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A Simple and Military Specific Summary of How to Save for Retirement
I’m a huge fam of Jim Lange. He’s a noted expert in financial management, saving for retirement, and estate planning. He’s written a number of books
He sends out a monthly newsletter that I get via snail mail, and it usually has a useful article in it. If you want it, you can get it here.
A previous edition had a section called “Jim’s Point-by-Point Summary of the Whole Retirement & Estate Planning Process.” It was simple but extremely useful. Below in bold are each of the points he lists for people who are still working, which is most of my readership. Let’s take each bolded point and militarize it for you so it is specific to those of us in the military.
Contribute at least the amount to your retirement plan that your employer is willing to match or partially match.
For those under the legacy retirement plan, this is not an option. For those under the new Blended Retirement System (BRS), you need to contribute 5% of your basic pay to the Thrift Savings Plan (TSP) to get the pull 5% DoD match:
You also need to make sure you contribute 5% every month and don’t fill the TSP too early. If you max it out in October, you won’t get a match in November or December.
If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match.
This is $19,500 in 2020. You can do an extra $6,500 if you are 50 or over. You can even do more if you are in a combat zone.
Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it.
If you are able to fill your TSP account, next you’ll need to open an IRA at an investment firm. Vanguard is the obvious choice due to their across the board low investment fees and unique non-profit structure, but you can do this anywhere (Schwab, Fidelity, etc.).
If you make too much to contribute to a Roth IRA, you just use the back door Roth IRA option.
Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
With a traditional plan, you take a tax deduction now and pay taxes later when you take the money out. With a Roth plan you pay the taxes now and the withdrawals are completely tax free.
The general principle is that if you are in a lower tax bracket now than when you are retired, you do the Roth. If you are in a higher tax bracket now, you use the traditional.
No one really knows what the future holds, though, making this decision tough. Here are some resources for you to check out when making this decision:
Traditional/Roth TSP Comparison Matrix
Roth vs. Traditional IRAs: A Comparison
Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
While the TSP allows loans, I refuse to link to any information about it. Once you put money away for retirement, you don’t borrow from it unless it is an ABSOLUTE EMERGENCY.
Period.
The Bottom Line
Here are the point-by-point summary of steps Jim Lange suggests you take if you are saving for retirement:
- Contribute at least the amount to your retirement plan that your employer is willing to match or partially match, which is 5% of basic pay in the BRS.
- If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match, which is $19,500 in the TSP ($26,000 if you’re 50+).
- Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it. Use a back door Roth IRA if you need to.
- Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
- Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
MHS Female Physician Leadership Course – Call for Nominations
We are announcing the call for nominations for the 2020 MHS Female Physician Leadership Course (FPLC) to be held April 15-17, 2020 at Defense Health Headquarters in Falls Church, VA. The target audience is Active Duty and Reserve female physicians (MD/DO) in the grades of O-4 select to junior O-5 (less than 2 years’ time in grade).
The nomination form, course details, and the formal advertisement are all here:
Please follow the instructions on the nomination form carefully. Submit packages as a single PDF to CAPT Nicole McIntyre (contact info is in the global) by COB (EST) on 15 JAN 2020.
Finance Friday Articles
Here’s an article about the upcoming change in the TSP I Fund. They are adding emerging markets like China to the I Fund’s international stock holdings:
Viewpoint: Let’s Keep a Level Playing Field for TSP Investors
Here are my favorite articles of the week:
Step By Step Guide to Opening a Brokerage Account
The 1% Rule and How It Can Save You Time When Evaluating Rental Properties
Here are the rest of this week’s articles:
10 Questions to Ask Yourself About Your Investments
Conflicts of Interest: Are You Getting Good Advice?
Creating a Dynasty: Building Family Wealth Across Generations
How much can we earn in retirement without paying federal income taxes?
If It Doesn’t Cash Flow, Don’t Buy It
Missing the Target with Target Date Funds
Monte Carlo Analysis: Understanding What You’re Dealing With
Oldies But Goodies – Financial Books You Should Read
The End of the Year Unwanted Payday
This Anesthesiologist Retired At 43 By Avoiding The Normal Traps That Trip-Up Doctors’ Savings
This Law Lowers Interest Rates for Active Duty Servicemembers
GI Bill Transfer Exception to Policy Expires 12 JAN 2020
The Department of Defense exception to policy (ETP) that extends the ability of service members with over 16 years of service to transfer Post 9/11 GI Bill benefits to their dependents expires on 12 January 2020. As outlined in NAVADMIN 178/19, as of 12 July 2019, any member who has greater than 16 years of service will no longer be eligible to transfer education benefits to their dependents.
