Military dentist -- portfolio review request (new to forum)

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Topic Author
USAFperio
Posts: 22
Joined: Mon Nov 12, 2018 12:37 am
Location: Northern Virginia

Military dentist -- portfolio review request (new to forum)

Post by USAFperio » Sat Dec 29, 2018 5:56 am

Greetings! I’m a dentist in the U.S. military (rank of O-6 colonel, currently completing my 15th year active duty), new to the Bogleheads forum but I've been reading/learning daily, and was hoping to get some advice re: what I could be doing better in my retirement investments. Specific questions are at the bottom.

Basic info
Emergency funds: $17,000
Debt: None (and no mortgage; we rent or live on military bases due to frequent moves)
Tax Filing Status: Married Filing Jointly
Effective Tax Rate: 10.25% Federal last year, 12.4% the prior year, 0% State
State of Residence: Texas
Age: I’m 42, wife is 43
Children: We have five -- ages 14, 11, 7, 3, 1
Desired asset allocation: 80% stocks / 20% bonds (3-fund portfolio)
Desired international allocation: 25% of stocks

Current retirement assets
Taxable ($249,000)
51% VTSAX (Total Stock Market Index)
31% VTIAX (Total Int’l Stock Market Index)
13% VBTLX (Total Bond Index)
5% VTABX (Total Int’l Bond Index; I’m not contributing to this fund anymore)

His 401k ($228,800 in my military Roth TSP, which does not provide a company match)
52% C fund (similar to S&P 500 index)
21% G fund (gov’t securities)
20% I fund (int’l stock index)
7% S fund (small cap stock index)

His Roth IRA at Vanguard ($111,800)
63% VTSAX (Total Stock Market Index)
30% VBTLX (Total Bond Index)
7% VTIAX (Total Int’l Stock Market Index)

Her Roth IRA at Vanguard ($109,000)
64% VTSAX (Total Stock Market Index)
29% VBTLX (Total Bond Index)
7% VTIAX (Total Int’l Stock Market Index)

College savings/situation
Realistic scenario:
Child #1: Anticipate full-ride merit scholarship (she’s a 99th of the 99th percentile type)
Child #2: Free ride via Post-9/11 G.I. Bill
Child #3: Free ride via Hazlewood Act to any Texas state college
Child #4: TBD
Child #5: TBD

Investments in 529 plans via Vanguard funds (I’ve stopped contributing to these)
Child #1: $34,500
Child #2: $26,700
Child #3: $19,050
Child #4: $7,590
Child #5: $4,340

Contributions
Roth IRAs – max annually for wife & I
Roth TSP – max annually at $18.5K/year; no employer match
Taxable - $69K this year, $52K last year, $10K prior year (for retirement, not short term goals)

Life insurance
His:
- $750K 30-yr term policy thru USAA
- $400K via military (costs $29/month while active duty); I’ll have option to get a similar but pricier policy as a veteran later
Hers:
- $250K 30-yr term policy thru USAA

Other info:
1. Annual income is currently ~$220K (my salary only; wife doesn’t work outside home)
2. 18 years ago, I was duped by a friend into investing in a Variable Universal Life. I eventually cashed out, lost roughly $12K, but was glad to put it behind me.
3. Plan to serve between 5-15 more years in USAF, retire as O-6, with lifetime pension for me (between $63K if I retire at 20 years, and $105K if I retire at 30 years). I anticipate paying for the Survivor Benefits Plan for my wife when I retire.
4. We’ll have military Tricare health insurance after I retire.
5. I might work as a part-time dentist when I retire from the military, although I’d love to be financially independent and simply volunteer time at church/etc instead. Still TBD, depending on success of my investments, kids’ college, weddings, etc.

