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The PFC’s Corner – November

ROSECRANS AIR NATIONAL GUARD BASE, Mo. --

BLT, PB&J, REUBEN, HOAGIE?

Did the title about food grab your attention? I was told that an offer of food would garner members’ interest so, did it work?  Maybe you have heard the term “sandwich” used in a financial sense when referencing a generation that is taking care of (or making preparations to care for) elderly parents and simultaneously supporting children, school-aged or adult.  First coined by Dorothy Miller in 1981, it has become so common place that Miriam-Webster added it to their dictionary in 2006.  While the psychological impacts of such a situation are important and complex, the unfortunate bi-product of being in a “sandwich” can be financial decisions with significant downsides.  Surveys have indicated that having to provide dual care involves a 3x likelihood that the providers will have to take premature distributions from their retirement plans.  And just as bad, couples providing dual care are 6x as likely to use college accounts in support.  In a 2018 analysis, it was estimated that 17% (~7.5M) young adults age 25-34 lived at home.  The damage to a couples’ retirement plan or to their children’s college pursuits is obvious but don’t overlook that in both of these forced withdrawals there are significant income taxes and penalties incurred.  The need may be unavoidable, and if able, assisting as much as possible is a blessing and the right thing to do, certainly.  Many of you have heard me say “Murphy (of Murphy’s Law) was an Optimist” and we certainly can’t predict or know if we will become “sandwiched” someday.  But, proper financial planning can go a long way in minimizing at least any such scenario.  There may be additional strategies implemented and perhaps even some tax breaks in certain situations so if this might be on your financial horizon or you’re experiencing it now, set an appointment and let’s see what options are on the table.

HOW MUCH SHOULD I CONTRIBUTE TO MY TSP?

This is one of the questions I get frequently enough that I wish I had $1 for each time!  Certainly, as much as you can.  Having stated the obvious, though, the next reply is “It depends”.  Every member on the base has a unique, individual financial puzzle that they must put together in a way that 1) Provides for their living expenses, 2) Funds any short-term and intermediate financial goals, 3) Supports a “balanced” lifestyle (have fun, within reason), and 4) Supports their desired level of retirement.   Housing, food, utilities, clothing and transportation are the core expenses for #1, and #2 may include things like an emergency fund, newer car, house remodel, down payment for a house, etc.  When I counsel members on #3 I am recommending things like date nights, eating out, sports events or even vacations.  Without some “fun” reductions in spending money as you desire will eventually be perceived as restrictive or even punitive.  So, having laid out the “conditional items” here are two examples:

  • For a new member (Student Flight, e.g.) I approach it this way-

You can contribute up to 100% of your drill pay to your TSP, technically speaking, but if they are living at home, essentially with only car gas and maybe a cell phone expense, I suggest they get use to a 5% automatic level (after 2 years, they will get the additional 4% match) and bank the rest. It is rare, actually, but if they have any debt we look to pay that off first.In their scenario, I feel they need to get in the habit of automatic saving AND hopefully dealing successfully with the temptation of building a significant bank balance eventually.

  • For a full time member, single or married, if it’s pretty certain #1-3 are satisfied, then I assess the level of discretionary income left and suggest a minimum of 10% in the TSP if possible (if in the BRS this could be 5% because of the match).  In the event there is additional income, then I recommend they consider an individual Roth IRA.  Always balance what both spouses are doing with their retirement plans.

The ultimate goal is to reach 15% of your income, but this can be a combination of TSP and individual IRAs.  The tax treatment of contributions is certainly contingent on what their household income and last year’s return looks like, but I regularly emphasize the Roth option for the TSP and individual IRAs to provide a tax-free income option down the road.

These two examples are very simplistic and certainly don’t cover many of the “what-ifs”, but in general you start with a sound financial basis in any goal setting and evaluate the options of what to do with residual cash.  It’s a process, and may seem confusing, but let me help you.  I am here full time and specialize in this sort of analysis.

Have a Happy, Safe Thanksgiving!

Randy Gerard, 573-415-6934 or 816-236-3939, #6, pfc.rosecrans.ang@zeiders.com.