The good news is that these changes DO NOT impact Servicemembers who previously submitted and have an approved Transfer of Education Benefits (TEB) application in the Defense Manpower Data Center (DMDC) milConnect web portal at https://milconnect.dmdc.osd.mil.
Eligible Servicemembers who have served 16 or more years may transfer Post 9-11 GI Bill benefits to their eligible dependents until 12 January 2020 with an additional 4-year service obligation on Active Duty or in the Selected Reserve (SELRES).
Who isn’t eligible? (NOT an exhaustive list, just most common reasons):
- Approved retirement or fleet reserve. – Can’t obligate the required four
years. - LIMDU, Medboard, etc. have not been found fit for full duty and are not retainable for four years.
- Less than four years to high year tenure (HYT) date or statutory retirement.
***There are ZERO exceptions for the 4-year additional service obligation.***
SG’s Talking Points from Specialty Leader Business Meeting
Here are the SG’s talking points from last week’s Specialty Leader Business Meeting in one slide:
November Message from the Assistant Secretary of Defense for Health Affairs
MHS Team:
On October 25, 2019, Deputy Secretary of Defense David L. Norquist signed a memo officially directing the transfer of authority, direction, and control of Military Treatment Facilities across the United States to the Defense Health Agency. While this formal directive marks an important milestone in the MTF transition process, it is only the most recent. The Military Health System’s work to date has resulted in significant progress to implement key provisions of the Fiscal Year 2017 National Defense Authorization Act. We transitioned the first phase of hospitals and clinics to the DHA last October and published more than 100 standardized policies since January 2018, with 29 more projected for publication by the end of the year. This progress reflects great momentum toward standardizing performance measures across the military medical enterprise and eliminating unnecessary variability, while moving to a more integrated system of readiness and health care delivery.
Earlier this month, I joined DHA Director LTG Ron Place and the Service medical leadership to share updates on MHS reform efforts with the Military/Veterans Service Organizations (MSO/VSO) Executive Council – a key stakeholder group that has long provided the MHS with invaluable insights into our beneficiaries’ experience within the health system. In recent months, MHS senior leadership has tackled head-on many of the issues MSO/VSOs have raised on behalf of beneficiaries. We reaffirmed to the MSO/VSO group that we’ve put in place a conditions-based, direct-support framework to ease the transition of MTFs to the DHA, which will help us to ensure we continue to provide our beneficiaries with access to quality care during this period of change.
I commend the teams across the MHS – at all levels – for your continued commitment to successfully implement the multiple reforms we have launched. Across Health Affairs, the Military Departments, DHA, the Uniformed Services University and the Office of the Joint Staff Surgeon, we recognize that success is a collective endeavor; our partnership to expeditiously solve problems, address gaps, and communicate successes and challenges remains key. A special thanks to senior leadership for forging this collaboration, and a warm welcome to Rear Adm. Bruce L. Gillingham, the Navy’s new Surgeon General and Chief of the Bureau of Medicine and Surgery. We look forward to your contributions in your new role – welcome to the team!
Outside of reform, military medicine continues to advance the Department’s three lines of effort in support of the National Defense Strategy. Earlier this month I had the opportunity to witness this first-hand when I visited the USNS Comfort in Haiti as part of its five-month deployment to provide medical assistance in support of regional partners across the USSOUTHCOM AOR. It was an honor to join USSOUTHCOM Commander Adm. Craig Faller, Task Force 49 Mission Commander Capt. Brian Diebold, USNS Comfort MTF Commander Capt. Patrick Amersbach, and the entire USNS Comfort team as they carried out this critical medical mission. This mission is a great example of the strategic role military health care plays in advancing the NDS’s focus on building relationships with our partners and allies.
Looking ahead, I anticipate seeing many of you at next month’s AMSUS (the Society of Federal Health Professionals) annual convening at National Harbor, Maryland, where I’ll join other senior leaders to discuss our progress to date implementing significant organizational change across the MHS and to outline what’s ahead for the system.
