Portfolio for a military lifer, too conservative?!?

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brandonp311
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Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Tue Dec 11, 2018 7:14 pm

I've been lurking for a bit, so this is also my introduction post in sorts. :happy

I am fairly new to the Bogleheads way of thinking. I read Bogle's book The Little Book of Common Sense Investing last year, then devoured The Bogleheads' Guide to Investing and The Bogleheads' Guide to Retirement Planning. October/November 2017 I pulled the trigger after lots of research and analysis on PersonalCapital.com and shifted into all index funds. I wrote out my Investment Policy and so far have had no problems sticking to it. Fire and forget!

So without further ado...


Emergency funds: Currently have three months worth, working towards six months. I use Capitol One CDs laddered five years to hold these.
Debt: Primary house mortgage at 3.5% interest, currently have around $120k in home equity.
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 0% State (Me), 4.63% State (Her)
State of Residence: Me: Texas, Her: Colorado
Age:35/32
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 18% (25% of total equities holdings)

Current retirement assets:

Taxable ~$7,000
100% cash
I recently opened a taxable account at Vanguard but have yet to pull the trigger putting it into anything, paralysis by analysis. This will be one of my questions below.

His 401k (TSP) ~ $27,000 (small percentage non-taxable due to combat entitlements)
Common Stock Index; C Fund: 57% / ~0.038% Expense Ratio
International Stock Index; I Fund: 18% / ~0.038% Expense Ratio
Fixed Income Index; F Fund: 25% / ~0.038% Expense Ratio

His Roth IRA at Vanguard ~ $44,000
Total U.S. Stock Market Index; VTSAX: 57% / ~0.04% Expense Ratio
Total International Stock Index; VTIAX: 18% / ~0.11% Expense Ratio
Total Bond Index; VBTLX: 25% / ~0.05% Expense Ratio

Her Roth IRA at Fidelity ~ $9,000
Total U.S. Stock Market; FSKAX: 80% / ~0.09% Expense Ratio
U.S. Bond Index; FKNAX: 20% / ~0.14% Expense Ratio

New annual Contributions
$5,500 his Roth IRA
$2,400 his TSP (non-matching)
$1,200 her Roth IRA
(also contributing $1,800 to three Colorado 529 education funds)

Notes:
1. I am active military with around four years left to my 20-year pension, I may go longer but most likely will not. That will give me 50% of my base pay which I expect to be around $32,400 annually. We will see what I get medically, for now, I don't count on any medical pay.
2. I only have three months of emergency funds because I am active duty and have a very reliable income. With only four years left I am working to increase it to six months by the time I retire from service.
3. The plan is in four years to transition to a civilian job making around what I currently am earning, however, will most likely start paying Colorado state income tax. I will carry over my health insurance benefits as a retiree.
4. My wife started working this year as a teachers' aid, making minimum wage. The plan is for her to find more permanent work as a teacher, once that happens we will either 1. maximize her 403b (if it's a match account) or 2. maximize her Roth IRA contributions.
5. I'm not a total pessimist and I realize that the markets could be in for a good push higher over the next several years. However, I do think that we are past due for a downturn and would like to find a good asset allocation to minimize the downside. I know the Boglehead way is to simply think long-term with index funds and not play the market, however, I would say that we are all smart enough to see trends so rather than timing. So maybe a play of words here but why not perhaps start planning for the imminent downturn just the same as planning for the eventual upswing...

Questions:
1. First, I would love for you all to critique and comment on my current setup, especially risk management?

2. I recently read Tony Robbin's book Money: Master the Game and came across Ray Dalio's "All Weather" portfolio. I have read several forums here about how it still has its flaws. What it got me to ask is, can I handle it when my portfolio drops 10%, 20%, 50%?!?! Should I shift my allocation to help when the market turns down? (I don't handle loss very well, especially money)

3. The AW portfolio mentioned above has 7.5% in gold and 7.5% in commodities. I don't invest in what I don't understand so I haven't done anything with it. Should I consider something else in my portfolio to reduce loss during the pending downturn? If nothing else so that it is stable through the bear and can liquidate to buy for the upswing when equities are half price?

4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?

5. On occasion, I have additional cash leftover each month. I want to start putting that into something smart for investing, that is why I opened the Taxable account at Vanguard. Two part question: 1. Is that where I should be putting extra cash for investment purposes that have no real purpose other than saving? 2. What should I consider or how should I plan for my asset allocation in a taxable account?

Thanks again, I look forward to your responses. :sharebeer
Last edited by brandonp311 on Wed Dec 12, 2018 8:55 pm, edited 2 times in total.

drummerboy
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Re: Portfolio Review!!! Thanks.

Post by drummerboy » Tue Dec 11, 2018 8:09 pm

BrandonP311, you ask a lot of good questions. It is natural for everyone to want all the answers and to seek out the "perfect" portfolio. Unfortunately, no one can predict the future, no one knows when / if / how long the next downturn will be.

The more important question is your financial needs and your timeline. If you are saving for retirement that occurs in 30 years, you would design your allocation very differently than if you were saving for a down-payment on a house in 4 years.
brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm
2. I recently read Tony Robbin's book Money: Master the Game and came across Ray Dalio's "All Weather" portfolio. I have read several forums here about how it still has its flaws. What it got me to ask is, can I handle it when my portfolio drops 10%, 20%, 50%?!?! Should I shift my allocation to help when the market turns down? (I don't handle loss very well, especially money)

3. The AW portfolio mentioned above has 7.5% in gold and 7.5% in commodities. I don't invest in what I don't understand so I haven't done anything with it. Should I consider something else in my portfolio to reduce loss during the pending downturn? If nothing else so that it is stable through the bear and can liquidate to buy for the upswing when equities are half price?
The All Weather Portfolio (as well as the Harry Browne Permanent Portfolio) have a different design than the typical 3-fund portfolio. They use volatile asset classes (gold, long term treasuries) to rebalance and hopefully counter weight one another to produce a combined return with smaller drawdowns. It does back test well. Will this same design hold up in the future, who knows?

