33 year old Newbie

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schmittie120
Posts: 4
Joined: Sat Jun 12, 2021 9:41 pm

33 year old Newbie

Post by schmittie120 »

Good evening Bogleheads!

I am a 33 year old military officer who is new to investing. Some basic info below

* Age: 33/32 (kids not likely)
* HHI: around 110,000. Wife will be starting work within the next 13 months once she finishes her graduate program (will make approx. 65-75k per year)
* Taxable: 25k (all in VTSAX, will be putting in around 15k per year)
* Roth TSP: 85k (all of in a lifecycle fund, put in around 12% of my take home per year, will be maxing out starting 2021)
* Roth (his): 6k, just started this in 2021, hers will be started once she starts working along with any retirement plan she gets.
* cash: ~120k
* Home: ~700k (Mortgage Bal: 470,000 at 3.5%; 28yrs remaining. Will be refinancing as we are staying in the area for another 24 months).
* debt: just the mortgage, no large purchases coming up (unless we add an addition to our home to increase its value/livability)

I am looking for advice on how to set myself up for an early retirement (goal is to retire around 50-55). I will most likely retire from the military around age 45-46. But in the event I get out of the military I want to try and fulfill my retirement goal (I work in medicine and will be able to make around 150-180k per year in the civilian sector).

What’s the advice from the collective on how to go about my goal and what should I do with my modest cash reserve. Thanks!
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David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 33 year old Newbie

Post by David Jay »

Welcome to the forum!

You are already doing a lot of good things. No consumer debt. A start on savings accounts. A federal retirement is expected.

In the most general terms, to retire early one should focus on not expanding their lifestyle. I am thinking particularly of when the spouse enters the workforce. Plan to put at least 50% of the new income into retirement savings. I like the “50% of every raise” plan, as it does not create any financial stress (one has more money for discretionary spending after the raise than they did before the raise).

Not expanding your lifestyle works on the cost-to-retire side of the equation. You will need to have saved 30x to 35x living expenses to retire safely, depending on your actual age at time of retirement. If you control lifestyle spending then you reduce “X”.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
billfromct
Posts: 2057
Joined: Tue Dec 03, 2013 8:05 am

Re: 33 year old Newbie

Post by billfromct »

Your wife can open a Roth IRA & fund it without any earned income because you have earned income & your married filing jointly (MFJ) modified adjusted gross income (MAGI) appears to be below $198k.

She can contribute the $6,000 Roth IRA maximum for 2021.

bill
Topic Author
schmittie120
Posts: 4
Joined: Sat Jun 12, 2021 9:41 pm

Re: 33 year old Newbie

Post by schmittie120 »

David Jay wrote: Sun Jun 13, 2021 7:46 am Welcome to the forum!

You are already doing a lot of good things. No consumer debt. A start on savings accounts. A federal retirement is expected.

In the most general terms, to retire early one should focus on not expanding their lifestyle. I am thinking particularly of when the spouse enters the workforce. Plan to put at least 50% of the new income into retirement savings. I like the “50% of every raise” plan, as it does not create any financial stress (one has more money for discretionary spending after the raise than they did before the raise).

Not expanding your lifestyle works on the cost-to-retire side of the equation. You will need to have saved 30x to 35x living expenses to retire safely, depending on your actual age at time of retirement. If you control lifestyle spending then you reduce “X”.

Thanks for the advice. Our plan once she starts earning was to put 60% of her pay into her retirement accounts (max 401k and her Roth, the rest into index funds).
Topic Author
schmittie120
Posts: 4
Joined: Sat Jun 12, 2021 9:41 pm

Re: 33 year old Newbie

Post by schmittie120 »

billfromct wrote: Sun Jun 13, 2021 7:54 am Your wife can open a Roth IRA & fund it without any earned income because you have earned income & your married filing jointly (MFJ) modified adjusted gross income (MAGI) appears to be below $198k.

