The clock towards retirement starts before you commission, since both AD and Reserve time counts towards retirement. Since your on AD orders, the time spent at OCS still carries the same amount of weight as if you were part of an active component.
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O-1 Budget in Flight School
- Thread starter Draples
- Start date
The clock towards retirement starts before you commission, since both AD and Reserve time counts towards retirement. Since your on AD orders, the time spent at OCS still carries the same amount of weight as if you were part of an active component.
Gotta agree with the advice to avoid First Command (or Edward Jones, etc). You'll pay up to 5.75 % off the top of your initial investment, expense ratios of 1% or more, and maybe even an assets under management fee of another 1%. That may not seem like a ton at first glance, but do the math. The effect of the front load and a continuing total expense ratio of 2% compounded over the course of an investing lifetime is flat out staggering. Learning how to efficiently invest your hard earned money isn't difficult, it just requires motivation and basic math skills. The best resource I've come across are the Bogleheads.
Disclaimer - I have not read the 5 pages of the thread here... however:
To the OP - I'm quite busy right now, but may have a little bit of time coming up soon - shoot me a PM and I'll send you a budget calculator a friend and I made. I can also go over how I teach my sailors to invest and save (I studied Econ and have gotten together with a finance major as well who was a banker before joining the Navy and we've drafted up our bits of savings priorities based on tax incentives). I would say it is successful thus far.
To the OP - I'm quite busy right now, but may have a little bit of time coming up soon - shoot me a PM and I'll send you a budget calculator a friend and I made. I can also go over how I teach my sailors to invest and save (I studied Econ and have gotten together with a finance major as well who was a banker before joining the Navy and we've drafted up our bits of savings priorities based on tax incentives). I would say it is successful thus far.
mitrokhin
Active Member
I did a project on how to save for retirement recently, using my estimated salary as a new Ensign. Basically, I'm going to copy and paste stuff from my final project into here. So pardon the weird first person stuff, I don't feel like editing it.
Here are my assumptions and findings:
1) I am doing something called Index Investing, which may be googled at your leisure and interest.
2) To incorporate index trading into my portfolio, I must examine the Thrift Savings Plan, which is available to United States civil service employees and retirees. Essentially, the particular funds which are a subset of the TSP that I am interested in are the C Fund, which mimics the performance of the S&P 500 Index (large company domestic stocks), the S Fund, which mimics the TSM Index (small to medium domestic companies), the I Fund, a copy of the EAFE Index (international stocks), and the G Fund, which emulates low-risk U.S. government bonds (“Fund Comparison Matrix”). The Thrift Savings Plan beats out most other plans because of its low fees, so it is possible to do index trading through the government option. Essentially, I will incorporate the information given to me by the USAA advisor with my investment strategy by picking a mix of the C, S, I, and G funds which emulates the three-four fund investment strategy that uses (two) domestic stock indexes, one international index, and a government bond allocation (“Three-fund Portfolio”). My strategy is to begin with 5% of my TSP investments in low risk G funds, 40% in the C fund, 40% in the S fund, and the remaining 15% in the I fund. When I hit 30 years old, I will remove 1% from the C fund and S fund and place it in the G fund each year to hedge risk (“Three-fund Portfolio”). Finally, the last part of the initial portfolio was to consider a 529 college savings plan, but I found the requirements to be too restrictive at this time. My financial advisor suggested that I should begin one when and if I have a kid. In the meantime, she suggests saving up for a down payment on a home instead.
Breakdown of my TSP:
5% G Fund
40% C Fund
40% S Fund
15% I Fund
3) My assumptions are based off of data from a military pay table for the fiscal year of 2014, and the summary of returns since inception of the C, S, I, and G funds (“Military Members”). I have curve fit my initial salary of $36,000 with a 20 year forecast of annual increases in salary. Each year, I estimate that I will contribute either 20% or 30% of my income to the TSP account, and I have produced graphs of the following eight cases, with an annual return of 8% on investments, starting salary of $36k with a 3% annual raise. The idea is that you can take on riskier assets at a younger age and move investments into lower risk funds as you get older.
If you guys want any more information regarding why I set it up this way, just let me know. It isn't set up to maximize profits but rather to maximize my laziness and unwillingness to pay a lot of attention to it.
