Thrift Savings Plan for Military

[Dragonstrike]

Hey, quick question to anyone who may know:

I have has a TSP account for the last 4 years while in the military.  I am curious if the current setup I have for diversified funds is appropriate:

50% S Fund

20% C Fund

20% F Fund

10% G Fund

Currently investing $210 per month into TSP from paycheck, and have a balance of    $9,258.14  .

Any suggestions to improve this?  As well, maxing this out is not possible right now with my current pay.

[Frs1661]

There's nothing wrong with it, good on you for saving and taking advantage of the ultra low costs of the TSP.

This is a difficult question without knowing anything about you. Your age, goals and tolerance for risk/volatility will be critical factors in determining your Asset Allocation (AA). Right now you are at 70/30 stocks and bonds, which is a fine place to start.

I recommend reading the stock series on jcollinssnh as a primer on investing: http://jlcollinsnh.com/stock-series/

There is also a lot of good reading over at the bogleheads wiki on the TSP and various index investing strategies: https://www.bogleheads.org/wiki/Thrift_Savings_Plan


https://www.bogleheads.org/wiki/Bogleheads®_investment_philosophy
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[Dragonstrike]

Thanks for your reply Frs1661.

To start, I'm 27, single, military, 30K earning on average, goal is to use remaining 2 years of my military contract to save for a nice savings account for my next job goals/career/going back to school with the GI bill, start an investment fund into vanguard, invest more into my roth ira (max it out) once my student loans are paid off after this December, and to get the ball rolling on being retired somewhere down the line of the next 15 years. 

I have some goals/dreams in mind:

1) Find a new, better paying job with earnings over 60K-80k (still need help with finding that; i'm one of those guys that can practically do anything but doesn't know how to equate it into a job with interests). May need to go back to school to get training for it.

2) Invest into rental property when I buy my first home and rent it out.

3) Possibly move to Japan for teaching for a year/find a new career there.

4)Build a dream shipping container house that is completely off the grid, energy efficient, luxurious, etc.  That will be my dream project, hoping to hand build it all or at a minimum do most of the work myself.

I know these seem far fetched, but they have been on my mind.

My tolerance for risk is probably moderate, although I hear investing with high risk early in life is probably better as long as you know what you are doing. 

I'm trying to do my best with learning how to be a mustachian, despite the slow process, lol.

[AK15-T]

TSP is a great option.  Sounds like you have a pretty aggressive mix there, which should be about right for your age.  The only think that I'd add is that since you are only getting taxed on about $30k per year, you should put it all into a roth TSP, and pay taxes now while you are in the %15 tax bracket.  Also, not sure if you are deploying soon or not, but if you get the CZTE, stick as much as you possibly can into the Roth TSP while you're over there.  It's money you'll never pay tax on!

[Monkey Uncle]

It looks like you have a lot of small cap exposure and no international exposure (assuming you don't have other assets outside the TSP).  If I were your age, I'd probably up the overall stock exposure (80/20 or even 90/10), but I would split more or less evenly between C, S, and I, just to get a little more diversification.  But I don't want to talk you into going more aggressive than your risk tolerance will bear.  70/30 is a lot better than most un-financially savvy people do.

[muckety_muck]

At age 27, I recommend C, S & I funds. Lose the G & F funds.

C: 65%
S: 20%
I: 15%

You can re-allocate later if you decide you want to pickup some G funds.

good luck!

[Nords]

Any suggestions to improve this?  As well, maxing this out is not possible right now with my current pay.

You're fine.  If you're sleeping comfortably at night then I wouldn't mess with it-- just let it compound.  You could tinker at the edges but there's no need to spend your valuable liberty time on it.

Once you leave active duty then you may want to balance your asset allocation against your occupation.  If you take a job with steady likelihood of employment (civil service, university professor, Reserve/National Guard) then you could continue with an aggressive asset allocation.  ("Steady likelihood" is no guarantee, so you'd still want to keep a small emergency fund.)  If you're a Wall Street options trader then you'd want to invest more in bonds & rental real estate.  Moshe Milevsky has far more detail in his book "Are You A Stock Or A Bond?" 

One idea to consider is using the TSP to buy the funds in your asset allocation which have the highest expense ratio.  For example, international and small-cap funds tend to have higher expense ratios than total stock market index funds.  If you decided to invest in international & small-cap funds then it makes more sense to buy them in the TSP and buy the rest of your AA's funds in your taxable accounts. 

