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Investment showdown -- beyond the Roth, SDP, & TSP

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2 hours ago, tk1313 said:

You forgot one thing, I'm a millennial. I'm all about right now. Future me can go fvck himself.

In all seriousness though, great advice. I'll change it so that I'm contributing the max amount.

Good on ya for saving as much as possible, however you must have had a ton of cash to throw around if you can casually shift from 5% all the way up to the IRS limit of $18K annually. Unless you're making $360K per year...if so then well played!

This article is excellent at explaining the pluses and minuses of Roth (or after-tax) investing vs traditional retirement investing.

BL: If you're not saving the extra money you have in your pocket due to a lower tax bill now, you're falling behind vs where you'd be choosing Roth. If you put the money you realize in tax savings into another savings/investment vehicle in order to foot your long-term tax bill, then you'll come out ahead. But very, very few people do that, and thus Roth is a good crutch (i.e. pay your taxes now, and whatever money you have on the backend is yours and yours alone).

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

Cavet: if you're even having these types of conversation you're in like the top 6-9% of investors out there, so don't sweat it too much either way. It's like working out, you don't need the perfect program to be better than all the fat slobs out there, just go out and do something and you're already way ahead.

Edited by nsplayr
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1 hour ago, nsplayr said:

Good on ya for saving as much as possible, however you must have had a ton of cash to throw around if you can casually shift from 5% all the way up to the IRS limit of $18K annually. Unless you're making $360K per year...if so then well played!

This article is excellent at explaining the pluses and minuses of Roth (or after-tax) investing vs traditional retirement investing.

BL: If you're not saving the extra money you have in your pocket due to a lower tax bill now, you're falling behind vs where you'd be choosing Roth. If you put the money you realize in tax savings into another savings/investment vehicle in order to foot your long-term tax bill, then you'll come out ahead. But very, very few people do that, and thus Roth is a good crutch (i.e. pay your taxes now, and whatever money you have on the backend is yours and yours alone).

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

Cavet: if you're even having these types of conversation you're in like the top 6-9% of investors out there, so don't sweat it too much either way. It's like working out, you don't need the perfect program to be better than all the fat slobs out there, just go out and do something and you're already way ahead.

Yep, for some reason I was thinking 10% was the max contribution, probably because I was painfully staring at the clock during indoc, thinking I was back in HS and the bell would ring any second so I could go to baseball/football practice.

Thanks for the article share and the great advice. I'll look into the tax-me-now option so I can take all that sweet cash with me when I'm older... Although obviously Latinas > Asian chicks, so I'll be on the opposite side of the world as CH. That just means less competition for him :beer:

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On 2/17/2017 at 8:19 AM, nsplayr said:

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

I would say that is up for debate.  Most earn less in retirement than during their peak earning years.  Worrying about future tax rates is valid given our national debt...

For now I am happy with my strategy, the current market is certainly not typical but I am up 7.1% since 1 Jan and I glad I have more $ in play.

 

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What do you guys think about the new retirement system? BRS seems like it's actually a pretty good deal. I'm in that window where you can decide to go with the legacy 50%/top 3 or the BRS 40%/top 3 + matching. 

I'm an 09' guy, so if I switch I will have missed on 8 years of matching, which sucks. However, it seems like it makes sense to switch if you're not decided on whether to say in for 20 or not.  I like the idea of the military paying me retirement now and giving me control of where I put the money.

If you are in that group that gets a choice, what are you planning on doing?

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I've been a huge advocate for a new type of retirement system for many years (on here and IRL), and I think that BRS is a really good deal for many service members. Estimates are that something like 85% of those who serve will now receive some type of retirement benefit.

That being said, IMHO, if you're a pilot or otherwise served more than 6-7 years and you're even open to the possibility of transitioning to the ARC to at least qual for a reserve retirement, the old system is better. The old system is always and will always be better for those who make it to 20, hands down. You would need unrealistic market performance of your TSP account to make up for the reduction in the pension annuity, and even if you're super-optimistic, why shoulder the risk when under a defined benefit plan, the government assumes all the risk?

If you know for a fact that you won't make it to 20, even in the guard, and there's nothing that will change that, then BRS is a better deal every time. Even limited TSP matching for your last few years in service is better than nothing.