In your question, you mention the "pending downturn". That might be next week, that might be in 2 years. You have a small portfolio overall at this point. Don't design your asset allocation based upon what might happen next month when you will be investing for the next 40 years!

One recommendation: Determine your timeframe, keep it simple, and come up with a balance you can live with (60/40, 50/50, etc). Then, with that "extra cash" every month, buy a little more. If the market tanks, you will be buying low. If it appreciates, that's great too. Just get in the game. And give it time.

ThrustVectoring
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Re: Portfolio Review!!! Thanks.

Post by ThrustVectoring » Tue Dec 11, 2018 8:22 pm

I'd increase your retirement account contributions (her Roth IRA, TSP) before making taxable investments. So if you spend $X per month, increase your paycheck deduction until your paycheck no longer covers that $X, and keep it up until your $7k extra cash savings is all used up. And on an ongoing basis, your extra cash should get funneled into increasing your TSP contributions.

Money is fungible too, so as soon as your wife makes $5500 you can straight out max her Roth IRA contributions with your money.

The things you read about the "All Weather" portfolio is honestly a niche thing that you can ignore. Commodities and gold aren't worth investing in - stock and bond index funds provide 100% of what an individual investor needs.

Overall, you're doing things basically right as far as what you're investing in. You might want to do more stocks and fewer bonds, especially with your military pension, but 25% bonds is still fine. More important is making sure that your investment plan works in terms of saving enough money. It's hard to answer without annual expenses, but the overall rule of thumb is "save 15% of your gross income, preferably in tax advantaged accounts, and at full retirement age it ought to be enough along with social security to meet your spending needs". You expect to earn a military pension as well, which should help things out significantly.

Whether or not the service extension is worthwhile depends on how much money you think you'll make in your civilian career. If it's about the same, and you enjoy your role in the military, I'd definitely suggest going for it. Between the E-8/E-9 promotion and extra seniority, my rough math says that it makes the pension 50% larger. It's enough that you could honestly expect your retirement pension to cover 100% of your actual expenses, depending on how frugal you are and what you want to do with life. At that point, your retirement plan is completely immune to investment risk, the only thing that matters is keeping your spending low and getting the E-9 promotion and an honorable discharge at your planned retirement age.

Summary because I think I kind of rambled a bit: you can very likely retire just off the military pension if you take the extension, making your investment strategy a moot issue.
Current portfolio: 60% VTI / 40% VXUS

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brandonp311
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Re: Portfolio Review!!! Thanks.

Post by brandonp311 » Wed Dec 12, 2018 9:58 am

drummerboy wrote:
Tue Dec 11, 2018 8:09 pm
brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm
2. I recently read Tony Robbin's book Money: Master the Game and came across Ray Dalio's "All Weather" portfolio. I have read several forums here about how it still has its flaws. What it got me to ask is, can I handle it when my portfolio drops 10%, 20%, 50%?!?! Should I shift my allocation to help when the market turns down? (I don't handle loss very well, especially money)

3. The AW portfolio mentioned above has 7.5% in gold and 7.5% in commodities. I don't invest in what I don't understand so I haven't done anything with it. Should I consider something else in my portfolio to reduce loss during the pending downturn? If nothing else so that it is stable through the bear and can liquidate to buy for the upswing when equities are half price?
The All Weather Portfolio (as well as the Harry Browne Permanent Portfolio) have a different design than the typical 3-fund portfolio. They use volatile asset classes (gold, long term treasuries) to rebalance and hopefully counter weight one another to produce a combined return with smaller drawdowns. It does back test well. Will this same design hold up in the future, who knows?
I agree that the AW Portfolio was designed in hindsight and looks great when backtested. It certainly doesn't mean that it will have similar results in the next 30 years. I am confused a bit though as you mention volatile asset classes: gold and long-term Treasuries. I didn't think those were volatile, I just thought they typically underperformed and I know that gold is highly debated on this forum since it tends to be pretty stagnant and has no dividends.
drummerboy wrote:
Tue Dec 11, 2018 8:09 pm
In your question, you mention the "pending downturn". That might be next week, that might be in 2 years. You have a small portfolio overall at this point. Don't design your asset allocation based upon what might happen next month when you will be investing for the next 40 years!

One recommendation: Determine your timeframe, keep it simple, and come up with a balance you can live with (60/40, 50/50, etc). Then, with that "extra cash" every month, buy a little more. If the market tanks, you will be buying low. If it appreciates, that's great too. Just get in the game. And give it time.
I couldn't agree with you more to just get in the game. Just from the two replies already I have realized that I should be loading more cash each month into her Roth IRA and my TSP. Thanks for the input.

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brandonp311
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Re: Portfolio Review!!! Thanks.

Post by brandonp311 » Wed Dec 12, 2018 10:07 am

ThrustVectoring wrote:
Tue Dec 11, 2018 8:22 pm
I'd increase your retirement account contributions (her Roth IRA, TSP) before making taxable investments. So if you spend $X per month, increase your paycheck deduction until your paycheck no longer covers that $X, and keep it up until your $7k extra cash savings is all used up. And on an ongoing basis, your extra cash should get funneled into increasing your TSP contributions.
I agree based on your posting and drummerboy above I decided already that I need to stick more available cash into TSP and her Roth IRA.
ThrustVectoring wrote:
Tue Dec 11, 2018 8:22 pm
Money is fungible too, so as soon as your wife makes $5500 you can straight out max her Roth IRA contributions with your money.

