Thrift Savings Plan | Military TSP – Everything You Need to Know | Military Money Manual Podcast Episode 02 Show Notes

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Military Money Manual Podcast Episode 2 Links

Military Money Manual Podcast Episode 2 Transcript

[00:00:00] Spencer: Okay, welcome to another episode of the Military Money Manual Podcast. I'm one of your hosts, Spencer.

[00:00:05] Jamie: I'm Jamie.

[00:00:06] Spencer: And today we're gonna talk about everything you need to know about the thrift savings plan or TSP. So today we're gonna go over: what is the TSP? Why should you contribute? How much can you contribute? What are the limitations of the TSP? What does that allow you to invest in? And basically, what a military service member should know about the TSP. Yeah.

[00:00:31] Jamie: There's some really good things about the TSP. And again, like we talked about last time is there's some stuff that you just have to learn that you don't learn about in basic training or from a supervisor or anything like that until they give the opportunity for you to sit down and talk about it. And a lot of people just don't know what the benefits of it and how good of a deal it really is for us.

[00:00:49] Spencer: Yeah. I think, and you know, like you were saying in, I think a previous episode we're, pre-programmed. Whenever the government offers us something. We think it's a bad deal.

[00:00:59] Jamie: Yeah.

[00:00:59] Spencer: But the TSP is actually a super good deal. And if, especially with the blended retirement system or BRS, it's now an even better deal than before.

Okay. I'm gonna pop open a beer so that I can-

[00:01:12] Jamie: I already opened mine.

[00:01:13] Spencer: Get into this. all right. So, what is the TSP? It's an employer sponsored retirement savings plan. So, your employer, the department of defense, it creates this retirement plan that you can contribute your money to. And the government will also kick in some money as well. It's very similar to a 401k.

[00:01:35] Jamie: Yeah. So, you hear your friends talk about 401k or you hear about it on the news. Is it fair that someone that's in the military or federal employee can basically substitute any 401k guidance with their TSP planning?

[00:01:46] Spencer: Yeah, definitely. Yeah. That's any time you read 401k, like you said, in the news or any kind of like personal finance article, you can just substitute TSP for that.

[00:02:00] Jamie: And inside of the TSP, am I locked into the government options, or do I have options of how my money's handled and what I invest in, or is it just the government chooses what to do for me?

[00:02:10] Spencer: So, you have complete control over your investments inside the TSP. However, the investments that you can choose from are very, are actually very limited, but I actually see that as a benefit because it's really hard to screw the TSP up except in one instance. And that's where you leave all your money in the G fund.

And that used to be the, the default and the standard. So, a lot of people thought that TSP was a bad deal, because they were getting these super low 2% or 3% returns. When there're buddies who were investing in Roth IRAs, for instance, in more stock heavy investment portfolios were making tons of money. And they were like, “Well, why am I making so little money in the TSP?”.

And that's just because they didn't allocate their funds properly, but we'll get to all that.

[00:02:47] Jamie: Yeah. We're, we're big fans though, of the TSP. We like it a lot. One other start off question is, if I have a Roth IRA, is it the same? Do I need both? And are there different limits for both? Is that, or is that a whole different section?

[00:03:01] Spencer: Yeah, so we'll, get into that as well, but that's one of the most frequently asked questions is, if I have an IRA or ‘I’ Roth IRA, an Individual Retirement Account, I think actually it's individual…?

[00:03:12] Jamie: Arrangement.

[00:03:13] Spencer: Arrangement!

[00:03:13] Jamie: Individual Retirement Arrangement.

[00:03:15] Spencer: That's right. Yeah. That's the official IRS terminology.

[00:03:17] Jamie: Yeah.

[00:03:17] Spencer: But you'll see it online as individual retirement arrangement.

[00:03:19] Jamie: Yeah. Only nerds would know that.

[00:03:21] Spencer: Yeah. Well, that's why we're here. But yes, you can have both a Roth IRA and a TSP and in fact you should probably have both.

[00:03:31] Jamie: And max them out.

[00:03:31] Spencer: Max them out, and in addition to that, if you have a spouse, even if he or she doesn't work, they should also have their own Roth IRA or IRA, depending on your income levels.

[00:03:41] Jamie: Mm-hmm.

[00:03:42] Spencer: And you can contribute to that from your money because the government just sees, essentially, if you're married, filing, jointly all your income, same all your income is the same.

[00:03:51] Jamie: So, I guess starting out with a TSP, how do I get started really is for someone who knows nothing about the TSP is new to the, the military. What do they do first? What are the first steps?

[00:04:01] Spencer: Yeah. So,

if you joined after 2017, And you're in the blended retirement system automatically, then a TSP is automatically account is automatically created for you. So, what you need to do is go into “my pay” or I think for the Marines, it's a different software, but you just update your TSP address.

[00:04:21] Jamie: Mailing address.

[00:04:22] Spencer: Mailing address, yeah. And then, you go to “”. And on there, you'll be able to. Request your account password, and it's a little old school they're going to just physically mail you a temporary password. And then you can go back on “” and set up your actual password. And now I think they're enforcing two-factor authentication as well.

[00:04:41] Jamie: Yes. Yeah, that’s new.

[00:04:41] Spencer: So, you're gonna have to put in an email or a text message.

[00:04:44] Jamie: But even while you're waiting for your “” account, you can still set up your contributions through my pay. The branches that use my pay, I guess.

I didn't know. The Marine said something different.

[00:04:54] Spencer: Yeah. It's like Marines online or something, but we'll you say my pay for now.

[00:04:57] Jamie: Yeah. We'll say my pay, assume my pay, is where you manage all your pay stuff through “DFAS” in the Defense Finance and Accounting Service maybe.

[00:05:04] Spencer: Oh yeah.

[00:05:05] Jamie: And so, you set it up through my pay and then the “” account is kind of a bonus. It's not really an initial requisite to getting money deposited into your account. Just to monitor it and track it and maybe reallocate if you needed to.

[00:05:16] Spencer: That's true. Yeah. So, you can, before you even get access to set up your, your investment strategy in the “”, you can be throwing money in there from your paycheck.

And I definitely recommend you start off with like a 5% contribution right off the start. Now we'll get into why I say 5% right off the start in a little bit here. If you've been in for at least two years, the government is gonna match that. So, we'll talk about matching in a second. Cause that's another, that's another, big benefit about it.

[00:05:46] Jamie: Yeah.

[00:05:47] Spencer: But yeah, the “” account you'll you have to go through a little bit of paperwork to set up, but in terms of putting money in there, the government's gonna be setting 1% of your base pay to your TSP account from the moment you enter the military, if you entered after 2017.

[00:06:04] Jamie: Right.

[00:06:04] Spencer: And you're in the blended retirement.

