Military Personal Finance Flowchart

[abidingpatri0t]

Hello fellow TSP investors. I'm working on a one page "Personal Finance Flowchart for Military Servicemembers"

https://i.imgur.com/0LMKpg8.jpg v1.0

https://imgur.com/qBKLero

v2.0 with community edits

It's inspired by and similar to this one from r/personalfinance

https://imgur.com/lSoUQr2

and the old one:

https://www.reddit.com/r/personalfinance/comments/4gdlu9

Looking for feedback.

I'm trying to make this one page, actionable (i.e., do this, then this, don't do this), and relevant to 80%+ servicemembers, enlisted, officer, any branch, etc.

I think we're pretty good with the edge cases on the subreddit, but I think a lot of questions could be addressed with a simple one pager.

Edits:

• Adding a block for budgeting.
• Recommending TSP first with L2050 fund and then Roth IRA.
• Also note I'm writing this for a absolute beginner to military finances. This is the absolute bare essentials so they don't completely fuck up their financial life in their twenties.
• Changing SDP verbiage to read "Savings Deposit Program (SDP) - maximum contribution of $10k. Pays 10% annually. Great place for emergency fund."
• Version 2.0 here:

  https://imgur.com/qBKLero

 

[holywalk]

@abidingpatri0t I’d argue that for those that need this chart, TSP should go above IRAs. For those that understand finances, you can make that argument all day about wanting more control over your money. For others, the L funds are perfect.

 

[bevm]

@holywalk Absolutely, TSP then IRA. An IRA should be the last thing on this particular list.

L fund should also be the default option, with advice to check out the CSI funds with research and risk tolerance.

 

[resjudicata]

@bevm Should I prioritize TSP even if im planning on doing 20 and retiring at 40? It would be 20 years before i could even see that money

 

[abidingpatri0t]

@resjudicata Yes, for the tax advantages. Also, will 60 year old you not need money?

There are ways to access retirement funds before age 59.5. https://www.madfientist.com/how-to-access-retirement-funds-early/

 

[bevm]

@resjudicata Well, yes. You have a higher contribution allowance in the TSP than you do with an IRA, so the more money you put in the TSP as early as possible the more it will compound over time.

You can potentially retire from the DOD at 40, bit you'll almost certainly need another job after that to supplement your pension.

A ROTH IRA will allow you to remove the contributions at any time, but not interest earnings. That is subject to the same penalties, fees, etc of not being retirement age.

 

[resjudicata]

@bevm I enlisted in the Air Force about 6 months ago and have been contributing 10% to my TSP. I don't see myself being able to max out the TSP (the limit is currently larger than my paycheck at E3) for a pretty long time, thus delaying opening an IRA entirely. Would you still recommend that course of action even if I can manage to max a Roth IRA with my current budget and still contribute 5% to my TSP at the same time?

Maybe it's only in my head that "2 retirement accounts is better than 1" makes sense, but I'd really appreciate your input.

 

[bevm]

@resjudicata It really depends on what your goals are.

If you put it in an IRA you can access the contributions penalty free whenever.

So if you're looking for liquidity, then the max the IRA out, and put in enough to the TSP to get the full match.

 

[myrtleblossom]

@holywalk IRAs have L funds though - they're just called target date funds. They're more flexible and have that hands-off capability. The tax advantages are the same either way.

This flow chart is just a little different from the one on r/personalfinance but I'm drawn to the simplicity in OP's post.

https://i2.wp.com/savingonfire.com/wp-content/uploads/2020/01/Fund-diagram-1-scaled.jpg?w=1136&ssl=1

 

[abidingpatri0t]

@myrtleblossom That's a good flow chart, but a bit convoluted. I'm trying to do the "1 note card" approach

 

[abidingpatri0t]

@holywalk Yes, remove the complexity. I like it.

Tough for me to remove it because I feel like $6000/year is such a more tangible and achievable goal for more enlisted/young Os. But probably simpler the better.

 

[resjudicata]

@abidingpatri0t I'd just put them side by side and a brief explanation of why you might want to do an IRA over the TSP. Like super brief of you're trying to keep the word count low.

Something like "Roth TSP: More simple. Set it and forget it.

Roth IRA: More complex. Invest in individual stocks and funds of your choosing."

And maybe an asterisk or note about the different early withdrawal rules.

Idk just a thought.

 

[julian246]

@holywalk That’s a really good point. I would want my IRA over my TSP, but that’s for some more specifics retirement and flexibility options not available through the TSP as easily. I think you’re right that for someone looking for this level of advice should absolutely go do for TSP and the appropriate target date account.

 

[resjudicata]

@julian246 What kind of retirement/flexibility options do you have in mind?

 

[julian246]

@resjudicata I’m going to use my Roth IRA to find the first few years of early retirement while converting my traditional TSP via a Roth ladder.

 

[plains]

@abidingpatri0t When do you buy a Mustang at 16% APR?

 

[abidingpatri0t]

@plains Good call, I will add that. Step 0.

 

[spreading_the_gospel]

@abidingpatri0t Love the never First Command!

 

[christianpessimist]

@spreading_the_gospel It's painful, but it gave me lessons to teach others. I tell people to go read the personalfinance sidebar. 5 hours 5 years ago would have saved me around $7,500 in money wasted, all the gains on it, and better performing funds for the last few years. But hey, we learn and live!

 

[spreading_the_gospel]

@christianpessimist Fell into the same trap friend, but as you said its now become a teachable moment to help others.