The things you read about the "All Weather" portfolio is honestly a niche thing that you can ignore. Commodities and gold aren't worth investing in - stock and bond index funds provide 100% of what an individual investor needs.

Overall, you're doing things basically right as far as what you're investing in. You might want to do more stocks and fewer bonds, especially with your military pension, but 25% bonds is still fine. More important is making sure that your investment plan works in terms of saving enough money. It's hard to answer without annual expenses, but the overall rule of thumb is "save 15% of your gross income, preferably in tax advantaged accounts, and at full retirement age it ought to be enough along with social security to meet your spending needs". You expect to earn a military pension as well, which should help things out significantly.

Whether or not the service extension is worthwhile depends on how much money you think you'll make in your civilian career. If it's about the same, and you enjoy your role in the military, I'd definitely suggest going for it. Between the E-8/E-9 promotion and extra seniority, my rough math says that it makes the pension 50% larger. It's enough that you could honestly expect your retirement pension to cover 100% of your actual expenses, depending on how frugal you are and what you want to do with life. At that point, your retirement plan is completely immune to investment risk, the only thing that matters is keeping your spending low and getting the E-9 promotion and an honorable discharge at your planned retirement age.

Summary because I think I kind of rambled a bit: you can very likely retire just off the military pension if you take the extension, making your investment strategy a moot issue.
Thanks for the input TV. I probably could live off the military pension alone, I think that's why I have sort of slow rolled the retirement savings. I always put away a little but not nearly as much as I should have. With that said, I would prefer not to have to be super frugal when I finally retire in my 60's/70's. Who knows what the future holds and I listened to a podcast the other day that had a very important hypothetical question "What if next year, doctors find the cure to cancer?" just as an example, what if we start living to an average age of 105??? I know there are a lot of "what ifs" in there, the point is that having more for retirement is always a good thing. I agree with your suggestion on the extended service time, depending on where things are in another 3 years it's something the wife and I will certainly have to discusss as an option.

ThrustVectoring
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Re: Portfolio Review!!! Thanks.

Post by ThrustVectoring » Wed Dec 12, 2018 1:12 pm

brandonp311 wrote:
Wed Dec 12, 2018 10:07 am
Thanks for the input TV. I probably could live off the military pension alone, I think that's why I have sort of slow rolled the retirement savings. I always put away a little but not nearly as much as I should have. With that said, I would prefer not to have to be super frugal when I finally retire in my 60's/70's. Who knows what the future holds and I listened to a podcast the other day that had a very important hypothetical question "What if next year, doctors find the cure to cancer?" just as an example, what if we start living to an average age of 105??? I know there are a lot of "what ifs" in there, the point is that having more for retirement is always a good thing. I agree with your suggestion on the extended service time, depending on where things are in another 3 years it's something the wife and I will certainly have to discusss as an option.
Yeah if you're worried about far-future random super-expensive stuff, you definitely want to save more now and have a more stock-heavy allocation. One suggested plan that comes up is to get 100% of your necessities covered by pension / social security / single-premium immediate annuity, then putting 100% of your other investment into stock market index funds. Since you won't ever need the money from your portfolio, you can take whatever risks you feel you're rewarded sufficiently for.
Current portfolio: 60% VTI / 40% VXUS

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brandonp311
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Re: Portfolio Review!!! Thanks.

Post by brandonp311 » Wed Dec 12, 2018 1:22 pm

ThrustVectoring wrote:
Wed Dec 12, 2018 1:12 pm
One suggested plan that comes up is to get 100% of your necessities covered by pension / social security / single-premium immediate annuity, then putting 100% of your other investment into stock market index funds. Since you won't ever need the money from your portfolio, you can take whatever risks you feel you're rewarded sufficiently for.
I like it! Since stocks should see the highest overall returns over the next ~30 years, maybe accepting a little more risk will pay off. Especially knowing that I have my basis covered through a military pension.

Fishing50
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Re: Portfolio Review!!! Thanks.

Post by Fishing50 » Thu Dec 13, 2018 3:18 am

Well done with your planning, you've set a good course.

If you're satisfied with your career, stay. I've found staying after 20yrs easier than wondering if I'd complete 20yrs. There's plenty of uncertainty with assignments and duty stations, but it's a well known and acceptable level of risk. Getting the right job in an acceptable duty station can be a great career move. Staying shouldn't be a financial decision. That said, $100K bonus and possible promotion to increase retirement pension are enticing incentives. Every job has it's challenges. If you are tired of the lifestyle, deployments, and uncertainty...the bonus money isn't worth the deferred quality of life improvement.

With your long horizon and second career-get started saving!
Investing Priorities:
1. Max out her Roth IRA for 2018 with extra cash (you can withdraw contributions penalty free, if needed)
2. Get the extra cash invested in the taxable account 50/50 between total market index and total international. Research says lump sum is best, tax loss harvesting will ease the pain of a loss.
3. Max Roth IRAs in 2019
4. Strive to max Roth TSP in 2019, I think you have an opportunity to contribute in the 12% bracket
5. Taxable investing
6. 529 contributions are better if you get state income tax deduction

I don't think Military members need a large emergency fund because we have highly reliable income. No need to tie up assets in cash, when you can build a taxable account portfolio. Once you have a large enough taxable account, you need a smaller EF ($3K-$5K). If you have a large taxable account at retirement that pays quarterly dividends, you won't need an increased EF.

Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 18% (25% of total equities holdings)
I think this is completely reasonable asset allocation for your age an pension situation. Jack Bogle sets an upper limit on international at 20%, and he argues if it's needed at all.

