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29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 12:58 am
by eindecker
I made this post back in Nov '14, prior to us moving overseas. This is an update now that we've returned stateside - any seconds opinions on where we're at? We still feel a bit behind the power curve, but would like to improve more going forward.

More importantly, I need help figuring out our AA across both the TSP and our new Roth IRA. Admittedly, I am terrible at math in public, but any advice is appreciated.

Emergency Fund: $5k (1 month)

Debt:
Auto Loan
Interest Rate: 4.29%
Balance $9,900

Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal | No State
State of Residence: Florida
Age: 29/29
Desired Asset Allocation: 90/10
Desire International Allocation: ~20 to 30%

Current Retirement Assets:
Roth TSP: $73,055
C Fund 50% - $36,288
S Fund 25% - $18,767
I Fund 25% - $17,999
Roth IRA: $5,500
w/ Vanguard, no allocation yet

Annual Contributions: Max Roth TSP & Roth IRA in 2018+
Available Funds:
Roth TSP: G, F, C, S, I & L Funds
Vanguard: ----

Background Bullets:
1. O-3, just moved to ~MCOL/HCOL area in N. California.
2. 30k EF in November, but recently had a substantial amount of big expenses : moving costs, housing deposits, furniture, new baby, 2 newish cars (1 bought outright, 1 w/down payment), etc. Our biggest priority is refilling this coffer.

Goals:
1. EF back to ~6 months
2. Max Roth IRA (just accomplished in 2018)
3. Max second Roth IRA (wife's) ~2020
4. Create a low-maintenance portfolio where the AA can be easily maintained with ongoing contributions across multiple accounts. I really don't want to have to look at this more than once a year, if that.

Question:
1. I would like to add 10% in bonds and restructure my AA to integrate the Vanguard funds. I was thinking...

Overall Allocation:
US: 65%
International 25%
Fixed Income 10%

Further Breakdown
70% TSP
10% G Fund
45% C Fund
15% S Fund

30% Vanguard
25% Vanguard Total International Stock Market Index Fund
5% Vanguard Total Stock Market Index Fund

I looked at this thread for guidance and I understand if I were to configure future contributions for my AA starting from $0, it would look something like this...

Future Contributions
$19,000 TSP
$6,000 IRA
$25,000 Total

TSP Contributions:
$2,600 to G Fund (10% of portfolio to bonds * 100% of bonds to G Fund = 10% * $26,000)
$13,120 to C Fund (80% of everything else)
$3,280 to S Fund (20% of everything else)
$19,000 total

IRA Contributions:
$4,500 to TISM (90% of portfolio in stocks * 20% of stocks in Intl * $25,000 = $4,500)
$1,500 to TSM (the balance of my IRA contribution)
$6,000 total

In such a scenario, I would want to configure ongoing contributions as such:
TSP
13.7% G Fund
69.1% C Fund
17.3% S Fund
100% Total

Vanguard
75% TISM
25% TSM
100% Total

...but since I am not starting from $0, how do I integrate my existing portfolio ($78.5k) and its two different accounts (TSP & IRA) with future contributions (2019, $25k)? I can't move money from my TSP to Vanguard to make it easy and right now, the Roth IRA's $5,500 is only 7% of the total portfolio ($78.5k). So, are there any easy solutions? The "Total Portfolio Approach" has my head spinning and I think I'm getting wrapped around the axle. I want to be lazy, but would also like to avoid the Lifecycle and Target Date funds.

Can smarter minds chime in? Thanks again - I appreciate it.

Scott

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 1:32 am
by Watty
eindecker wrote: Sun Jan 27, 2019 12:58 am 4. Create a low-maintenance portfolio where the AA can be easily maintained with ongoing contributions across multiple accounts. I really don't want to have to look at this more than once a year, if that.
If I am reading your post right it looks like you don't have any retirement money that is not in a retirement account.

If that is correct then using target date fund is an easy choice. The main reasons not to use a target date fund is if you have retirement money in a taxable account so that you have to worry about tax efficiency, or you don't have a good target date fund in your retirement account.

