How to invest during deployment

[Deleted]

Long time lurker..first time poster.

Looking for advice. DH is deploying in less than a month. Because of this, we have two savings options that would normally not be available to us. We can throw his entire paycheck into his TSP (military 401K - no match). The contribution limits are increased to $49,000 for the time he is overseas (we would not come close to hitting this limit). Or we can use up to $10,000 of his pay and put it into a savings account that would guarantee 10%/year. DH will be gone for 6 months and the money would only earn this rate for the amount of time he's gone.

I see the TSP as a long term plan and the savings account as a short term thing. I'm just not sure I should be using 10k of the money for a quick return. Please help!!!

[bobosensei]

zaralina- My husband is currently deployed right now. We always take out 10k from our emergency fund to put into the savings deposit program to earn the 10% interest. We haven't raised his TSP contributions though. We use TSP to lower our taxable income and his income is not taxable right now anyway so we are working on taxable investments and other savings goals. In my opinion the only reason to put 49k in TSP would be if you were really behind in saving for retirement, or if you were getting a bonus while downrange.

IT is hard to give you advice without knowing a bit more about you and your family. Do you have kids, do you work, what kind of debt do you have, what are you already doing for investments, how old are you both?

[robbase]

First and always max out the SDP as quick as you can, you will never get a guaranteed 10% anywhere else --upon re-deployment you can than funnel that money into the TSP

how much would you have available to invest & what rank is he? if he is enlisted he probably doesn't pay much taxes anyway, so the tax advantages will be negligible

the only TSP advantage to being deployed is you can more money in there...some people will tell you that your tax free money stays in there and when you draw it out you get it tax free (the principal not the compounding)...but if you simply took it in the form of your husband's paycheck he would get that tax free anyway so it is a wash (and I would argue "x" (let's say $5K for argument sake) amount in tax free money now will be worth less in the future due to inflation--i.e. would you rather have $5K tax free this year or $5k tax free 20 or 30 years from now?)

[Deleted]

I guess I never thought to put the money into taxable investments instead of the TSP. It makes sense.

DH is 38 years old and an AF captain, I am 40 and a SAHM with no other income. We have two kiddos - both under 3.

I feel like we are behind in saving for retirement. We didn't really get serious about it until 2008 when we had our first born. Amazing what kind of wake up call kids are .

We only have $60,000 in the TSP and about $60,000 in our Roth IRA's. We have been maxing out both Roth's and his TSP for the last 3 years. We also have a 20K EF and about $70K in taxable investments - a mix of index and actively managed funds. We have no debt other than our mortgage and our cars are newer, so we currently don't have any savings goals except for kiddo 529 plans and retirement.

[robbase]

I feel like we are behind in saving for retirement

as long as he plans to stay in for 20 yrs you are WAY ahead of most people...if he stays in for 20 that is easily the equivalent of over like $1.5 million in benefits (if you were to look at the net present value fo the benefits he would recieve over his lifetime)

I would still continue to save for retirement in other accounts as well though

[robbase]

So I assume you have been saving about $25 K per year the last 3 years (both max Roths: $10 K & approx $15 K per year for TSP)

Has he already deployed - are you already used to the deployment pay or is he about to deploy / deployed pay has not shown up yet?

Will you need more money once he is deployed (i.e. will you need more money to hire someone to do the grass or whatver he normally does and things like that? Also usually he won't spend as much during deployment....but be realistic (I know some people that actually spent more during deployment some how...also know some people spent more than their next year's pay check just prior to deployment (new car, shiny rims, etc. in the storage parking lot for the deployment :-(

Once you have an idea for that you can plan better

Initially my recommendations would be:

1) Max out SDP, upon 3 months after re-deployment than move this into a Roth if possivle (if it won't be maxed out), than TSP (if it won't be maxed out), or lastly taxable / "normal" mutual funds

2) Continue to fund Roth IRAs to the max

3) Fund TSP as much as possible (max if possible)

4) Any left over look at regular mutual funds (Vanguard, whatever, that are taxable)

[❤ mollymouser ❤]

Hello Zaralina ~ I just wanted to say hello! (I'm a military wife, too!) My wonderful DH is currently stateside, but scheduled to deploy back to Iraq (this will be deployment #8 for us) in less than two months. If you need anything or just want to chat, feel free to drop me a PM.

[Deleted]

Thank you for the advice.

DH hasn't deployed yet and we have an appointment with the finance office in a couple of weeks, so I'm trying to come up with questions to ask them.

He does plan on staying in and retiring after the 20 years so he'll have the pension. The retirement savings outside the TSP is more for my piece of mind - just in case he dies early into retirement I'll need money for me. The spousal benefit of his pension would give me about 25% of his base pay - not enough for me to retire on (I know - I'm thinking WAY ahead).

As far as increased expenses, my travel expenses will be going up. I will be flying to both coasts at some point to visit relatives, but I figure that food and electric etc.. will go down a little because I won't be living at home for 2 of the six months. The babysitting expense will also increase. I will be needing a break from the kiddos probably every other week. Battling a 2 year old gets exhausing. I plan on cutting the grass or any other basic maintenance stuff (praying no major appliance breaks) . Not a big increase overall - I figure about an increase of $2k for the six months.

