Continue Maxing Retirement or Buy a House? (Military)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

Hello All,

Thanks for reading. I'm a 31 year old military officer making $95k a year. I max my Roth IRA and Roth TSP annually. My IRA is worth $30k and TSP is $100k. The max TSP annual contribution is $19,500, so overall I put $25,500 into retirement each year. I've got a car worth $9k and rent for $1000 a month. I've got $40,000 in savings and no debt.

My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
oldfort
Posts: 2546
Joined: Mon Mar 02, 2020 8:45 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by oldfort »

Are you planning on being career military? I don't see the point in buying a house if you're going to move in 2-4 years to your next assignment.
User avatar
Wiggums
Posts: 3469
Joined: Thu Jan 31, 2019 8:02 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by Wiggums »

oldfort wrote: Sun Nov 22, 2020 6:23 pm Are you planning on being career military? I don't see the point in buying a house if you're going to move in 2-4 years to your next assignment.
I agree.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

I'm not sure about career yet. I'll be in roughly 12 years by the time my contract is up, so it's a possibility. I'm a pilot so the airlines will be an option at that point, but even then I would likely stay in the reserves in some capacity and continue to fly mil part-time. Ideally that would be in Virginia.
mr_brightside
Posts: 250
Joined: Sat Oct 17, 2020 3:23 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by mr_brightside »

Wiggums wrote: Sun Nov 22, 2020 6:25 pm
oldfort wrote: Sun Nov 22, 2020 6:23 pm Are you planning on being career military? I don't see the point in buying a house if you're going to move in 2-4 years to your next assignment.
I agree.
i was about to type the same thing. congrats on all your other savings though -- you are kicking butt in that regard

my brother was 30 years USMC and never bought a house until his last assignment

i was active for 7 years and moved 4 times in that time period (Benning / Schofield / Benning / Bragg). buying might not be a worthwhile headache if your assignments are likely to keep you relocating frequently

thanks for your service and best wishes--

-----------------------
remember Enron?? I do
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

mr_brightside wrote: Sun Nov 22, 2020 6:34 pm
Wiggums wrote: Sun Nov 22, 2020 6:25 pm
oldfort wrote: Sun Nov 22, 2020 6:23 pm Are you planning on being career military? I don't see the point in buying a house if you're going to move in 2-4 years to your next assignment.
I agree.
i was about to type the same thing. congrats on all your other savings though -- you are kicking butt in that regard

my brother was 30 years USMC and never bought a house until his last assignment

i was active for 7 years and moved 4 times in that time period (Benning / Schofield / Benning / Bragg). buying might not be a worthwhile headache if your assignments are likely to keep you relocating frequently

thanks for your service and best wishes--

-----------------------
You as well. Thanks for the insight.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

Follow up question: do I continue to pump up the retirement account if I don't plan on buying a house?

My expenses are low and I feel like my car will last another 5-6 years. Not sure what to do with any excess income.
Tiger85
Posts: 56
Joined: Sun Jul 07, 2013 6:35 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by Tiger85 »

I'm a 35 year old military officer and was in a similar situation a few years ago. I was getting ready to leave AD for the Guard, so for one year I put lots of money in savings vs. maxing retirement to plus up the down payment money.

If you're not buying a house, I see no reason to stop maximizing your retirement accounts.

After that I see two options:

1. Add excess money to your savings account to reach desired down payment amount anyway. This at least gives you the option if you decide to buy later. Downside is that if you don't buy, that's a lot of money earning next to nothing based on interest rates.

Or

2. Invest excess money into a taxable account for growth towards a future purchase. Downside being that if you decide to buy in the next few years, and the market goes down, you'll have less than the option above.

Once we decided we were leaving AD and going to buy a house, I sold my taxable holdings to put towards our downpayment. This was about two years before the purchase, and although the market continued to go up after I sold, I was ok with the logic of the decision to get out of stocks for a purchase I knew I would be making in two years.

I'm assuming you are single since you didn't mention a spouse in your posts, but if not, max their retirement accounts with excess money before either of the options above.
privateer79
Posts: 170
Joined: Fri Apr 04, 2008 12:21 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by privateer79 »

Thank you for your service!

