Roth TSP

[Jam]

Every time savings posts come up, I always feel like the odd duck. We had 3% of H's P going to TSP and I just recently knocked it down to 1%. We also don't put money into savings accounts.

We aren't ever broke and live by our means (I coupon, garden and don't really buy anything unless I have to), but we both grew up in poor Hispanic families and we don't know why this stuff is important. My mentality has always been "live for the now" and I guess I need someone to explain to me why people save so much lol.

Sorry! I hope I'm not thread jacking but I always forget to bring this up when people talk about finances.

[beachy]

Jam we're somewhat the same way. H has his TSP and has his set percentage going into it. Since he came back from deployment we knew we would have a tough couple months adjusting until his pay balanced out, so he lowered his TSP deposits for a couple months. We're all for saving for retirement, but we also want to live comfortably right now.

[beachy]

I don't know if you're asking both of us or just Jam about retirement. H has his TSP that he usually contributes quite a bit too. I have my own retirement system through my work as well. Well I did at my old job, and will when I start working again.

For us though H's paychecks just dropped about $400 each from losing deployment pays and BAH dropping. Until his BAS starts coming in next month and I start working again next month it is tighter than we are comfortable with, so he lowered his TSP for the time being. It will go back up by December at the latest. Like I said, we're all for saving for retirement but right now we gotta get our mortgage, car payments and bills paid first.

We knew him coming back from deployment was going to be a rough couple months so we gotta do what we gotta do to get through it. Ruining our credit will be worse then putting a little less into retirement for a couple months.

[Jam]

Well that's what I need help understanding. What does the military offer you in terms of retirement? I thought it was a good deal if you went career?

I realize how naive this sounds but I'm being serious. We don't know anything about this and how this stuff works. I would go see a financial advisor today just out of sheer curiosity but I have too much school work and an FRG meeting on top of it and then I have class so it's not an option :/

[beachy]

Also, my H is one of the command financial counselors. He helps his sailors set up budgets and TSP accounts and whatever else they need to do. I can say that telling junior enlisted what they should do with their money doesn't always go over very well.

[audette]

Sept 12, 2012 10:44:39 GMT -5 Jam said:

Well that's what I need help understanding. What does the military offer you in terms of retirement? I thought it was a good deal if you went career?

I realize how naive this sounds but I'm being serious. We don't know anything about this and how this stuff works. I would go see a financial advisor today just out of sheer curiosity but I have too much school work and an FRG meeting on top of it and then I have class so it's not an option :/

There are a variety of reasons to save, both in retirement accounts and in non-retirement accounts.

We put 20% of DH's base pay into his TSP. We're evaluating if we want to shift some of that into a Roth TSP (which is relatively new, Stan, yep). Military retirement is an _amazing_ deal, if you hit 20+ years. Better than darn near anything you can find in the private sector. It's awesome!

But, in order to receive it, you need to hit 20 years or more. Any less time in, and the servicemember gets nothing. Zero. That makes us incredibly nervous. It also can effectively lock-in a servicemember - once they hit 15-16 years in, the carrot of hitting 20 years will make most folks put up with some serious crap - having a separate retirement account will give DH the option of getting out before 20 years if life in the military simple becomes untenable.

In addition, the retirement package is far better than most, but it's still not perfect. For DH, at 20 years of service, he would get 50% of his base pay (not BAH, not BAS, not any other incentive pays, just base pay). If he pre-deceases me, that retirement pay ends when he passes. (or, DH can opt to have his retirement pay reduced so that I would continue to receive this reduced retirement pay after his passing... we'll look into the best options at that time)


Frankly, after DH retires, we want to live on more than just 50% of his base pay. Could we survive on just that amount? Maybe. But we would be more comfortable having additional retirement savings in place that could be used to fund our lifestyle after DH retires.

Right now, we have no kids and dual incomes, so for us, it makes sense to contribute a fair amount (I contribute a higher percentage to my 401k than DH does to his TSP). Eventually, we'll have kids, or I'll end up with a lower income, and our contributions will likely have to drop at that point so we have more available to budget with for other things. And, eventually, DH will hit 20 years of service, and balances and goals will need to get reevaluated then, too.


We also save money each month in non-retirement accounts, above and beyond saving up for a vacation or car or other large purchase. Some folks call this savings an emergency fund, I usually call it the "what if" fund, and DH likes the "stress-relief" name. It's basically savings that will help us out if something unexpected happens.

For example - MIL passed away last month, and neither of DH's siblings had the ability to pay for her arrangements. So we paid for MIL's cremation and services. Yes, this could have been put on a credit card and paid off over time, but this way we don't have to pay interest on the costs, and we didn't have to stress about coming up with the money at a time that was already stressful - we had the cash already available in our emergency fund. During the last couple years leading up to her death, DH had to make a few last-minute trips to LA to go see her and take care of things, and we were able to pay for those out of our emergency fund. Again, knowing we had the cash to handle doing this avoided a certain amount of the stress that comes with that type of trip.


Anyways, so, yeah. Savings are good. Both retirement and non-retirement.

[Jam]

I understand those things. I feel a little pessimistic. I can't believe I'm being this honest but I really don't see us even living to that age. Maybe it's influenced by the type of world we live in but I really sometimes don't even want to live past 50, much less 65. That's just speaking for myself though, not DH. I guess I will get back to the original topic...

