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I am looking for any advice about my retirement plan. I am very new to investing and I've used my bank for all my investing questions so far.

Some Info about me that will hopefully help you understand my situation better.

I am 29 years old..this month. I have been in the Marines for about 12 years. I have 8 years till I can retire but I will probably do an extra year so total of 9 years till retirement.

I do not donate to the TSP. (military version of the 401k) I am currently in Iraq so my paycheck is tax free for awhile and due to that I will be in the low income tax zone this coming up year. Expecting a return of 7 grand ish. I currenlty have around 20 grand in savings and 10 grand in the Savings deposit program here in Iraq. When I return it will be near 12 grand when im done. So around 32 grand in total when I return.

I am Married with a 3 year old boy and my credit score is around 660 ish (missed some payments when I was young). I have no debt. Only bill is rent and cable. Around 1400 in total a month. I clear about 5600 a month. My wife is in college working on her masters. She has no income and no credit..if not closer to bad credit. (Trying to fix that)

SO MY PLAN

My plan currently to retire in 9 years. I will get that income. My guess is it will be around 3 grand a month+ when I retire. I retire at the age of 37 from the Military. I am in Iraq till the first of next year and soon as I get back I am going to buy a house. Heres why. I currently get 2000 dollars a month from the military for housing allowance. I am currently giving 1300 of it to someone else via rent. I want to buy a house around 200,000 ish and devote that allowance to my own morgage. I plan on trying to stay at my current duty station for atleast the next 5 years. Trying to finish all 9 years there..its highly possible. If thats the case I will be able to put around 18 to 22 grand a year free money to my mortgage. So when I retire the house I have will have a lot of it payed off. So I can sell it and move somewhere and buy my real house. The money I get from the house being sold will be a nice downpayment/investing money.

I also have a Roth IRA I just started thru USAA Bank, a military bank. I went with the 2040 plan which would put me at 59. I currently only have 1000 dollars in it at the moment. I also have gift to minor fund for my son for his college. I also have a Money Market savings accounts with the 15 grand in it.

My plan is make a Roth IRA (2040 plan) for my wife here in a few days and max out my wifes and mine to 10 grand between the two. When I get home I will take the 7 grand ish from taxes and put those into both our IRA's and put the remaining 4 grand into them so they are maxed at the begining of the year *it gets raised to 5500 next year*.

I plan to put max both Roth IRA's each year. I plan to put around a grand into my sons Gift fund for college each year. When my wife finishes her masters *2 years or less* We plan to max out her 401k plan or whatever her job offers. I plan to get a teaching job or something in that field when I retire from the Marines. I do not know if I plan to work there for another 20 years. I think I might only do it to have a salary for awhile to keep saving away. I do not wish to work past 50. My plan is to retire around 50. My wife around 60. Ive been in the Marines since 17 and need a break:).

So 2 Roth IRA's in the 2040 USAA mutual Fund. Marine Corps retirement. Free money into a house for the next 9 years then sell it (markets down..hoping to sell it for more then I bought it in 9 years). Possible wifes 401k and rest into a savings account/money market account. Also around 15 grand in total for my sons college fund. I also have the GIbill that I've never used that he will be able to use once he is of age. So his college is taken care of.

So my questions.

Is this a good plan? I've only come up with this basically this past week. I just felt the need to invest and sadly I never had the family background support when I was younger and it took me till I got married 4 years ago to releize I needed to invest. I didnt get out of debt completely till about 2 months ago.

Are Roth IRA in a life cycle fund the way to go? I do not know how to invest or even know how to start. I am inteligent and can read and learn if needed to if its going to make a huge difference by the time I'm 59 and pull them out. But USAA is voted the best customer service bank in America and I feel kinda secure letting them handle my mutual funds. Is there a better fund to put them in thou? 2050 or 2030? Or anything else. I havent started my wifes IRA yet. Plan on doing that in a few days.

Should I put the other 9 grand into the IRA when the Stock Market is at a low *its forcasted to go down for awhile* or should I not worry about any of that and just put it all in right away.

