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Ok with the market and economy all over the place and everything.

Here is my situation 25 single no kids.

Make a decent wage at 50k a year.
300 bi-weakly goes into my TSP (government 401k style plan.)

Assets invested
6k invested in TSP 2050 life cycle funds.
17k in a Roth IRA invested in various index funds.

3k in credit card debt because of moving expenses. TV, coach, bed and so on. Not living with parents makes you realize how much things cost. Who knew a tiny bottle of Montreal steak spice cost almost 4 dollars!!!

Car loan is $320 a month.
Rent+ Utilites runs about 650-750

Should i trim down my contribution to only the match and pay off some debt quicker.

Should i only do the match and then fully fund my Roth IRA.
Suggestions, comments advice.

or some variation of this.

My biggest issue is i get retirement in 25 years but can't get social security or touch any of my investment accounts. I am in law enforcement in a very physically active agency and don't want to be doing it in my fifties. So maybe by some decent dividend stocks in a brokerage account as well to carry me over between age 50 and 59-65 age?
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Sorry wanted to add on to what i meant at the end. I will get a Pension in 25 years (hopefully) That will be the Max % i can get. Since i will be 50 i can't touch my TSP/401k OR IRA till 59. Then a few more years after that till Social security( Again hopefully still there) So i was debating starting a regular brokerage account and then funding when i max my IRA out and buy dividend stocks in 500-1k increments. Dividends are taxed at a lower rate so the tax burden shouldn't be too bad.

Again any advice.

Thanks,
Chuck
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3k in credit card debt because of moving expenses. TV, coach, bed and so on. Not living with parents makes you realize how much things cost. Who knew a tiny bottle of Montreal steak spice cost almost 4 dollars!!!

Well, I was okay with your 'credit card debt' being 'moving expenses' until you mentioned the Montreal steak spice.....That's not a 'moving expense' - it's an ongoing grocery expense.

I would suggest that you start tracking your spending to ensure that you are living within your means, and that the credit card debt was truly because of one-time moving expenses, and not from ongoing expenses.

Should i trim down my contribution to only the match and pay off some debt quicker.

Should i only do the match and then fully fund my Roth IRA.


First, I would suggest cutting your TSP contributions to the amount required to get the full match. Apply the additional money you will get in your check directly to the credit card debt every 2 weeks.

Once you get your credit card debt paid off, and you are able to consistently pay your credit cards off on a monthly basis, I would suggest splitting your extra cash flow between a Roth and building an emergency fund.

AJ
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Pay into the TSP to get the max in matching funds and no further.

Pay off the credit cards. I'm guessing your rate is 15-18%. There is no guaranteed investment return that will beat that. Pay the credit cards.

Establish an emergency fund. At least 3 months of living expenses preferable 6 months. You can do it as bare minimum living (i.e. no cable HD channels, no eating out, no gym membership) or living needs and wants.

You might also want to consider disability insurance. What happens if next week you're hit by a bus and need 2 years to rehab. Or can't fully rehab and you can work but not doing what you're doing now.

Then fully fund your Roth.

Once you get to that point, ask for further advice.

JLC
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Your most pressing need at your age and point in life, is to control your debt spending. This is all about lifestyle and behavior modification. Like an obese person, it does no good to buy an expensive weight loss program, only to gradually put the weight back on afterwards. This is more important than directing $$ into your TSP or IRA and what kinds of mutual funds you should be invested in. Unlike Congress, you've got to keep your spending within your means. If you don't, eventually you will have to direct much/most/or even all of your discretionary household income towards your debt and with the threatening letters you start getting from debt collectors, you may start to invade your retirement savings (yes, you can access your IRA dollars prior to 59.5...you would be assessed a 10% penalty and have to include your withdrawals as ordinary taxable income for that year). I know many in retirement who are very comfortable with large retirement plan balances....all of them have learned not to carry debt, but to pay off all credit cards when the bills come in...and they all seem to have learned this at a young age.

In your early years, you may not be able to afford to buy your car with cash, thus you may have a car payment. And if you become a homeowner, you won't be able to pay cash for the house, you'll have to carry a mortgage. After this, you should carry no debt. Credit cards are convenient...but you should pay off the balance every month. If you cannot discipline yourself to do this, cut up the cards and use either cash or debit card.

Pay yourself first by doing a payroll deduction to your TSP to at least the amount of the match. After that, you can either contribute to your traditional IRA (if its deductible to you) or your Roth IRA if your TIRA is not deductible. Deductibility of youy TIRA contributions is allowable if your adjusted gross income is less than $56,000 for 2011, which it sounds like you would qualify. You should be able to do this through payroll deduction also. Get used to not having this contributed income and living on what is left.

