investing/401k/IRA advice while at the academy

Discussion in 'Air Force Academy - USAFA' started by never ever alone, Apr 25, 2013.

  1. never ever alone

    never ever alone Member

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    the old threads are at least 2 years old and i was wondering what advice you all have for an incoming cadet? what are the current cadets doing? what are the parents doing to "help"? in the face of a crappy economy/sequester/cutbacks, what do we do to secure/help our financial future? thanks.
     
  2. LineInTheSand

    LineInTheSand USCGA 2006

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    Get in while it's crappy and ride it back up.

    My 401k is through my employer. I also have a Roth IRA and a Traditional IRA (which I just set up for the tax benefit..now).

    Money markets are horrible... right now.


    But the good thing is it's going to gt better and you'd much rather get in low and ride it back up than to to take the hit in 2009 and get out.

    Traditional IRAs, the benefit is now. Roth IRA you have the tax benefit then, when you're retired and HOPEFULLY in a much lower tax bracket.

    As far as 401ks are concerned, many employers match. Mine matched 100% of my contributions of up to 7% of my pay. My wife's federal employer does something like 100% of 5% of her pay and 50% of the next 5% of her pay. She has a TSP.

    No reason not to save now, and hope the federal government doesn't come up with a way to tax your savings even more before you retire (because Social Security AINT GOING TO BE THERE FOR YOU.... EVEN THOUGH YOU PAY FOR IT).
     
  3. Packer

    Packer Member

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    The Roth IRA also offers some extra flexibility. The money you contribute is after tax dollars, therefore you can withdraw the principal portion of your IRA at any time without penalty. Not a good idea to do if you are trying to save for retirement but it does give you that flexibility.

    The big thing is to start saving now if at all possible. The extra years are incredibly valuable and you really can't make up for the missed opportunity later.
     
  4. LineInTheSand

    LineInTheSand USCGA 2006

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    It is especially good to save when you don't have all of the pressures you will in the future, with rentals, cars, insurance, blah blah blah.


    And pay attention. In 2008 money markets broke the buck and started losing money. I pulled a nice chunk of my money out and threw it into a nice FDIC insured savings account. Five years later, while some investments have rebounded quite a bit, money markets haven't really bounced... yet. Now in 2 years, maybe they will.
     
    Last edited: Apr 25, 2013
  5. burnerafter16

    burnerafter16 Member

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    It's obviously different for everyone but after some consultation, DS was able to figure out what's his disposable income is after all the deductions. Opened up a USAA account and started a ROTH IRA with automatic deposits from his account with the academy. They matched to a whopping 2% of contribution but it's a good start. We convinced him that it'd be a good habit to get in. As an incentive, we offered to match his contribution separately so he has spending $$ if he needs it for that 60 day leave when he graduates. Hopefully.
     
  6. Packer

    Packer Member

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    Adding to my previous post:
    The typical cadet is in the lowest tax bracket they are ever going to be in right now. With the Roth you pay the tax now and its earnings are tax free (unless they change the rules). The traditional IRA will give you a tax break now but when you are already in the lowest bracket it really doesn't amount to much and you will pay the tax later when you withdraw it and are in a higher tax bracket.
     
  7. burnerafter16

    burnerafter16 Member

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    :thumb:
     
  8. Christcorp

    Christcorp Member

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    This is a little non-direct, but the OP did ask what some parents did. My main point is at the bottom, so bare with me.

    As most kids in high school, mine wanted to get jobs when they were in high school. I only allowed this in the summer. I didn't allow my kids to have jobs during the school year. My theory was: "School is your job". I knew that if they busted their butt in school (Their Job), that it would pay off big time at the end. I.e. scholarships. If the kids needed/wanted anything during the year that their christmas, birthday, allowance money couldn't provide; I would pay for it. (If it was legit). If I didn't agree, then they could wait for their next birthday or christmas.

    Well, my theory was right. It cost me NOTHING for my kids to go to college. And both had many choices on where to go. My daughter went to the state university and my son went to the air force academy. I continued this policy in college. So my daughter could concentrate on her education, and it wasn't costing me anything to go to school, we gave her money (Allowance) each month for spending. She later liked living in the dorm so much, that she got a job as a Resident Advisor which gave her free dorm and free food. Plus it paid her a little money each month. She finished her B.A. in 4 years.