I'm curious to see what the continuation payment scheme will be, i.e. when it will be given and how much. The law gives the services quite a bit of latitude on that aspect of BRS and so far it's still TBD. Continuation pay is a not-insignificant part of what BRS will ultimately end up being and the sooner services figure that out and announce the deal the better.

Personally, even as a huge advocate for a new type of system, I'm sticking with the old system based on my own personal situation. 7 and change on AD, a little over 2 in the Guard so far and based on my relatively new job/unit I plan on making it to 20+ unless they kick me out first, so sticking with the old system is an easy call. YMMV.

Edited by nsplayr

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I plan on making it to 20+ unless they kick me out first, so sticking with the old system is an easy call. YMMV.


Are you talking about 20+ years TIS or the equivalent of 20 AD years?

I haven't run the numbers but it seems like switching to the new system is a better deal (if you max the match) for someone in the Guard who won't have a lot of active duty time by the time they hit 20 years TIS, especially if they're fairly young.


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This thread has generated a lot of interesting discussion so I thought I would create another thread for those interested in discussing specific stocks.  If no interest I will delete or merge back to this one. 

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ARC retirement in a nutshell. Good article for the uninitiated, which included myself before I joined the guard. And I'm still a padawan at all this so if you're an old crusty guard dude and I'm wrong, feel free to chime in.

You're right that the effect of the pension multiplier reduction is less the fewer points you have. For example:

Old system: 2.5% * 20 years = 50% of high-three

BRS: 2.0% * 20 years = 40% of high-three - a 10% delta

Guard Old system: 2.5% * 10 years in points-equivalent (3,600 points) = 25% of high-three

Guard BRS: 2.0% * 10 years in points-equivalent (3,600 points) = 20% of high-three - a 5% delta

That being said, I've run the numbers based on my worst case Guard participation and it's still well worthwhile to stay in the old system (i.e. 2.5% multiplier for the pension annuity) and give up TSP matching rather than accept TSP matching in exchange for the 2.0% multiplier on the pension annuity. [feel free to stop reading here if you believe me..]

Personal specifics and math in public

Even at the more favorable 5% delta, the BRS annuity would spit out $454 less starting at age 60 (assuming O-5 with 38 YOS [you accrue YOS for pay purposes while in the retired reserve] and 2017 dollar). That's $5,448 per year. My TSP would need to have 25x that amount for me to safely withdraw $5,448 per year (up for debate, but that's the assumption I'm comfortable with i.e. 4% withdrawal rate). Also not gonna count any money I'm saving, just the government's match since they don't get credit for dollars that are coming out of my wallet in this comparison.

BL: Account balance derived from TSP matches needs to be $136,200 or higher to offset the reduced pension annuity payment.

Assuming 5% annual growth of my investments (up for debate but again, that's the conservative assumption I'm comfortable with), the 5% TSP matching over the course of a 10 year guard career is well short.

As a part-time Guard guy, assuming 123 points is my min-run participation, I'd only be pulling 34% of full-time pay. TSP account value, only considering the government match, at age 60 would be $49,343.

Big picture: if you're going to make it to 20 YOS, either on AD or in the ARC, absolutely do not choose BRS. It's less generous for those full-retirees. Those entering service after the cut-off date who do eventually make it to 20 YOS will be getting a worse deal than their predecessors.

The upside is that BRS gives some benefits to a new category of "retirees," i.e. those who leave the service before 20 YOS but still have something to show for their efforts, namely the government's TSP match.

Showing my work for those who care.

Edit to add: I'm too perfectionist not to actually run the right numbers. Updated my spreadsheet and the post accordingly after realizing two initial errors. This now accounts for an additional 18 years of growth (60 minus my "retirement" age of 42) with no additional contributions for an equivalent withdrawal for both the pension and TSP starting at age 60.

 

Edited by nsplayr
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On 2/19/2017 at 3:42 AM, nsplayr said:

 

You're right that the effect of the pension multiplier reduction is less the fewer points you have. For example:

Old system: 2.5% * 20 years = 50% of high-three

BRS: 2.0% * 20 years = 40% of high-three - a 10% delta

Guard Old system: 2.5% * 10 years in points-equivalent (3,600 points) = 25% of high-three

Guard BRS: 2.0% * 10 years in points-equivalent (3,600 points) = 20% of high-three - a 5% delta

 

 

I think you are confusing how percentages work.  No matter how many points you have, or if you are AD or ARC, a percentage reduction is still the same percentage.  The absolute dollar value in discussion will obviously change, depending on how many years you have on AD, or how many points you have in the ARC, but the way I think about it is in percentages.  

