Military Financial Planning

[scottyrotten]

Hello all,

I'm new to MMM and I had some questions specific to military incomes seeing as we're a bit different than you're run of the mill family.

My wife and I are both 30 with no kids (Plan to have some in the next year or two). We've recently paid off all our credit card debt and now only carry a $400/month car payment.  We're planning on buying a house (VA Loan 0% down) as we are moving to our next duty station to use as a long term investment/rental property.

My question is this, how do you invest your extra money and how do you calculate your retirement into the early retirement equation?

As of now my wife does not work and with the forecasted mortgage our monthly bills equate to ~80% of my monthly income. My wife is a professional and she will be getting a well paying job when we arrive drastically boosting our monthly income. What do I do with it all? I'm 8 years from retirement in the military after which I plan on working for at least another 10 years.

My current status:

$8k in my Roth IRA
$5k in her Roth IRA
$8k in savings
$700 in stock

Plan:
Increase emergency fund to $14k
Max my and her Roth
Extra money to the MMM Vanguard recommended index fund/lending club/large purchase savings

I notice the key to MMM is to live off of the interest of your investments, but if the majority of my investing is my Roth which is untouchable for 29 years how this possible?

Thanks for any advice/thoughts.

Edit:  I made a typo... a big one. $700 in stocks. Not $700k. :0

[Allen]

You are doing really well!  Is that 700k currently in taxable, 401k or similar, or something else?

There are methods to get money out of accounts early without paying penalties, do a search for Roth IRA ladder, or 72(t) for two of them.  If you are planning to still be working neither of those would be ideal.

[HawkeyeNFO]

Hi.  I'll hit 20 in 3 years and then retire.  My recommendations:

1 - Max out Roth IRA for each of you ($11k/yr)
2 - Max out TSP ($17.5k/yr) - I do 25% in the C fund, and 75% in the S fund.  The expenses of TSP are unbeatable.
3 - For military only, consider using your stocks as a emergency fund.  In other words, don't keep that money in cash, losing to inflation.  With the military you have about the most stable income there is. 
4 - VA loan for the house is great, that's what I have.  It will be great for a future rental property too, because if you want to sell it later, a VA-eligible buyer can assume the payments, using today's low rates.  That helps you as a seller if the rates go up.

A question for you, how diverse is your stock portfolio?

[surfhb]

When you say stocks you mean low cost index funds or EFTs right?  ;)

[MrFancypants]

$700k in stock

Between your pension, any VA disability income, and TriCare you're going to be more than fine.  Feel free to quit working forever on military retirement.

[scottyrotten]

You are doing really well!  Is that 700k currently in taxable, 401k or similar, or something else?

There are methods to get money out of accounts early without paying penalties, do a search for Roth IRA ladder, or 72(t) for two of them.  If you are planning to still be working neither of those would be ideal.

Sorry.. I'm dumb and made a typo. Added a k to that 700 on accident :/ Not doing well at all now :P.

[scottyrotten]

Hi.  I'll hit 20 in 3 years and then retire.  My recommendations:

1 - Max out Roth IRA for each of you ($11k/yr)
2 - Max out TSP ($17.5k/yr) - I do 25% in the C fund, and 75% in the S fund.  The expenses of TSP are unbeatable.
3 - For military only, consider using your stocks as a emergency fund.  In other words, don't keep that money in cash, losing to inflation.  With the military you have about the most stable income there is. 
4 - VA loan for the house is great, that's what I have.  It will be great for a future rental property too, because if you want to sell it later, a VA-eligible buyer can assume the payments, using today's low rates.  That helps you as a seller if the rates go up.

A question for you, how diverse is your stock portfolio?

So aren't you tying your retirement income into retirement age (59 1/2) only funds? I would like to retire around 50 so wouldn't I want to put money into my IRA as well as funds that I can gain an interest income from? IE ETFs or index traded funds?

I don't have 700k in my portfolio. I made a typo which may lead you to another entirely separate line of advice...

[HawkeyeNFO]

Hi.  I'll hit 20 in 3 years and then retire.  My recommendations:

1 - Max out Roth IRA for each of you ($11k/yr)
2 - Max out TSP ($17.5k/yr) - I do 25% in the C fund, and 75% in the S fund.  The expenses of TSP are unbeatable.
3 - For military only, consider using your stocks as a emergency fund.  In other words, don't keep that money in cash, losing to inflation.  With the military you have about the most stable income there is. 
4 - VA loan for the house is great, that's what I have.  It will be great for a future rental property too, because if you want to sell it later, a VA-eligible buyer can assume the payments, using today's low rates.  That helps you as a seller if the rates go up.

