Dear Dr. Don,
I am 26 years old and recently separated from the military. While I served, I started up a federal Thrift Savings Plan, or TSP, retirement account that has a balance of about $18,000. I was deployed twice, so some of that money is tax-free. Now that I am out of the service, I can no longer contribute any funds to the TSP account.
I currently carry a balance of $12,000 on my credit card at 10.9 percent interest. I owe $8,000 on my car at 7 percent interest. My total monthly expenses amount to approximately $1,000.
I started a full-time job a week ago, making $44 an hour, and I want to set myself up for a successful future. How should I do that?
Is it worth it to roll over my TSP into my company’s 401(k), even though my employer doesn’t match any portion of my contributions? What other investments should I consider? Is gold and silver investing a good idea? Do I want to tackle my debt first?
— Steve Soldier
First, thank you for your service to our country and congratulations on starting that new job. I’m not a big fan of rolling monies over into a new employer’s retirement plan. The reason to do it is for convenience. But a primary reason not to do it is that you may have more investment choices, either if you stay in the Thrift Savings Plan or if you roll the money over into a traditional or Roth individual retirement account.
Your basic options for a rollover are to have the account held with a bank, a brokerage firm or a mutual fund family. Those lines get a little blurred, with banks and mutual funds offering brokerage services and brokerage firms having banking divisions. You’re looking at keeping annual fees and expenses low while having access to the types of investments you want to own. To that end, your TSP investment options can fit that bill. At your age and in such a low-interest-rate environment, I’d suggest that you not roll the money into a bank IRA CD.
Gold is the current hot trade. You’re investing for the long run. I have no idea if gold or silver will be a good long-term investment. Is there room in an $18,000 portfolio for an investment in precious metals? I’d say no. If you say yes, try to limit that investment to a small fraction of your portfolio. Don’t go all in on gold, silver or any one investment. Your ability to buy precious metals in a retirement account is likely to be limited to exchange-traded funds, or ETFs, that are invested in gold.
Don’t cash in this Thrift Savings Plan account to pay down your debts. Your monthly expenses are low enough, and your wages high enough, that you’ll be able to make short work of paying down your credit card debt. With the car loan, you could consider refinancing the debt or, like the credit card, chip away at it with additional principal payments to shorten the term of the loan and reduce the total interest expense.
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