[00:06:06] Jamie: Or if you opted into it, like you did so for the listeners, Spencer opted into the BRS. I did not. So, I'm still under the legacy or the high three retirement plan. So, I don't get a match, even if I do contribute to the TSP, which I do. So, this specifically, when we're talking about matching, you have to either be entered. Like Spencer said 2017 or after 2017, right?

[00:06:25] Spencer: Yeah.

[00:06:26] Jamie: After 2017.

[00:06:27] Spencer: So, January 1st, 2000.

[00:06:28] Jamie: Or, have opted into it, if you were in that window where you had the choice.

[00:06:31] Spencer: Yep. So, once you're under my pace site, like you were saying, you can set up your contribution allocations, even if you don't contribute anything. If you're under the blend of retirement system, the governance can be setting 1% of your base.

[00:06:42] Jamie: From day one. You don't even- not even two-year point.

[00:06:44] Spencer: Yep. You don't even have to; you don't have to wait for two years for that. And if you entered after 2018, your money is automatically invested into the lifecycle funds. So, we'll get back to- in a little bit in the show- what exactly lifecycle funds mean, but it's a much better investment choice for I'd say-

[00:07:02] Jamie: Overwhelming majority.

[00:07:03] Spencer: Yeah. The overwhelming majority of people rather than the G fund. Yeah.

[00:07:08] Jamie: G does not stand for good.

[00:07:10] Spencer: Yeah, that's right. Yep.

[00:07:12] Jamie: Okay! So then let's talk about you. You started to talk a little bit about contributing to my TSP. We talked about maxing it out. Where should people start with when they do log into my pay? What should we be targeting on our contributions?

[00:07:24] Spencer: Yep. So ideally, if you have an unlimited amount of money or you had no expenses at all, you'd want to contribute the maximum that you can to the TSP. And the reason for that is every year you get a contribution limit that you can put money into your retirement accounts.

And for 2021, it's $19,500. And it, it usually changes every year or two, the easiest way to look at if you're listening to this podcast in the future, easiest range, just TSP contribution limit, just Google it, and it'll pop right up for whatever year you you're in. But that works out to $1,650 a month, which can be a ton of money if you've just joined the military.

[00:08:04] Jamie: Correct.

[00:08:05] Spencer: So that is a, I didn't max my TSP until I've been in, I think for five years maybe. And that's as like a captain.

[00:08:13] Jamie: Yeah. Right.

[00:08:14] Spencer: So, as a E1, E2, E3-

[00:08:17] Jamie: 01.

[00:08:18] Spencer: Oh yeah, a fresh Lieutenant or, Ensign coming out of the academy, the Naval academy. It's gonna be very difficult.

[00:08:27] Jamie: To fully max it? Yes. Yeah, yeah. I got what you're saying.

[00:08:30] Spencer: So, in terms of how much to, to start contributing initially, just put it to 5%. If you have no idea what you're doing, just set it to 5%. You're not gonna even notice that amount of money missing from your paycheck, unless you're literally living paycheck to paycheck in dollar to dollar.

[00:08:45] Jamie: Or already behind significantly.

[00:08:47] Spencer: Or already significantly behind. Ff 10% is doable, right? So, if you look at your budget, which hopefully you've set up or you just kind of know how much money you spend. And if you're making $2,000 a month, let's say, and $200 a month, you're not really gonna miss, then set it to 10%. Yeah.

[00:09:06] Jamie: And there's a psychological benefit of the money, never coming to your bank account and then trying to invest it in your IRA or, or Vanguard account or something. If you just tell the military, take it out of my paycheck, 10%. You never see that amount except for a, some numbers on your LES, then it doesn't sting. And then next thing you know, you're like, oh, I've saved up a significant amount without really even thinking about it. And so, one of your principles, which I think we'll talk about later is just automatic, easy investment. And so, this TSP has- it definitely covers that. So, if you initially said it to 5% and then you don't really have to think about it for a while and then as your net worth grows and your income to expense ratio changes, then you can always bump it up.

But at least start it with 5% for most people. Almost all cases.

[00:09:48] Spencer: Yeah, definitely. So, if you're in the BRS and you are thinking about maxing it- again this is not for someone who just joined the military, usually. Although I have heard cases of guys who get deployed very early in their career and they have no, no expenses.

[00:10:03] Jamie: Literally no expense. If you're deployed.

[00:10:04] Spencer: As if they just throw all the money into their TSP while they're deployed, which is a great option. And when we say TSB, it can be either the Roth account or the traditional account, but for we'll get to what the difference between the two types of accounts are in a bit. But in general, if you're listening to this podcast and you're not a 04 or higher, you're probably better off in the Roth account.

 And if you're in the BRS, you want to make sure that you contribute at least 5% of your pay every month up to December of the year. So, the government matches the contributions per month. So, if you- for instance, for me, if I max out my TSP by August of 2021, then I would miss out on 5% matching.

[00:10:45] Jamie: September October, November, December. Yeah.

[00:10:47] Spencer: Yeah. Over with four months of- about five months of matching.

[00:10:52] Jamie: And the other thing to remember too, is that match. Their 5% doesn't count against our limit, right?

[00:10:56] Spencer: Yes. That's true.

[00:10:57] Jamie: So, it's like free extra money on top of your limit.

[00:10:59] Spencer: That's right. Yeah. So, there's an annual addition limit up to, I think 2021 it's $58,000. And that's what the match counts towards. So, if you contributed $19,500, and then you get a 5% match of, let's say $2,000 now you've contributed $21,500 you're well, under the $58,000 annual addition limit, and no one ever gets close to that annual addition limit.

[00:11:22] Jamie: I don't even know how you could?

[00:11:23] Spencer: If you were deployed.

[00:11:24] Jamie: Oh, okay. Yep.

[00:11:25] Spencer: So, if you're deployed, you can put additional contributions above the $19,500 into the traditional TSP, but it's actually not that a good of a deal. And we'll talk about why later. So, speaking of traditional TSP, one of the differences between the Roth TSP and the traditional TSP, and you'll hear Roth and traditional for IRAs as well, you can think about it as like a, as a grid.

So anytime you hear Roth, you should think about my money's being taxed now, but it's not gonna be, taxed when I'm in retirement.

[00:11:55] Spencer: Yeah. Like you said, for most people, below a 4 or, in most cases at the lower incomes, unless you're maybe mill to mill 03's or E-9 mill to mill, Roth is probably gonna be where you want to start, at least until you get a little bit more savvy and look and digest the numbers a little bit more Roth is a great place to start.

[00:12:17] Spencer: Yeah. So, and the other advantage of Roth is your, you pay taxes based on your current tax bracket, right. Or you, your current marginal tax rate. So, for most of us in the military, because we have so many untaxable, or non-tax allowances, such as BAS, BAH, we deploy to combat zones- Cola. Yeah- cost of living allowance.