A question for you, how diverse is your stock portfolio?

So aren't you tying your retirement income into retirement age (59 1/2) only funds? I would like to retire around 50 so wouldn't I want to put money into my IRA as well as funds that I can gain an interest income from? IE ETFs or index traded funds?

I don't have 700k in my portfolio. I made a typo which may lead you to another entirely separate line of advice...

My advice stays the same. 

Especially if you plan on working for at least ten years after you leave the military.  The money you put into the TSP and IRAs (or Roth IRAs) can stay there and grow until 59.5, and when you get a civilian job the TSP might no longer an option for you.  At that point, I'd start considering using a taxable account vs using a 401k if your employer offers it. 

Just focus on saving for the next 3 or 4 years, and as your nest egg grows, you can start figuring out how and when you can FI. 

[DollarBill]

From what I saw you shouldn't be buying a car with a payment of $400. How many years is that? If it's a 20K car that's 4 yrs for payments.

[Retired To Win]

NORDS!!

Google the last name Nords -- or search right in MMM --and find his website.  It is specifically about personal finances for the military (from which he successfully early retired).

Good luck!

[scottyrotten]

From what I saw you shouldn't be buying a car with a payment of $400. How many years is that? If it's a 20K car that's 4 yrs for payments.

I'm happy with the purchase of the car. It may be against the grain here but the level of frugality isn't something that fits my lifestyle. I'm not interested in retiring early. I honestly would be bored. I like my career, and I like working. I wouldn't mind working till I was 50 but what I do want is the flexibility to work less. While I agree with the majority of the teachings of MMM I don't agree or subscribe to them all. So $400/month for a worry free, good vehicle with a 100k bumper to bumper warranty for my family to travel cross country through our military moves is something I'm more than comfortable with accepting.

Thanks to all for your advice. I'll check out Nords!

[ioseftavi]

10 replies in and only one person has mentioned Nords!  This post is like a batsignal for him.

Here is his site, entirely focused on FI/RE for military folks.  He's a great guy and a regular on these forums.  He might have specific advice for you once he sees this post, but in the meanwhile, that site has a ton of good info.

[EricL]

Ditto Nords!  I wish I'd heard about him sooner 'cause he wrote the book on military financial planning.  Seriously, check Amazon.  He's usually pretty quick to answer military related questions.  But he gets pre occupied with his post retirement surfing career sometimes. 

[scottyrotten]

Ditto Nords!  I wish I'd heard about him sooner 'cause he wrote the book on military financial planning.  Seriously, check Amazon.  He's usually pretty quick to answer military related questions.  But he gets pre occupied with his post retirement surfing career sometimes.

Sounds like my kinda guy! I love surfing too. Wish the military put me somewhere next to the ocean.

[AllChoptUp]

Second the TSP suggestion.  Max it out, max out a 401K for her if one will be available when she starts working and max IRAs for both of you. Your future self will be very happy with your present self!

[Villanelle]

Since you start receiving your retirement check the day you leave, having most of your funds tied up in age-restricted retirement funds really isn't a big deal.  Assuming you feel very confident you'll make it to 20, it isn't really a problem, especially given that you say you don't plan to retire early, so there won't me much of a gap in time between stopping work and being able to easily access all those retirement funds.  You'll have a 9.5 year gap that you need to fund.  If, by the time you get to be about 45 and you don't think the non-retirement accounts plus your pension will be enough to get you through those 9 years, then you can start putting more in non-retirement accounts, but that probably suggests a larger problem with your spending.

I would do Roth TSP, regular TSP, and then Roth (regular ol' civilian), in that order, with any 401k up to the match that your wife might be eligible sliding to the front of that list.

And yes, absolutely do check out Nord's blog. 

As for buying the house, have you looked into it to make sure it will be profitable as a rental once you pay all expenses, including probably a manager since you will likely be living out of the area? 

[scottyrotten]

As for buying the house, have you looked into it to make sure it will be profitable as a rental once you pay all expenses, including probably a manager since you will likely be living out of the area?