[robbase]

just in case he dies early into retirement I'll need money for me.

this is what life insurance is for, I would just make sure he has enough of that, I would not necessarily count on investments to cover a death of a loved one

[fadiver]

Zaralina, first, good luck to your husband. Second, I believe most of these posters regarding the SDP are incorrect. The SDP contribution is maxed out up to his base pay plus allowances per month. You don't just plop down 10,000. You can continue to contribute each month until you reach 10,000, though. Also, the return is 10% compounded quarterly, not 10% right away. This means it's 2.5% for the first quarter, then another 2.5% on top of that for the next quarter, etc., up to 10% for the year. My point is, the SDP is really not that good. If he's only going to be gone for six months, you'll probably be able to get to the 10,000 by the fourth or fifth month (whatever a captain makes these days), and you'll make about 5%. Oh, and it does not grow tax free, even if the monies deposited are not taxable income. Anyway, go to the DFAS website and check it out. TSP is a better way to go.

[robbase]

My point is, the SDP is really not that good.

so what other investment is going to give a GUARANTEED 10 % return (by the way it is usually understood when someone quotes an interest rate with no footnote / detailed explanation it is at a per annum basis and not "instant"..also in the OP she acknowledges the 10% is per year

a captain with 4 years (which is a typical captain) makes $4,900 per month in BASE PAY, also BAH, BAS and other pays (combat pays etc) add to the max amount he can put per month in the TSP (of course this is less any allotments, but if he is smart / able he will eliminate any allotments during deployment and set up bank autodrafts or something)

so he should be able to easily max in 2 months (he has to wait 30 days to add any money so really he won't max out until month 3 of deployment, but he can keep it in the SDP and earning interest for up to 3 months AFTER redeployment)

assuming he is deploying soon, he will probably only have 7 months of taxable pay this year. $4,900 base pay a month times 7 months is about $35 K he will make in taxable income this year. I don't really see any tax break from the TSP based on this "low" annual salary.

$35 K a year with tax breaks for kids, a mortgage, he will have a zero tax bill without any TSP contributions / deductions....for this reason alone Roth IRA first would be the way to go as a first priority than TSP (again though after maxing SDP, because no other investment will guarantee 10% annual rate, so what if he won't have the money for a full year, what other investment will guarantee that rate even for a shorter period???).

[Deleted]

DH has been in for 10 years (he's a major select) so we can get the full $10k in the SDP by the third month and Robbase is right. The money can be left to accrue interest for up to 3 months after he gets back so we should be able to get interest for 7 1/2 - 8 months. That's not too bad. We will only have a little over 6 months of taxable pay. Hubby leaves in 3 weeks and will be back mid January.

After all of your advice, I'm thinking I'm going to use the SDP and then investing in taxable accounts. Our Roth IRA's are already funded for this year so we can leave the money in the SDP until March 2012 and then withdraw it and use it to fund our 2012 roths. Also the advantage of using the taxable accounts is that if we decide to retire early we will have access to that money.

As far as the life insurance, DH has a hangup with this. He originally only had $200k on himself but grudgingly maxed out the sgli when he found out he was deploying (which is still not enough). If something were to happen to him, kiddos would go to daycare and I would go back to work - not making nearly as much as he does. He's happy because I can pay off the house. I'm not because the purpose of LI is to use the earnings to live off of, not the principle. He doesn't agree with this concept. It's a big point of contention since we've had the kids.

[❤ mollymouser ❤]

Zaralina ~ when you have the time, check out the life insurance policies offered by www.aafmaa.com/.

You can also check out life insurance policies with USAA, too ~ they have pretty good rates for servicemen.

My wonderful DH has the standard SGLI policy, SSLI (a supplemental state life insurance policy), a life insurance policy with AAFMAA, plus a life insurance policy with USAA. (We're replacing the value of his retirement should he die while still in the military.) And I've got the spouse SGLI policy.

Needless to say, we believe in life insurance.

[robbase]

but grudgingly maxed out the sgli

he does realize that he does NOT pay any SGLI premiums while he is deployed- correct???

Congress recently changed this that Congress / US Gov will fund the SGLI for all deployed military...just the military members have to actually elect full coverage

the $ amount will show on his LES as both a deduction and an entitlement so it is a wash

[robbase]

..... and Robbase is right

of course I am right , I am an Army finance guy and all military pay regardless of service works pretty much the same way

[fadiver]

I understand what you're trying to say regarding the max contribution per month, but he's only going to be deployed for six months, plus the extra 90 days, and that still won't equal 10%; it'll be about 7.5%. Of course, it's still guaranteed, so I guess that's what they're looking for. Zaralina, it'd be interesting to hear your thoughts after your husband's return.

[robbase]

fadiver -- so I guess you are saying the SDP is "good" if you stay for 12 months or more to get the full guaranteed 10%, but it is somehow not as good if you only get a guaranteed 5% in 6 months or even a guaranteed 0.83 % for one month...... you do realize these all mean pretty much the same thing if you would do it for one year why would you not for a shorter time for the same interest rate (albeit prorated?)

where else could you get a guaranteed 2.5% return for investing your money for 3 months?

[fadiver]

I'm just trying to disabuse zaralina of the assumption that they can automatically deposit 10,000 and at the end of her husband's deployment, they get handed 1,000.00 (10% return), especially as I've found a lot of soldiers (I'm the Army as well), think that. And, it appears from what I've read that they even have to pay taxes on that return (although I was surprised about that since it's tax free money being deposited, so maybe that's not true). In my opinion, I think long term putting the extra money tax free, dollar cost averaging, into the TSP is a better idea.