may have made sense in the last few years but diversification is key for long term investing. The next decade could be entirely different, no one knows.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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Ketawa
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Re: 25yo Military New Investor

Post by Ketawa »

navyasw02 wrote:I disagree. Currently between the G and F fund portions of the L2050, there's roughly 14% and growing. Additionally the I fund makes up 25% of the fund. I fund has 66.8% holdings in Europe which is struggling right now and is the only fund currently in the red. Despite lower volatility, L funds consistently trail C funds year after year with no L fund beating C over 1, 3, 5 year, or beyond averages. Sure, they're set and forget funds, but given the G fund is only a click away in case of financial crisis, there really is no significant risk avoidance by staying in L. Additionally in a prolonged downturn, you would be losing an opportunity to buy on the upswing due to the fact that the allocation shifts more towards bonds without taking into consideration market factors.
You are basically arguing for investing based on past performance and market timing. You would move into the G Fund in a downturn. You think that Europe will perform poorly in the future because it has recently. The US market is close to an all time high; of course the C Fund looks better. And this is contradictory: you would be 100% in equities, but also value the option to increase equity holdings after a downturn? Besides, the L Funds shift into bonds very slowly.
navyasw02
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Re: 25yo Military New Investor

Post by navyasw02 »

Ketawa wrote:
navyasw02 wrote:I disagree. Currently between the G and F fund portions of the L2050, there's roughly 14% and growing. Additionally the I fund makes up 25% of the fund. I fund has 66.8% holdings in Europe which is struggling right now and is the only fund currently in the red. Despite lower volatility, L funds consistently trail C funds year after year with no L fund beating C over 1, 3, 5 year, or beyond averages. Sure, they're set and forget funds, but given the G fund is only a click away in case of financial crisis, there really is no significant risk avoidance by staying in L. Additionally in a prolonged downturn, you would be losing an opportunity to buy on the upswing due to the fact that the allocation shifts more towards bonds without taking into consideration market factors.
You are basically arguing for investing based on past performance and market timing. You would move into the G Fund in a downturn. You think that Europe will perform poorly in the future because it has recently. The US market is close to an all time high; of course the C Fund looks better. And this is contradictory: you would be 100% in equities, but also value the option to increase equity holdings after a downturn? Besides, the L Funds shift into bonds very slowly.
Different strokes for different folks. I'm not a set and forget investor, so I'm biased. Do whatever you want, it's not my money.
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