Not sure if you are talking about something different, but your % deltas are all wrong according to how I learned math.  

AD Old System - 50% retirement

AD BRS - 40% retirement

This is a 20% reduction in retirement pay, not a 10% reduction.  Put differently, 40 is equal to 80 percent of 50.  

Guard Old System (assume 10 years/3600 points) - 25% retirement

Guard BRS System - 20% retirement

This is a 20% reduction in retirement pay, not a 5% reduction.  20 is equal to 80 percent of 25.  The absolute dollar amounts don't really matter for comparing the two because both are equal to a 20% pay cut in retirement, no matter how many years AD or points in the ARC you have.   

 

Plugging real numbers in, assume your high-3 is $100K annual salary

AD Old System - $50K/year retirement

AD BRS - $40K/year retirement - that's 20% less than $50K per year in retirement

Guard Old System - $25K/year retirement

Guard BRS - $20K/year retirement - this is 20% less than making $25K/year in retirement.  

 

I think we come to the same conclusion - if you are definitely staying for 20, stay in the old system, because you have to make up a 20% per year loss in retirement pay, which would be very difficult even with the TSP matching and years for your investments to grow.   If you are definitely getting out before 20, do the BRS.  If you're not sure, well, it's time to be decisive.  

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Yea, you're correct.

What I meant, more accurately, is that AD/Guard old system vs AD/Guard BRS is a reduction in the multiplier, which works out to 20% less money in your pocket regardless of how many years or points you have.

That's what you get for doing math in public as a social science major :beer:

Edited by nsplayr
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Question about the AFRC/Guard BRS system... I saw somewhere new accessions after 1/1/18 will be automatically on the new system. Is that new accessions to the military or new accessions to AFRC? I'm currently active duty and planning to separate at the end of this year. I want to stay under the old system--will I have to ensure I am gained by AFRC on or before 12/31/17 for that to be the case?

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Question about the AFRC/Guard BRS system... I saw somewhere new accessions after 1/1/18 will be automatically on the new system. Is that new accessions to the military or new accessions to AFRC? I'm currently active duty and planning to separate at the end of this year. I want to stay under the old system--will I have to ensure I am gained by AFRC on or before 12/31/17 for that to be the case?

It is supposed to be new accessions to the military. Unless something has changed your DIEMS date (redundancy noted) determines your retirement system eligibility.


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Thinking about purchasing rental properties in either Wichita Falls or Abilene, TX.  Would appreciate any insights people have on either one of those rental market and economic development or growth potential.  Any RUMINT regarding Sheppard or Dyess and future BRAC?

Thanks in advance.

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We purchased a house in Abilene about 6 years ago. During that time, the oil market out west around Midland boomed and that had a very positive effect on Abilene real estate. It was already a strong market to begin with. Stay within your means and you can get a great house in the area.

As far as "BRACability", I find it unlikely. Very strong support from elected officials, one of only two B-1 bases, and the 317th (C-130J tenant unit) is becoming a wing vs its current organizational structure of an airlift group. Any other current or more recent Dyess bros feel free to correct me.

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Thanks for the feedback.  We are looking for multifamily units in the great state of Texas, all of the big cities are very tough to invest in due to competition, so looking at the smaller cities for better deals.

Curious about Altus, OK as a rental market as well.

 

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We purchased a house in Abilene about 6 years ago. During that time, the oil market out west around Midland boomed and that had a very positive effect on Abilene real estate. It was already a strong market to begin with. Stay within your means and you can get a great house in the area.

As far as "BRACability", I find it unlikely. Very strong support from elected officials, one of only two B-1 bases, and the 317th (C-130J tenant unit) is becoming a wing vs its current organizational structure of an airlift group. Any other current or more recent Dyess bros feel free to correct me.

Don't know about multifamily but a lot of guys renting out their homes in Abilene are making close to and sometimes more than the mortgage
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On 3/1/2017 at 2:12 AM, panchbarnes said:

Thinking about purchasing rental properties in either Wichita Falls or Abilene, TX.  Would appreciate any insights people have on either one of those rental market and economic development or growth potential.  Any RUMINT regarding Sheppard or Dyess and future BRAC?

Thanks in advance.