I doubt you are in the 22% tax bracket because your taxable income would need to be just over $100K ($77,400 + $24,000 exemption). If you are in the 12% tax bracket, you should definitely prefer Roth TSP contributions now. A post retirement job plus your pension plus your wife's employment will put you into the 22% tax bracket, so traditional 401K contributions would be best which would defer taxes in the 22% bracket. In retirement, you will be able to have pension income of approx $32K plus $69K in 401K withdrawals in the 12% tax bracket. If you are going to take that bonus, consider buying the computer based version of turbo tax 2018 to practice income scenarios. You'll probably want to use traditional TSP contributions to maintain the 12% taxable income, effectively deferring 22% taxes in traditional contributions and making 12% Roth TSP contributions.

Nobody knows nothing about the future stock market. Commit to your asset allocation, save as much as possible, stay the course.

TSP has access to the best bond funds available. F Fund is a broad index and G Fund in guaranteed against loss. It's not unreasonable to have your entire bond portfolio in TSP and only equities in other accounts.

Tax efficient fund placement is easily achieved for military members with equities in taxable and bonds in TSP: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Tax loss harvesting is good in a taxable account: https://www.bogleheads.org/wiki/Tax_loss_harvesting

Roth TSP is good: https://thefinancebuff.com/most-tsp-par ... h-tsp.html
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

drummerboy
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Re: Portfolio Review!!! Thanks.

Post by drummerboy » Thu Dec 13, 2018 12:37 pm

brandonp311 wrote:
Wed Dec 12, 2018 9:58 am

I agree that the AW Portfolio was designed in hindsight and looks great when backtested. It certainly doesn't mean that it will have similar results in the next 30 years. I am confused a bit though as you mention volatile asset classes: gold and long-term Treasuries. I didn't think those were volatile, I just thought they typically underperformed and I know that gold is highly debated on this forum since it tends to be pretty stagnant and has no dividends.
Look at this chart (scroll down) from Portfolio Visualizer. Gold, Long Term Treasuries, and Total Bond (since 1987)

https://www.portfoliovisualizer.com/bac ... &Gold1=100

Gold and Long Term Treasuries go up/down like crazy. Greater than 10-15% a year (positive/negative) some years. Compare that to Total Bond (which is kind of like the tortoise). All Weather and Permanent Portfolio rebalance once a year, this creates opportunities to buy LT Treasuries or Gold on the "dip". A bit crazy, but that's how their model works, rebalancing, and expecting large changes in their annual value. For certain 10 year time periods, gold is a superstar, then the next 10 it will be a laggard. I'm not trying to make a comment regarding the benefits of those Portfolios or Gold/LT Treasuries. Just understand that the individual asset classes will jump around like crazy (while the total combined portfolio may not).

Dontridetheindexdown
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Re: Portfolio for a military lifer, too conservative?!?

Post by Dontridetheindexdown » Thu Dec 13, 2018 2:05 pm

I retired from military service in 1991, and retired from civilian employment in 2007 (age 56).

Your investment plan and asset allocation are excellent, and you have received excellent advice for investments going forward.

This reply addresses your opportunity to serve 5 additional years, for cash bonus and 10% higher pension.

Decision making under conditions of uncertainty demands everything you have ever learned, and then some.

Here's my short answer:

If you are in combat arms, aviation, or any other billet where death is imminent, retire as soon as you qualify.

Make sure you are obligated for more than 20 years, and then put in your letter.

They will scrutinize your records for any possible break in service, such as a discharge on a Friday and re-enlistment the following Monday.

The retirement benefits are the same no matter how long you serve, and no amount of money will compensate for being killed, wounded, or even inconvenienced by another deployment.

If you are in a job where death or dismemberment is no more imminent than it would be as a civilian, definitely do the additional 5 years, especially if it allows you to "homestead" and you have nights and weekends off.

My answer is based on a whole lot of "been there, done that."

As we age, additional risk often results in non-linear adverse outcomes, both for you and the men you lead.

In other words, if you made it this far in a death-defying MOS, don't push your luck!

You can PM me for additional info.

Also, after reviewing some of the investment advice you were given above, I do have one additional suggestion.

You can max out BOTH of your ROTH accounts, $5,500 each for 2018 (you have until 15 APR 2019 to do so) and $6,000 each for 2019 (anytime between 01 JAN 2019 and 15 APR 2020).

It does not matter how much or how little your wife earns.

If you are married filing jointly, because you have more than $11,000 in W-2 income for 2018, and you will have more than $12,000 in W-2 income during 2019, you can FUND BOTH ROTH ACCOUNTS!

This just might be the most important info you will receive from your posting - IF EITHER SPOUSE HAS SUFFICIENT W-2 INCOME TO FUND BOTH ROTH ACCOUNTS, YOU CAN GO AHEAD AND FUND BOTH ROTH ACCOUNTS ON THE FIRST OF EVERY YEAR!

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brandonp311
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Re: Portfolio Review!!! Thanks.