We get, CCTE combat zone, tax, exclusion pay. And so, you, you might be making, for instance, when I was in Abu Dhabi over there for two years, in one year, I had essentially $0 of taxable income, but I was paid over $90,000. As a captain. So that's, that's huge. I mean, that's an advantage that civilians will never be able to do.

[00:13:05] Jamie: Right. And then if you're contributing to your, your Roth on that year with no tax burden, you know, if you're doing a 9- or 12-month deployment or a remote like that, not only is it gonna be tax free contributions, but then it's gonna continue to grow. So, it's kind of like double dipping. And that's a very unique benefit like Spencer said to our tax-free deployments, basically.

[00:13:24] Spencer: Yep. So, one of the questions that always comes up, and I think we talked about it earlier. Is can you contribute to a Roth TSP and a Roth IRA? And the answer is yes. So, I max out my Roth IRAs every year. My wife's Roth IRA and my Roth TSP. So, what that means for me in 2021 is a $19,500 limit for the TSP plus $6,000 from my Roth IRA, plus $6,000 for my wife's Roth IRA.

[00:13:48] Jamie: Right.

[00:13:49] Spencer: So, it's $12,000 plus 19- math in public.

[00:13:53] Jamie: A lot of money-

[00:13:54] Spencer: $1,500. That is a lot of money, right?

[00:13:57] Jamie: It adds up for sure.

[00:13:58] Spencer: It definitely adds up. And do you, do you guys do the same?

[00:14:02] Jamie: Yes, except for under the legacy. I still do split up my contributions, even though I don't do it for matching and just dollar cost averaging. If you guys have heard that term, I like to split up my investments. And so sometimes I'll catch, you know, the market high, the market low. Sometimes it's a good deal. Sometimes it's not as good of a deal. But I just contribute the same all 12 months and I do the same with my IRA to max it out. Although Spencer contributes just lump sum in January, right?

[00:14:26] Spencer: Yep.

[00:14:26] Jamie: Just max it out in January. So.

[00:14:28] Spencer: Yeah. So, by like January 4th or so, whenever my accountant says is my, you know, does traditional make sense? Does Roth make sense? Or does backdoor our Roth IRA make sense? Which is an extremely advanced topic that we don't have to get into.

[00:14:39] Jamie: Yeah, not today, but, but we, so we talked about Roth though that it's taxed, you know, that grows and no taxes on the growth. And then, the traditional side of it. And so why is the traditional- what's the difference of the traditional first of all, and then why would it be better for someone maybe 04 or someone who's maybe at 04 that takes a large bonus.

[00:14:57] Spencer: Right?

[00:14:58] Jamie: Why would you then recommend switching over to the traditional? What say you?

[00:15:01] Spencer: Yeah, so the, the advantage to the traditional TSP, or the traditional IRA, is it reduces your taxes this year, and then you don't pay taxes on the investment in retirement. And when we say in retirement, you can access, IRA or TSP funds with no penalty after age 59 and a half.

And in fact, there's actually ways to access those funds before age 59 and a half. But again, that can be a whole other podcast.

[00:15:24] Jamie: Right.

[00:15:25] Spencer: If you Google, “accessing tax advantage accounts early”, there's plenty of information out there such as like 72 T rules and all that.

[00:15:35] Jamie: Well, you can, you can even take your contribution. So, like, if I've contributed $10,000 to my Roth IRA over the last three years or whatever the number is, I'm allowed to take up to $10,000 out without penalty.

[00:15:46] Spencer: Only for IRA. Not for TSP. But there are ways once you get out of the military to roll your Roth, TSP over to a Roth IRA, and then once the contributions sit there for five years, they become qualified contributions. And then you can withdraw them.

[00:16:01] Jamie: Again, that's getting a little advance.

[00:16:03] Spencer: There are- there are some tricks to it.

[00:16:04] Jamie: So, the traditional is- it lowers our taxable income now. So hopefully bumps us down maybe to a lower tax bracket. And that's really how it, it affects lower tax burden this year and then as the money grows, then we pay taxes later.

[00:16:21] Spencer: Yeah. So, you pay taxes in retirement on the traditional money, but you get to skip paying the taxes now. And if you look at the tax brackets, I think it's the 28% bracket or 22% bracket is when it really makes sense. Once you've got it, once you've put yourself into that bracket, it probably makes sense to switch over to traditional.

[00:16:41] Jamie: Yeah, and there's a ton of calculators online. You could just, again, Google search, like “traditional verse Roth”, and you could read all day about it. And some people have really strong opinions that everyone should do Roth, and everyone should do traditional. And I don't think either of us would say either one is right for everyone.

So, you just have to kind of look at your income, your situation, and what's right for you. And it may vary from year to year. Like right now, my wife is not working full time. But maybe if she goes back to working full time at our next assignment, then maybe it'll makes sense to switch to lower our taxable income.

[00:17:09] Spencer: Yeah, definitely.

[00:17:10] Jamie: Or if a big bonus, like I mentioned earlier as well.

[00:17:12] Spencer: Yeah. So, I, I contributed to my Roth IRA Roth TSP for most. Of my early years of investing and in the last couple years, especially after making 04, it makes a lot more sense for us to switch to traditional.

[00:17:25] Jamie: Yeah.

[00:17:25] Spencer: So, we've got money in both pots and that's just, you know.

[00:17:27] Jamie: Oh, good point you can mix them too, right? So, it doesn't have to be all or nothing.

[00:17:30] Spencer: That's right.

[00:17:30] Jamie: You can alternate back and forth.

[00:17:32] Spencer: Yep. You can even do half in a single paycheck. You can say, I want half to go into traditional and half going to Roth. And that provides some tax diversification too. Right?

[00:17:39] Jamie: Yeah.

[00:17:39] Spencer: So, if you. You know what, I don't know what tax rates are gonna do in the future, because no one really does. Now you have some money that you've already paid taxes on that you can pull out first and then you can kind of let that traditional money, sit there and grow some more before you take that.

[00:17:51] Jamie: Right, and then we're really getting into the ‘nerd level' or ‘hiring someone level' to figure out which money should I take first? And how do I tell the IRS I'm taking out this pot of money, not this pot of money first. That can get a little bit complex. So yeah, some good points there. You can contribute to both the TSP and the IRA, you can max them both out, cause they're separate limits and I can do traditional or Roth or mix them both in both the TSP and the IRA. What about- should I max one of one or both of them out first or, we kind of talked about this already, but you spread out your TSP.

[00:18:22] Spencer: What you do? Like if you had to, especially when you were younger and you weren't making so much, did you focus on maxing out your Roth IRA first or your Roth TSP?

[00:18:30] Jamie: I've been maxing out my Roth IRA longer than I have been maxing out my TSP. I think maybe part of it is just the mental advantage of, “Oh, I can max out a $6,000 limit quicker than I can max out a 19, 5” or whatever the limit was back then. However, the cost of administrative fees and stuff like that for the TSP is significantly lower. So, putting in $6,000 to a TSP account, even if it doesn't maximize it, doesn't max it out, is gonna cost me significantly less than fees than my IRA does.