Thanks for the advice. I think I'm going to work on maxing out our Roth IRA's first that way I can contribute to it as I continue to work. Is there a reason why TSP would come first? I would think I want most of my money in one big sum. I can only contribute to the TSP for 8 more years and to be honest I probably wouldn't come close to maxing the contribution any time soon.

For our area we're looking at houses around the < $200k mark. With estimated property taxes and no down payment (VA Loan) that puts our payment right around the $1300-1500 range (Property taxes vary wildly and are very high for this area).  Average rent for a 4 bedroom 2 bath is 1600-2200 depending on finish, mostly due to it being a large command base. So there are a lot of high ranking military there which have more to spend on housing than I.

We have found a house for $160,000 that we really like and I think would be a great rental but there is a small house on sale for $36k next door. Its badly damaged and is vacant. My concern is that this house will attract a seedy element or give off the impression of "living next to a crack house" for possible renters. I myself would consider buying it and renovating but I'm pretty sure this house just needs to be leveled and rebuilt from the ground up.

[Villanelle]

As for buying the house, have you looked into it to make sure it will be profitable as a rental once you pay all expenses, including probably a manager since you will likely be living out of the area?

Thanks for the advice. I think I'm going to work on maxing out our Roth IRA's first that way I can contribute to it as I continue to work. Is there a reason why TSP would come first? I would think I want most of my money in one big sum. I can only contribute to the TSP for 8 more years and to be honest I probably wouldn't come close to maxing the contribution any time soon.

For our area we're looking at houses around the < $200k mark. With estimated property taxes and no down payment (VA Loan) that puts our payment right around the $1300-1500 range (Property taxes vary wildly and are very high for this area).  Average rent for a 4 bedroom 2 bath is 1600-2200 depending on finish, mostly due to it being a large command base. So there are a lot of high ranking military there which have more to spend on housing than I.

We have found a house for $160,000 that we really like and I think would be a great rental but there is a small house on sale for $36k next door. Its badly damaged and is vacant. My concern is that this house will attract a seedy element or give off the impression of "living next to a crack house" for possible renters. I myself would consider buying it and renovating but I'm pretty sure this house just needs to be leveled and rebuilt from the ground up.

Those numbers don't sound promising.  By the time you pay insurance, HOA (if there is one), and a property manager, you will already be losing money, and that is before any maintenance or vacancies.    Consider renting a modest place instead, and investing what you save.

As a renter, I would no be thrilled about a ruin next door, and it would affect my decisions and how much I was willing to pay.  And given that you are looking at a larger home and you mentioned renting to higher ranking military, I am guessing that audience especially will be picky about that sort of thing.  Make sure you consider schools as well.  You may not have kids, but most people who rent a 4 bed place will, and they are going to pay more to be in a good district.  Of course, that means you'll pay more for the houses (and probably the taxes), but all the military family's I know who have kids are borderline obsessed with good schools, which seem to be even more important when you are pulling your kid in and out of various programs every couple years.   

I don't entirely follow your question about TSP.  It seems like you are concerned about having your money in several modest accounts instead of one large one, but that doesn't really make much difference.  Is there a reason you want it all in one place?

Roth TSP has all the tax advantages that make a Roth IRA so attractive, and yet they have the very low expenses that are so great about TSP.  That's why I'd do Roth TSP first, before a regular Roth IRA.  Roth TSP (not regular TSP) has the best of both worlds, IMO.

[Nords]

Welcome to the forums, Scotty.

My question is this, how do you invest your extra money and how do you calculate your retirement into the early retirement equation?

As of now my wife does not work and with the forecasted mortgage our monthly bills equate to ~80% of my monthly income. My wife is a professional and she will be getting a well paying job when we arrive drastically boosting our monthly income. What do I do with it all? I'm 8 years from retirement in the military after which I plan on working for at least another 10 years.

My current status:

$8k in my Roth IRA
$5k in her Roth IRA
$8k in savings
$700 in stock

Plan:
Increase emergency fund to $14k
Max my and her Roth
Extra money to the MMM Vanguard recommended index fund/lending club/large purchase savings

I notice the key to MMM is to live off of the interest of your investments, but if the majority of my investing is my Roth which is untouchable for 29 years how this possible?

Thanks for any advice/thoughts.

Edit:  I made a typo... a big one. $700 in stocks. Not $700k. :0

Thanks for the advice. I think I'm going to work on maxing out our Roth IRA's first that way I can contribute to it as I continue to work. Is there a reason why TSP would come first? I would think I want most of my money in one big sum. I can only contribute to the TSP for 8 more years and to be honest I probably wouldn't come close to maxing the contribution any time soon.