My plan for buying a house. Am I missing anything? I've never owned a house and im being told my Mortgage will be from 5.5 to 6.1 apr. I don't plan on using the VA loan till I buy my retirement house later in life to aviod the mortgage insurance at that time. I only need to put 5% percent down (around 10 grand) for USAA conventional house loan. Is now a good time to buy. Im assuming if I am getting 2 grand a month free that anytime would be really a good time for me to invest in a house:)

So thats my plan so far. Please pick it apart. I am willing and wanting to learn. My family is very important to me and I wish to set ourselves up for success in the future. Any advice would be really helpful.

Thanks,

Semper Fi
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Welcome to the Fool and thanks for your service!

I'm sure you will get lots of good advice from the boards and from the Fool articles. I think it's a great idea to go with the target retirement 2040 fund (mine are w/Vanguard- just be sure your fees are not too high). I would definitely fully fund the Roth each year.
If it were me, I'd probably wait for the wife to get a job and then put 20% down on a house.
Also, put 3-6 months worth of expenses aside in something cash-like for emergencies.

It looks like you are on the right track. Good luck and stay safe.

Eric
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Hi,

By far the best beginning investment book that I have read is “The Bogelheads Guide to Investing” Check out the reviews at Amazon;

http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lari...

There is an active “Military Fools” Board that may have good information on some of the special situations that you are facing. Here is an unrelated link;

http://boards.fool.com/Message.asp?mid=27013716

...I also have gift to minor fund for my son for his college....

The problem with they type of account that you have right now is that when the kid turns 18 or 21, depending on your state, then they can get the money and spend it on whatever they want.

Having the money in the kids name will also hurt their eligibility for financial aid for college. If you eventually have other kids there is also no way to shift money between the kids if you ever want to.

There is a “Paying for College” board that would be a good place to ask for college investing suggestions. Here is a link;
http://boards.fool.com/Message.asp?mid=27007452


...I am currently giving 1300 of it to someone else via rent. I want to buy a house around 200,000 ish and devote that allowance to my own morgage....

Buying and selling a house can easily cost 10% or more of the selling price with all the loan costs, inspections, and real estate commission. In addition since you are in such a low tax bracket you will not get any benefit from the tax deductions for property taxes and mortgage interest. When you add in occasionally have to put on a new roof or get a new furnace it may actually be cheaper to rent. The interest on $200K at 6% is $12,000 per year or a thousand dollars a month so if the house you are currently renting for $1,300 per month is almost certainly less expensive than buying a $200K house.

Over the long term the inflation adjusted price appreciation of a residential house is usually negative. For example with rare exceptions a 100 year old house will be worth a lot less(adjusted for inflation) than it was when it was new. Often by the time it is a hundred years old it will have either become pretty decrepit or have been torn down.

...I plan to put max both Roth IRA's each year....

A very good idea until you are in a higher tax bracket and probably still a good idea then.

Greg
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Greg,

You have convinced me to not a buy a house. Showing how new I am to investing I didn't even do the number crunch. You are right at the 6% over 30 years I would pay double the house value. I guess I just assumed wrong. Thanks for helping me catch it early. I would of caught it maybe during the application process for a new house if you didnt help.

So now my plan changes a little bit. I plan to just put money away for a house and put atleast 90-130 grand away over the next 10 years. How should i invest that thou. USAA has a cornerstone mutual fund that has a return of around 8 precent of the last 10 years and was thinking of starting that. Or just keep it in my money market account. Any suggestions?

Also about my Roth IRA's Should I try to put the money in when the market is low say 9000's (which is quite possible over the next few days) or should I not worry about that and just put in now. Would be a total of 9 grand between 2 Roth IRA's (to max it this year) on a lifecycle 2040 plan. (thats 80 percent stocks/20 percent bonds according to USAA)

About the Gift fund for my son. I do not plan to even tell him I have one and just use it for his college. He wont know where the money is coming from. yes he can take it out but I am ruling that it wont become an issue. Hoping I can raise my child well:) Also we do not plan to have another child. Also I want to use the money for a car at 16..and maybe his high school class trip and so on. I like that I can use it on him if needed. I honestly think that his college is payed for via my GI bill. Its 43,000 for college and its growning yearly. it also pays for room and books and everything. So this money if we never use it we will roll it over to a Roth IRA,Car and other stuff to get him started on his life. Thats the plan atleast.

