Author Topic: Advise me, please!  (Read 1450 times)

Steve S.

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Advise me, please!
« on: March 08, 2017, 07:01:30 AM »
Here's the brief story...

I am currently in grad school, graduating in September 2018, I'm 35 with 4 kids who live with my ex-wife in California. I had a 10 year active duty military career, but I'm not totally sure about all the benefits that come along with that (I am using my GI Bill for school, though). I should be coming into a substantial salary after graduation (starting between 85k-110k would be my guess), and probably 50-60k in student loan debt. The interest rate on those loans is 5.84% at the moment, and I don't really know anything about refinancing them yet. I have used some money to put about 7k into a VFINX fund last year.

I have a serious girlfriend who works for the government and has been using her Thrift Savings Plan and a regular savings account. She makes about 80k/year and owns a house with a pretty good amount of equity (I don't know how much off the top of my head).

We are both looking into all this Mustachianism (which has been blowing my mind) and really wanting to organize our lives differently. We want to simplify and focus on happiness, eliminating useless expensive distractions, and setting ourselves up to have options as soon as possible. I would like to retire by 50, or even earlier.

I think that's about it...SO my questions are: Since I'll be planning to save 60% or more of my new paycheck, what should I do with all those savings? Student loan, Index Fund, Traditional/Roth IRA, 401K, etc.? (I don't have much interest in real estate at the moment)
And what should my girlfriend focus on? Maxing out Thrift Savings, then index funds? I've been trying to find the answers in the blog, but I thought I'd ask the amazing Mustache community too. Thanks in advance!!!
Steve S.

tarheeldan

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Re: Advise me, please!
« Reply #1 on: March 08, 2017, 07:12:29 AM »

Fishindude

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Re: Advise me, please!
« Reply #2 on: March 08, 2017, 07:19:51 AM »
Get that student loan paid off ASAP, and stay out of debt as much as possible for the rest of your life (with possible exception of a manageable short term mortgage) and you will be far ahead of the rest of the world.   Regarding investments, it's always best to invest in what you are most familiar and comfortable with.  Stocks and Vanguard accounts get pushed hard here, but they're not for everyone.  Your thing could be real estate, your own business, or any number of things.

Laura33

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Re: Advise me, please!
« Reply #3 on: March 08, 2017, 08:16:46 AM »
Seems to me you have the real benefit of having over a year before you need to make final decisions, so my suggestion would be to spend that time learning all you can about your loan options and the different ways to invest (property, stocks, your own business, etc.).  The JL Collins series tends to be a favorite here for explaining investments in the market, and of course there's MMM himself. 

In the interim, make sure your GF maxes out any tax-sheltered accounts available.  Keep your expenses and lifestyle low -- if you can live off of her income now, can you continue to do so once you graduate and throw all of yours into paying back the loans and investing?  If you can avoid lifestyle creep, you will basically have the game won.

The biggest revelation to me about the MMM lifestyle is that it reverses the retirement math.  If you plan a 40-year working career, the most important thing you can do is get into the market as early as possible, because the vast majority of your retirement kitty will come from compounding (this is the staple of the common "if you start at 25" vs. "if you start at 35 or 45" examples -- each extra decade of compounding [more than] doubles your stash).  OTOH, if you are looking to retire in, say, a decade, compounding has very little to do with it, and your RE date will be driven almost entirely by how low you can keep your expenses and how much you can sock away every year.  MMM has a helpful chart of how long it will take to be able to retire at specific savings %.

Tl;dr:  Take your time, read, learn, and figure out what combination of lifestyle + savings will be right for you.  That is 90% of the battle right there.
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PJ

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Re: Advise me, please!
« Reply #4 on: March 08, 2017, 09:30:44 AM »
Hi Steve S, and welcome to the forums.  Being Canadian, I don't necessarily have good advice for the specific questions that you're asking, but I wanted to point you in the direction of a resource that might be helpful (though I don't know how helpful it is for people whose military career is in the past). 

The author of The Military Guide to Financial Independence and Retirement is a member of the MMM community, he posts under the name of Nords.  Here's a link to that website:

http://the-military-guide.com/

Might help you figure out some of what you're entitled to, and how you can make your past service work for your future!
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Steve S.