I agree with the above poster that disability insurance is important to someone like you. But you sound like you might be FBI or one of the Federal Agency law enforcement officers (Park Police, Treasury Police, etc). You should have a generous disability policy (although I'll bet not as generous as the military's... :-), but you'll need to check with your personnel office.

BruceM
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Thanks for the replies.

Going to currently reduce my TSP contribution to 6% just over the 5$ match. This should drop my Bi-weekly contribution to 125ish and give me about 350 extra a month to pay off the credit card. Credit card is at 8.9% APR. This should give me about 550 i can allocate a month to debt repayment.

This week i plan on starting an emergency fund as well. Taking $500 to open up a bank account and direct depositing $50 a paycheck. Just so i have cash on hand for car problems or anything that might arise.

I guess i been too caught up with investing and need to get a few things prioritized first.

Also any comments on that Ten year gap between retirement and taking money out of IRA,TSP and then social security. Would buying good dividend stocks starting in a few years when i get a raise do the job of income for those 10-12 years.
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chuck9899 asks,

Also any comments on that Ten year gap between retirement and taking money out of IRA,TSP and then social security.

</snip>


It's very easy to take money out of an IRA before age 59-1/2 using the 72(t) exception. I've been doing it since 1996. (Retired in 1994 at age 38.)

http://retireearlyhomepage.com/wdraw59.html

intercst
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I will get a Pension in 25 years (hopefully)

At your age, I think you are counting a lot of chickens before they hatch by counting on a full pension in 25 years. I'm guessing (because of the 'TSP') you are a Federal employee? Given the situation that the Federal government is in, there could very well be significant cuts/buyouts/a change to making contributions to your defined contribution plan (TSP) instead - just like there has been over the last 20 - 30 years in the private sector.

That will be the Max % i can get.

Even if you are at the max % at age 50, will the base that the % is applied to increase after age 50? (assuming that the pension terms haven't changed) If so, you will need to determine if it's worth it to work a few years longer - the combination of not having to fund x years of retirement, plus increasing the base by x years of salary may be substantial, and make a significant difference in your retirement lifestyle.

Since i will be 50 i can't touch my TSP/401k OR IRA till 59.

As already suggested, there is the 72(t) exception.

Also, for 401(k)s, you can access your money with no penalties if you leave your employer in or after the year you turn 55, so if that rule applies to the TSP, that might be another argument for working 4 - 5 years longer. If that exception is not applicable to the TSP (you need to check with a tax advisor), you could 'retire' from your government job, roll the TSP into a 401(k) at a private sector employer and work for another 4 - 5 years, and then access the 401(k). You do need to work until you are at least 54 - depending on when during the year your birthday falls - if it's in January, you will be nearly 55.

Then a few more years after that till Social security( Again hopefully still there)

Well, I'm a lot older than you, and I'm not counting on Social Security as it exists today in order to fund my retirement. I'm guessing that I'll probably get something from SS, but either substantially means tested, or with some other cut in benefits. At your age? Even more changes, IMO.

So i was debating starting a regular brokerage account and then funding when i max my IRA out and buy dividend stocks in 500-1k increments. Dividends are taxed at a lower rate so the tax burden shouldn't be too bad.

IMO, given today's tax structure, it's best to have taxable accounts, tax-deferred (TSP/401(k)/IRA pre-tax) accounts and tax-free (Roth) accounts. Whether that will still be true in 25 - 30 years....who knows. But it's not a bad idea to have a taxable account, since there are few restrictions and more flexibility.

But, at your age, getting the rest of your financial house in order (consumer debt paid off, emergency fund started, etc.) is more important than starting a taxable brokerage account.

AJ
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After skimming all the above posts, I would strongly consider working from 50-60+ while you are receiving your pension and postpone withdrawals from your retirement accounts until later in life.

Assuming compounding, the best years of possible growth in your retirement dollars will come in the last 10 years of your accumulation. You will severely restrict your future cash flow from those accounts if you: 1 - are no longer working (and no longer contributing to those accounts), and 2 - pulling out monies early.

The Rule of 72 would have your money doubling every 10 years if you receive a 7% return. If your TSP account grows to $500,000 by age 50*, it would double in value to $1,000,000 if you could earn just a little over 7% a year for the next 10 years.

I don't know about you, but I would happily work some parttime or even full time easy job for 10 years if it allowed me to have an extra half a million dollars when decided to stop working.



* $6k (your current balance) invested every year from age 25 through age 50 (25 years) and compounded at 7% would equal about $438,000. I assume you will invest more than $6k a year as you get older, hence the $500k amount at age 50.
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