[00:19:00] Spencer: Right. And the, the other thing to consider too is if you're in the blended retirement system, you should be throwing at least 5% towards your TSP. Every month to get that 5% match. And after the first 5%, I think it's really up to the individual. I think for a lot of people, the TSP is super easy and if you have more money to contribute, you just log into my pay, you bump it up from 5% to 10% or 10% to 15% hit save, and it's done. Right? And then you don't, you don't have to think about it.

[00:19:23] Jamie: Yeah. No interaction with finance, it all happens online. The only thing is if, depending on when you do it, there's the certain cut off dates through the month. So, if you make the change on, you know, July 16th, it might not take effect until August 1st or whatever the cutoffs are. So, it's not an immediate change sometimes. But it's easy to change and you can swap it from month to month and change it without any interaction or relying on someone at finance to do, to do it well.

[00:19:48] Spencer: Yeah. And I would definitely recommend like pick a target, whether it's you know, the $6,000 a year for the Roth IRA is really not an easy target, but it's a solid 500 bucks a month. Yes. You know, it's and it's 250 a paycheck.

[00:20:01] Jamie: It's not too intimidating. It's not like a scary goal. Most people will be able to meet that goal. Maybe not E1, E2, E3's. Maybe not 01 at first, if you have a lot of student loan debt or something like that, but that is a goal that you can achieve within a few years in the military to max out your IRA for sure.

[00:20:16] Spencer: So, one thing I wanted to highlight is when you're on deployment, right? I did two years overseas and I did a couple deployments here and there throughout my career as well. And when you are in a combat zone, or if you're on a ship and you're going through a CZTE combat zone tax exclusion area, you want to max out your Roth TSP, Roth IRAs.

So, like Jamie was saying earlier, the money's going in tax free. It's growing tax free. It comes back to you in retirement tax free, and that's just- it's such a huge tax advantage that like a lot of civilian CPAs and investment advisors won't even like, realize that you have that, that kind of. Tax advantages that you can take advantage of.

[00:21:03] Jamie: It's a huge benefit. What if I don't deploy for the whole year though? If I'm, say if I'm an air crew or maybe I'm on a ship where I got two months of tax free, or maybe six months of tax free, can I still reap some of those benefits, even if it's not a two-year remote?

[00:21:15] Spencer: Yeah. So, the thing about the combat zone is it's not that, that month in particular is tax free. It's just that you do not pay taxes on income earned in that month, which is kind of a confusing way to say it.

[00:21:28] Jamie: Sounds like you said the same thing.

[00:21:30] Spencer: But essentially what I'm, what I'm trying to say is, let's say in 2020, you got two months tax free, January and December.

[00:21:36] Jamie: Yeah. Right.

[00:21:37] Spencer: And instead of thinking of it as “oh, my income in those two months were tax free”, really your income for the entire, for two months out of that entire year were tax free. It doesn't really matter which months they were. So, you can think of it like, “oh, I'm only paying taxes on 10 months’ worth of income”, so in that case, you know, right off the bat, hey my tax burden's gonna be super low because I'm not paying taxes on a sixth of my income that year. So, it would, even if you're only going to a combat zone for, you know, a couple months or very sporadically, it probably makes sense to front load your Roth contributions.

And if you know that you have a deployment coming up, right?

[00:22:15] Jamie: Yeah.

[00:22:16] Spencer: Um, like you were saying, it might take some time for Finance to process your contribution to the TSP, go ahead and make the change now. If you know you have a deployment coming up in December and it's June or July right now, make that change now, so that the money's already going into your Roth account, and you don't have to worry about switching it last year.

[00:22:36] Jamie: Yeah, we just did that recently. With, with my bonus coming, expecting the bonus to hit, we immediately changed from Roth to traditional. I'm more of a Roth guy still, even though I'm probably right on the edge, but I, I think I'm still in the Roth boundaries normally with my wife not working full time right now. But with the bonus coming in, that's definitely gonna put us into the category where we went ahead and switched her to traditional immediately when we decided we were gonna sign up again, anticipating that large income coming in. So, it's just there ready for the bonus to hit. And then it'll, it'll be a traditional contribution for what we can contribute.

 You mentioned one thing about quick tax freeze or, only getting a couple months a year when we were young, back in our day, you know, we would sometimes get 10- some years where we got 10 out of the 12 months tax free. And that's not during a deployment, but just as an air crew, we would fly and we'd spend a day or two in, you know, in a combat zone.

[00:23:26] Spencer: Yeah.

[00:23:27] Jamie: And then we would get tax free. So, there were so many years where to the IRS our taxable income was basically only two months or three months, maybe depending on how that year went. So, if you're in that situation where you're in a career field that travels a lot, air crew or something where you're gonna get a bunch of tax rates through the year, definitely take advantage of that. And with a little bit of an intentionality, you'll get a lot of extra income, not only in the per diem side, but also from the benefits of tax-free pay and Roth contributions.

[00:23:51] Spencer: Yeah, that's a great point. Another question I got from one of my readers was: “I'm late to the game, and I've never contributed to the TSP. I've been in for seven years, is it worth it to start contributing now?”. And I don't know if you have any thoughts on that one?

[00:24:07] Jamie: I mean, it's never too late to contribute. Just start something. Like I mentioned last time, if you're overwhelmed with options, just start with, you know, 5% in the life cycle fund. Like Spencer said, it's never too late to start because it's gonna be better than not starting.

[00:24:22] Spencer: Yeah. Yeah. I mean, a lot of people, especially if they're doing a short four years or whatever, and they don't even start contributing until they've been in for two years, they might think, “Is it even worth it?”. And at that point, maybe you don't want to deal with the hassle of dealing with a separate investment account like the TSP but at least be maxing out your Roth IRA.

[00:24:41] Jamie: Yeah, but the TSP performance is a strong account that's managed well, and the fees are so low. You set it up to make automatic contributions and then you don't really have to worry about it. You don't have to check on it. You don't have to update it. And one of the other things is it may seem like it's locked up in the military or if you're only doing a four-year, initial commitment and you're a hundred percent sure you're gonna get out-

Am I stuck? Is that money stuck with the TSP forever?

[00:25:03] Spencer: No!

[00:25:03] Jamie: I have options, right?

[00:25:04] Spencer: Yeah, exactly. And they've actually just expended the options a lot. So, when you leave the service, there's an option to withdraw the funds and distribute or contribute them to a Roth IRA or a traditional IRA. They usually call it a rollover.

[00:25:19] Jamie: Direct- yeah- direct transfer. So, you're not taking hold of the money.

[00:25:23] Spencer: That's right.

