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Posted on Apr 7, 2014
Do you invest using TSP, Roth TSP, or outside investments?
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Throughout my military career, I have had many leaders recommend investing in the TSP. I never wanted to because it didn't seem like the best investment option because investors will need to pay taxes on the earnings when it is withdrawn in the future. Since October 01, 2012 the Army has had a Roth TSP in place. To me, this seems like a much better investment option for a majority of Soldiers because contributions are already taxed at the investor's current tax rate, but will be tax free upon withdrawal in the future. Since many Soldiers pay such a low tax rate (factoring in the already low tax rate due to income level, the earned income tax credit, any child tax credits, and any education tax credits), that this can be a virtually tax free way to invest.
Do you invest, and if so, do you use either of these options or do you use another method to invest? I use the Roth TSP and have realized about a 6% gain since starting in Oct 12.
TSP
Retirement
Investing
Personal Finance
Posted 12 y ago
Responses: 30
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C, S, I Funds at 30% and F Fund at 10% - I've been beating the Lifecycle funds every year. I also have two Oppenheimer Roth IRAs, and two 529s for the boys. I also invest in guns and ammo. All bases are covered!
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SFC (Join to see)
You have to log-in to the actual TSP website and you can allocate where your funds go. MyPay only does so much. No, it didn't roll your money over, you have to do so through the TSP website. I believe you have to request a password and your acct number the first time to create a log-in. They send those in the mail to your address on file.
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SFC Tierney,
In AIT, we had a mandatory Financial Management course. I hated it and it was 8 of the most boring 8 hours of my life, but I'm thankful for it! I learned how to read my LES and learned how to use TSP to my benefit.
Now, I invest 15% of my income to TSP via the L 2050 fund and averaged an almost 25% annual return after expenses. My favorite aspect of investing in TSP is that I can take a loan out on my fund and pay it back at a low 1.89% interest rate (or whatever the G fund interest rate is at the time I initiate the loan).
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CSM (Join to see)
Yes the TSP is a very good option afforded to us now. If you can avoid it never take alone against it. Remember compound interest is where you make it at the more base the better interest.
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LTC (Join to see)
If I'm not mistaken, taking a loan out against your TSP may end up costing your more than the 1.89% as I believe it requires you to reallocate money for any loans taken into the g-fund. In that case, the expected return on the g-fund is substantially lower in the long-run than in the C or S funds. That means in addition to the 1.89%, you're also losing a 6-8% return, making the real cost to you about 8-10%... about the same as a low interest credit card, but more than a car, home, or home equity loan. So, in the long-run, you're better off taking these forms of credit than borrowing against the TSP. In a short-term situation, it's negligible.
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We started 529 funds for both kids and a Roth for me in 2003. At the time I was an E-4 and we were investing $100 per month. With every rank I took the difference and invested it, currently we are living on E-6 pay. After making E-7 I called my investment broker and we moved some stuff around, when I got the statement I realized that since 2007 we were getting almost 27% ROI.
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CSM (Join to see)
this is why it good thing to live on the budget. I had a WO3 from the Marine Corps and had done the same thing as you (including living on an E6 wage) Is loving retirement now. Keep up the good work.
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SFC (Join to see)
MSG Frank, I used to keep an old account statement at my desk for when I had a new Soldier report to me. I showed them how much of my own money I had put into the account (I started out with $50 per month for me and $25 per month for each kid for three years) and what the current balance was. I did this not to show off, but to show the power of investing and how just a few dollars today could mean thousands tomorrow. Some would just listen, others would invest in a new TV, while others would actually start investing. I try telling them that if you invest your raise/bonus you won't miss "not" having it. But, if you start using your raise on other things and then want to start investing you will miss it. My only regret is that I waited until I was 27 to start investing.
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I will tell you my reasons. I do not contribute to TSP first because there is no matching contribution. Secondly, because the government borrows from benefit programs to include TSP, and I am not sure about you, but considering we can't pay our debts and we are struggling to find ways to continue to budget, not something I want to lose. It has happened in the past.