Post by brandonp311 » Thu Dec 13, 2018 5:39 pm

Fishing,
Great information!
Fishing50 wrote:
Thu Dec 13, 2018 3:18 am
4. Strive to max Roth TSP in 2019, I think you have an opportunity to contribute in the 12% bracket
If I am already maxing my Roth IRA and my wife's Roth IRA, can I contribute to the TSP Roth? I thought that whichever vehicle I chose I could only max one Roth per person ($5,500/year this year and $6,000/year 2019).
Fishing50 wrote:
Thu Dec 13, 2018 3:18 am
6. 529 contributions are better if you get state income tax deduction
I will have to research this one a bit more unless you want to give me the short of the long on it. :confused
Fishing50 wrote:
Thu Dec 13, 2018 3:18 am
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 18% (25% of total equities holdings)
I think this is completely reasonable asset allocation for your age an pension situation. Jack Bogle sets an upper limit on international at 20%, and he argues if it's needed at all.
I debated on investing in international at all... Much like many other beginner investors, I wanted to stick to what I know which is America! After reading enough on it it seemed like the smart thing to do so rather than continue to analyze it I just jumped in with a smaller portion. We'll see how it does long term.
Fishing50 wrote:
Thu Dec 13, 2018 3:18 am
I doubt you are in the 22% tax bracket because your taxable income would need to be just over $100K ($77,400 + $24,000 exemption).
You are right, I'm in the 12%. I glanced too quickly at the single income brackets.
Fishing50 wrote:
Thu Dec 13, 2018 3:18 am

TSP has access to the best bond funds available. F Fund is a broad index and G Fund in guaranteed against loss. It's not unreasonable to have your entire bond portfolio in TSP and only equities in other accounts.
This is something I have considered. Using the TSP to hold my AA percentage of bonds while using my Vanguard ROTH to hold and invest in my allocation of equities.

Fishing50, a lot of good info thanks!

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brandonp311
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Re: Portfolio Review!!! Thanks.

Post by brandonp311 » Thu Dec 13, 2018 5:44 pm

drummerboy wrote:
Thu Dec 13, 2018 12:37 pm
Look at this chart (scroll down) from Portfolio Visualizer. Gold, Long Term Treasuries, and Total Bond (since 1987)

https://www.portfoliovisualizer.com/bac ... &Gold1=100

Gold and Long Term Treasuries go up/down like crazy.
Holy smokes! I had no idea they fluctuated so much!

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brandonp311
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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 13, 2018 5:54 pm

Dontridetheindexdown wrote:
Thu Dec 13, 2018 2:05 pm
My answer is based on a whole lot of "been there, done that."

As we age, additional risk often results in non-linear adverse outcomes, both for you and the men you lead.

In other words, if you made it this far in a death-defying MOS, don't push your luck!

You can PM me for additional info.
I'll shoot ya a PM, you made a pretty valid point. When we are young we do think ourselves invincible. Even now I wonder sometimes if it's worth the risk. We're not fighting the Commies or Nazis anymore.
Dontridetheindexdown wrote:
Thu Dec 13, 2018 2:05 pm
This just might be the most important info you will receive from your posting - IF EITHER SPOUSE HAS SUFFICIENT W-2 INCOME TO FUND BOTH ROTH ACCOUNTS, YOU CAN GO AHEAD AND FUND BOTH ROTH ACCOUNTS ON THE FIRST OF EVERY YEAR!
What is the thought process behind this? Why not DCA into the yearly contribution with monthly payments? What is the benefit to funding them on the first of the year?

Another question for you. Your username, Dontridetheindexdown. Curious where you stand on that? I listened to a podcast recently talking about how the popularity of index funds are falsely pumping up certain stocks that they are required to buy, ie. FAANG stocks. When the market turned they were suggesting that index funds will be hit hard because they are overloaded with the overbought high priced stocks.

Thanks

ExitStageLeft
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Re: Portfolio for a military lifer, too conservative?!?

Post by ExitStageLeft » Thu Dec 13, 2018 5:57 pm

It's one IRA per person, max $5,500 for 2018. Doesn't matter if it's Roth or traditional.

Max 401k or civilian TSP contribution for 2018 is $18,500. Doesn't matter if it's traditional or Roth.

So you could be putting $18,500 in a Roth TSP and save $5,500 in a Roth IRA.

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BolderBoy
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Re: Portfolio for a military lifer, too conservative?!?

Post by BolderBoy » Thu Dec 13, 2018 6:27 pm

brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm
4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?
Do you like living apart from your wife? Would another 5 years of the same living arrangement be okay for both of you?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 13, 2018 9:14 pm

ExitStageLeft wrote:
Thu Dec 13, 2018 5:57 pm
It's one IRA per person, max $5,500 for 2018. Doesn't matter if it's Roth or traditional.

Max 401k or civilian TSP contribution for 2018 is $18,500. Doesn't matter if it's traditional or Roth.

So you could be putting $18,500 in a Roth TSP and save $5,500 in a Roth IRA.
:greedy I just googled this. Holy smokes! I had no idea you could do both I thought a Roth was a Roth was a Roth. Ideally, I could (if I had enough money) drop $5,500 into my Vanguard Roth IRA AND $18,500 into my Roth TSP for a total savings of $24,000 this year.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 13, 2018 9:18 pm

BolderBoy wrote:
Thu Dec 13, 2018 6:27 pm
brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm
4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?
Do you like living apart from your wife? Would another 5 years of the same living arrangement be okay for both of you?
A bit brash. No, don't particularly enjoy being away from my wife and kids. Another 5 years doesn't mean 5 years apart. Plenty of businessmen in normal civilian jobs spend lots of time away from their families as well. This is certainly something I have considered which is why I was asking for anyone with experience what their point of view was. I've heard some fellas say never take the money, it's not worth it. Others take it and never look back. All in all, we manage our military lifestyle pretty well. Certainly, something to consider as the time draws closer. Thanks.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 13, 2018 10:41 pm

After reading this article https://thefinancebuff.com/most-tsp-par ... h-tsp.html and reviewing the information above, I think it makes sense to focus efforts on maxing Roth IRA (his/hers) as well as my Roth TSP (not my traditional TSP).

Spot check me here and make sure I am understanding this correctly. Since I will receive a pension from the government in retirement, that will count towards my taxable income. That plus my wife's income (and possible pension as a teacher), plus RMD and possibly a second pension (if I go GS post-military); I would most likely be in a higher tax bracket or at least pay more taxes. In retirement, money from a Roth is not taxable, therefore I can pull money from that and not increase my taxes.