I'd echo the thoughts that you should really understand how nomadic your lifestyle is going to be over the next few years before making a 5-10 year commitment ... (note, I don't think Virginia beach is a hub for any comercial airline... airlines will dead-head you in to your flights, but thats a nasty commute)

Also check out what options are available with VA loans (which I presume you qualify for)... I believe they let you go with a relatively small downpayment without some of the more outrageous/predatory fee's that normally apply for low down payments....
just_cruisin
Posts: 49
Joined: Fri Oct 30, 2020 10:27 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by just_cruisin »

hammer10k wrote: Sun Nov 22, 2020 6:12 pm
My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
You can both save for retirement and a house with a Roth. The contributions you put in can be pulled out anytime, that becomes your down payment.

Look up house hacking. It’s the same as getting some buddies together to combine BAH’s and rent a house, except you buy the house and charge them rent.

Is the beach bar at Duck Inn still the place to be on summer Friday afternoons?
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

just_cruisin wrote: Sun Nov 22, 2020 9:41 pm
hammer10k wrote: Sun Nov 22, 2020 6:12 pm
My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
You can both save for retirement and a house with a Roth. The contributions you put in can be pulled out anytime, that becomes your down payment.

Look up house hacking. It’s the same as getting some buddies together to combine BAH’s and rent a house, except you buy the house and charge them rent.

Is the beach bar at Duck Inn still the place to be on summer Friday afternoons?
Haha the Duck Inn is now gone and condos took it's place, but a place called Chick's Oyster Bar opened across the street and it's the go to.
checkyourmath
Posts: 362
Joined: Wed Nov 18, 2020 12:46 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by checkyourmath »

$1000 dollars a month in rent. Ride that gravy train with your current salary. I am only in the housing market because we have twins and will eventually need to buy our way into the school districts. You are crushing it! I think the biggest thing to think about is opportunity cost. It cost something to live. How low do you want that number to be? When bonds yielded 4% and homes were in the 300k range the scale was even. Bonds yielding nothing and homes in the 600k range is pretty hard to swallow right now. If you are spending under 15 percent of your income on housing why worry about it. If you were spending 30 percent of housing then you might need to find some creative accounting.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

checkyourmath wrote: Sun Nov 22, 2020 10:24 pm $1000 dollars a month in rent. Ride that gravy train with your current salary. I am only in the housing market because we have twins and will eventually need to buy our way into the school districts. You are crushing it! I think the biggest thing to think about is opportunity cost. It cost something to live. How low do you want that number to be? When bonds yielded 4% and homes were in the 300k range the scale was even. Bonds yielding nothing and homes in the 600k range is pretty hard to swallow right now. If you are spending under 15 percent of your income on housing why worry about it. If you were spending 30 percent of housing then you might need to find some creative accounting.
Thanks for the insight! This is really interesting but I've never heard of bond yield vs. housing cost. Do you mind explaining?
nigel_ht
Posts: 1866
Joined: Tue Jan 01, 2019 10:14 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by nigel_ht »

A colleague bought and sold houses during his military career once he had a family. Naval aviator (ea-6 and growlers). Probably sub-optimal returns vs the markets we had but he had a family so it was probably worth the hassle and the performance delta.

Another colleague married navy officer in cyber. Currently at pacflt. Renting out their condo here but cyber guys tend to end up only at a couple duty stations...

We had neighbors that owned houses and rented them as the moved around on deployments. Eventually sold the house in our neighborhood. Last renters were a husband wife in the AF. SFH in nice neighborhood with good schools.

Another neighbor is an O-6 in the coast guard. CO of their shipyard here. Owns because he has a family.

We don’t live in VA Beach (although I used to live in one of the Mayflower apt units on the beach) but there is a significant military presence here with all the DoD stuff around DC/Baltimore.

It strikes me as a lot easier to just save more until you need a house. The guys that own either have families or treat it as a side hustle. If you find a really great deal in VA beach it may be a good bet if you think you’ll be out of Oceana or Chambers for a while.

What will you do if you end up at Lemoore?
User avatar
mokaThought
Posts: 321
Joined: Tue Jan 01, 2019 7:57 pm
Location: Texas
Contact:

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by mokaThought »

hammer10k wrote: Sun Nov 22, 2020 6:12 pm Hello All,

Thanks for reading. I'm a 31 year old military officer making $95k a year. I max my Roth IRA and Roth TSP annually. My IRA is worth $30k and TSP is $100k. The max TSP annual contribution is $19,500, so overall I put $25,500 into retirement each year. I've got a car worth $9k and rent for $1000 a month. I've got $40,000 in savings and no debt.

