Hello, I recently enlisted into the Navy and will ship out to basic in late September. I want to be proactive/aggressive in saving for retirement and the possibility of being able to retire early if I end up making the military/gov work a career. ( I'm 19 Y/O if that makes a difference.) I am willing to be pretty aggressive in my contributions early on.
Additional Context:
I am getting a $15,000 bonus which of course will be taxed and I think if the tax rate is 22% (not sure if that's accurate but from cursory research that appears right) then I would get about $11,700. I would be willing to contribute a good amount of this money towards my Roth or Traditional TSP.
I will make E4 after A school (around a year or less depending on C school) which could help increase my contribution potential in a shorter time span.
Have a decent amount of savings that could cover expenses for a few months. (Based on the fact that I will have little expenses starting out.) Parents could also help me out if things went real south for whatever reason.
Single, no debt.
A few of my questions:
- Should I focus solely on Roth TSP for tax advantages? Should I contribute 15-20% starting out?
- How to maneuver around the 5% match only going to traditional TSP, in light of the fact that I would rather have the money go to my Roth TSP?
- What course of action to take towards my personal IRA through external brokerage?
Edit: thanks for all of y'alls replies
Would appreciate y'alls advice
byu/Prestigious-Egg6245 inMilitaryFinance
Posted by Prestigious-Egg6245
5 Comments
Congrats on your enlistment and planning ahead! I’m sure someone here can give better retirement advice than myself but I do have some financial advice for all people enlisting.
The best advice I recieved was to open a credit card with USAA before I left for basic training. Once I got out of basic I requested SCRA benefits. I now have a $20k line of credit with 4% APR, that’s lower than current mortgage interest rates. It’s been a great tool to have in my financial toolkit in case of emergency and as a personal loan at a low interest rate.
Remeber that you have to apply for the card before you ship to basic training. Applying after you’re on active duty won’t get you SCRA benefits.
1. The general rule of thumb is to 1) maximize any free contribution maxing, then 2) max out your Roth IRA, $7,000 this year. Reason being is that you generally have more investment options and hopefully you find something with lower fees than the TSP, although the TSP fees are pretty low. Then 3) go back and max your TSP.
2. Not much you can do to get around this now. Later in life you can transfer your TSP to a 401k and maybe look into backdoor Roth contributions. Definitely take advantage of the contribution matching though, that is a 100% free return on your investment.
3. Find something with low fees and find a lifecycle fund that automatically balances the account as you age. You want to be aggressive though, even in my late 30s I’m investing like I just turned 20 because I still have lots of time to recover from a market downturn.
You are correct about the enlistment bonus being taxed. Make sure you have enough earned income to use your bonus towards your Roth IRA for this calendar year (shouldn’t be a problem if you enlist in Sep).
If you save as much as you can and avoid lifestyle creep you can easily retire in your 40s-50s if you’re diligent about investing.
Have you officially enlisted yet??
If not, I recommend signing up for the besttt credit card that you can get BEFORE you enlist. I’ll explain…
First of all, I DON’T recommend using it. But, if you sign up for one *now*, you’ll get like a 25% APR (horrible), buttt you’ll be eligible for SCRA benefits once you’ve officially enlisted, and it will lower that down to like 6% or less. This *only* works for credit lines established BEFORE you’ve joined the military however, so it’s now or never. Active duty members also get annual fees waived (we allll sign up for an Amex Platinum for this reason).
I personally came in with a CapitalOne Venture card with the typical insanely high APR, and they lowered that down to only 4% for me! Now, I hardly need to hesitate to use it for *anything*… even if I were to max it out, the monthly interest would only be like $70 vs $520/month. Plus, they even let me do a “product upgrade” and transfer that 4% APR to the new Venture X card ($400 annual fee waived)
Welcome to the military! You’re wise to be thinking about this now. To speak to your questions:
1. Fill up your Roth TSP as much as you can while setting aside some savings for shorter-term savings goals like a car and a house in a brokerage account. Put all of your TSP in the C fund, and don’t put anything in the G fund until you’re 60. S and I funds are mediocre, but you could put maybe a little into those if you want to diversify a bit; not worth it in my opinion.
2. There’s nothing you can do about it; the TSP match is free money, and it’s better than keeping it in a brokerage account. Just be happy you have it.
3. Set up a Roth IRA and a brokerage account with Schwab or Vanguard or Fidelity or whatever. They’re free and charge no commissions. Keep your emergency fund in a money market fund in your brokerage account. Save for a car and a house in your brokerage account with an S&P 500 Index fund. Save for retirement with your Roth IRA. Your Roth TSP is your steady-state contribution IRA, while your Roth IRA is a place for you to put extra money you don’t automatically sock away each month.
Most important thing to keep in mind is to not spend any more than you have to. You’re going to see sailors around you blowing money on alcohol, partying, cars, eating out, porn, strippers, and trying to impress other people. Don’t do that.
May God bless your career with continued wisdom, fulfillment, and good health.
1. Yes Roth TSP
2. Doesn’t matter
3. Open a Roth IRA at Vanguard, Schwab, or Fidelity. Either use a target date retirement fund or just do 100% VTI, SCHB, or FZROX depending on which brokerage your at.
Read The Simple Path to Wealth and I Will Teach You to be Rich to figure out what to do with your money and asset allocation. See you in 20-30 years as a millionaire!