1. Does it make sense to focus money into the Roth TSP over the Traditional TSP (tax-deferred) account?
2. I spent some time in CZTE this year if it makes sense on the tax return (avoiding bumping to the next bracket) would it be smart to convert some of my Traditional TSP to Roth TSP? This does two things for me, 1. reduces my RMD in retirement and 2. enables tax-free withdrawals.

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Re: Portfolio for a military lifer, too conservative?!?

Post by Fishing50 » Fri Dec 14, 2018 1:59 am

brandonp311 wrote:
Thu Dec 13, 2018 10:41 pm
After reading this article https://thefinancebuff.com/most-tsp-par ... h-tsp.html and reviewing the information above, I think it makes sense to focus efforts on maxing Roth IRA (his/hers) as well as my Roth TSP (not my traditional TSP).

Spot check me here and make sure I am understanding this correctly. Since I will receive a pension from the government in retirement, that will count towards my taxable income. That plus my wife's income (and possible pension as a teacher), plus RMD and possibly a second pension (if I go GS post-military); I would most likely be in a higher tax bracket or at least pay more taxes. In retirement, money from a Roth is not taxable, therefore I can pull money from that and not increase my taxes.

1. Does it make sense to focus money into the Roth TSP over the Traditional TSP (tax-deferred) account?
2. I spent some time in CZTE this year if it makes sense on the tax return (avoiding bumping to the next bracket) would it be smart to convert some of my Traditional TSP to Roth TSP? This does two things for me, 1. reduces my RMD in retirement and 2. enables tax-free withdrawals.
1. Yes 8-)
2. You can't change past TSP contributions from Traditional to Roth, the contribution will be reported on your W2. In the combat zone your traditional contributions were tax exempt, meaning upon withdrawal you will only pay taxes on the earnings - never on the contributions. TSP is currently developing changes to withdrawal rules, so conversion options may become available in the future. Furthermore the contribution limit in the CZTE is $55K. Here's a thread of someone trying to make hit that limit: viewtopic.php?f=1&t=252954&p=4009645#p4009645 :beer
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Re: Portfolio for a military lifer, too conservative?!?

Post by PMM32683 » Fri Dec 14, 2018 12:06 pm

brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm

4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?
Brandon,

I'm in a similar position (minus the CSRB option). Just made E8 at 14 years and will likely need to determine if I want to stick around past 20 to get E9 and the additional service requirement that comes along with it. When looking at the pension difference between E8 and E9--especially with the additional TIS--it's rather substantial (comparatively). For every additional dollar you are able to get in your pension, it's the equivalent of approximately 25 dollars in an investment account (using the 4% withdrawal multiple).

E8 with 20 years - $30,052 annually
E9 with 24 years - $44,832 annually
https://militarypay.defense.gov/Calcula ... alculator/

The difference in the two is $14,780 annually, which is the lump-sum equivalent of $369,500 ($92,375 per year on top of your salary for 4 years). If you can stomach an additional four years of service I think it's an ideal scenario.

The CSRB is appealing, but even more so if you can execute it in a tax-exempt combat zone to avoid Uncle Sam taking 30%.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Fri Dec 14, 2018 6:01 pm

PMM32683 wrote:
Fri Dec 14, 2018 12:06 pm
brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm

4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?
Brandon,

I'm in a similar position (minus the CSRB option). Just made E8 at 14 years and will likely need to determine if I want to stick around past 20 to get E9 and the additional service requirement that comes along with it. When looking at the pension difference between E8 and E9--especially with the additional TIS--it's rather substantial (comparatively). For every additional dollar you are able to get in your pension, it's the equivalent of approximately 25 dollars in an investment account (using the 4% withdrawal multiple).

E8 with 20 years - $30,052 annually
E9 with 24 years - $44,832 annually
https://militarypay.defense.gov/Calcula ... alculator/

The difference in the two is $14,780 annually, which is the lump-sum equivalent of $369,500 ($92,375 per year on top of your salary for 4 years). If you can stomach an additional four years of service I think it's an ideal scenario.

The CSRB is appealing, but even more so if you can execute it in a tax-exempt combat zone to avoid Uncle Sam taking 30%.
PMM, that is a nifty calculator you linked to there! That's the first time I have seen it. Thanks.

Congrats on 8. I thought last year was a shoe-in but I guess not.

Looking at my specific numbers waiting to 24 with E9 pension is a 62% increase. I am still four years out and a lot can change in four years. I agree with you that if you can stomach it, lasting another four years is a really good option. I recently have run numbers with a better appreciation of what a pension is worth. A pension is an incredible thing and really can reduce some of the stress about trying to save enough for retirement.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Sat Dec 15, 2018 12:51 pm

I have another question for the group.

After reading some of the responses above and researching further on this forum and other sites, I wonder if there is such a thing as investing too much for retirement? I ask this because I was all set to start maxing both mine and my wife's Roth IRA plus put into the Roth TSP.

Whether I do 20 or 24 years does not really matter that much, what matters is having that pension. A guaranteed paycheck for the rest of my life. The likelihood that my wife will have one as well is good. ~25 years as a teacher she should retire with about $35,000 a year pension.

Between the two of us, we should have around $65,000 (today's dollars) a year in pensions. At 70 years old we will get a bump from Social Security (if it's still around). Considering we live off of a little less than that now with a mortgage and three growing kids, I would imagine at 60 years old and above our expenses would be significantly lower. We would still like to travel and help our kids and grandkids; with all that how much do we really need for retirement?

