Make time your investing ally
How much money will you need in retirement?
Unless you’re able to predict the future, you probably can’t answer that question with absolute certainty. There are simply too many variables involved. You don’t know, for instance, how much the cost of living will increase between now and the time you retire, how long you’ll live or even, if you’re like most people, what you want to do when you retire. And there’s a big difference in the cost of traveling the world in luxury and going fishing!
But don’t let all of that uncertainty paralyze you when it comes to planning your financial future. The bottom line is that, no matter what kind of retirement you envision for yourself, what happens with inflation, the stock market and health care costs between now and then, you’re going to need to accumulate a nest egg that can help replace your income.
What’s the best way to go about accumulating that nest egg? We recommend a very simple approach sometimes referred to as “paying yourself first.” It’s based on the idea that a part of everything you earn is yours to keep, and the best way for service members to get started is by setting up an automatic investment in the Thrift Savings Plan (TSP). The TSP allows you to invest pre-tax dollars in an array of very-low-cost investment options.
So if you’re not already participating – and 56 percent of all service members aren’t, according to the Federal Retirement Thrift Investment Board – you need to get started. Because, as the example below shows, time is arguably the most important factor in determining your ultimate investment outcome.
*Assumes an 8% annual rate of return with annual compounding. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Investment return and principal values will fluctuate over time so that an investment, when redeemed, may be worth more or less than its original cost.
Here’s the scenario: Two brothers, Will and Bill, take two very different paths to saving and investing for retirement. Will gets started early, beginning to invest $250 every month at age 22. Unfortunately, he stops investing after only 10 years and never gets around to restarting. Bill, on the other hand, postpones investing for his future until he’s 32. But once he starts, he never stops, continuing to put away the same $250 every month until he retires at 65.
As you can see, Will only invests a total of $30,000. Bill socks away $102,000. So how is it possible that Will actually ends up with more money – $124,189 more – in the end? Can starting 10 years earlier really make that much difference? The numbers don’t lie. Time is a powerful investing ally.
So if you’re not already investing as much as you can afford to invest in the TSP, hopefully this will convince you to begin doing so – sooner rather than later!
Jim McNair leads the Lawton, Oklahoma office of First Command Financial Services. Jim joined First Command as a Financial Advisor in December 2011 after retiring as a lieutenant colonel from a 26-year career in the United States Army. There, he served as a fire support officer in the 75th Ranger Regiment and in 4 tactical divisions, including combat duty in Iraq and staff duty at the Pentagon and in NATO. A graduate of the University of Texas at Austin with a Bachelor of Arts degree in Mathematics and Oklahoma City University with a Master of Business Administration degree, Jim holds Series 7, 24 and 66 securities licenses plus state life and health insurance licenses. He and his team are dedicated to coaching those who serve in their pursuit of financial security.
A web of CRs, shutdowns and budgets
They’re all interconnected, right? The 2011 Budget Control Act (BCA) set a cap on defense and non-defense spending through 2021. Two Bipartisan Budget Acts in the past several years minimized the effects of the BCA, but the budget caps never really left.
Continue reading...
Financial readiness lagging in career military
Seven out of ten career military families were unable to earn a passing grade on a recently-administered financial readiness test, raising concerns about service member preparedness for increased financial decision making under the new Blended Retirement System.
Continue reading...
Sequestration Concerns
Military families* continue to be concerned about possible cuts to defense spending, with 70 percent of those surveyed in February expressing anxiety and 73 percent anticipating being financially affected by cuts.
Continue reading...
Cadets and Midshipmen: Think before you take on that Career Starter Loan
Congrats on reaching the Career Starter Loan Decision—proof that your Academy career is progressing nicely. As you consider the decision to take the loan or not, I’d encourage you to also consider how that decision can impact your future example as a leader of sailors, marines, and soldiers.
Continue reading...
A prescription for personnel reform: The Bipartisan Policy Center Report
The non-profit Bipartisan Policy Center released a report this week titled “Building a F.A.S.T. Force: A Flexible Personnel System for a Modern Military.” The report recommendations were created by the Center’s Task Force on Defense Personnel.
Continue reading...
To buy or to rent?
That is the question for military families seeking their next home
It’s often said – mostly by companies that lease cars – that you should always buy appreciating assets and lease depreciating assets.
Continue reading...
Does Trump’s proposed budget mean a government shutdown?
President Trump’s proposed $1.1 trillion FY18 budget calls for an increase of $52 billion for the Department of Defense (DoD) and $64 billion in cuts to other agencies. To finish out FY17, he also requested $25 billion for the DoD base budget and $18 billion in cuts to other agencies.
Continue reading...
Stay or go: The decision to leave military service
It’s the inevitable conclusion of all service members’ careers–leaving the service. The question, though, is how you will know when it’s the right time for you to make that transition.
Continue reading...
The Federal Hiring Freeze, PCS Season and Family Finances
Just because the federal hiring freeze only applies to civilian employees doesn’t mean that military families are immune from its effects. Many military spouses work on-base in civilian positions.
Continue reading...