My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
Thank you for your service! Former Navy SWO LT, 2007–2014 here.

1. Keep the Roth IRA withdrawal rules in mind. You can withdraw contributions after a certain period of time, and there's an additional rule concerning a first-time home purchase.

2. I wouldn't give up on the "free money" from the TSP under any circumstances. We didn't have the match "back in my day." (Am I allowed to say that?)

3. I would view this more in terms of risk than market timing. Your present and future ability to accumulate dollars is a far lower risk than (1) home price fluctuations, (2) tenant management while overseas, (3) hurricane damaging your property while you're overseas, etc., etc. Oh, and the airlines aren't doing too hot right now. Who knows whether they'll be well when you want to leave or a wayward promotion board shows you the door? In the meantime, you are majorly cashflow positive.

Overall, I would not buy. The question I would be having to process is how much I would want on the taxable side versus maxing out TSP and IRA. FWIW, after my first tour in Sasebo, I returned home with a modest low five digit sum in taxable mutual funds: Vanguard Total Bond Market Index and Vanguard Inflation-Protected Securities. I took the checkbooks to a car dealer and bought a car with "cash." Obviously, the interest rates were higher back then.
I gave in and went SCV. Wish me luck.
checkyourmath
Posts: 362
Joined: Wed Nov 18, 2020 12:46 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by checkyourmath »

hammer10k wrote: Sun Nov 22, 2020 10:32 pm
checkyourmath wrote: Sun Nov 22, 2020 10:24 pm $1000 dollars a month in rent. Ride that gravy train with your current salary. I am only in the housing market because we have twins and will eventually need to buy our way into the school districts. You are crushing it! I think the biggest thing to think about is opportunity cost. It cost something to live. How low do you want that number to be? When bonds yielded 4% and homes were in the 300k range the scale was even. Bonds yielding nothing and homes in the 600k range is pretty hard to swallow right now. If you are spending under 15 percent of your income on housing why worry about it. If you were spending 30 percent of housing then you might need to find some creative accounting.
Thanks for the insight! This is really interesting but I've never heard of bond yield vs. housing cost. Do you mind explaining?
If you have 300k in cash on a bond yielding 4 percent than you get 12k in a year.

You eventually own your 300k home which should be going up at some number close to inflation. The last few years haven't been the nicest to people entering the housing market. Based price of holding the home cost something. You are looking at probably 12k in opportunity cost. Yes the home can go up more than inflation. It all depends upon location but $1000 per month isn't something to worry about. People that say they are living for free once their home is paid off forget about opportunity cost. They only talk about taxes, maintenance, and insurance.
abracadabra11
Posts: 209
Joined: Sat May 01, 2010 2:09 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by abracadabra11 »

A few notes and a question:
1. Be prepared to be a landlord if you purchase a home. Or be prepared to lose money because of high transaction costs when selling.
2. Nice job with the savings and staying clear of debt. Given what looks to be very low expenses, I would recommend INCREASING your savings and start making use of a taxable account.
3. Are you sure you're only making $95k/year? I think you should be closer to $110k/year, unless you haven't quite hit the over 6 year flight pay gate.
4. No real benefit to doing split TSP and ROTH contributions that I can think of. Max TSP first, then top off with ROTH. This will keep your taxable income as low as possible since you'll get the benefit of tax free BAH, BAS, and reduced taxable income from TSP contributions.
5. You're correct to assume that housing prices should continue to go up, but rates are important. You're likely to be in a much better financial position by investing your money in equities rather than on the purchase of a home. And that's to say nothing of the additional flexibility this approach provides.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

abracadabra11 wrote: Sun Nov 22, 2020 11:54 pm A few notes and a question:
1. Be prepared to be a landlord if you purchase a home. Or be prepared to lose money because of high transaction costs when selling.
2. Nice job with the savings and staying clear of debt. Given what looks to be very low expenses, I would recommend INCREASING your savings and start making use of a taxable account.
3. Are you sure you're only making $95k/year? I think you should be closer to $110k/year, unless you haven't quite hit the over 6 year flight pay gate.
4. No real benefit to doing split TSP and ROTH contributions that I can think of. Max TSP first, then top off with ROTH. This will keep your taxable income as low as possible since you'll get the benefit of tax free BAH, BAS, and reduced taxable income from TSP contributions.
5. You're correct to assume that housing prices should continue to go up, but rates are important. You're likely to be in a much better financial position by investing your money in equities rather than on the purchase of a home. And that's to say nothing of the additional flexibility this approach provides.
Thanks for the advice. Makes a lot of sense. I'm at year 4 so haven't gotten that sweet flight pay bump yet.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

mokaThought wrote: Sun Nov 22, 2020 11:21 pm
hammer10k wrote: Sun Nov 22, 2020 6:12 pm Hello All,