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Re: Advise me, please!
« Reply #5 on: March 08, 2017, 12:13:34 PM »
Thanks you guys, this is all very helpful. I heard Nords on a recording of the MMM retreat Q&A, I need to go check out his site. Thanks again! Any further advice is still welcomed and appreciated!
Steve S.

PDXTabs

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Re: Advise me, please!
« Reply #6 on: March 09, 2017, 07:18:54 PM »
Since I'll be planning to save 60% or more of my new paycheck, what should I do with all those savings? Student loan, Index Fund, Traditional/Roth IRA, 401K, etc.?

Personally I would max out the 401(k) first thing. Depending on your starting salary you may get to take advantage of the student loan tax deduction which starts to phase out at $65K AGI and you can't claim with an AGI of $80K or more (keep in mind that your 401(k) contributions lower your AGI). After that I would say to attack the student loans, followed by the Roth IRA or taxable investments if for some reason you prefer them.

jessicat

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Re: Advise me, please!
« Reply #7 on: March 10, 2017, 06:54:27 AM »
I would pay off your student loan debt as fast as you can.  Then I would look at saving money for your retirement.  If you do it in this order you will be much more motivated to get it done because it is holding you back from the life you want.  And that is what debt really does to us.

Nords

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Re: Advise me, please!
« Reply #8 on: March 11, 2017, 08:32:35 PM »
Thanks you guys, this is all very helpful. I heard Nords on a recording of the MMM retreat Q&A, I need to go check out his site. Thanks again! Any further advice is still welcomed and appreciated!
Welcome, Steve, and it sounds like you made the most of your active duty.  I can help with questions about the TSP or, if you end up in federal civil service, questions about the military service credit deposit. 

On the student loans, you could research refinancing them (perhaps through SoFi) or income-based repayment or Public Service Loan Forgiveness.  But if you start a career with a higher salary then it's probably fastest/easiest to just pay back the loans.

If you haven't already, you should take a hard look at your VA disability claim.  Here's the "why" behind that, not just the "how":
http://the-military-guide.com/file-veterans-disability-claim-not-just/

Side note for bloggers and podcasters:  those two podcasts with Brandon (Camp Mustache May 2016 and a later one with just us two) have attracted more traffic to the site than the next three sources combined...
Author of "The Military Guide to Financial Independence and Retirement".   All royalties (and writing revenue) donated to military charities.
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Guide2003

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Re: Advise me, please!
« Reply #9 on: March 12, 2017, 07:09:50 PM »
I think after you've read up on index funds, lazy portfolios, and tax strategies enough time will have passed to see if you can stick to the lifestyle resolutions that will enable the high savings rates. It may be worth looking into the reserves (think Coast Guard if you don't want to deploy!) to see if the associated benefits (health care and pension at 65) would be worth the extra time. Its tough walking away from 10 years of service with monetary benefits, but once you're living this lifestyle intentionally you can be fine without it. I know using apps to track spending was helpful for us initially, and every time we shake up the investment plan we have to get over the laziness of not minutely tracking expenses. The beauty of these case studies is that it seems like the more data and time you put into crafting it, the more specific and actionable recommendations you get from the community. Good lock and welcome!

Steve S.

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Re: Advise me, please!
« Reply #10 on: March 13, 2017, 03:43:14 PM »
Personally I would max out the 401(k) first thing.

Thanks again for the responses. I have a general question that I've been wondering. Why should someone prioritize 401k/IRA if the idea is to retire early? Isn't that money tied up until age 60ish?
Steve S.

queensborocorp

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Re: Advise me, please!
« Reply #11 on: March 13, 2017, 08:14:58 PM »
Not necessarily. Google "SEPP" and the "Roth Conversion Ladder". There are ways to access that 401k money before 60 if you retire early. Lots of discussion on these forums about both of these approaches.

The reason to prioritize the 401k is that you don't pay taxes on the money (until retirement, when you presumably will draw less money and thus pay a lower income tax rate).

The classic "waterfall" approach is to deploy your money in this order:

1) Build an emergency fund covering 6-12 months of expenses (depending on your comfort level, job stability, etc).
2) Pay off high interest debt. (But you don't have any, so skip this.)
3) Max out 401k and/or Roth IRA (preferably both if you qualify for the Roth). Those tax savings work out to a pretty nice rate of return.
4) Then it's a toss-up between investing post-tax and paying off the lower-interest debt. This is based on your personal preference and deep-down emotional comfort level with debt.