Don't have much input to help you other than to say ENJJPT is at Wichita Falls and I see no way that base is ever BRAC'd for that reason.   I suppose it could happen at some point, but with so many countries heavily invested in that location, that seems like a darn near impossibility that it's going to be BRAC'd and if nothing else it's got to be at the very bottom of the list.   Not to mention it's only a small portion of the base.   

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I hit 20 years last month, all as an officer and all promoted on time.  I thought you might be interested in some gee whiz numbers from my 20-year career earning totals:

Base Pay:  $1,254,900

BAH/OHA:  $411,531

BAS: $47,787

Language Pay:  $80,573

OCONUS COLA:  $120,740

Total:  $1,915,530

 

The BAS really surprised me.  That $250/month added up over 20 years.  I also never got flight pay.

 

My net worth is now $1,370,779.  I’ve never had a 2nd job, my wife has never worked outside the home, I’ve never owned a house, and I didn’t inherit anything.  That’s all from investing my military income, basically in S&P 500 index funds.  Here are my totals:

 

TSP:  $380K

Taxable index funds:  $558K

IRAs:  $296K

Cash, bonds, CDs:  $137K

 

I’ll add that I haven’t sold any investments since 2008, and that was only $4K of stock to fund a honeymoon.  Everything else has been buy & hold for my entire career.

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I hit 20 years last month, all as an officer and all promoted on time.  I thought you might be interested in some gee whiz numbers from my 20-year career earning totals:
Base Pay:  $1,254,900
BAH/OHA:  $411,531
BAS: $47,787
Language Pay:  $80,573
OCONUS COLA:  $120,740
Total:  $1,915,530
 
The BAS really surprised me.  That $250/month added up over 20 years.  I also never got flight pay.
 
My net worth is now $1,370,779.  I’ve never had a 2nd job, my wife has never worked outside the home, I’ve never owned a house, and I didn’t inherit anything.  That’s all from investing my military income, basically in S&P 500 index funds.  Here are my totals:
 
TSP:  $380K
Taxable index funds:  $558K
IRAs:  $296K
Cash, bonds, CDs:  $137K
 
I’ll add that I haven’t sold any investments since 2008, and that was only $4K of stock to fund a honeymoon.  Everything else has been buy & hold for my entire career.

Nice work. What language do you speak that gets you $80k over a career?


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9 hours ago, Pajaro said:

I hit 20 years last month, all as an officer and all promoted on time.  I thought you might be interested in some gee whiz numbers from my 20-year career earning totals:

Base Pay:  $1,254,900

BAH/OHA:  $411,531

BAS: $47,787

Language Pay:  $80,573

OCONUS COLA:  $120,740

Total:  $1,915,530

 

The BAS really surprised me.  That $250/month added up over 20 years.  I also never got flight pay.

 

My net worth is now $1,370,779.  I’ve never had a 2nd job, my wife has never worked outside the home, I’ve never owned a house, and I didn’t inherit anything.  That’s all from investing my military income, basically in S&P 500 index funds.  Here are my totals:

 

TSP:  $380K

Taxable index funds:  $558K

IRAs:  $296K

Cash, bonds, CDs:  $137K

 

I’ll add that I haven’t sold any investments since 2008, and that was only $4K of stock to fund a honeymoon.  Everything else has been buy & hold for my entire career.

Great job taking your future into your own hands, ands thanks for serving 20 years of your life to the USAF. I’m coming up on 20 myself next year, I know the job market is really hot right now but a military  pension really does give you a lot of flexibility and piece of mind. 

 

Question for you: Did you gonkulate all those numbers over your 20 year career or is there a site that lets you plug in some data and spits it out for you? Seems pretty tedious but it is definitely an interesting nugget to have for reference. 

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8 hours ago, di1630 said:


Nice work. What language do you speak that gets you $80k over a career?
 

I'm a European FAO (we are called that now instead of RAS), so I get paid for any European language.  I'm primarily Spanish, but I can fake my way through reading other Romance languages, so I get paid for them as well.  Max of $1000 per month.  That gravy train is about to end because the French, Italian, and Portuguese DLPTs just got harder. 

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5 hours ago, HossHarris said:

How much of your check would you say you were investing every month (as a percentage)?

I'm basically 48% of base pay or 32% of base pay and allowances.  Spending lots of time overseas is a huge benefit to saving money due to the COLA and utility allowance.  OHA is use/lose, but the utility allowance is flat rate, so you can save a lot.

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