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LTC Mel Magsino
You are certainly entitled to your reservations...but would only hope that you are not forgoing retirement savings altogether and at least maximizing contributions to your IRA, despite its relatively modest maximum limits.
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SPC William Del Valle
I respect your opinion but my father (retired CW3) is kicking himself every day because he should have started when he was younger. The TSP is federal and you can still make contributions if you decide to take another federal job. He has about 53K in it now and that is half military and half civilian contractor. You also have an option to transfer it to a civilian IRA with no fees. I started one, and by the time I got out, I had 3k and unfortunately I had to take it out to use it for a deposit for a house. I don't trust banks and any money I get, I take it out asap so I know I will have money in hand. Also I didn't have to pay any fees when I took the money out. Best of luck.
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I wish all soldiers could see the importance of taking advantage of one of these investing tools. The retirement pay they will receive after 20 years will be disappointing and will not afford them the lifestyle they can afford while on active duty.
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SGT (Join to see)
SFC Chaplar,
I think that Soldiers are now being taught the importance of investing. I was required to take a Finance Management course in AIT in 2012. That was at Fort Gordon, but it may be mandatory at other posts as well.
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SFC Douglas Eshenbaugh
No, taught isn't the right word for what is going on. They are given a briefing, probably a canned power point, and given with as much enthusiasm as someone being told they have CQ. To use the word 'taught' implys that they 'learned' something. Given the conversations I've had with new Soldiers about personal finance, they are not learning anything.
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I invest in both, the traditional TSP as well as the Roth TSP. I am by no means a financial guru but have had a great return on my investment.
There are advantages of using both of these investments, the traditional TSP reduces the taxable income now (you are responsible to pay the taxes later on) while the Roth TSP does not require taxes to be paid when you get the money out at retirement (since you've paid taxes on the money already).
You gotta figure out what works best for you, but you have to do something and the younger you are the better off you are!
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CSM (Join to see)
every young soldier that passed through my (now Company) gets the break down on TSP and Why it is important to them to invest in their future.
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Sir,
Keep in mind when you are looking at that number that about 60% of the military strength consists of junior enlisted and junior NCOs with less than 6 years. The wages in those pay grades are not exactly grand in scale. School debt, family, bills, the insurance on the new car he bought with his bonus. Most of the income for those Soldiers is spent recovering from financial missteps, especially if they have any intention of remaining in the service. Another consideration is that at that level, most aren't interested in a savings plan because they think they can catch it up later.
Until there is an active Choice Architecture built into the Army plan with a default amount going into the TSP and a match plan like that provided for civilian employees, you are going to have an extremely difficult time getting that number any higher.
Keep in mind when you are looking at that number that about 60% of the military strength consists of junior enlisted and junior NCOs with less than 6 years. The wages in those pay grades are not exactly grand in scale. School debt, family, bills, the insurance on the new car he bought with his bonus. Most of the income for those Soldiers is spent recovering from financial missteps, especially if they have any intention of remaining in the service. Another consideration is that at that level, most aren't interested in a savings plan because they think they can catch it up later.
Until there is an active Choice Architecture built into the Army plan with a default amount going into the TSP and a match plan like that provided for civilian employees, you are going to have an extremely difficult time getting that number any higher.
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LTC Mel Magsino
Chief,
I too started as a lower enlisted Soldier so I am aware of the seemingly "paltry" compensation at a lower rank. However, maybe instead of US Savings Bonds which I purchased religiously as a young Soldier, we should be highlighting the TSP instead. $50 or $100 a month would go a long way, not to mention build upon those healthy habits of saving/investing regularly. Pretty soon, with compounding, those funds will be growing and one will not even feel the pinch. A foundation of saving and investing can be established that would serve them throughout their career(s), in or out of uniform.
While the default enrollment for 401ks are catching on in the civilian sector, I am hesitant to prescribe such action for the TSP.