Questions:
1. Re: my IRAs and TSP, I’ve assumed Roth is the way to go but wonder if some or all of my contribution should go to Traditional. If I work as a part-time dentist when I retire from the military, my income could be as high then as it is now. If I don’t, obviously my income later would be much lower.
2. I’ve been wondering if I should add a permanent whole life insurance policy to my portfolio—not necessarily as an investment but simply as life insurance which could provide flexibility if needed pre-death while taking care of my wife/kids post-death. (I’m not looking forward to my $750K term policy expiring.)
3. I’ve recently been keeping my Roth IRAs a bit “bond-heavy” because I’ve learned via Bogleheads that it is smart to keep bonds in tax-advantaged buckets. I make up for this asset allocation mismatch by being a little “bond-light” in my taxable investment. Is this a good idea?
4. Am I at a disadvantage due to owning no home after many years in the military? We anticipate another move this summer and I wonder if I should find another rental home in our next city, or consider buying (will live there 2-4 years)
5. Anything else catch your eye that I could be doing smarter/better?

Many thanks for your help! Hopefully I'm the one someday giving advice . . .

student
Posts: 4253
Joined: Fri Apr 03, 2015 6:58 am

Re: Military dentist -- portfolio review request (new to forum)

Post by student » Sat Dec 29, 2018 8:42 am

I don't have much to contribute except that I don't think you should buy a house if you are only staying in a place for a few years. Moreover, I think you are set. You have a great COLA pension (100k+) and health care when you retire. My opinion is as long as you don't do something "stupid", you are fine. Your current portfolio and plan are excellent in my opinion. Congratulations.

Grt2bOutdoors
Posts: 21725
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Military dentist -- portfolio review request (new to forum)

Post by Grt2bOutdoors » Sat Dec 29, 2018 9:00 am

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

How long before your current 30 year term policy expires? You are saving $50k+ invtaxable a year. You could be self-insured in 20 years or less. If your policy has less than 20 years remaining you could consider purchasing another 20 - 30 year term policy, enough to cover family through age 21 for child #5, after which you could choose on your own schedule to simply let it lapse if you wish. Permanent life insurance is going to be costly, other than flexibility is there a reason to consider it?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

EveryDayI'mBoglein'
Posts: 15
Joined: Thu Nov 17, 2016 12:42 pm

Re: Military dentist -- portfolio review request (new to forum)

Post by EveryDayI'mBoglein' » Sat Dec 29, 2018 10:25 am

Many thanks for your help! Hopefully I'm the one someday giving advice . . .
[/quote]


Someday has come.

I am a general dentist, 5 years out and working for Indian Health Service. My income is about 60% of yours with no pension. Are you a general dentist or specialist? I have explored the military option. Recruiters I have talked to, gave me the impression that I would make even less than I do now, albeit with a pension. Is this your understanding of what it would be like if I were to go the military route at this point in my career? Thank you in advance

User avatar
Bruce
Posts: 354
Joined: Fri Mar 02, 2007 8:02 am
Location: Alaska

Re: Military dentist -- portfolio review request (new to forum)

Post by Bruce » Sat Dec 29, 2018 5:10 pm

A few thoughts to consider.

You are doing great and on track for where you want to be. You have well thought out, diverse, low cost fund choices.

1. You may want to rethink your choice in not continuing to contribute to 529 accounts for your kids.

Even great merit Scholarships may not cover room and board and miscellaneous expenses, which can easily total $15,000 a year or more in today’s dollars.

I note specifically the The Hazlewood Act is a State of Texas benefit does NOT include living expenses, books, or supply fees.

Also even your expected merit scholar child and you will most likely have to fill out the FAFSA, and on the FAFSA, assets inside retirement plans and 529 plans get more favorable consideration when calculating the expected family contribution.

2. As far as home ownership, unless you know you are settling in on your last post before retirement and have found your “dream home”, the “joys” of doing all your own home maintenance are often greatly overrated on reality tv home remodel type shows,

With the new tax law limits on deduction of home mortgage interest and property tax deductions, the financial benefits of home ownership are not as evident now as they used to be, and renting for a family your size may be very much to your financial advantage, especially if you are looking at downsizing in retirement and only have a short term need for a larger home.

3. As far as more life insurance, check out the comparison term insurance websites mentioned in the Bogleheads wiki for what the cost of adding a new policy would be in the amount you think you need, for the duration you want it. As your retirement benefit becomes vested for your survivors, and your other savings grow, your life insurance need may be greatly reduced. You can always drop a new term policy when you no longer need it.

Assuming you are insurable and in good health, the price for a new term policy may be more reasonable then you think for someone your age. I see almost no scenario where you would benefit from “permanent” life insurance instead of just having term life while you have minor children to protect.