[00:25:24] Jamie: It's going bank to bank. So, there's no tax implications of it. Don't ever take a check from a retirement account or anything, to open up a Vanguard account. You want to send it direct from one bank to the other.

[00:25:33] Spencer: Yep. And then there's, lots of options now that you can access your TSP funds.

[00:25:37] Jamie: Yeah. But you can choose what to do with it as the important takeaway.

[00:25:40] Spencer: That's right.

[00:25:40] Jamie: It doesn't have to stay in the TSP, but I think you can leave it in the TSP, right? You can continue as a veteran.

[00:25:45] Spencer: Yeah!

[00:25:45] Jamie: You can leave it there. You probably can't make contributions, I would imagine as a veteran?

[00:25:49] Spencer: Correct, yeah. Because the contributions can only come out of your military paycheck. So once you leave military service, then you're no longer eligible to contribute. But your money just stays there and continues to grow. And as soon as you hit age 59 and a half, you can start taking that money out and paying yourself essentially a paycheck, or you can convert into an annuity that pays you a guaranteed monthly payment, and there's lots of options to access those funds once you've hit retirement age.

[00:26:18] Jamie: So, if we have any part-timers listening, like guard or reserve, are there options the same? Are there any unique things for them?

[00:26:25] Spencer: Yeah. So, the, the biggest thing with garden reserve is you got to be careful with your civilian 401k. No one's keeping track of how much you contribute to your civilian 401k and how much you contribute to your military TSP.

[00:26:37] Jamie: Until you file taxes.

[00:26:38] Spencer: Exactly! Until you file your tax return, and the IRS says, oops, you made a mistake. And if you do, the penalties are not egregious.

[00:26:46] Jamie: It's not gonna kill you.

[00:26:47] Spencer: It's not gonna kill you. But if you can why not avoid making that mistake? The easiest way to keep track of it is just either pick one- so for instance, if you're at an airline, you need a really good retirement plan, 401k- like a lot of, these airlines match like 16% of their 401k contributions- then just pick that.

[00:27:05] Jamie: Don't pass that up.

[00:27:06] Spencer: Exactly, and don't do the TSP. But if you go full time for a bit and you're not contributing to your civilian 401k, then contribute to your military TSP and build up both of them and just, you know, back of the envelope, just keep a quick calculation- ” I put $5,000 in this, when I put $10,000 in this one, I'm still below the limit”.

[00:27:24] Jamie: And both of them have statements. If you forget to update your spreadsheet or whatever, you can always go back online, “” and look at how much you've contributed. But yeah, so there's definitely options there and you can keep it out of service. Gard and Reserve has options too. And then now let's get to the meat of it, of like, what, what do we invest in?

So first of all, let's go through what are the funds available? So just walk down the list, the G fund is the one that you said earlier. We don't really like as much. So, explain why the G fund is not good.

[00:27:53] Spencer: Well, no, so G does not mean good, but the G fund is actually very safe, and it provides an investment return higher than inflation. So, you're guaranteed to never lose money in the fund. And it does it through these very- if you want to get, you know, behind the scenes- it's a U.S. Treasury protected security. So, as long as the United States government doesn't default, then the G fund will never default. But it provides a- even though they're short-term treasury instruments- they provide a medium-term return, which is super interesting for a finance nerd.

But for the main takeaway, if you're just getting started in this, is that if you want safety and stability, basically like a savings account, right? You're not gonna get a great return. You're not gonna turn a thousand dollars into a million dollars sitting in the G Fund because it only does 2% or 3% a year usually if you look at the long term.

[00:28:51] Jamie: So, all G is not good for long term, how's that? It's not bad, but not a good long-term plan.

[00:28:56] Spencer: But that being said, I hold I think 5% of my TSP in the G fund. And that's because for my asset allocation, we'll talk about this in a minute, but it's part of my bond strategy, is to hold is to hold the G fund.

[00:29:09] Jamie: And it gives you a bond strategy for that portion, with the very low cost. Like I said, TSP is very, very low cost.

[00:29:16] Spencer: Yeah. Let's talk about low. Let's talk about low cost for a second. So, I think last year they announced, or it might have been 2019. They're usually like a year behind when they announce their fees. But I think it was 0.05%. So, to put that in context, someone like Vanguard, right? Or Fidelity, although they have some zero, expense ratio funds, but I mean 0.04% or 0.05%, whatever it was last year, that's pennies on the dollar. So that's 1% would be $1 for every hundred dollars. Well, it's not that, it's not 10 cents. It's a penny for every hundred dollars. So, it's, well, in this case, it's, it's 5 cents for every hundred dollars, cause it's 0.05%. But the expense ratio is industry leading.

[00:30:00] Jamie: I mean, second to none, I would say almost, but it really is. You're gonna be hard pressed to find an easy account with no, crazy minimums of you needing to invest a million dollars to get a good fee, like the TSP offers. And that's just one of the biggest benefits for sure.

[00:30:13] Spencer: And that's, I mean, it might not seem like much like 0.05% versus 0.5%. I mean, it's only, 45 basis points or, you know, 0.45 but over an investment lifetime, it's tens of thousands or even hundreds of thousands of dollars lost to fees. If you are invested in something that's a higher fee, than 0.05.

[00:30:32] Jamie: And so sometimes not only will you see a higher fee like, you might pay a financial advisor one and a half to maybe even 2-3% depending on their company. But also, they may charge you 5% front load upfront fee. They may charge you $75 if you close your account with them. So, there's all kinds of penalties and fees associated with regular retirement or investment accounts that you're not gonna get with the TSP pretty much. The only downside to using the G fund as like a savings account is it's not liquid. You can't really access the money. We kind of talked about that a little earlier, so it's safe, like a savings account, but it's not accessible.

[00:31:03] Spencer: No, that's true. Yeah, don't use it for your emergency fund. That's not with the TSP is. It's still inside the TSP, it's still a retirement account, it's just one of the five funds and it's the government bond fund.

[00:31:14] Jamie: Okay. The next one is the F fund.

[00:31:16] Spencer: Okay. So, F for fixed, so fixed income securities. And the F fund tracks the Bloomberg Barclays U.S. Aggregate Bond Index. Basically, it's a giant bond fund. It's got corporate bonds. It's got government bonds, it's just a giant fund, billions of dollars. And it just provides the safety and security again of bonds, and the return of bonds, which historically has been much lower than, stock returns.

[00:31:45] Jamie: So probably not recommended in most cases, right? Do you maintain any in F? I do not.

[00:31:49] Spencer: Do I maintain? I do actually. Yep.

[00:31:51] Jamie: You have a little?

[00:31:51] Spencer: 5%.

[00:31:52] Jamie: Okay. 5% in that as well?