I've attached graphs of projections using the assumptions above.
edit: I've also used Bogleheads for a lot of my research
Here are my assumptions and findings:
1) I am doing something called Index Investing, which may be googled at your leisure and interest.
2) To incorporate index trading into my portfolio, I must examine the Thrift Savings Plan, which is available to United States civil service employees and retirees. Essentially, the particular funds which are a subset of the TSP that I am interested in are the C Fund, which mimics the performance of the S&P 500 Index (large company domestic stocks), the S Fund, which mimics the TSM Index (small to medium domestic companies), the I Fund, a copy of the EAFE Index (international stocks), and the G Fund, which emulates low-risk U.S. government bonds (“Fund Comparison Matrix”). The Thrift Savings Plan beats out most other plans because of its low fees, so it is possible to do index trading through the government option. Essentially, I will incorporate the information given to me by the USAA advisor with my investment strategy by picking a mix of the C, S, I, and G funds which emulates the three-four fund investment strategy that uses (two) domestic stock indexes, one international index, and a government bond allocation (“Three-fund Portfolio”). My strategy is to begin with 5% of my TSP investments in low risk G funds, 40% in the C fund, 40% in the S fund, and the remaining 15% in the I fund. When I hit 30 years old, I will remove 1% from the C fund and S fund and place it in the G fund each year to hedge risk (“Three-fund Portfolio”). Finally, the last part of the initial portfolio was to consider a 529 college savings plan, but I found the requirements to be too restrictive at this time. My financial advisor suggested that I should begin one when and if I have a kid. In the meantime, she suggests saving up for a down payment on a home instead.
Breakdown of my TSP:
5% G Fund
40% C Fund
40% S Fund
15% I Fund
3) My assumptions are based off of data from a military pay table for the fiscal year of 2014, and the summary of returns since inception of the C, S, I, and G funds (“Military Members”). I have curve fit my initial salary of $36,000 with a 20 year forecast of annual increases in salary. Each year, I estimate that I will contribute either 20% or 30% of my income to the TSP account, and I have produced graphs of the following eight cases, with an annual return of 8% on investments, starting salary of $36k with a 3% annual raise. The idea is that you can take on riskier assets at a younger age and move investments into lower risk funds as you get older.
If you guys want any more information regarding why I set it up this way, just let me know. It isn't set up to maximize profits but rather to maximize my laziness and unwillingness to pay a lot of attention to it.
I've attached graphs of projections using the assumptions above.
edit: I've also used Bogleheads for a lot of my research
ryan1234
Well-Known Member
My humble opinion is that while an O-1, 0-2, O-3, the normal TSP is not that great. The Roth TSP (if TSP is your thing) is a better option... particularly from lower income to combat pay etc. I'm personally not a fan of the TSP in general because of the limited options. It's really designed for someone who doesn't really know anything about the market... which is fine.
When you speak of "index investing", I'm assuming you're talking specifically about index funds and ETFs (exchange traded funds). That's a fairly solid game plan if you research the nuances of each.
Be wary of paying for financial advisors and accepting their opinions (and I can't stress "opinions" enough). Just about anyone can manipulate statistics to show you an advantage. It's sorta like blindly trusting finance and TMO concerning TDYs, PCSs, DITYs, etc... the more you research on your own, the less chance of getting screwed you'll be.
As an index investor (or any investor, one might posit), there is no better option available for a core holding than TSP. For incredibly low fees, you can essentially capture the entire U.S. equity market with the C/S funds, the EAFE international index with the I fund (which unfortunately excludes Canadian stocks), and a broad index capturing the U.S. bond market. The G fund offers intermediate term bond return rates with essentially no risk. It's the only free lunch in investing. It's often disparaged as a poor option, but for a retiree drawing down their balance, it's a great tool. The right combination of these funds for your risk tolerance and either Roth/Trad as appropriate will result in an investment portfolio that has a great shot at outperforming your buddy with an expensive advisor.
Beware the idea that TSP isn't great due to limited options. This is the financial services industry (who wants you to invest with them) talking. The overwhelming majority of investors would be well suited to keep it simple and get out of their own way. Look up behavioral finance to learn about how investors often shoot themselves in the foot by trying to time the market or make their portfolios too complicated in search of an extra 1 or 2%.