    With my son at the academy, we felt the exact same way. He busted his butt in high school, got multiple scholarship offers, and it cost us NOTHING for him to go to college. So, like his sister, we gave him money (Allowance). Gave him a check twice a year. He used this money for ski lift tickets, food, entertainment, etc... Whatever he wanted for.

    As such, he was able to basically save a lot of money by the time he graduated. Between his cadet pay and the money we gave him, he graduated with more than enough money to set up an apartment, furniture, etc... We also, as part of his graduation present, the car we let him use at the academy for the 2 years he could have one, we signed the title over to him. So, he had no bills. No debt. Plenty of money in the bank. So, he took out the $35,000 USAA 0.5% interest loan, and invested it. $5,000 in CD's; $5,000 in a Roth IRA, and again for the next 2 years. The remaining $10-$15K stays in the bank. Each year, he'll take $5,000 and add to his Roth IRA with it. So, when his 5 year loan payback is over, his $500+ monthly payback with be over with. THAT will be like getting a Pay-Raise. That's $6,000+ PER YEAR. $5,000 of that will be his yearly IRA contributions. He keeps the extra $80-$90 a month. He's never seen it anyway, so he'll never miss it. Plus, during those 5 years, he will have received 2 promotions. To 1st LT and to Capt. If he does $5,000 per year until he's 62, at a small interest rate of 4% per year, he'll have approximately $500,000 in a ROTH IRA. TAX FREE. This doesn't include military retirement, career after leaving the military, etc...

    In other words, while starting sooner is better, if you plan better DURING the 4 years at the academy, you can use the low interest loan from the USAA for investments and long term, instead of using it for a car or setting up an apartment when you graduate.
     
  9. burnerafter16

    burnerafter16 Member

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    Thanks for this awesome example.:thumb::thumb:
     
  10. Packer

    Packer Member

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    Well planned.:thumb:
     
  11. jasperdog

    jasperdog Member

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    If it's all the same to you I'll just bear with you rather than "bare" with you - I'd prefer to keep it PG for right now but who knows maybe after we get to know each other better.... but otherwise I loved the example and the thoughts
     
    Last edited: Apr 25, 2013
  12. Christcorp

    Christcorp Member

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    I would like to preempt a response I have heard from some parents over the years. That them contributing to their son/daughter at the academy, like I did, isn't always possible. That some families just can't afford it. My response has been: "What would you have done if your son/daughter didn't get into the academy"? If the answer is; they would have had to get scholarships and work through college, and that they (The Parents), weren't going to help them financially; then their response of not being able to afford to help at the academy is valid. But if they were going to provide any type of financial assistance to their son/daughter in a civilian school, then there's no reason they can't give that assistance while they are at the academy. My theory is: It was my SON who busted his butt and received the appointment. Not ME". Any financial gain that comes from that appointment, should at least be SHARED with him. Afterall, he's the one who did all the work.

    But I will add, that I talked about school, college, work, careers, retirment, etc... with my kids from the first day they started Kindergarten at 5 years old. I told them that contrary to some beliefs, I believe(d) that the American dream is alive and strong. That if they worked hard through school and growing up, that they could reach all of their dreams. They could go to any college they wanted. They could have any job they wanted. They could live the life they wanted. And be as happy as they wanted. Both of my kids did just that. They both graduated at the top of their class. They both got into the colleges they wanted. My daughter graduated and got a very good paying job that she loves. My son graduated the academy and was accepted to grad school, where he is currently at. And I have no doubt that both will have a very good, happy, and prosperous life.

    I know this experience may not be helpful to many. But maybe someone who is reading this and still has 8-10 year old children at home, can assist them with achieving all of their dreams. And the older you get, the more you realize that while I love having success, money, dreams, travel, etc... Watching my kids achieve greatness is the greatest success and achievement for myself that I could ever want.
     
  13. Christcorp

    Christcorp Member

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    :shake: LOL!

    At work, I write a lot of contracts, reports, etc... Spelling, grammar, etc... are very important. When I'm not at work, I have no desire whatsoever to proof-read. I type well over 50-60 words a minute. At work, everything is proof-read. Here..... Sorry. Too lazy. Actually, it goes beyond lazy. I simply don't care. LOL!!! :thumb: hee hee.
     