For those who are able to take some R&R for Thanksgiving, I hope you are able to spend time with friends and family and return refreshed. As I reflect on this uniquely American holiday, I’m grateful for the men and women who protect and defend our freedom and for the families who support them, and I thank all of you for what you do to sustain the health system that supports them.
Tom
Director of Mental Health – NMCP – O5/O6
NMC Portsmouth is looking for their next Director for Mental Health. This position is open to anyone inbound to the command or eligible with Detailer clearance. Announcement/Position Description is right here.
Packages are due to Ms. Cynthia Jones (contact in the global and in the announcement above) NLT 2 DEC 2019.
NMCP Hosts ‘The Future of Military Medicine’ Discussion Panel
Here’s a link to this article about a panel I was on:
NMCP Hosts ‘The Future of Military Medicine’ Discussion Panel
Do the TSP Target Date Funds Miss the Mark?
Blooom is an on-line financial advisory service that will manage your Thrift Savings Plan (TSP) and other retirement accounts for only $10/month. On another blog I wrote an article about them and some readers got into a Twitter dialogue with them. During this dialogue it was suggested that an investor doesn’t need to pay $10/month for an advisor because you can always just use target date funds if you don’t want to manage your investments yourself. Blooom’s response pointed to a blog post of theirs about target date funds and all the problems associated with them. Let’s take a look at their post and see if the points they raise are valid when compared to the TSP’s target date funds, the Lifecycle Funds.
What’s a Target Date Fund?
According to Investopedia, a target date fund is:
A fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. Target-date funds are usually named by the year in which the investor plans to begin utilizing the assets. The funds are structured to address a capital need at some date in the future, such as retirement. The asset allocation of a target-date fund is therefore a function of the specified timeframe available to meet the targeted investment objective. A target-date fund’s risk tolerance become more conservative as it approaches its objective target date.
The Lifecycle or L Funds are the TSP’s version of target date funds. You can read my deep dive on them if you like for more information.
Are the Lifecycle Funds Too Conservative?
Yes, in my opinion, the L Funds are too conservative when compared to other target date funds and the fact that many of us will have an inflation-adjusted pension. To compensate you can always just pick a L fund that targets a later year. When I used the L funds in my TSP, that is what I did.
For example, if you want to retire in or around 2030 you would normally pick the L 2030. Instead you could pick the L 2040 or L 2050 to get more aggressive. That said, the most aggressive you can get with the L Funds right now is the L 2050, which is 82% stocks and 18% bonds. If you want less than 18% bonds, you can’t do that with any of the current L funds.
Do the Lifecycle Funds have High Expense Ratios?
This is a definitive no. While other target date funds can have high expenses, the L funds are composed of funds with the lowest expenses you will find anywhere. You probably cannot find a target date fund with lower expenses than the TSP L Funds.
Do the Lifecycle Funds Lack Personalization?
Yes, they do. There’s no way around this one. You can personalize them a little bit by adjusting the target date you invest in, as described above, but they are by definition standard for all investors.
I would argue that these standard asset allocations are good enough for just about everyone to come up with a reasonable investment plan. If you want a personalized plan, though, you may have to get some help or use a financial advisor.
The Bottom Line – Do the L Funds Miss the Mark?
I think it depends. They are definitely low cost, so they hit the target there. I do think that they are too conservative, but as long as you are OK with a minimum bond allocation of 18% you can just adjust that by using a fund with a target date that is further off. They are definitely not personalized, but I don’t think they need to be. The asset allocations they use would do for 99% of the people investing, including myself.
Finance Friday Articles
My favorite article this week:
Pizza Delivery is for Millionaires
Here are the rest of this week’s articles:
Be Proactive, Not Reactive When It Comes To Creating Passive Income
Don’t Compare Your Finances/Investing to Others
How Much Money Does a Doctor Need to Retire?
Maintaining a Small RV for Retirement Travel
Should You Turn Your Starter-Home into a Rental?
The Value Proposition of a Real Estate Access Fund
Updated Trinity Study Results for 2019 – More Withdrawal Rates!
Joel Schofer's Career Planning Blog 