Robert Powell is a frequent contributor to MarketWatch.com, a favorite resource for YMM. In his article, “10 Overlooked Retirement Tips” he offers differing views on various retirement savings techniques. Here we examine 10 more techniques for military members, some that might be misunderstood and that create paralysis of action, preventing you from achieving your early retirement goals because you are afraid that they are not reachable.
1. The 8% rule. A key foundation to planning is a safe and secure emergency fund. The first tier is a three-months stash of ready cash. That is, three months of your budgeted expenses put somewhere you can get to it in an emergency. Emergencies could be a delayed military pay-day (it’s happened only once in my career, but it can happen!), an unexpected bill, or Hurricane Katrina! By saving 8% of your pay each month you can put away your emergency fund in three years.
2. Max out your ROTH IRA before you save in your TSP account. ROTH IRAs have lots of attractive features that give you flexibility that the TSP, even with the ROTH option, doesn’t have. For example, while you can’t take a loan out against your ROTH account, you can withdraw your contributions at any time without tax or penalty. Only your gains must remain in your account until age 59 1/2.
3. Watch the fees. Banks have generated billions of dollars in profit by simply changing us fees to use our own money. Consider USAA Savings Banks or military related Credit Unions to reduce or eliminate fees. Also, keep track of your bills to avoid unnecessary late fees. Consider allowing auto-payments of your regular bills to avoid fees, particularly when you are traveling or deployed.
4. Get a second quote…on everything. Whether you are buying furniture or financing your new home, get a second quote. This is particularly useful for home improvements where a second quote will either validate the first one or catch a contractor trying to gouge you because you look and act like a sucker.
5. Don’t skimp on insurance. If you are driving a new car it’s likely that you owe more on it than the car is worth. If you don’t pay a little extra to cover that gap, in an accident that isn’t even your fault, you could end up making payments on a car that you don’t even own! When it comes to life insurance, if you’re married with children your SGLI will likely not be enough to provide your family with everything they need if something happens to you. Consider doubling the coverage you have. You’ll be surprised how little that will cost.
6. Buy the car you want now…in 3-4 years. To prevent going upside down on your car (owing more on it than it’s worth) consider buying a used car the next time around. Compare a 2012 Mustang with a 2008 version. According to Kelly Blue Book, the fair price for the new car is $21,645. The used version, similarly equipped, is $13,549 in very good condition. You save $8,000. Put $2,000 away for repairs, and you’re still $6,000 ahead.
7. Save 15% of your pay for retirement. This is the simplest rule of thumb, but can sometimes seem like the most difficult to achieve. The key is to take this off the top, before spending anything else. If you’ve loaded yourself up with debts and then try to save this money it becomes much more difficult.
8. When planning your retirement location, consider the taxes. Most of us know that Texas doesn’t have income tax. Did you know, however, that property tax there is very high? RetirementLiving.com is a great resource to research areas of the country where the total tax rates are the lowest.
9. Your post-retirement health care costs are minimized in military towns. You’ll likely continue to depend on Tricare long after you hang up your uniform. Health care providers in military towns are familiar with Tricare procedures because they depend on them for a large amount of their revenue. In addition, you may find that military treatment facilities have space available for you to be seen there.
10. When creating a retirement fund asset allocation, remember that your retiree benefits are fixed assets with very low risk, on par with Treasury Bills. Many veterans build their investment portfolios without considering their retirement pay as an asset. This is likely their most valuable asset, however, an inflation protected monthly income secured by the US Goverment. Your retirement savings, therefore, can be aggessively invested in stock mutual funds, including international funds. The younger you are the better these investments look. The fluctuations you see today in the stock market are perfect for long term investors since they’ll buy more shares when the prices are low and fewer when the prices are high.