  14. never ever alone

    never ever alone Member

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    thanks , this was exactly the example i was hoping to see. 0.5M by retirement age PLUS what the AF gives you is a home run. great planning CC. something to think about.
     
  15. icarus

    icarus Member

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    Priceless:beer1:
     
  16. Packer

    Packer Member

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    Nailed it here.:thumb:
     
  17. Christcorp

    Christcorp Member

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    FYI. I calculated 40 years at 4% annual interest. That brings the individual to an average age of 62 years old. (22 when graduating the academy, + 40 years). 2 other variables. Besides military retirement, if that's part of the plan, chances are that the individual will retire from the military at the age of 42-45. Which means, ANOTHER 20 YEARS OF EARNINGS from their NEW JOB!!!!! You tack THAT job's pension, or 401K, or 457b, or whatever THEY OFFER, to the $500,000 + Military Retirement..... And you're in pretty good shape. Plus, it is not unrealistic to be able to achieve MORE than the 4%. I was being conservative because of the market's fluctuations. I've been investing for a long time and you never know what can happen tomorrow.

    Anyway; just wanted to show HOW I came up with certain numbers and not that they just came off the top of my head. In reality, using TODAY'S LAWS; if that $500,000 (All tax free ROTH); + you have 20 years worth of 401K, at 4% with another $5000 per year, that's ANOTHER $150,000. PLUS, you add on the military retirement and any retirement if available from the 2nd career. But you have to look at a lot of variables. Roth IRA is limited to $5000 per year (Under 50 years old). A 401K at the 2nd career is a lot more than that. I believe it's up to 16-17% of your pay. (I haven't looked in a while). In other words, you can save a lot more. PLUS. The $500,000 I mentioned; IF the average interest is 6%, then the number would be about $775,000 . Have fun. LOL!!! :shake:
     
  18. aggie83

    aggie83 Member

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    Can you please expound on what the 2% matching is? Is that after the cadets graduate?
     
  19. PDub

    PDub Prospective

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    I'd like to just point out that the Roth IRA contribution limit changes every couple of years. For 2013 the contribution limit for a single individual is $5,500.

    The 2% matching is done by USAA, and basically they will add into your Roth IRA account 2% of what you put in for that year. It's not necessarily after graduation, it's whenever you make your first Roth IRA contribution.
     
  20. Christcorp

    Christcorp Member

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    I was using standard numbers to remain conservative with my forecasts. The truth is: We have no idea what our "Loving" government officials will do in the future. ROTH's may lose their tax free status. IRA's all together could lose ANY tax benefits. Social Security may not be there. Our bank accounts could be raided to pay for the debt. Do not at all believe that what happens in places like Cyprus can't happen here. If you believe that our government/politicians care more about us, than maintain their power and control OVER US, then you would be naive. That's why the teens/20's generation aren't allowed to privatize their social security. The MORE independent we as individuals become, the less DEPENDENT we are on our government. They won't allow that.

    That's why it's important that the younger generation do 3 things.

    1. Maximize your skills and marketability so you can get the type of job that you like, but will also provide you the means to care for yourself 100% when you stop working.

    2) Besides believing there will/might be a pension from whatever job you have; such as the military; you need to invest on your own. They could very easily eliminate any type of pension from the military. If you DO PLAN to get a military retirement or social security, consider it icing on top of the cake. Do not even include it in your retirement plans.

    3) When you do invest, make sure you DIVERSIFY your investments. 1st, check out the TSP (Thrift Savings Plan). Military/Government version of a 401K. Find funds that have a good track record and are allocation type funds. Fund this if you can. It's pre-tax and you aren't limited to the $5,000+ each year. Fund a ROTH IRA too. Make this diversified too. I have an IRA that is basically a mutual fund made up of 13 mutual funds. My 401K is made up of large cap, small cap, and international. My ROTH in strictly international. I also have gold and silver. (Physical, NOT Papter). Point is; DIVERSIFY...

    A cadet coming out of the academy will be starting with a decent paycheck. Investing $450-$500 a month in a ROTH IRA is not going to be a problem. If you use the $35,000 loan for the investing, then the $500+ you're paying them back each month is fine, because you're going to put the $35,000 into investments. After the 5 years, if you get out of the military, hopefully you'll find a decent job that pays at least what you were making as an officer. If you stay in, just keep that $500+ you were paying back the loan with, into investments. And don't forget the TSP (401K). Best of luck,.
     

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