Everybody worries about getting their money out of their retirement accounts before they turn age 59.5.  It's easier than you'd think.

In the first place, consider your post-military spending.  You'll probably have a military pension, and you'll have a job.  You won't need to touch your TSP or your IRAs.  You'll be piling up the cash in your investments in taxable accounts (in addition to your IRAs), and you'll draw on taxable accounts after you stop working until you're at least 59.5.  If you're not sure this would work then I'd recommend forecasting your retirement income (pension & salary) and your spending.  With you and your spouse both earning paychecks, you'll handily cover a decade of post-employment spending before you'd need to consider tapping an IRA.

In the unlikely event that you need extra cash, your Roth IRA contributions can be withdrawn any time for any reason with no penalty and no tax.

After you leave the service, your TSP account can be rolled over to a conventional IRA.  At that point you could start a Roth IRA conversion ladder, and in five years you'll have even more money available to withdraw from your Roth IRA-- no penalties or taxes.  If you contribute to the Roth TSP then the process is even simpler.
http://the-military-guide.com/2014/03/20/early-withdrawals-from-your-tsp-and-ira-after-the-military/
http://the-military-guide.com/2014/07/17/funding-gap-need-money-tsp/

You're planning to invest in a MMM-recommended Vanguard fund with low expense ratios.  Meanwhile the TSP's expense ratios are a fraction of Vanguard's:  0.029%.  This is especially useful if you're investing in international or small-cap funds which tend to have even higher expense ratios.  You can also put your assets in the "G" fund, which is unique to the TSP.

When you're out of uniform then you can no longer contribute to your military TSP account.  You could get a federal civil-service job with a fed TSP account, but that's a lousy reason to take a federal civil-service job.  You should take advantage of the TSP while you can.

So... I'd recommend maxing out the TSP.  When your spouse gets her job and your income jumps up, you can boost your TSP contributions accordingly.  If you can put $5500 in each of two Roth IRAs then you're nearly two-thirds of the way to maximizing a TSP contribution.  Once you fill up the TSP then you can go back to maximizing the Roth IRA contributions, and then you can boost your taxable accounts.

I'm not sure how you arrived at your $14K emergency fund number, but servicemembers are unlikely to need a large emergency fund unless they're being separated with little notice.  You could also use your Roth IRAs as emergency funds (that no-penalty no-tax withdrawal of contributions) so your cash fund could be as small as a month's pay.

I wouldn't waste your time on peer-to-peer lending until you maximize your contributions to the TSP and the Roth IRAs.  You're already planning to buy a house, and that will suck up plenty of maintenance/repair cash along with mortgage payments and taxes.  P2P lending is a niche that you could allocate 5%-10% of your assets to, but otherwise I think you have better places to put your funds.

For our area we're looking at houses around the < $200k mark. With estimated property taxes and no down payment (VA Loan) that puts our payment right around the $1300-1500 range (Property taxes vary wildly and are very high for this area).  Average rent for a 4 bedroom 2 bath is 1600-2200 depending on finish, mostly due to it being a large command base. So there are a lot of high ranking military there which have more to spend on housing than I.

We have found a house for $160,000 that we really like and I think would be a great rental but there is a small house on sale for $36k next door. Its badly damaged and is vacant. My concern is that this house will attract a seedy element or give off the impression of "living next to a crack house" for possible renters. I myself would consider buying it and renovating but I'm pretty sure this house just needs to be leveled and rebuilt from the ground up.

You "think" it'd be a great rental? 

The best way to make that decision is to analyze the neighborhood's rents and figure out your cash flow.  This forum can help you figure out the numbers before you apply for the VA mortgage.  You could also read the landlord's guides on BiggerPockets.com, or look at the free financial tools on Frank Gallinelli's RealData.com site.  You could also read:
(1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions),
(2) Landlording by Leigh Robinson (7th edition or later).

If any of those resources seem "too complicated" or "too boring" or "too hard" then... you're not ready to be a landlord.

If there's an abandoned house next to your prospective rental property, it will drive away the "high-ranking military" and all the rest of your prospective tenants.  It'll also be used as a grow house (at best) or for your aforementioned crack house. 