People sometimes think of a target date fund as being some sort of dumbed down "investing for dummies" choice that needs to be improved on but in the right choice they are an excellent choice. I retired a few years ago an put almost all my retirement money into target date funds.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 1:42 am
by Thecallofduty
The total portfolio approach is very simple once you wrap your head around it. And no need to stress as you can rebalance within ur tax sheltered plans. You said ur not interested in target date so I can propbably respond tomorrow on how to allocate everything when i have some time. :sharebeer

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 4:01 am
by Fishing50
It's probably good to feel behind the power curve, but you don't need to dwell. You'll be fine with a pension and savings.

Erase the debt. PCS time is expensive, it's good you saved money to buy cars and furnish a house. Those are expected expenses, NOT an Emergency Fund. You're emergency fund is probably large enough now for a car repair or roundtrip plane tickets home if something devastating happens. Military members don't need as large emergency fund as others because absent severe misconduct, the next paycheck is darn near guaranteed. Your first priority should be paying down the car loan, then building taxable investing account because time in the market enhances performance. If you need to pay for unforeseen expenses, savings rate can be temporarily decreased until the bill is paid. Late in my career, we don't have an emergency fund, but I did get $1K of dividends deposited into my money market account in the last 30 days because we don't reinvest dividends in taxable.

Investing priorities:
1. Roth TSP to the Match
2. His and Her Roth IRA
3. Taxable investing / Roth TSP to the Max

If you're not BRS, his and her Roth IRA is a better choice because you can withdraw contributions without penalty for any reason. Roth IRA can be an emergency fund. https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

AA is easy if you think about TSP and Roth IRA as a single account which is 100%.

Your not at 0, you're at: 100% = $78,555
46% C Fund 50% - $36,288
24% S Fund - $18,767
23% I Fund 25% - $17,999
7% Roth IRA: $5,500 Bonds (if you use it as emergency fund just leave it in Federal Money Market or Prime Money Market)

Now adjust your contributions to fill the holes. During accumulation years you may never need to rebalance because your contributions can be used to fill shortfalls. Right now you need 3% bonds an C Fund. I say C Fund because C and S match the total market at 4:1, and you are 2:1. Keep Roth IRA contributions ($12K) going into Bonds, and Roth TSP going into C Fund (13K). At the end of the year, you'll be overweight bonds and C Fund will be larger. Next year, you can buy TSM or TISM in Roth IRA and adjust TSP contributions. Nothing complicated... 8-)

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 8:16 am
by Ketawa
eindecker wrote: Sun Jan 27, 2019 12:58 am ...but since I am not starting from $0, how do I integrate my existing portfolio ($78.5k) and its two different accounts (TSP & IRA) with future contributions (2019, $25k)? I can't move money from my TSP to Vanguard to make it easy and right now, the Roth IRA's $5,500 is only 7% of the total portfolio ($78.5k). So, are there any easy solutions? The "Total Portfolio Approach" has my head spinning and I think I'm getting wrapped around the axle. I want to be lazy, but would also like to avoid the Lifecycle and Target Date funds.

Can smarter minds chime in? Thanks again - I appreciate it.

Scott
I like what you're doing by using the G Fund for fixed income and Vanguard TISM for international.

The Total Portfolio approach is not ideal for you because the G Fund is a unique and superior fixed income investment, which offers the yield of intermediate- to long-term Treasuries with none of the interest rate risk. In addition, the I Fund is currently not as good as Vanguard TISM. Later in 2019, the I Fund is supposed to transition to an index that is similar to TISM, so either option will be good. Right now, the I Fund is missing Canada, emerging markets, and small caps.

Because you are using all Roth accounts, this is simple. Put all your fixed income into the G Fund first, put your international investments into Vanguard TISM first, and put the remainder in TSM or the C Fund & S Fund as needed. Here is one way to integrate your accounts:

Current Portfolio
$78,500 portfolio value

25% in international = $19,625
Put all $5500 of your IRA into TISM first, then put the remaining $14,125 in the I Fund.

10% in fixed income = $7850
Put all $7850 in the G Fund first, no need to do anything else.