I think there is a fine balance between saving everything now and having no fun money or saving nothing.

Curious about you alls thoughts?

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Re: Portfolio for a military lifer, too conservative?!?

Post by Fishing50 » Sun Dec 16, 2018 3:12 am

brandonp311 wrote:
Sat Dec 15, 2018 12:51 pm

I think there is a fine balance between saving everything now and having no fun money or saving nothing.

Curious about you alls thoughts?
Correct, some in our business dont get out alive. Find the balance.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

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Re: Portfolio for a military lifer, too conservative?!?

Post by PMM32683 » Sun Dec 16, 2018 12:00 pm

brandonp311 wrote:
Sat Dec 15, 2018 12:51 pm
Is there such a thing as investing too much for retirement?
Yes, I think you can save too much. While it’s prudent to save for the future it shouldn’t be at the expense of a happy life in the present. I’d recommend trying to determine what your future retirement annual income needs will be (ballpark) and then reverse engineer an investment plan, complimenting your pension(s), that will get you there. Anything above that is discretionary funds to be used as you see fit.
brandonp311 wrote:
Sat Dec 15, 2018 12:51 pm
how much do we really need for retirement?
You are in a better position than most, because you have a defined pension plan and subsidized lifetime health care coverage. Many people determine how much they need to have saved based on a multiple of their annual income. Without knowing your specific financials, if you can generate 100% of your pre-retirement income through passive streams you’ll probable be fairly comfortable. :sharebeer

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Re: Portfolio for a military lifer, too conservative?!?

Post by whodidntante » Sun Dec 16, 2018 12:26 pm

brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm

Questions:
1. First, I would love for you all to critique and comment on my current setup, especially risk management?

2. I recently read Tony Robbin's book Money: Master the Game and came across Ray Dalio's "All Weather" portfolio. I have read several forums here about how it still has its flaws. What it got me to ask is, can I handle it when my portfolio drops 10%, 20%, 50%?!?! Should I shift my allocation to help when the market turns down? (I don't handle loss very well, especially money)

3. The AW portfolio mentioned above has 7.5% in gold and 7.5% in commodities. I don't invest in what I don't understand so I haven't done anything with it. Should I consider something else in my portfolio to reduce loss during the pending downturn? If nothing else so that it is stable through the bear and can liquidate to buy for the upswing when equities are half price?

4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?

5. On occasion, I have additional cash leftover each month. I want to start putting that into something smart for investing, that is why I opened the Taxable account at Vanguard. Two part question: 1. Is that where I should be putting extra cash for investment purposes that have no real purpose other than saving? 2. What should I consider or how should I plan for my asset allocation in a taxable account?

Thanks again, I look forward to your responses. :sharebeer
1) Your allocation is too conservative for your age for my risk tolerance. However it might be perfectly reasonable FOR YOU. And that's what really matters. Is your role in the military one that leads to an increase in risk of untimely death? That would be a consideration for asset allocation.
2) I don't think you should put much weight on what Tony Robbins has to say about investing. It's fine to take an input if you have the background to evaluate what he says. Ray Dalio is a famous hedge fund manager but you need a decent body of knowledge to benefit from what he says. Nothing wrong with either of those guys if you have enough education to evaluate what they wrote, but you're probably starting near the end of your education when you should be starting at the beginning.
3) I think the correct allocation to those asset classes is 0% gold and 0% commodities. Those are not productive assets, and have high holding costs (usually). Also, consider the "problem" that those holding those asset classes purports to solve. You can get inflation protection via direct, low cost means. And you can get protection from a gradual decline in the American economy and/or the dollar through foreign stocks although this also comes with significant market risk.
4) Not familiar.
5) First, settle on what you want your desired asset allocation to be and write it down. If it's what you wrote in the OP, fine. Also, no cheating. If you have 100k in cash somewhere and call it an emergency fund and you still want that, fine. But then your desired allocation needs to include that cash (20% cash or whatever it is).

The next step is to implement your desired asset allocation as efficiently as possible, from a tax point of view and from a cost point of view. The primary consideration is to max all tax advantaged investments. TSP and a Roth IRA, and any other tax advantaged accounts. If you still have money left over, tax efficiency will usually direct you to hold low cost equity index ETFs in taxable, due to the favorable tax treatment that those investments enjoy.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 20, 2018 7:38 pm

PMM32683 wrote:
Sun Dec 16, 2018 12:00 pm
brandonp311 wrote:
Sat Dec 15, 2018 12:51 pm
Is there such a thing as investing too much for retirement?
Yes, I think you can save too much. While it’s prudent to save for the future it shouldn’t be at the expense of a happy life in the present. I’d recommend trying to determine what your future retirement annual income needs will be (ballpark) and then reverse engineer an investment plan, complimenting your pension(s), that will get you there. Anything above that is discretionary funds to be used as you see fit.
brandonp311 wrote:
Sat Dec 15, 2018 12:51 pm
how much do we really need for retirement?
You are in a better position than most, because you have a defined pension plan and subsidized lifetime health care coverage. Many people determine how much they need to have saved based on a multiple of their annual income. Without knowing your specific financials, if you can generate 100% of your pre-retirement income through passive streams you’ll probable be fairly comfortable. :sharebeer
Thanks PMM for your comments. I just recently spent a good bit of time with some of the resources that I got from responses on this thread and reverse engineered it all as you said. I generated several different scenarios in retirement. Then tried to best forecast what I would hope to see in annual returns from my existing retirement investment plus additional payments in today's dollars. Overall I feel rather confident in the way forward. Now that I fully understand the power and freedom that a pension provides I am certainly encouraging the wife to work towards a teacher's pension. Having two pensions pretty much sets us up for anything that we save for retirement is gravy on top!