[scottyrotten]

As for buying the house, have you looked into it to make sure it will be profitable as a rental once you pay all expenses, including probably a manager since you will likely be living out of the area?

Thanks for the advice. I think I'm going to work on maxing out our Roth IRA's first that way I can contribute to it as I continue to work. Is there a reason why TSP would come first? I would think I want most of my money in one big sum. I can only contribute to the TSP for 8 more years and to be honest I probably wouldn't come close to maxing the contribution any time soon.

For our area we're looking at houses around the < $200k mark. With estimated property taxes and no down payment (VA Loan) that puts our payment right around the $1300-1500 range (Property taxes vary wildly and are very high for this area).  Average rent for a 4 bedroom 2 bath is 1600-2200 depending on finish, mostly due to it being a large command base. So there are a lot of high ranking military there which have more to spend on housing than I.

We have found a house for $160,000 that we really like and I think would be a great rental but there is a small house on sale for $36k next door. Its badly damaged and is vacant. My concern is that this house will attract a seedy element or give off the impression of "living next to a crack house" for possible renters. I myself would consider buying it and renovating but I'm pretty sure this house just needs to be leveled and rebuilt from the ground up.

Those numbers don't sound promising.  By the time you pay insurance, HOA (if there is one), and a property manager, you will already be losing money, and that is before any maintenance or vacancies.    Consider renting a modest place instead, and investing what you save.

I don't entirely follow your question about TSP.  It seems like you are concerned about having your money in several modest accounts instead of one large one, but that doesn't really make much difference.  Is there a reason you want it all in one place?

So to be more granular my payment will be probably closer to $1350 with insurance, HOA etc. Renting for 1500 is a pretty good low-medium number. So that's 10% with a little extra for maintenance worst case.

Yeah I am concerned about having my money in several modest accounts instead of one large. Mathematically speaking it shouldn't matter if I have 10 accounts with $1k in each of them for 10% interest rate or one with $10k with 10% interest rate?

[scottyrotten]

Welcome to the forums, Scotty.

So... I'd recommend maxing out the TSP.  When your spouse gets her job and your income jumps up, you can boost your TSP contributions accordingly.  If you can put $5500 in each of two Roth IRAs then you're nearly two-thirds of the way to maximizing a TSP contribution.  Once you fill up the TSP then you can go back to maximizing the Roth IRA contributions, and then you can boost your taxable accounts.

I'm not sure how you arrived at your $14K emergency fund number, but servicemembers are unlikely to need a large emergency fund unless they're being separated with little notice.  You could also use your Roth IRAs as emergency funds (that no-penalty no-tax withdrawal of contributions) so your cash fund could be as small as a month's pay.

Ok, and you recommend the Trad TSP over the Roth?

My $14k is for while we live in the house for expenses, my family is in Hawaii which is quite an expense if something were to happen, plus I would like to build up a good amount of excess mortgage payments in the event our future rental is unoccupied. My job's assignments are very dynamic so its possible I could be at this assignment for two years or eight.

I don't think we're going with the house next to the "crack house" next door for the reasons you stated. It would be a great rental, but the state of decay with the house next door is a pretty valid concern.

Thanks for your advice.

[Villanelle]

As for buying the house, have you looked into it to make sure it will be profitable as a rental once you pay all expenses, including probably a manager since you will likely be living out of the area?

Thanks for the advice. I think I'm going to work on maxing out our Roth IRA's first that way I can contribute to it as I continue to work. Is there a reason why TSP would come first? I would think I want most of my money in one big sum. I can only contribute to the TSP for 8 more years and to be honest I probably wouldn't come close to maxing the contribution any time soon.

For our area we're looking at houses around the < $200k mark. With estimated property taxes and no down payment (VA Loan) that puts our payment right around the $1300-1500 range (Property taxes vary wildly and are very high for this area).  Average rent for a 4 bedroom 2 bath is 1600-2200 depending on finish, mostly due to it being a large command base. So there are a lot of high ranking military there which have more to spend on housing than I.

We have found a house for $160,000 that we really like and I think would be a great rental but there is a small house on sale for $36k next door. Its badly damaged and is vacant. My concern is that this house will attract a seedy element or give off the impression of "living next to a crack house" for possible renters. I myself would consider buying it and renovating but I'm pretty sure this house just needs to be leveled and rebuilt from the ground up.

Those numbers don't sound promising.  By the time you pay insurance, HOA (if there is one), and a property manager, you will already be losing money, and that is before any maintenance or vacancies.    Consider renting a modest place instead, and investing what you save.