[00:31:53] Spencer: I think it's 5%, and actually right now, because of my investment strategy changing a little bit, I'm contributing all my current contributions to grow to the GNF fund. And that's because I'm so stock heavy that I'm trying to rebalance a little bit and build up the bonds side of my portfolio.

[00:32:07] Jamie: Yeah. So, make it a little more balanced and safer if you will. Protect against economic downturns or any sharp drop in the market. But like Spencer said, that's for in his case, to protect against and rebalance, not necessarily where you'd want to start, but there's nothing wrong with having some money there.

[00:32:23] Spencer: That's right. So, if you look at the recommended investment portfolios and, in the TSP, they call them life cycle funds. If you look at the L 2065 fund, we'll get to this in a second, but it only has 0.35% and 0.3 of the G fund and 0.35% of the F fund initially. So, it's 99% stocks for someone who just is coming into the military in less than 1% bonds.

So, even the people who run the TSP and are setting these, these long-term investment strategies for someone who's just coming into the military. You can pretty much safely ignore the G and the F fund until you're ready to develop a more robust investment strategy.

[00:33:03] Jamie: Yeah. And one other point to clarify is your allocations, your current, contributions to your TSP account are going into more safe stuff, but you didn't rebalance your- the money that's already in there.

[00:33:13] Spencer: That's right?

[00:33:14] Jamie: Yeah. Reallocate.

[00:33:15] Spencer: Yeah. Yeah. So, my current TSB portfolio is made up of the C fund, the S fund the G and the F, and I don't actually hold any I fund in there.

[00:33:25] Jamie: You don't?

[00:33:26] Spencer: Which- no. And we'll talk about that in the, in a second, but, yeah, I hold four of the five funds I hold in my TSB and, this is not investment advice, this is just what I do.

[00:33:35] Jamie: Yeah.

[00:33:35] Spencer: And that's what this whole podcast is.

[00:33:37] Jamie: Hashtag legal disclaimer. You're not gonna get rich just because you do what we do. No promises. and then- but if you did want to one other quick point about the TSP, if you did want to reallocate say you were contributing to the G fund for a long time. Inside of my TSP. Can I ever change the money that's already in there? Cn I reallocate inside of it?

[00:33:54] Spencer: You can, it's called an interfund transfer. And essentially you let's say you're holding a hundred percent in the G fund. And you want to move half that money into the F fund or all that money into the F fund. You just log in TSP dot gov, and you can set the percentages.

[00:34:08] Jamie: Yeah.

[00:34:08] Spencer: And then move that money around to the five different funds or to the lifecycle funds as well. But if you're gonna use the lifecycle funds, I don't recommend that you use the individual funds. And if you use the individual funds, I don't recommend you use the lifecycle funds. And we'll talk about why. In just a couple seconds.

[00:34:22] Jamie: Do you want to go to the L then since we kind of already started talking?

[00:34:24] Spencer: Well, we did start talking about the L, but it's made up of the, the five.

[00:34:27] Jamie: Oh, okay. So, we have to get the other one. So, let's go to C.

[00:34:29] Spencer: All right. So, C fund is the standard and Poor's S and P 500. So, it's a 500 largest companies America. So, Nike, apple, Microsoft, Google, Facebook. I mean, that's what it is today. You know, maybe that'll all change tomorrow, but these are your 500 largest companies in America. Amazon is another one. So, when you're buying the C fund, you are basically betting on America.

And the S and P 500 over the last 50, 100, 130 years has returned about a 7% return after inflation. And that's pretty awesome. It's been about the best wealth generating machine that the world has ever. So that's the C fund.

[00:35:12] Jamie: That's kind of like the backbone of my, allocation strategy and the TSP right now.

[00:35:15] Spencer: Yep. And it's very similar to, I can't remember the exact Vanguard ticker symbol, but –

[00:35:21] Jamie: It's in your book.

[00:35:22] Spencer: It's it is my book,

[00:35:23] Jamie: Quick plug.

[00:35:23] Spencer: Yeah. But the, whatever the Vanguard S and P 500 fund is, it's very similar to that one.

So- and that's very- and that compliments very well with the S fund, which is the next one I want to talk about. which is all the medium and small cap companies that aren't included in the S and P 500.

[00:35:40] Jamie: Ooh, medium and small cap. You lost me.

[00:35:44] Spencer: So, medium and small cap, cap is capitalization. So, it's just the size of the company. So, like Amazon is a trillion-dollar company, right? That's what the- if you take the share price, which is probably like $3,000 today, and you multiply by the number of shares outstanding, which is probably.

Mm, a billion then the company's worth $3 trillion. So that's how you calculate a market cap. So, the largest market capitalization market cap companies are the S and P 500. And then there's about 3000 companies traded on the us stock exchange. And so, the other 2,500 companies are made up in the S fund.

So that's your, tesla- actually, I think they just moved into the S and P 500. So, any, company that's publicly traded? That's not in the S and P 500 is in the S fund.

[00:36:31] Jamie: And the returns in that are good.

[00:36:33] Spencer: They are. Yeah.

[00:36:34] Jamie: But a little more risk.

[00:36:34] Spencer: So, there is, yeah, people say that there's a little bit more risk, but I would say really, if you're buying the S fund, you probably also want to be buying the C.

And then you are buying the whole US stock market there. So, you, by buying the CNS fund, you own a share of every publicly traded company in America, which is pretty awesome. You can do that in Vanguard VTSAX is their mutual fund that does the same thing. But, in the TSP, if you want to own the entire US stock market, at least a couple shares or tiny fractions of every publicly traded company in America, you buy the C and the S fund.

[00:37:08] Jamie: Okay. All then next is the ‘I’ fund, which ‘I’ stands for-

[00:37:11] Spencer: International-

[00:37:12] Jamie: All right. That's easy. I couldn't remember that one.

[00:37:13] Spencer: So, Europe, Australia and far east, is what's covered in the, I fund. and they're gonna be switching, actually, to an all-world minus the US index. And- which is pretty good because the ‘I’ fund has had some gaps.

If you look at the countries that make up the ‘I’ fund a lot of is Japan a lot is France, Germany, the UK, basically the largest company or the largest GDP countries in the world, except it has no investments in China, by decree of Congress, essentially.

[00:37:44] Jamie: So, the TSP is gonna invest in China. Is that what you're saying?

[00:37:47] Spencer: So, no. Well, it does- it doesn't right now. But a lot of people- you know, there's a lot of debate on whether it should. It doesn't make sense for US military and government employees to be owning shares and Chinese companies.

[00:38:00] Jamie: And just to be clear, we have no official stance on that matter.

[00:38:02] Spencer: Yeah. But that's I think that's a political question. I think it is a bit- this is kind of the reason why I don't hold ‘I’ fund at all.

[00:38:11] Jamie: At all?

[00:38:11] Spencer: No. Okay. Because I don't think it covers the entire world. I think it has gaps in it, and it's overweight in certain countries such as Japan, and very underweight in countries like China. Which, you know, depending on what you think the future holds for the world economy, China is probably gonna be a pretty big part of it.