I know that you only receive 50% for 20 years in but that amount is higher if you do 30, correct? And there's also the possibility of continuing to work elsewhere past those 30 years. Hypothetically speaking, if someone manages to do 30 years in the military and continues working elsewhere, can they contribute to a retirement account in addition to what they already have in TSP?

I'm sure some of your jaws are on the floor but there really hasn't been anyone in our families to ask this stuff to. DH's mom is on SSI (I think) and the rest of his siblings are just starting college. I'm the oldest and all my sisters are hoodrats with baby daddies lolol.

Another question I have, if you become citizen of another country, do you lose what's in TSP?

I'm pretty embarrassed to be asking this stuff as a 28 year old American but I guess I trust y'all enough to give me honest responses, so thank you in advance. I'm sorry I'm scattered brain right now too.

[audette]

DH will receive an addition 2.5% of his base pay for each year past 20 he stays in, assuming he hits 20 years to start with. Up to 30 years total, at 75% of base pay.

So, yes, if the servicemember stays in past 20, then their retirement pay goes up. (assuming this hasn't changed since DH signed up for younger servicemembers)


The amount in his TSP and his retirement will be his even if we move to another country after he leaves the military. (DH has looked into this because I am not American, and we may chose to move closer to my family.) I suppose if we moved to somewhere like Iran or North Korea, it might be problematic to receive the payments from the TSP or retirement.


Now, once DH leave the military, and, say, goes to work for a civilian employer, he can contribute to a 401k or other retirement vehicle, but the biggest benefit you get with retirement accounts is that the interest in them compounds over time, and by the time servicemembers retire from the military, the ability to build much compound interest is gone simply because of the shorter timeframe.

That book that Stan mentioned - Smart Couples Finish Rich, by David Bach - is a good introduction to what compound interest can do.


And, finally, life expectency for women in this country is almost 80 years. Men's expectancy is over 70 years. It's a reality that many people will live into retirement age, and also for many, past their viable working years, too.

[audette]

Sorry I got kinda word-y on my responses, all. I suck at talking finances without using lots and lots of words...

[Jam]

No it's okay. I appreciate a response like that

So what's the difference between a 401k and TSP?

[audette]

Sept 12, 2012 12:39:58 GMT -5 Jam said:

No it's okay. I appreciate a response like that

So what's the difference between a 401k and TSP?

TSP is a retirement account offered via a military employer (or government employer - I believe some feds get TSPs, too). 401k is a retirement account offered by a private company.

They are relatively similar, from the employee/servicemember view. The main difference is that TSPs for servicemembers do not include any matching of the contributions that a servicemember makes into their TSP. 401k's often (not always) include a matching amount that the employer will pay into the employee's 401k. My employer matches 4% - so as long as I put in at least 4% of my income into my 401k, my employer will add another 4% into the account for me, out of funds I otherwise would never have received.

There are other retirement accounts out there. I've heard of 403b (I think for teachers, or local government employees) accounts. There are also IRA (individual retirement accounts) that anyone can have, regardless of their employer. People can contribute up to $5k each year into a Roth or a Traditional IRA, and these accounts can be made at financial institutions (ours are with USAA, some use large mutual fund companies like fidelity or such).

[booyah]

Where did you find the option to put money into a Roth TSP on MyPay? I was on there yesterday looking and couldn't find it....

[basilosaurus]

Jam, the point you made about being hispanic and not thinking toward saving was actually something a local NPR show did a series on a few years back in Denver. A couple hispanic owned banks were trying to put on seminars and get people to invest into accounts. It was really interesting because I'd never thought of it as a cultural component. They're probably still online if you feel like testing your google-fu.

I'm as wasp as they come, but it never occurred to me to do tsp or 410k or anything until a couple years ago. I'm kind of ashamed. My first real job had a 401k but no matching, so I assumed it wasn't worth contributing to. HR never really explained what it was, and I didn't think to ask. I didn't make much (25k), but I could have still set something aside.

As for us, I have no idea what % it works out to, but H maxes out TSP every year now. It usually happens around October. We've also maxed out our Roths for a couple years now. We may be behind, but we're trying!

[basilosaurus]

Jam, this piece is older than what I was mentioning, but addresses the same issues.

www.cpr.org/article/legacy-archive-2587

[Jam]

Thanks for the info, ladies! I didn't mean to post and run but I am running on a tiny bit of battery on my phone.
This info is helpful to me and Sibil I recently just thought it might be a cultural issue. I can tell you that a majority of my friends don't have savings accounts. I can think of maybe 2 or 3 who use the 401k their jobs offer. We all grew up in the same area (H included). This (finances) just wasn't something that was taught to us.
I never knew how credit cards worked. I thought it was free money (I'm serious) and so I maxed out my first ever credit card and it took me years to pay that off lol! That's just to give you an example.

Sibil, I'm going to check out the link once I get to my laptop at home

[texaswildflower]

Jam, thank you for asking questions. My situation is very similar to yours. A lot of this type of information was not taught to us and I think that some of does have to do with our Hispanic culture. I've tried reading up on all of this in the past, but I would just get confused and overwhelmed with all of the information.

I had a retirement account set up when I was teaching. Now that I'm not teaching I want to move that money to another account. What is a good bank/company to move it to? And what type of account should I open?

Also, should we move H's money over too?

[texaswildflower]

Yes, we'd move H's money from his TSP. Should we move it?

A's family is somewhat similar to J's family, except much more crazy. They are always spending money on trips and paying for things for A's sister. Then they turn around and complain that they don't have money.