4. The choice of a Roth versus a traditional IRA contribution is more of a bet on having multiple future income buckets to draw from. Do you want the traditional one which will mandate taxable withdrawals at a future date, or do you want to help build a stream of at least partially future tax free income? Since none of us have a crystal ball as to future tax law and future tax rates I like to have both types of retirement accounts.

5. The G fund in the TSP is in my opinion the best bond fund available anywhere, you may want to adjust your bond fund allocation across all your accounts to take advantage of that G fund option for more of your total bond fund allocation.

All the best to you and your family in 2019!

Regards
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

Topic Author
USAFperio
Posts: 22
Joined: Mon Nov 12, 2018 12:37 am
Location: Northern Virginia

Re: Military dentist -- portfolio review request (new to forum)

Post by USAFperio » Sun Dec 30, 2018 12:16 am

Bogleheads, thanks so very much for your kind responses. I wish I'd found this site many years in the past, but the second best time to make good choices is the present. I very much appreciate your time and selfless assistance!

User avatar
White Coat Investor
Posts: 14326
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Military dentist -- portfolio review request (new to forum)

Post by White Coat Investor » Sun Dec 30, 2018 1:45 am

USAFperio wrote:
Sat Dec 29, 2018 5:56 am
Greetings! I’m a dentist in the U.S. military (rank of O-6 colonel, currently completing my 15th year active duty), new to the Bogleheads forum but I've been reading/learning daily, and was hoping to get some advice re: what I could be doing better in my retirement investments. Specific questions are at the bottom.

Basic info
Emergency funds: $17,000
Debt: None (and no mortgage; we rent or live on military bases due to frequent moves)
Tax Filing Status: Married Filing Jointly
Effective Tax Rate: 10.25% Federal last year, 12.4% the prior year, 0% State
State of Residence: Texas
Age: I’m 42, wife is 43
Children: We have five -- ages 14, 11, 7, 3, 1
Desired asset allocation: 80% stocks / 20% bonds (3-fund portfolio)
Desired international allocation: 25% of stocks

Current retirement assets
Taxable ($249,000)
51% VTSAX (Total Stock Market Index)
31% VTIAX (Total Int’l Stock Market Index)
13% VBTLX (Total Bond Index)
5% VTABX (Total Int’l Bond Index; I’m not contributing to this fund anymore)

His 401k ($228,800 in my military Roth TSP, which does not provide a company match)
52% C fund (similar to S&P 500 index)
21% G fund (gov’t securities)
20% I fund (int’l stock index)
7% S fund (small cap stock index)

His Roth IRA at Vanguard ($111,800)
63% VTSAX (Total Stock Market Index)
30% VBTLX (Total Bond Index)
7% VTIAX (Total Int’l Stock Market Index)

Her Roth IRA at Vanguard ($109,000)
64% VTSAX (Total Stock Market Index)
29% VBTLX (Total Bond Index)
7% VTIAX (Total Int’l Stock Market Index)

College savings/situation
Realistic scenario:
Child #1: Anticipate full-ride merit scholarship (she’s a 99th of the 99th percentile type)
Child #2: Free ride via Post-9/11 G.I. Bill
Child #3: Free ride via Hazlewood Act to any Texas state college
Child #4: TBD
Child #5: TBD

Investments in 529 plans via Vanguard funds (I’ve stopped contributing to these)
Child #1: $34,500
Child #2: $26,700
Child #3: $19,050
Child #4: $7,590
Child #5: $4,340

Contributions
Roth IRAs – max annually for wife & I
Roth TSP – max annually at $18.5K/year; no employer match
Taxable - $69K this year, $52K last year, $10K prior year (for retirement, not short term goals)

Life insurance
His:
- $750K 30-yr term policy thru USAA
- $400K via military (costs $29/month while active duty); I’ll have option to get a similar but pricier policy as a veteran later
Hers:
- $250K 30-yr term policy thru USAA

Other info:
1. Annual income is currently ~$220K (my salary only; wife doesn’t work outside home)
2. 18 years ago, I was duped by a friend into investing in a Variable Universal Life. I eventually cashed out, lost roughly $12K, but was glad to put it behind me.
3. Plan to serve between 5-15 more years in USAF, retire as O-6, with lifetime pension for me (between $63K if I retire at 20 years, and $105K if I retire at 30 years). I anticipate paying for the Survivor Benefits Plan for my wife when I retire.
4. We’ll have military Tricare health insurance after I retire.
5. I might work as a part-time dentist when I retire from the military, although I’d love to be financially independent and simply volunteer time at church/etc instead. Still TBD, depending on success of my investments, kids’ college, weddings, etc.