She can contribute the $6,000 Roth IRA maximum for 2021.

bill
That is good news, we are definitely below the 198k! I will get her account set up ASAP.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: 33 year old Newbie

Post by tashnewbie »

I agree that you’re doing a lot of things well. I assume you’ll have a nice federal pension.

I would just max Roth IRAs for both of you each year (as mentioned above, you can max 2021 contribution for your wife because your MFJ HHI exceeds the total Roth IRA contributions you’ll make ($12k)).

I would figure out how much cash you think you need to be comfortable and “sleep well at night.” Rough rule of thumb is for people to keep 6-12 months of expenses as a cash reserve fund. Because of your ironclad job security, it may be reasonable for you to go with something on the lower end of that range, or even less. Once you decide how much cash you want to keep, then I would put the rest in taxable in the fund you’re already using (make sure you max both of your workplace plans; you can use the extra cash for living expenses, if paychecks become too small, after setting contribution percentage to max the plans).

ETA: when deciding how much cash you want to hold, you should also factor in whatever cash you need for planned short-term spending (such as a house down payment).
Topic Author
schmittie120
Posts: 4
Joined: Sat Jun 12, 2021 9:41 pm

Re: 33 year old Newbie

Post by schmittie120 »

tashnewbie wrote: Sun Jun 13, 2021 2:26 pm I agree that you’re doing a lot of things well. I assume you’ll have a nice federal pension.

I would just max Roth IRAs for both of you each year (as mentioned above, you can max 2021 contribution for your wife because your MFJ HHI exceeds the total Roth IRA contributions you’ll make ($12k)).

I would figure out how much cash you think you need to be comfortable and “sleep well at night.” Rough rule of thumb is for people to keep 6-12 months of expenses as a cash reserve fund. Because of your ironclad job security, it may be reasonable for you to go with something on the lower end of that range, or even less. Once you decide how much cash you want to keep, then I would put the rest in taxable in the fund you’re already using (make sure you max both of your workplace plans; you can use the extra cash for living expenses, if paychecks become too small, after setting contribution percentage to max the plans).

ETA: when deciding how much cash you want to hold, you should also factor in whatever cash you need for planned short-term spending (such as a house down payment).
Thanks for the advice. I will likely be using the cash to max my ROth TSP this year and open my wife’s Roth IRA, then I will out a large chunk into a vanguard fund

Thanks!!
Fishing50
Posts: 671
Joined: Tue Sep 27, 2016 1:18 am

Re: 33 year old Newbie

Post by Fishing50 »

Stay on course, you are doing well!

Keep taxable 100% equities for tax efficiency. Total international in taxable will provide a foreign tax credit at tax time, and it's more diverse than I Fund in TSP. https://www.bogleheads.org/wiki/Tax-eff ... _placement

Roth TSP is definitely the correct decision in the 12% tax bracket and possibly the correct decision in the 22% tax bracket. If you choose to work after retirement along with your wife's income and your pension income, traditional contributions will be the correct decision because you'll likely be in a higher tax bracket. https://thefinancebuff.com/most-tsp-par ... h-tsp.html

26-30 yr military career will provide early retirement with pension and investment income from taxable accounts or 72t withdrawals. We stayed for 30yrs because we got good duty stations and an unexpected promotion late in my career. No shame in getting out once you've completed obligated service. Nords is good example of surfing and Fat FIRE: https://the-military-guide.com/about/

I recommend changing from Lifecycle fund, to a defined asset allocation 80/20 - 90/10 based on tax efficiency. Individual funds allow you to rebalance back to target allocation during market highs and corrections.
Rebalancing priorities would be:
1. Taxable, 100% US and international equities for tax efficiency
2. Roth IRAs 100% US and international equities for higher expect growth
3. 10%-20% bonds in TSP G Fund and F Fund
4. TSP C Fund, S Fund, I Fund as needed to maintain asset allocation.

With reliable government income, substantial taxable assets, and a high saving rate: I recommend getting your cash invested. https://earlyretirementnow.com/2021/05/ ... l-useless/

Keep charging!
Retired Military Officer. 80% equites / 20% bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. Gone Fishing At 52yrs old!
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