Run, don't walk, to this site, and get to know the founder, Doug Nordman (aka Nords), who posts here regularly. He is awesome, and will take you surfing if you make it to Honolulu:
http://the-military-guide.com/
Thanks, lhamo!
Look for the book in your base library, your local public library, or (possibly) your base family support center. Some of the centers have been buying the book & pocket guide from GSA using command funds. The last six months of sales were huge and next week I'm sending another large royalty donation to Fisher House Foundation.
The wrinkle in my plan vs the typical folks on here is that I am an officer in the Military, and plan to do my 20 years and retire at 42-45. Not exactly EER I know, but I love what I do, love serving, and I get these free world travel, health care and retirement benefits that I just don't want to give up.
I hear that a lot, but I'd suggest that you take your career one obligation at a time and have a Plan B. I realize you may be obligated even past the 10-year point (especially Air Force aviators) but your priorities can change-- or the fun could stop.
Stay on active duty as long as you're feeling challenged & fulfilled, but as soon as the fun stops then consider going to the Reserves or National Guard. Don't grimly clench your jaw and commit to a far-off pension while risking your physical, emotional, and mental health.
The real value of the military pension is in its inflation adjustment and its cheap healthcare. You can reach financial independence without any pension (let alone a military one) and if you do move to the Reserve/Guard then your assets only need to bridge the gap to that pension at age 60.
Only one out of six servicemembers stays in the military long enough to earn a pension (even a Reserve/Guard pension). Don't paint yourself into a corner for a pension that's over a decade away. You have far more human capital than that, and you'll be able to achieve financial independence even without the military pension.
My main question is about retirement investing. I've been contributing a bit annually to my TSP, and have around 20k in it now, and a lot of military types are all about taking advantage of such a low expense rate investment method. I'd like to stop working entirely once I retire, and I can't really touch that or the Roth TSP option until I hit retirement age, leaving me an 18 year gap. I think the sensible plan for me is to just start plowing money into a slightly aggressive Index and bond portfolio with vanguard, in order to have my money work for me but still have at least some of it be available in 10-15 years.
Yes, the TSP has the world's largest index funds with the world's smallest expense ratios. Vanguard & Fidelity are coming a lot closer these days, but the TSP is still lower.
Actually you really can touch that traditional TSP or Roth TSP after you leave the military, and it's easier than you'd expect.
You essentially roll it to a traditional IRA and convert to a Roth IRA. You roll the Roth TSP to a Roth IRA and wait five tax years. The amount of the conversion can then be tapped tax-free and penalty-free. Read more on this forum about the IRA conversion pipeline or read this post:
http://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/If your spouse is completely out of the military (not in a Reserve'Guard unit) then she could also roll over her TSP to the equivalent IRA account and (if needed) convert it to a Roth IRA now. You'd be that much further ahead on the conversion pipeline when you leave active duty.
You can also withdraw existing Roth IRA contributions at any time for any reason.
Finally, when you have a high savings rate then you'll have substantial assets in taxable accounts to spend down while you're converting your TSP and IRA assets.
The key is to boost your savings rate. Maximize your contributions to your Roth TSP (or traditional TSP when you're deployed), and maximize your contributions to your Roth IRAs. Maximize your spouse's contribution to her 401(k) (or bridge career equivalent).
All that income you've been dedicating to paying off your debts? Now you can put it toward the TSP and IRAs.
1) I've already got small amounts in my TSP and a Vanguard Roth IRA, am I being silly/overly risky in not continuing to invest there? And should I take a tax hit and just pull them to my index investments, put more eggs in a basket instead of letting 2-4 small amounts slowly compound?
Keep maximizing your contributions to those accounts. Let them compound in there until it's time to roll them over and convert to a Roth IRA.
2) Will investing 10-15k now and 20% percent of income (about 15-20k a year) really net me that much: eg am I being too conservative in saving? I ran investment caclulators, and putting in about 250k over the next 10 years nets me around 380-450 depending on the rate or return. I'm hoping to save more, but I'm still working on converting the wife, and don't want to be over-optimistic.
Try to boost your savings/investment rate as high as possible. For example, investing 40% of your gross income for about 15 years will get you to financial independence even without a military pension. That's a full TSP contribution, two Roth IRA contributions, and investing even more in taxable Vanguard accounts.
Since you're on active duty with a relatively high probability of continued employment, you can invest in an aggressive asset allocation-- I recommend the TSP L2050 fund and the Vanguard total stock market fund.
3) What are the tax advantages or disadvantages I might be missing? The biggest thing leading me to discount the TSP and Roth options a little lately is that I'm at the exact same tax bracket now that I would be getting with my retirement pension. Taxes are my current research area and I haven't found anything that isn't ludicrously complicated that solves that problem for me.
You're right-- your military compensation is very lightly taxed, and you should use the Roth TSP and Roth IRAs as much as possible. (You can use the tactics mentioned further up this post to tap the Roth IRA contributions anytime, and later to access the rolled-over Roth TSP funds that end up in your Roth IRA.) However when you deploy to a combat zone with tax-exempt pay your taxes will be even lower, yet you'll maximize your Roth IRA contribution and put even more in your traditional TSP.
Another advantage to ending up with Roth IRAs is that you'll avoid the RMDs of the traditional TSP, the Roth TSP, and the traditional IRA. That will simplify your life considerably during your later years.
As for the phrase "ludicrously complicated", I wouldn't bother with a 72(t).
Once you've had a chance to decide on your TSP & IRA plans, we can discuss the military's new Blended Retirement System. In general, you should consider converting to the new BRS. The calculators will be out later this month (DoD is beta-testing now) but the simple answer is that you'll have enough time for your DoD matching contributions to grow beyond the value of the portion of the current High Three pension that you'll give up.