Questions:
1. Re: my IRAs and TSP, I’ve assumed Roth is the way to go but wonder if some or all of my contribution should go to Traditional. If I work as a part-time dentist when I retire from the military, my income could be as high then as it is now. If I don’t, obviously my income later would be much lower.
2. I’ve been wondering if I should add a permanent whole life insurance policy to my portfolio—not necessarily as an investment but simply as life insurance which could provide flexibility if needed pre-death while taking care of my wife/kids post-death. (I’m not looking forward to my $750K term policy expiring.)
3. I’ve recently been keeping my Roth IRAs a bit “bond-heavy” because I’ve learned via Bogleheads that it is smart to keep bonds in tax-advantaged buckets. I make up for this asset allocation mismatch by being a little “bond-light” in my taxable investment. Is this a good idea?
4. Am I at a disadvantage due to owning no home after many years in the military? We anticipate another move this summer and I wonder if I should find another rental home in our next city, or consider buying (will live there 2-4 years)
5. Anything else catch your eye that I could be doing smarter/better?

Many thanks for your help! Hopefully I'm the one someday giving advice . . .
Thanks for your service.
1. Roth. It rarely makes sense for a military member to do tax-deferred contributions, even in peak earnings years, due to the relatively low tax rate and the presence of a pension.
2. No. If you have a life insurance need, meet it with term life insurance. I am not hearing a need for whole life.
3. Look at it all as one portfolio. If bonds in tax protected makes sense for you (and it does for most these days now that interest rates have gone up from their lows), then put them in tax protected and stocks in taxable.
4. No.
5. You're doing great. Truly. Don't let anyone tell you otherwise.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
Bruce
Posts: 354
Joined: Fri Mar 02, 2007 8:02 am
Location: Alaska

Re: Military dentist -- portfolio review request (new to forum)

Post by Bruce » Sun Dec 30, 2018 5:26 pm

White coat investor Dr Jim Dahle has his own website with much more info and advice for military docs ( and others); and this detailed post below on the benefits of the G Fund, for those who have earned access to the Thrift Savings Plan through federal employment or contributing while in military service.

https://www.whitecoatinvestor.com/the-g ... an-series/
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

Fishing50
Posts: 370
Joined: Tue Sep 27, 2016 1:18 am

Re: Military dentist -- portfolio review request (new to forum)

Post by Fishing50 » Mon Jan 07, 2019 12:08 am

Fellow military officer approaching 28yrs of service with a few comments:

Look at your investments as one portfolio to achieve asset allocation. Based on tax efficient, it's most important hold only equities in taxable due to favorable tax treatment of dividends and capital gains then hold bonds in TSP because bond income in taxable in taxed at your marginal tax rate. https://www.bogleheads.org/wiki/Tax-eff ... _placement

I'm not overly familiar with the new changes to 9/11 GI Bill, but previously it was adviseable to give at least 1 month to each child. After the initial transfer, months of benefits could be moved between children without added service commitment.

I've found service after 20yrs enjoyable. Options in orders negotiations are well-known, and I've able to avoid my least desirable assignments and locations. Extra money in retirement is a nice benefit.

We're talking about Survivor Benefits Plan. With significant assets & no kids, I don't think we need it...of course it's not for my peace of mind.

Roth TSP is best, especially if you work after retirement. 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

3504PIR
Posts: 882
Joined: Mon Jul 26, 2010 2:46 am

Re: Military dentist -- portfolio review request (new to forum)

Post by 3504PIR » Mon Jan 07, 2019 5:43 pm

Retired Officer here.