[00:38:30] Jamie: Yeah, for sure. I do hold a little bit of S it's a- I'm sorry of ‘I’, well, I have S too, but I meant ‘I’.

But yeah, I have some ‘I’, and basically mine split CS and ‘I’, and if you don't want to, do I want to choose this much in this fund, or this much in S, and this much in ‘I’, and this much G then what do I have is our last really one that kind of combines them all?

[00:38:49] Spencer: Yeah. So, this is how, you know, we walk through those five funds. The, G the F the C the S and the ‘I’, but I think where the TSB really shines, especially for new people who just got in and don't really know what they're doing and just want to get something, some investment started to get on that path to financial freedom, financial independence, that's the L fund and the L stands for life cycle.

So, the L fund is just like the ultimate tool for the lazy investor. It's comprised of the five other funds, and it automatically adjusts as you get closer to retirement age.

[00:39:24] Jamie: So, when you say, “L 2065,” which is the furthest one out available right now, right? What I'm looking at is they're balancing the risk or making it riskier because I'm planning to retire close to 2065. So that's kind of what your year is. So, if you're a little older, you're late to the game, you might want the 20, 40 or 2050 or something like that, right?

[00:39:43] Spencer: Yeah. So that's how they're numbered is the- it's five-year increments.

So, I think the farthest one out right now is the L 20- or sorry, the closest ones, the L 2025, and then everything before that has been moved into the income, the L income fund. Which is mostly G and F funds. So, it's designed to not be very risky at all. So, the- but if you look at the L 2065, it's 99% stocks, less than 1% bonds.

And it's a great choice for the somebody who's just getting started, or if you are, if you're late to the game and- but your retirement age is close to 2065, then it's also, it's also a great fund. If you're also a little bit, you know, willing to take a little bit more risk and you're closer to retirement, so let's say retirement, day's actually in 2040, but you want to, you know, get some better potential gains then maybe the L 2065 fund would be a good one for you to look at. The nice thing about the BRS, which they just changed.

I think as of October 2020 is, you- when you contribute to- when you join the military and you start, the government starts its automatic contributions to TSP on your behalf. You're automatically placed into the life cycle fund, which is closest to your projected retirement team. So, in this case, everybody who's joining in 2020 or 2021 their investments in the TSB should be in the life cycle, 2065 fund. So, I think that's, I think that's a really nice change.

[00:41:11] Jamie: Yeah. That's nice. It's kind of automatic. I don't have to think about it versus going in and signing up for something.

[00:41:15] Spencer: Right. Cause the way it used to be was your investments were automatically in the G fund. And so, I've talked to guys who have been in for 10, 12, 10 years, 12 years. There was somebody in our squadron actually recently that. All their money was in the G fund.

So, which is, I mean-

[00:41:29] Jamie: It's still there.

[00:41:30] Spencer: Yes.

[00:41:31] Jamie: But it hasn't been working for them.

[00:41:33] Spencer: Yeah. You've missed out on a big boom since, you know, 2008 global financial crisis, the COVID dip and then subsequent recovery. So, there's a lot of opportunity lost there.

[00:41:43] Jamie: All right. So, I think one thing we talked about earlier that we didn't hit that we definitely want to come back to is if you're under the BRS, the blended retirement system, and you can start. Matches, what do I need to do to get the match? Can we just rehash, make sure we get those details out of- I have to contribute X amount to get the match and if, you know, that makes sense? Yeah. Take it away.

[00:42:04] Spencer: So, the government, if you're in the BRS blended retirement system, the government is always going to contribute 1% of your base pay to the traditional it goes into the traditional TSP. So even if you contribute to Roth, it's fine. but the government will always send 1% to traditional TSB of your base pay.

Now let's say that you're a young enterprising airman or soldier, and you contribute 1% of your pay to the TSP. The US government wants to encourage you doing that, so they're gonna match it. So now they're sending 1%, they're gonna match your 1%. So, 2% from the government is going in and from your base pay.

And 1% from your pay. Is good.

[00:42:48] Jamie: Yeah, that's good.

[00:42:49] Spencer: Going into, into the TSB and they'll continue to match up until 5%. So, for someone saying, major who's been in for 12 years, contributing 10% of their base pay it's about 700 bucks a month or whatever. And the government will take, 5% of that, right?

[00:43:10] Jamie: Mm-hmm.

[00:43:10] Spencer: And they'll kick another 350 a month.

[00:43:12] Jamie: So, if I'm wanting to get the match under the BRS I set mine to at least 5%. And they're gonna contribute 5% and all five of their matches always goes to traditional?

[00:43:21] Spencer: That's right.

[00:43:22] Jamie: And I have no control, even if I wanted to be Roth, it that's always gonna go traditional.

[00:43:25] Spencer: And if let's say that you want to contribute to the Roth, they're still gonna match it. So, you don't have to contribute to the traditional to get the matching.

[00:43:31] Jamie: And to get them to balance.

[00:43:32] Spencer: Exactly. But the matching will always go into the traditional. Even if you're doing your 5% to the Roth and you got to do at least 5% a month, like we were talking about earlier, if you're planning to max out, there's a chart on my website that shows you based on your pay grade, based on how many years you've been in service.

 How much do you need to contribute per month so that you make sure that you max out your contributions by December, but you get the 5% match?

[00:43:59] Jamie: Yeah, that is one of the annoying things about my pay contributions and figuring out what to go to the TSP is all percentage based of either base pay or incentives and bonuses or specialized pay or whatever the other categories are.

So, if you wanted to say, I want to contribute 1650 a month, 1,650 a month. You can't do that. You have to figure out the percent. Like Spencer's chart has that will lead to you contributing the dollar amount that you want. Versus just saying, I want to do $500 a month. It does not allow dollar amounts.

[00:44:28] Spencer: Yeah, that's right. So, I think we've covered a lot of the basics of the TSP stuff here. Do you want to talk about our investment portfolios really quick?

[00:44:38] Jamie: In the TSP?

[00:44:39] Spencer: In the TSP. Okay. Yeah. And then we can just to like, share some ideas for people who are getting started. And then we can kind of summarize what we talked about.

[00:44:47] Jamie: Yeah. Like our allocation percentages?

[00:44:49] Spencer: Yeah.

[00:44:49] Jamie: Yeah. So, for me, right now, I am in CS and ‘I’ only. I don't have any G and I've never used lifecycle fund. And I think right now I'm at 60 20 20 between CS and I, maybe 80 10, 10, but I'm pretty sure it's 60, 20, 20. Another strategy I have used in the past was 40, 30, 30, but a lot of programs, whether a financial advisor I've talked to or Dave Ramsey, there's all kinds of numbers out there, but almost, almost all of them involve CS and I, as the main kind of hard hitters. For your account. So that's where I- CS and I, in that order, biggest to smallest.