Thanks for reading. I'm a 31 year old military officer making $95k a year. I max my Roth IRA and Roth TSP annually. My IRA is worth $30k and TSP is $100k. The max TSP annual contribution is $19,500, so overall I put $25,500 into retirement each year. I've got a car worth $9k and rent for $1000 a month. I've got $40,000 in savings and no debt.

My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
Thank you for your service! Former Navy SWO LT, 2007–2014 here.

1. Keep the Roth IRA withdrawal rules in mind. You can withdraw contributions after a certain period of time, and there's an additional rule concerning a first-time home purchase.

2. I wouldn't give up on the "free money" from the TSP under any circumstances. We didn't have the match "back in my day." (Am I allowed to say that?)

3. I would view this more in terms of risk than market timing. Your present and future ability to accumulate dollars is a far lower risk than (1) home price fluctuations, (2) tenant management while overseas, (3) hurricane damaging your property while you're overseas, etc., etc. Oh, and the airlines aren't doing too hot right now. Who knows whether they'll be well when you want to leave or a wayward promotion board shows you the door? In the meantime, you are majorly cashflow positive.

Overall, I would not buy. The question I would be having to process is how much I would want on the taxable side versus maxing out TSP and IRA. FWIW, after my first tour in Sasebo, I returned home with a modest low five digit sum in taxable mutual funds: Vanguard Total Bond Market Index and Vanguard Inflation-Protected Securities. I took the checkbooks to a car dealer and bought a car with "cash." Obviously, the interest rates were higher back then.
TYFYS and much appreciated for the advice. Sasebo sounds awesome.
just_cruisin
Posts: 49
Joined: Fri Oct 30, 2020 10:27 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by just_cruisin »

hammer10k wrote: Sun Nov 22, 2020 10:11 pm
just_cruisin wrote: Sun Nov 22, 2020 9:41 pm
hammer10k wrote: Sun Nov 22, 2020 6:12 pm
My questions are:

1. Do I cut back on retirement contributions? I contribute about 30% of my take home pay.
2. If I do cut back, which account? The TSP matches 5% so I need to put at least $3,500 to get the full match. Is there any benefit to continuing to contribute to the Roth IRA since its both lower and has no match? Such as putting $3,500 into both accounts just to keep the fund growing.
3. What point of savings and market timing is it worth pulling the trigger on a house? If I limit retirement contributions to 15% of my take home, I should have roughly $70-80k in the next 2-3 years for a down payment. But, I would like to buy sooner rather than later since I imagine housing prices will only go up. I live in Virginia Beach where the housing market is pretty stable with the military presence.

Thank you!
You can both save for retirement and a house with a Roth. The contributions you put in can be pulled out anytime, that becomes your down payment.

Look up house hacking. It’s the same as getting some buddies together to combine BAH’s and rent a house, except you buy the house and charge them rent.

Is the beach bar at Duck Inn still the place to be on summer Friday afternoons?
Haha the Duck Inn is now gone and condos took it's place, but a place called Chick's Oyster Bar opened across the street and it's the go to.
Too bad.... I guess my “Duck bucks” are worthless now.
BestCoast123
Posts: 107
Joined: Fri Jul 17, 2020 4:45 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by BestCoast123 »

hammer10k wrote: Sun Nov 22, 2020 6:29 pm I'm not sure about career yet. I'll be in roughly 12 years by the time my contract is up, so it's a possibility. I'm a pilot so the airlines will be an option at that point, but even then I would likely stay in the reserves in some capacity and continue to fly mil part-time. Ideally that would be in Virginia.
Assuming your health allows it and your desires are to work as a commercial pilot, I would highly recommend taking advantage of Roth space now while your marginal tax rate is fairly low. You will probably have the "problem" of making a lot of money in a few years. Obviously, COVID is bad for commercial but it will recover and the pilot shortage isn't getting any better (and will probably get worse as I bet there are less pilot's being trained right now...).