The TSP's G fund is also unique, so if you wanted to hold cash in a tax-deferred account (which may or may not be a good idea) then the G fund is the best way to do so.

The key is to decide on an asset allocation plan and put it in autopilot.  That way you're less likely to be upset by market volatility and highly likely to stick to your plan through a bear market.

[Dragonstrike]

Wow, thanks for the responses everyone! This has been most helpful.  I'll continue to look into these options and see what the best benefits will be.

[GrayGhost]

Fellow military member here. I'm a few years younger than you, but since I'm an O and I have a few income streams set up right now, I have a great deal of risk tolerance, so my allocation is currently 40% Common, 40% Small, and 20% International. Pretty risky, but I don't plan to draw from this money for about forty years, so I'm fine with it.

[Dragonstrike]

So estimating that I have about $12k plus in the TSP when I get out of the military in 2 years,  should I still be able to add to it over time or should I roll it over into another Roth Ira?  Vanguard?

[Migrator Soul]

Hey, another military member! Welcome! Army, Navy, Marines, or Chairforce? :p

My TSP allocations are:

C 33%

I 32%

S 15%

G 10%

F 10%

The TSP is awesome. I assume you are in the barracks?

[One Noisy Cat]

So estimating that I have about $12k plus in the TSP when I get out of the military in 2 years,  should I still be able to add to it over time or should I roll it over into another Roth Ira?  Vanguard?

I think TSP expenses are lower than anybody else so keep it there. My last year in the reserves in 2002 they allowed us to enroll. I did as much as I could...some $270 in C fund....still there.

[GrayGhost]

So estimating that I have about $12k plus in the TSP when I get out of the military in 2 years,  should I still be able to add to it over time or should I roll it over into another Roth Ira?  Vanguard?

I had no idea that it's possible to transfer a TSP into an IRA. Some websites seem to indicate it, but I cannot think of any reason to do so. After all, what are you going to do with your TSP, now IRA money, other than buy low expense index funds?

You can't add to your TSP after you separate, but once you get another job, it will have a 401k, and you'll always have your IRA, so it doesn't need to be contributed to anyway.

[Nords]

So estimating that I have about $12k plus in the TSP when I get out of the military in 2 years,  should I still be able to add to it over time or should I roll it over into another Roth Ira?  Vanguard?

I had no idea that it's possible to transfer a TSP into an IRA. Some websites seem to indicate it, but I cannot think of any reason to do so. After all, what are you going to do with your TSP, now IRA money, other than buy low expense index funds?

One reason is to transfer a traditional TSP to a traditional IRA and convert it to a Roth IRA.  The TSP does not currently allow converting a traditional TSP account to a Roth TSP account.

Another reason to transfer a TSP is to start up a Roth IRA conversion pipeline/ladder.  You're severely limited on the number of TSP withdrawals you can make before age 59.5, so if you're setting up annual amounts then it'll have to be done in a lump sum.

But you're right, it's worth leaving the money in the TSP until it's time to convert it or pipeline it.

[Frs1661]

...

You can't add to your TSP after you separate, but once you get another job, it will have a 401k, and you'll always have your IRA, so it doesn't need to be contributed to anyway.

It's worth noting that subsequent 401ks and tIRAs can be rolled into the TSP.

See form tsp-60 here: https://www.tsp.gov/forms/transfersAndRollovers.html

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[Dragonstrike]

Ok, so here's another question:

So I've got a small, steady income.  I've got my listed investments in TSP and as well my ROTH IRA through IC-MARC, which is managed by them on that end.

When people say "portfolio's" and investing for the 4% safe withdrawal rate in order to live financially independent, what companies are people using to do that?  Vanguard?  Fidelity?  Or are they managing these portfolios by themselves?  I can't begin to think what a fund will produce a safe 4% withdrawal rate pulling out before age 55-65.

[davisgang90]

Another military-type here.  In answer to your above question about the 4%, you don't need anyone running your money for you.  Depending on your risk tolerance, you may modify your allocations when you are ready to start pulling the 4%. 

My current allocation is very stock heavy despite my age (47) because I've got a good pension coming after 25 years (so far) of active duty.  I view my pension as being a very bond heavy investment since it is backed by Uncle Sam.  Consequently my TSP/IRAs are very stock intensive.

Edited to add: Take very seriously anything Nords has to say.  He literally wrote the book on financial independence and retirement for military types.  http://www.amazon.com/gp/product/1570233195/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1570233195&linkCode=as2&tag=militaryguide-20&linkId=MIBCFTJBW6FJFF37