65% in domestic = $51,025
The only space you have left is the TSP, so put $40,820 in the C Fund and $10,205 in the S Fund.

Asset Allocation
TSP
C Fund: 55.9%
S Fund: 14.0%
I Fund: 19.3%
G Fund: 10.7%

IRA
100% TISM

If you want to keep this extremely simple, here is one way to look at how to manage ongoing contributions.

Future Contributions
$25,000 future contributions

25% in international = $6250
Put all $6000 going into your IRA into TISM, then put the remaining $250 in the I Fund.

10% in fixed income = $2500
Put all $2500 into the G Fund, no need to do anything else.

65% in domestic = $16,250
The only contribution space you have left is the TSP, so put $13,000 into the C Fund and $3,250 into the S Fund.

Contribution Allocations
TSP
C Fund: 66.7%
S Fund: 16.7%
I Fund: 1.3%
G Fund: 12.8%

IRA
100% TISM

You can repeat this process at any time to rebalance and recalculate your future contribution percentages.

You should pay off your car loan ASAP while still maximizing your tax-advantaged accounts.

When you rebuild your emergency fund, you might consider investing in TSM/TISM in a taxable account, but use the G Fund as your actual emergency fund, since you still want to make money on it, especially if you are keeping 6 months of expenses in your emergency fund. You do this by holding more of the G Fund than you normally would. If an emergency actually occurs, you sell some of the taxable invesments, then reduce the amount of G Fund you hold, so it's like you sold your emergency fund instead of equities. If you run out of taxable investments, you can also do this with Roth IRA contributions; hold equities in your Roth IRA, but if an emergency happens, take out some of the contributions (which can be removed at any time for any reason) and sell some of the G Fund in your TSP. You can do the math to figure out the exact percentages.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 4:00 pm
by eindecker
Fishing50 wrote: Sun Jan 27, 2019 4:01 am Erase the debt. PCS time is expensive....Those are expected expenses, NOT an Emergency Fund.

If you're not BRS....Roth IRA can be an emergency fund. https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

AA is easy if you think about TSP and Roth IRA as a single account which is 100%.

Your not at 0, you're at: 100% = $78,555
46% C Fund 50% - $36,288
24% S Fund - $18,767
23% I Fund 25% - $17,999
7% Roth IRA: $5,500 Bonds (if you use it as emergency fund just leave it in Federal Money Market or Prime Money Market)

Now adjust your contributions to fill the holes. During accumulation years you may never need to rebalance because your contributions can be used to fill shortfalls. Right now you need 3% bonds an C Fund. I say C Fund because C and S match the total market at 4:1, and you are 2:1. Keep Roth IRA contributions ($12K) going into Bonds, and Roth TSP going into C Fund (13K). At the end of the year, you'll be overweight bonds and C Fund will be larger. Next year, you can buy TSM or TISM in Roth IRA and adjust TSP contributions. Nothing complicated... 8-)
Working on paying the auto loan off! Our goal is to have it paid off by the end of the year or shortly thereafter, while still trying to maintain the max for the TSP and Roth IRA. We'll see. I hate debt too and the differentiation between saving for upcoming expenses and an emergency fund is a good point.

So if I'm understanding you correctly, I'd keep the money where it is - then I'd allocate the entire Roth IRA to bonds and fill up the C fund until I hit a 4:1 ratio with the S fund? Basically using future allocations to make the AA work? Seems simple - I like it. I'd originally thought putting the IRA funds into TISM and using the G fund in TSP was good because of the lack of emerging markets in the I fund, but with the I fund apparently changing in the near future, and your idea of using the Roth IRA as an emergency fund - I like this alternative. Thank you!

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 4:31 pm
by eindecker
Thecallofduty wrote: Sun Jan 27, 2019 1:42 am I can propbably respond tomorrow on how to allocate everything when i have some time. :sharebeer
I'm interested in hearing your approach! :sharebeer

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 4:58 pm
by eindecker
Ketawa wrote: Sun Jan 27, 2019 8:16 am I like what you're doing by using the G Fund for fixed income and Vanguard TISM for international.