I would wait to buy a house until you are both our of the active duty military and have a commercial job lined up.
Fishing50
Posts: 495
Joined: Tue Sep 27, 2016 1:18 am

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by Fishing50 »

hammer10k wrote: Sun Nov 22, 2020 7:03 pm Follow up question: do I continue to pump up the retirement account if I don't plan on buying a house?

My expenses are low and I feel like my car will last another 5-6 years. Not sure what to do with any excess income.
I can imagine the fun discussions defending your investing strategy in the Ready Room or O Club with a 5yr old car, a $1000 apt, and boring index funds. There is no doubt a high savings rate with low cost diversified portfolio will win against the high flying ideas others are chasing. Not sure how others have done when we used to have those discussion, but I won't be looking for post retirement job.

Pump up retirement to the max now, because you have the income and desire to save. If desires change in the future, you can spend a little more income while letting the prior investments continue compounding.

Your savings priorities should be:
1. TSP to the match
2. Roth IRA to the max
3. TSP to the max
4. Taxable investing

Roth vs traditional TSP is all about tax brackets. Even in the 24% tax bracket right now, Roth TSP is likely the right choice this early in your career. Pay attention to increases in pay and changes in tax brackets because at 32% tax bracket traditional will be better. When taxes revert to previous levels in 2026, you'll move into the 28% tax bracket making a traditional a better choice. The PC version of Turbo Tax is a great way to understand your taxes. After you finish the current year, you can save the file as a proposed next year and change the info...giving you a great projection of taxes.

Build that taxable account which will give you options in the future. You may not need to sell the investments. Navy Federal Credit Union has a Military Choice Mortgage that requires no down payment or PMI, there are lots of ways to fund purchases. Low cost, total market US and intl index funds are tax efficient investments that can be held forever in a taxable account. Study up on Tax Loss Harvesting, which will save you some taxes now at your current tax bracket and cost you 15% capital gains IF you sell the shares. I have some Russell 1000 (IWB) shares from 2003, we'll probably never sell.

You're on a great course, Stay Safe! :beer
1yr from military pension. 80 equites / 20 bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. | Gone Fishing At 52yrs old!
abracadabra11
Posts: 209
Joined: Sat May 01, 2010 2:09 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by abracadabra11 »

Fishing50 wrote: Tue Nov 24, 2020 9:25 am
hammer10k wrote: Sun Nov 22, 2020 7:03 pm Follow up question: do I continue to pump up the retirement account if I don't plan on buying a house?

My expenses are low and I feel like my car will last another 5-6 years. Not sure what to do with any excess income.
Your savings priorities should be:
1. TSP to the match
2. Roth IRA to the max
3. TSP to the max
4. Taxable investing

Roth vs traditional TSP is all about tax brackets. Even in the 24% tax bracket right now, Roth TSP is likely the right choice this early in your career. Pay attention to increases in pay and changes in tax brackets because at 32% tax bracket traditional will be better. When taxes revert to previous levels in 2026, you'll move into the 28% tax bracket making a traditional a better choice. The PC version of Turbo Tax is a great way to understand your taxes. After you finish the current year, you can save the file as a proposed next year and change the info...giving you a great projection of taxes.
I typically used the 25% tax bracket (currently 22% tax bracket) as the cutoff for Traditional vs Roth TSP (assuming you're not eligible for Tax Exempt pay during that year). Like @Fishing50, I don't plan on needing a post-military source of income other than retirement pay and investments. That provides lots of time to realize capital gains @ 0% rate and Roth conversions of TSP traditional balance.
Topic Author
hammer10k
Posts: 20
Joined: Mon Oct 17, 2016 4:48 pm

Re: Continue Maxing Retirement or Buy a House? (Military)

Post by hammer10k »

Fishing50 wrote: Tue Nov 24, 2020 9:25 am
hammer10k wrote: Sun Nov 22, 2020 7:03 pm Follow up question: do I continue to pump up the retirement account if I don't plan on buying a house?

My expenses are low and I feel like my car will last another 5-6 years. Not sure what to do with any excess income.
I can imagine the fun discussions defending your investing strategy in the Ready Room or O Club
Haha I've just kept my mouth shut when guys are comparing which stocks they're trying to short. Thanks for the advice!
Post Reply