I don't entirely follow your question about TSP.  It seems like you are concerned about having your money in several modest accounts instead of one large one, but that doesn't really make much difference.  Is there a reason you want it all in one place?

So to be more granular my payment will be probably closer to $1350 with insurance, HOA etc. Renting for 1500 is a pretty good low-medium number. So that's 10% with a little extra for maintenance worst case.

Yeah I am concerned about having my money in several modest accounts instead of one large. Mathematically speaking it shouldn't matter if I have 10 accounts with $1k in each of them for 10% interest rate or one with $10k with 10% interest rate?

What about paying a property manager (usually 8-10% of rent, as a rough guess)? And allowing for vacancies, which you will deal will even more frequently if your target audience is military families?  Even a 2 week rental cuts significantly into your profits, and you'll likely be paying for cleaning between tenants as well.  It really doesn't sound like a good rental situation.  If you want to buy because you are emotionally drawn to owning, that's fine, but acknowledge that those are your reasons.  Financially, it sound like it isn't a sound choice.

And yes, mathematically having one large 10% account or 10 smaller 10% accounts will be the same. 

[Nords]

Welcome to the forums, Scotty.

So... I'd recommend maxing out the TSP.  When your spouse gets her job and your income jumps up, you can boost your TSP contributions accordingly.  If you can put $5500 in each of two Roth IRAs then you're nearly two-thirds of the way to maximizing a TSP contribution.  Once you fill up the TSP then you can go back to maximizing the Roth IRA contributions, and then you can boost your taxable accounts.

Ok, and you recommend the Trad TSP over the Roth?

Either one is good, or you could even put half of your contributions in each.  Whichever makes sense for your income at this point.  The most important part is to automate it as much as possible to reduce the hassle and decision fatigue of investing.

For example, people with lower incomes would prefer to contribute to the Roth TSP because they're already in a low-income-tax bracket and they'll pay taxes at a very low rate (0%-15%).  But as your income rises (through promotions and longevity, or bonus/special pay) and as your spouse brings in more income, then you might prefer to contribute to the conventional TSP (which will shelter some of your current income from taxes). 

Later in your career (when you're out of the military, perhaps even not working for a paycheck but just living off a pension and savings) you could roll over the conventional TSP to a conventional IRA and then convert it (at a very low tax bracket) to a Roth IRA... a little each year until it's done.

Which reminds me that this week I need to convert the last of my conventional IRA to a Roth IRA.  Next January we'll roll my spouse's conventional TSP over to a conventional IRA, and then we'll start converting that to a Roth IRA a little each year.

[scottyrotten]

What about paying a property manager (usually 8-10% of rent, as a rough guess)? And allowing for vacancies, which you will deal will even more frequently if your target audience is military families?  Even a 2 week rental cuts significantly into your profits, and you'll likely be paying for cleaning between tenants as well.  It really doesn't sound like a good rental situation.  If you want to buy because you are emotionally drawn to owning, that's fine, but acknowledge that those are your reasons.  Financially, it sound like it isn't a sound choice.

I guess I'm not explaining myself well here. First and foremost a nice 4 bedroom 3 bath with basement in this area can easily rent for $2k/month. My mortgage would be aprox $1350. The reason for the large difference in cost is I plan to renovate whichever we house we pick, much like what MMM did with his own home.

1) I'm not looking to pull income from this property as my primary goal for purchase INITIALLY. I'm looking to cover mortgage plus fees and maintenance by the renter (Whenever that may be) in the interest of ONE day pulling passive income from it when it is paid in full.

2) Yes its a big military area, but by no means is it the only employer in the area, its 30 minutes away from St. Louis and many people live there to live out of the city and commute. Vacancies are a very real possibility, which is why I want a larger than normal savings for a military member.

I'm not drawn emotionally to buying a home. I'm looking for a long term investment. There is a very real chance that I pay this house off close to the time I leave the military, my wife makes very good money when employed. At that point any renter at all will be giving me very large profits.

I could end up here for 8 years and continue to to live in it after my military obligations are up.

[scottyrotten]

Welcome to the forums, Scotty.

So... I'd recommend maxing out the TSP.  When your spouse gets her job and your income jumps up, you can boost your TSP contributions accordingly.  If you can put $5500 in each of two Roth IRAs then you're nearly two-thirds of the way to maximizing a TSP contribution.  Once you fill up the TSP then you can go back to maximizing the Roth IRA contributions, and then you can boost your taxable accounts.