Thanks again for the info. Any new advice would be helpful.

Jason
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No. of Recommendations: 1
I do not donate to the TSP. (military version of the 401k) I am currently in Iraq so my paycheck is tax free for awhile and due to that I will be in the low income tax zone this coming up year.

- Is there a TSP matching contribution?

If there is, it is a mistake on your part to not contribute, at least to the match. Beyond that, you could go back to the Roth IRA and make contributions.

Also, at least the first year or two, contributing to the TSP may offer you more options. For instance, the TSP probably has no minimums. This offers the flexibility of contributing to more than one fund from the get go. Whereas buying the Lifecycle Funds in an IRA typically has a minimum purchase amount (The Vanguard site says $3000).

Perhaps you could have your retirement go to the TSP, and her's go to a Roth.

Just more things to consider


Hohum
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....Also about my Roth IRA's Should I try to put the money in when the market is low...

An investing pro would be in the investing hall of fame if they could time the market well enough to beat a similar index fund by 1% over the long term. The odds of you being able to successful time the market over the long term are about zero, if you can then you should really look at changing careers and becoming a multi-millionaire money manager. One of the advantages of putting money into the market on a regular basis is that by “dollar cost averaging” (Google this) it will guarantee that you buy the stocks at a below their average price because you buy more shares of stock when the price is low.

...About the Gift fund for my son. I do not plan to even tell him I have one and just use it for his college. He wont know where the money is coming from...

This won’t work forever since the first time he gets a summer job and has to file a tax return the IRS computer will see that he didn’t include the interest on that account on his tax return and trigger a tax bill. It would be better to keep the money in your name and give it to him when he is older if you don’t want him to really give the money as a no strings attached gift. If you are able to spend it down before he is old enough to get control of it then his knowing about it won’t be an issue.

...So now my plan changes a little bit. I plan to just put money away for a house and put atleast 90-130 grand away over the next 10 years. How should i invest that thou. USAA has a cornerstone mutual fund that has a return of around 8 precent of the last 10 years and was thinking of starting that. Or just keep it in my money market account. Any suggestions?....

With a ten year time frame a money market fund is way too conservative since it probably won’t keep up with inflation much less have significant real earnings. A lot of how you invest it depends on your risk tolerance. A problem you will be facing with this money is that for the first few years you won’t have enough money to invest in enough mutual funds to get good diversification unless you go with some sort of widely diversified mutual fund. One pretty conservative option to look at would be to invest the house money in a 2015 or 2020 targeted retirement account since it sounds like you will be buying a house around 2018. Around 2015 or 2016 you should then reevaluate the situation and possibly move it to a money market or CD’s then so you don’t have problems with a bad stock market just before you are ready to buy a house.

Greg
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Thank you for your service.

It makes sense to me that you are looking ahead. I applaud you for contributing to the RothIRAs. And it's good to have a plan for that juicy refund ($7000).

When I read your post, it seemed to me that your goals are:
supporting your family
saving for future expenses (your son setting out, college or training)
setting aside part of current income for income later in life (retirement)

I, myself, do like having separate bank/credit union accounts. One is for travel. Usually it's a long vacation every couple of years, but I used it for a summer camp for the kiddo. Another is for annual payments (insurance, taxes, car registration, certification renewal). If you like to keep ledgers you can keep this money in one account (you just remember that, in my case, some of the money is spoken for - to be sent away when the bill comes).

Save what you can. If there is some money this year that goes into a fund that you don't touch for thirty years, that's great!!!

(Remember to work with your wife -- my favorite story is if He wants to go the mountains and She wants to go to the city, going to the beach is not a satisfactory compromise.)
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