Beware the idea that TSP isn't great due to limited options. This is the financial services industry (who wants you to invest with them) talking. The overwhelming majority of investors would be well suited to keep it simple and get out of their own way. Look up behavioral finance to learn about how investors often shoot themselves in the foot by trying to time the market or make their portfolios too complicated in search of an extra 1 or 2%.
Spekkio
He bowls overhand.
1 month into an operational tour and you won't know anything about the market either.
No kidding. Every time you go out on deployment, you pretty much gamble you're not going to miss any financial disaster crushing your investments (ahem...2008) while you're cut off from the rest of the world for 6+ months. Definitely recommend KISS principle for investing during the busier tours.
DIEMS=Date of Initial Entry into Military Service. This is not necessarily(but could be) when your counter starts. This is used for calculating which system you fall under. For example, if in 1910 the retirement system was X, in 1980 it changed to Y, in 2000 it changed to Z, and in 2020 it changes to CRAP and your DIEMS is May 2019, you get Z and have narrowly missed getting CRAP.
BT
One other thing to consider keeping your costs low in flight school. Once you get to your operational tour, you may go into a combat zone. This doesn't ONLY mean tax free. If you have saved well, and you have LOW bills you may be able to take advantage of some KILLER deals. TSP has a limit of 17,500 right now (regular and roth). If you go into a tax exclusion zone, your yearly limit that year is currently 51,000! PLUS, you can put up to 10,000 into a special savings account with a guaranteed 10% interest. Man, who has 61,000/yr extra as a JG? Well, if you are smart with that money, maybe you could save a spare 20K/yr in anticipation? Now, to take advantage of all this would take some killer planning or a nice dual income...plan now as O-1's and by the end of your first tour, still in your 20's you could have over 100,000 in TSP (still limited by 17,500/yr in roth). DISCLAIMER, I was DINK, now SINK...easier to save!
BT
One other thing to consider keeping your costs low in flight school. Once you get to your operational tour, you may go into a combat zone. This doesn't ONLY mean tax free. If you have saved well, and you have LOW bills you may be able to take advantage of some KILLER deals. TSP has a limit of 17,500 right now (regular and roth). If you go into a tax exclusion zone, your yearly limit that year is currently 51,000! PLUS, you can put up to 10,000 into a special savings account with a guaranteed 10% interest. Man, who has 61,000/yr extra as a JG? Well, if you are smart with that money, maybe you could save a spare 20K/yr in anticipation? Now, to take advantage of all this would take some killer planning or a nice dual income...plan now as O-1's and by the end of your first tour, still in your 20's you could have over 100,000 in TSP (still limited by 17,500/yr in roth). DISCLAIMER, I was DINK, now SINK...easier to save!
Worth pointing out that this interest is taxable, so reduce the 10% savings rate by your tax rate (e.g. if you're paying 25% tax on that interest, it's more like a 7.5% return, but as spoon mentioned, it's risk-free, so it's still definitely worth doing for all but those in the highest tax brackets). It's called the Savings Deposit Program, for those interested.
I do. I transfered my TSP to an IRA with them. My FedEx B plan, 401k and another, separate FedEx plan is there as well. I'm pretty evenly split between USAA and Vanguard.
mitrokhin
Active Member
That is such a good idea... I guess I'll try to get as close to 17,500 as possible, then put stuff in more liquid accounts like money market for a rainy day fund. I'm not usually one to fret about money. Never had a lot growing up though, so I don't wanna f it up if you know what I mean. I can't tell if I'm being petty, naive, or smart about it yet.
Spoon, if you don't mind me asking, how early did you start contributing? And can you set up the TSP at OCS or is that something that is best done afterward or at Pensacola?
They should set you up with a MyPay account at OCS, and on that website you can set up TSP allocations from your paychecks. I started contributing to my Roth TSP while at OCS with $500 /mo., I'll probably bump it up once the career starter loan is payed off (also used that to top off my Roth IRA). Regular allocations from your paychecks are probably the best way to get started early; since it's taken out of your paycheck before you get it, you don't really miss it. And make sure to bump it up each time you get promoted.
mitrokhin
Active Member
I hear great things about Vanguard. What has been your experience with them?