[00:45:25] Spencer: Do you know the percentages?

[00:45:26] Jamie: I think it's- I'm pretty sure it's 60, 20, 20 right now, but I'd have to look it up. I know I've changed it in the last couple years. But the popular ones I've read that target CS and I are 40 30 30, 60 20 20, or 80 10, 10. Between CS and I, so that's what I do, right now, CSI.

[00:45:43] Spencer: Nice. Yeah. So, right now my account is about, I'd say, let me think really quick off the top of my head here.

[00:45:57] Jamie: I'm trying to do math again.

[00:45:58] Spencer: Yeah. I'm trying to do math of my head. It's about 70% C fund, 20% S fund, and then the rest made up of the, the G and the F.

[00:46:07] Jamie: And no ‘I’, you said yeah?

[00:46:09] Spencer: And no, ‘I’, yep. So, and one reason why I've got that- the C fund about four times as much as the S fund is that if you look at the total market capitalization of the S and P 500 versus the total market capitalization of the S fund, the S and P 500 is about four times as much.

So essentially by combining the C in the S fund, I'm simulating a total US stock market cap weighted index fund in my TSB. So, I've basically recreated VTSAX or the Vanguard total US stock market fund inside my TSB. And then in terms of contribution right now, I'm just, like I said, because I'm trying to rebalance a little bit.

I'm not selling any of my CS, a CRS fund, but all of my paychecks right now, I'm doing about 50 50 to GNF fund. And that's just to rebalance and I have the TSP- the other thing to remember too, is the TSP is just part of your total investment portfolio. So, I've also got taxable investment accounts. I've got IRAs as well.

[00:47:09] Jamie: Yeah.

[00:47:10] Spencer: And so, it's all part of the big holistic picture, right? So, if you want to, you could hold all C fund in your TSP and then at your Vanguard Roth, IRA, you hold some bonds.

[00:47:22] Jamie: Exactly. Yeah. So, yeah, that's a good point too. It doesn't have to be blended here. You can use this as your aggressive one or more conservative one. You have lots of options and if you have nothing else to do, the BRS is a great place to start and it's a great place to continue. If you're at a very advanced investor still, with a higher net worth. It's a great place to continue to be. So, it really is a good product for federal employees and military personnel.

[00:47:45] Spencer: Definitely.

[00:47:46] Jamie: So, before I wrap up here, I just wanted to run through, so what should someone who's, you know, like just learned about the TSP or they just got into the military. What do you think their next step should be?

[00:47:59] Spencer: Yeah. If in almost all cases, unless you're digging out of a huge pile of debt, go set at least 5% in my pay and start contributing something.

[00:48:08] Jamie: Especially in the BRS.

[00:48:08] Spencer: Yeah. Which anyone who just joined would be that's true. So there- soon the legacy system won't even really be an issue in a few years, but definitely for anyone that just joined that's in the BRS or that opted into, it set at least 5%, so you can get the match.

[00:48:21] Jamie: And where can they do that?

[00:48:22] Spencer: On my pay or whatever the Marines use. we'll look it up for next time.

[00:48:28] Jamie: So, start with something 5 percent's a great spot because then you can take advantage of the matching, like we talked about earlier.

[00:48:33] Spencer: And one thing to know, if you did like, literally just join the military, you won't get the 5% matching until you've been in for two years.

[00:48:41] Jamie: Yes. Yeah.

[00:48:42] Spencer: So, you're going to get the 1% automatic matching from day one, but you have to be 24 months of service before you start getting the US government 5%.

[00:48:52] Jamie: But when you start something one, not only are you gonna be building your net worth and long-term strategy of investments increasing your wealth, but then when the match does kick in at the two years.

[00:49:01] Spencer: It's automatic.

[00:49:01] Jamie: It's already, it's already ready to go and you don't have to log back in. And because what you don't want to do is forget to go back in at two years and bump it up to 5%. So just go ahead and set it. Now if your spending can afford like your budget can afford.

[00:49:12] Spencer: Yeah. And it's, it's setting that, it's setting up the habits now, that are gonna make you a successful investor in the future.

Okay. So, we talked about what to go do now. And then I would say the biggest thing is. If you don't know where to start once you're inside the TSP, just keeping the life cycle fund.

[00:49:31] Jamie: Yep.

[00:49:31] Spencer: Pick the one that's furthest out. So, if you're listening to this podcast five years from now, it's probably the 2070 fund. But for right now, 2065 fund. it's gonna be, the best risk adjusted returns that you can expect over the next, you know, what is that? 45 years of investing.

[00:49:48] Jamie: Yeah, for sure. And there's lots of resources out there on your base in military family support center, the airman family readiness center, whatever it's called on your installation or post there's financial counselors there that can kind of help point you in the right direction.

You can talk to the TSP.Gov help center and they can explain to you how to set up stuff. Add some other resources, “” Just, to name a few, and then do you want to do a quick plug for the book coming out? In a few months.

[00:50:13] Spencer: Yeah.

[00:50:13] Jamie: So, because a lot of this that's in here is gone in detail of log into my pay at this link and do this and this and the book just walks on through.

[00:50:20] Spencer: Yeah. So, all the stuff we've talked about in the starting your TSB investing in the TSB, I cover that in my book. It's coming out in August 2021. That's what year it is. And it's called the “military money manual, a practical guide to financial freedom.” It's gonna be available on Amazon and on my website, “military money”

And you can Google that, as well. And it should pop up right there.

[00:50:45] Jamie: And in all kinds of formats too.

[00:50:46] Spencer: That's right. Yeah. We're gonna have, Kindle, we're gonna have, eBook we're gonna have hard copy paperback, audiobook.

Yeah. I'm pretty excited about that.

[00:50:55] Jamie: It's not in our voice, so you're-

[00:50:56] Spencer: It's no, exactly a better voice. Yeah. You're safe from that. He sounds like Obama. So, yeah, I'm really excited about the book. It's short. It's less than a hundred pages. You should be able to read it in an afternoon. I just had my buddy, Matt texted me from Kuwait and he was reading it by the pool.

[00:51:11] Jamie: Nice.

[00:51:11] Spencer: So, on his-

[00:51:12] Jamie: Rough deployment, earning his tax free, hopefully investing in his Roth, hopefully invest in his Roth accounts.

[00:51:16] Spencer: TSP. Yeah. And IRA.

Yeah. Well, we talked about a lot today. There's a lot to digest with the TSP, but again, if you get overwhelmed and don't know what to do, 5% life cycle fund, log into my pay log into and get it going. And then August 2021, check out the military money manual book coming out on all formats, including audiobook and the “” has all kinds of articles and updated blog posts as well as a bunch of other just resources for gaining financial independence and, just personal finance in general.

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