Ok, and you recommend the Trad TSP over the Roth?

Either one is good, or you could even put half of your contributions in each.  Whichever makes sense for your income at this point.  The most important part is to automate it as much as possible to reduce the hassle and decision fatigue of investing.

For example, people with lower incomes would prefer to contribute to the Roth TSP because they're already in a low-income-tax bracket and they'll pay taxes at a very low rate (0%-15%).  But as your income rises (through promotions and longevity, or bonus/special pay) and as your spouse brings in more income, then you might prefer to contribute to the conventional TSP (which will shelter some of your current income from taxes). 

Later in your career (when you're out of the military, perhaps even not working for a paycheck but just living off a pension and savings) you could roll over the conventional TSP to a conventional IRA and then convert it (at a very low tax bracket) to a Roth IRA... a little each year until it's done.

Which reminds me that this week I need to convert the last of my conventional IRA to a Roth IRA.  Next January we'll roll my spouse's conventional TSP over to a conventional IRA, and then we'll start converting that to a Roth IRA a little each year.

Great thank you very much for the advice sir. I'll start pushing that TSP with as much as I can for the next 8 years.

My wife and I are looking to make significantly more money once I get out of the military, as much as 50%. So I'm trying to pay most of my taxes up front while we're in the the lower tax bracket. I personally like working and will probably do so for many years. My main objective is to give me the flexibility to get any job I want and be happy in it when I get out.

I don't do well being idle :)

[Nords]

I don't do well being idle :)

If you're going to retire early then you're going to have to be responsible for your own entertainment... however that can be accomplished by working on your own projects instead of working for a paycheck.

Others find their entertainment in the office environment.  Or so I've heard.

[scottyrotten]

I don't do well being idle :)

If you're going to retire early then you're going to have to be responsible for your own entertainment... however that can be accomplished by working on your own projects instead of working for a paycheck.

Others find their entertainment in the office environment.  Or so I've heard.

Yep another "retirement equals idleness" comment. For those of us who are ER'd many of us are not idle at all. Often times we are busier than when working. I haven't even had time to sit down and read a book yet, and that's been happening for years now :-)! Someday I'll find the free time. Might have to go back to work to find it though!

It wasn't a jab, I didn't mean you're doing nothing. I just like what I do.

Sorry you guys don't enjoy your work. I personally like my field which is why I don't want/need early retirement (Although I would like to save for it). I just want the flexibility to shorten my work week, or have time to room/negotiate to work for companies that I want to work for.

This is a pretty sensitive community...

[Siobhan]

The elephant in the room I didn't see mentioned is that many markets are at housing highs again, and sorry, buying a house 0% down is just NOT a good idea especially with as little in savings as you have.   Where are you getting stationed, over at Lost in the Woods?  If that's it, trust me, you don't want to be tied to that area with a rental house, it's almost 100% military, there is NOTHING to do, and people used to trash the bejesus out of houses when we were renting there.  Plus your spread on the numbers just doesn't look good.  For example, our rental house required 7k in maintenance and repairs last month (would have to be done if we lived there, exterior painting, roof repair, and furnace went), are you equipped to handle that?

How are you going to be sure that your wife is going to WANT to work, especially once you have children?  I can tell you, my husband and I are very close in age to you, I am the ONLY spouse in the last three units he's been in that has had a steady career, a lot get comfortable with staying home, or can't find a job at a certain duty station.  A lot of other woman give up theirs due to the difficulties of raising children, while working, and dealing with separations and moving constantly.  One or two years out of the work force and without going back to school, or starting back at the bottom, and it's going to be difficult for her to find employment.

I agree with a fairly large cash position, hopefully this will change with them changing the PCS rules, but we routinely outlayed 7 grand or more to move then got reimbursed whenever Finance decides to do it (which if it's anything like his recent deployment pay, DFAS has magically lost 10k of our money for going on 2 months now), plus you have your deposits, first months rent etc.

Put into the Roth TSP while your taxable income is low, and a Roth IRA for her.  As your incomes increase it generally makes more sense to max out the traditional TSP.  We max his TSP and my 401k to push us out of the Roth phase out level, then contribute to the Roth IRAs.  Anything above that goes into Vanguard index funds.