Because you are using all Roth accounts, this is simple. Put all your fixed income into the G Fund first, put your international investments into Vanguard TISM first, and put the remainder in TSM or the C Fund & S Fund as needed. Here is one way to integrate your accounts...

When you rebuild your emergency fund, you might consider investing in TSM/TISM in a taxable account, but use the G Fund as your actual emergency fund, since you still want to make money on it, especially if you are keeping 6 months of expenses in your emergency fund...
You're breakdown of integrating the accounts and structuring future contributions is very helpful! I understand it and now wonder why I was confused in the first place. Thanks for simplifying that for me.

I like the G in the TSP and the TISM in Vanguard, because I feel that until the I fund changes, it plays to each account's strengths.

I think however, at least at this point, I might avoid integrating emergency funds with investment accounts. Sometimes I get uneasy "raiding" retirement accounts, especially with the Roth IRA base contributions. It opens a door for me personally that I'd rather keep shut. Being in the military 6 months might be a bit excessive, so I was thinking of reducing it to 2-3 months and putting it in a high yield savings account. I still have to get that part sorted out.

Thanks again.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sun Jan 27, 2019 11:25 pm
by Thecallofduty
Looks like others have given good advice already on how to rebalance and allocate future contributions.

Does everything actually make sense? Do you have any other specific questions or changes you are considering? Feel free to ask.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Fri Feb 01, 2019 12:10 pm
by eindecker
Thecallofduty wrote: Sun Jan 27, 2019 11:25 pm Looks like others have given good advice already on how to rebalance and allocate future contributions.

Does everything actually make sense? Do you have any other specific questions or changes you are considering? Feel free to ask.
Thecallofduty, sorry for the late response, but yes - most everything makes sense. The one fuzzy part is using the Roth IRA as an emergency fund, but a) I can always do more research and b) I'm not sure I'm comfortable with mixing those two pots of money just yet.

Otherwise, the only big change was modifying my asset allocation to something a little more thought-out and adding in the Roth IRA now that we have more spare money to contribute. The breakdowns were helpful.

Again, thanks for checkin in! It's much appreciated.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Fri Feb 01, 2019 3:04 pm
by hoppy08520
Hello, I think Ketawa's proposal is great and the math certainly works.

That being said, I might suggest what Watty did which is simply put both accounts in Vanguard Target Date and TSP LifeCycle funds? If you get busy and let your investments drift, you don't have to worry about that if you're in target retirement funds.

That being said, the slight downside of the target date funds is they do not match your desired asset allocation exactly. In particular, you want a 73/27 US:International ratio, but at Vanguard it's 60:40 and the TSP is 65:35. Plus the TSP LifeCycle 2050 is 81:19 stocks:bonds when you want to be 90:10, and you'll have some F Fund with the G Fund. And with Vanguard TDF, you'll have Total Bond + Total International Bond instead of G Fund. But these are all relatively small slices of the overall pie.

Only other point I'll make, if you don't want the target retirement funds. If you're a perfectionist, once the TSP makes the I Fund better, presumably some time later in the year, then I'd prefer to hold my international in the TSP because it will be the cheaper to hold it there compared to Vanguard. TSP ER is 0.04 and Vanguard VTIAX is 0.11%. I'd use the IRA for TSM instead.

It's not really a big deal either way, but just giving ideas.

Re: 29yo Military - Help, AA across Roth TSP & Roth IRA

Posted: Sat Feb 02, 2019 2:31 am
by Thecallofduty
People use roth ira as one of several tools to maximize their retirement savings. One of the perks is that unlike a 401k, you can withdraw your contributions penalty free. You will be penalized if you take out any earnings though. So basically if you contributed 6k to roth ira and in future you need it, there is no penalty to take out 6k. If you take out any more money than what youncontributed then theres a penalty.

If things go well and you dont need to take out anything from this ira “emergency fund” it will contine to grow with time and withdrawls of earnings and contributions at retirmeent will be penalty free.

Lots of websites and people here that can give more detailed info.