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 20, 2018 7:43 pm

whodidntante wrote:
Sun Dec 16, 2018 12:26 pm
brandonp311 wrote:
Tue Dec 11, 2018 7:14 pm

Questions:
1. First, I would love for you all to critique and comment on my current setup, especially risk management?

2. I recently read Tony Robbin's book Money: Master the Game and came across Ray Dalio's "All Weather" portfolio. I have read several forums here about how it still has its flaws. What it got me to ask is, can I handle it when my portfolio drops 10%, 20%, 50%?!?! Should I shift my allocation to help when the market turns down? (I don't handle loss very well, especially money)

3. The AW portfolio mentioned above has 7.5% in gold and 7.5% in commodities. I don't invest in what I don't understand so I haven't done anything with it. Should I consider something else in my portfolio to reduce loss during the pending downturn? If nothing else so that it is stable through the bear and can liquidate to buy for the upswing when equities are half price?

4. More of a personal question but I might find a few military guys here; in three years I am eligible for the CSRB which requires five additional years of service for the bonus payment of $100,000 (for my MOS). Is it worth staying until 24 years time in service for the additional cash payment (if invested wisely), 60% base pay pension (instead of 50%), and probable promotion and the retirement pay of an E-9 (vs E-8)?

5. On occasion, I have additional cash leftover each month. I want to start putting that into something smart for investing, that is why I opened the Taxable account at Vanguard. Two part question: 1. Is that where I should be putting extra cash for investment purposes that have no real purpose other than saving? 2. What should I consider or how should I plan for my asset allocation in a taxable account?

Thanks again, I look forward to your responses. :sharebeer
1) Your allocation is too conservative for your age for my risk tolerance. However it might be perfectly reasonable FOR YOU. And that's what really matters. Is your role in the military one that leads to an increase in risk of untimely death? That would be a consideration for asset allocation.
2) I don't think you should put much weight on what Tony Robbins has to say about investing. It's fine to take an input if you have the background to evaluate what he says. Ray Dalio is a famous hedge fund manager but you need a decent body of knowledge to benefit from what he says. Nothing wrong with either of those guys if you have enough education to evaluate what they wrote, but you're probably starting near the end of your education when you should be starting at the beginning.
3) I think the correct allocation to those asset classes is 0% gold and 0% commodities. Those are not productive assets, and have high holding costs (usually). Also, consider the "problem" that those holding those asset classes purports to solve. You can get inflation protection via direct, low cost means. And you can get protection from a gradual decline in the American economy and/or the dollar through foreign stocks although this also comes with significant market risk.
4) Not familiar.
5) First, settle on what you want your desired asset allocation to be and write it down. If it's what you wrote in the OP, fine. Also, no cheating. If you have 100k in cash somewhere and call it an emergency fund and you still want that, fine. But then your desired allocation needs to include that cash (20% cash or whatever it is).

The next step is to implement your desired asset allocation as efficiently as possible, from a tax point of view and from a cost point of view. The primary consideration is to max all tax advantaged investments. TSP and a Roth IRA, and any other tax advantaged accounts. If you still have money left over, tax efficiency will usually direct you to hold low cost equity index ETFs in taxable, due to the favorable tax treatment that those investments enjoy.
whodidntante, thanks for your comments! I agree with your assessment of my asset allocation and am in the works of adjusting it to be a bit more aggressive.

After reading a good bit more I agree with you on commodities and gold. I plan on buying and starting a coin collection of silver and hopefully gold but that's not really meant as a hedge against the market but more for fun and maybe someday I will have some that shoot up in value if I'm lucky enough.

I have read about the placement of certain funds to maximize tax advantages. I am still wrapping my head around it all but I think I get the gist of it. This is something I will continue to work on developing a sound plan for.

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Re: Portfolio for a military lifer, too conservative?!?

Post by brandonp311 » Thu Dec 20, 2018 8:01 pm

I want to say thank you to everyone who has commented on this thread. I have gotten a lot of great comments and have certainly felt welcomed on this forum. I have read and researched everything that you all have posted and wanted to write a quick follow up to my OP.

Most important is that I have found out just how important that military pension plays in retirement planning. I always knew it would be a good thing but never really grasped how much of a difference it made.

First, I wrote a "retirement planning worksheet" in MS Word that plays out four different scenarios based on a lot of the same stuff I asked about. Such as a 20-year pension only or doing 25 years, 20 years with my wife having a pension and my 25-year pension with her teacher pension. Based on these scenarios I figured out the worst case and best case scenario for what we can expect if we retired our mid-60s. Good news is that if we kept our expenses minimal we could survive the worst-case scenario. Then at age 70 add in Social Security (if it's still around) we will be even better off. From our worst-case scenario of pension income, I ran the number to find out what we would need from retirement savings to make up the difference in pension and how much we want to have. That gave me what we need yearly from out retirement savings.

Second, I played with Portfolio Analyzer and figured out what we would need to have saved up in retirement to meet the yearly draw down I found above. Then played with our current portfolio to see if it would meet that requirement. Played with different allocations to see what kind of yearly savings we need to contribute.

Third, I updated our Investment Policy Statement. I also just maxed my wife's Roth IRA for the year with extra cash we had. Changed contribution allocation for future contributions to match our new asset allocation.

Ultimately we decided on an 80/20 stock/bonds split, then 80/20 of the equities are US total stock index and international index. We'll continue to max my Roth IRA and for the time being max my wife's Roth IRA for at least the next year in order to increase her balance a bit higher. Other than that we have decided to increase some of our contribution to our kid's college savings. We know we cannot pay for their entire education without help but hope to lessen the burden for them.

Thanks again. :sharebeer

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