I too started as a lower enlisted Soldier so I am aware of the seemingly "paltry" compensation at a lower rank. However, maybe instead of US Savings Bonds which I purchased religiously as a young Soldier, we should be highlighting the TSP instead. $50 or $100 a month would go a long way, not to mention build upon those healthy habits of saving/investing regularly. Pretty soon, with compounding, those funds will be growing and one will not even feel the pinch. A foundation of saving and investing can be established that would serve them throughout their career(s), in or out of uniform.
While the default enrollment for 401ks are catching on in the civilian sector, I am hesitant to prescribe such action for the TSP.
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CW2 Joseph Evans
The default enrollment in TSP is really the only way to go. Most Soldiers learn to live within their means or find themselves on the way out in fairly short order.
The only real problem I see is right up there with the post by SFC Daniel W, with the recent spate of court rulings disbanding company managed 401ks and retirement plans to cover bankruptcy costs and golden parachutes for management, there is a growing consensus that retirement funds, previously thought secure, are not the way to go. With allegations that this sort of thought process is extending to Government operations (actual government worker pension plans, not the "borrowing" from SS that has already occurred) at local, state and even federal levels, can you blame someone for thinking twice?
I mean, could you imagine the problems if every Soldier in your BDE found out that their TSP accounts were seized in order to pay severance packages for the BDE CDR, XO, S3 and CSM?
The only real problem I see is right up there with the post by SFC Daniel W, with the recent spate of court rulings disbanding company managed 401ks and retirement plans to cover bankruptcy costs and golden parachutes for management, there is a growing consensus that retirement funds, previously thought secure, are not the way to go. With allegations that this sort of thought process is extending to Government operations (actual government worker pension plans, not the "borrowing" from SS that has already occurred) at local, state and even federal levels, can you blame someone for thinking twice?
I mean, could you imagine the problems if every Soldier in your BDE found out that their TSP accounts were seized in order to pay severance packages for the BDE CDR, XO, S3 and CSM?
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LTC Mel Magsino
I myself am not worried about the government borrowing funds from the TSP's G Fund. This happened a couple of years ago and earlier this year. Basically, the government borrowed money
from the G fund temporarily, and gave the G fund IOUs which were
redeemed at the proper value after the debt limit was raised; it was a
non-event for fundholders.
The G fund securities are backed by the full faith and credit of the
US Government, so they are just as reliable as any other Treasury
bonds.
from the G fund temporarily, and gave the G fund IOUs which were
redeemed at the proper value after the debt limit was raised; it was a
non-event for fundholders.
The G fund securities are backed by the full faith and credit of the
US Government, so they are just as reliable as any other Treasury
bonds.
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SSG (Join to see)
I agree with chief here too look at the amount of Title Loan or Payday Loan offices near and around military bases. Service members are notorious for getting into bad financial sitiuations and end up using these services. Typically they lose about 10% of their pay every month to these places and the last thing on their minds is saving for the future.
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TSP participation hits record high, $451 billion in funds
About 88.1 percent of federal employees in the Federal Employment Retirement System contributed to their TSP accounts in February.
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GySgt Wayne A. Ekblad
One thing to keep an eye on with regard to TSP, is the proposed changes to the "G' Fund ...
http://www.federalnewsradio.com/20/3826760/Pay-pension-and-TSP-take-aways-you-didnt-order
http://www.federalnewsradio.com/20/3826760/Pay-pension-and-TSP-take-aways-you-didnt-order
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I personally diversify my portfolio by doing TSP through military and the rest outside the military (Mutual Funds, Roth IRA, stocks, and precious metals). This way if one tanks I am not crushed. I have co-workers whose stocks go down and they get nervous about their retirement. I like to have a balance.
Oh and if deployed so the SDP to get the 10% interest.
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I invested about $4k into TSP. Then did some research and started investing in American Growth Funds. I also pay an extra $150 a month for me and my family to have life insurance and I forget the name for it but that's what I'm paying for the rest of my life.
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