1. The Roth is the way to go as your income will continue to be high post retirement. O6 retirement alone will get you into a middle bracket and when you begin SS, it will be even higher. Stick with Roth.

2. Lock in whatever life insurance you plan to carry a couple of years prior to retirement and use term, probably 15 years. Once it expires you won't have a further need assuming you get survivor benefit on your retirement. I got SBP to 1. Give myself peace of mind, 2. lower my insurance (life) requirements. My wife would have been fine, but now I know she will have a minimum income from SBP and SS once I pass which will cover her needs for the rest of her life.

3. As you work through your asset allocation, you can put your bonds into your TSP or IRAs and you have plenty of room in both to cover most asset allocation scenarios. My current bond allocation is about 95% G fund and 5% I bonds which also represent part of my childs college fund as they are tax exempt if used for college and tax deferred if I don't use them for college. The I bonds have to be in a parents name to be used for a childs college. I started off with about a year allocation as a gift to my child before learning that fact.

4. You get great housing based on your rank. I'd use that and start up a savings plan for your house purchase after retirement. There is no advantage to owning a home for 2-3 years other than going through the process. Save up a specific fund for down payment or purchase outright down the road. Knowing where you might end up in retirement would help mold how much to put away.

5. Continue to invest in your investment/retirement accounts in all formats as aggressively as you can (including taxable). Doing so will give you options you will want to have once you retire. Trust me. Begin to look at how much you're making vs how much you need to live well without working. You may very well want to continue to practice, but then again, maybe you won't and it is great to have that freedom when moving on.

Thanks for your service and good luck!

retiredjg
Posts: 38943
Joined: Thu Jan 10, 2008 12:56 pm

Re: Military dentist -- portfolio review request (new to forum)

Post by retiredjg » Mon Jan 07, 2019 6:22 pm

A few comments.

1) You need to figure out your tax bracket. An effective tax rate is a nice number to know but useless when it comes to making decisions. Decisions affect your money at the marginal rate, not the effective rate.

Compare your taxable income, line 43 on the old 1040, to this chart. http://www.moneychimp.com/features/tax_brackets.htm

2) I would use Roth TSP or at least mostly Roth TSP, especially while the tax rates are so low. You do need taxable income in retirement, but you will get that from your pension.

3) Get the bonds out of your taxable account. They are not tax-efficient. Chances are you can sell them at a loss. But see the next comment.

4) Do not hold the exact same funds in your taxable account and your IRAs. If you sell something in taxable at a loss, you may create a wash sale if you buy the same thing (like if you reinvest dividends) in an IRA within 30 days before or after. A wash sale is not illegal, but it prevents you from taking the loss off your taxes. The story is longer - look up "wash sale" and "tax loss harvest" in the Wiki (link center above).

In your IRAs, you can hold 500 index and extended market (80/20) as a substitute for total stock. Once you get rid of those bonds in taxable, there won't be a problem with the bonds in the Roth IRAs. HOwever, the absolute best place for bonds is the TSP - F fund is same as total bond and the G fund is a special and wonderful thing. As for international, you could move it all to the taxable account. If you don't want to do that, find a different fund for Roth IRA- maybe developed markets and emerging markets together.

There is an entry in the Wiki about military finances written by White Coat Investor (WCI). You should read it.

I think you are doing very well. Just keep up the good work and consider the smaller things that I mentioned above.

koozie
Posts: 26
Joined: Thu Oct 05, 2017 3:20 pm
Location: Mountain Time

Re: Military dentist -- portfolio review request (new to forum)

Post by koozie » Tue Jan 08, 2019 1:50 am

EveryDayI'mBoglein' wrote:
Sat Dec 29, 2018 10:25 am
Many thanks for your help! Hopefully I'm the one someday giving advice . . .


Someday has come.

I am a general dentist, 5 years out and working for Indian Health Service. My income is about 60% of yours with no pension. Are you a general dentist or specialist? I have explored the military option. Recruiters I have talked to, gave me the impression that I would make even less than I do now, albeit with a pension. Is this your understanding of what it would be like if I were to go the military route at this point in my career? Thank you in advance

You should look at the U.S. Public Health Service. You can be a dentist for the IHS and it is a Uniformed Service with many of the same benefits as the other military services.

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