May 21st, 2012
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Joe Morrin, CFP®
The Survivor Benefit Plan (SBP) allows military retirees to protect their spouse (or other survivors) by insuring that a portion of their retired pay continues after their death, providing a guaranteed lifetime income.
The decision to enroll in this program is made prior to retirement and is irrevocable. And for married personnel, it’s a decision they cannot make alone. The spouse of a military retiree must consent to any protection level that is less than 100 percent. If the maximum election is made, the cost for spouse-only coverage is 6.5 percent of gross military retired pay.
Everyone’s situation is different. As you consider the SBP and alternatives, here are some things to keep in mind:
Possible Advantages of the SBP
- No evidence of insurability is required.
- No suicide or incontestability clauses.
- Benefits are tied to retired pay increases.
- SBP costs are not subject to federal income tax or state income tax in most states.*
- Survivor’s benefits are subject to federal estate taxes, but in most cases are eligible for the unlimited marital deduction.*
- Benefits are not subject to garnishment, lien, or other legal processes.
- Benefits may be payable for the lifetime of beneficiary.
Possible Disadvantages of the SBP
- No residual estate remains after death or marriage of designated beneficiary.
- Monthly benefit is subject to federal income tax as ordinary income.*
- Monthly benefit is subject to state income tax in some states.*
- Preferred risks subsidize uninsurable risks.
Additionally, SBP costs, benefits, and provisions are continuously subject to revision by legislative and administrative action.
*Appropriate professional tax counsel should be consulted regarding matters of taxation.
Did you enroll in the SBP? Did you consider alternatives? What went into your decision-making process?
May 16th, 2012
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Katherine Kirkpatrick
Mortgage payment, $765. Utilities bill, $90. Unexpected car repair, $110. Extra money at the end of the month, $0.
If you constantly wonder what happened to your paycheck, coming up with a budget may eliminate some of the guesswork and change that $0 figure into something a bit larger.
But developing a budget means you have to know exactly how much money you have coming in each month and how much you’re paying out toward bills and other expenses. Although this task takes some time and effort, the result may be better control of your finances.
The Steps:
1. To create a budget for the future, you have to examine your past. Start by looking back through your check registers for the last year. Make a list of all the places your money went — mortgage or rent, utilities, phone, cable TV, food, insurance, taxes, entertainment, car and home repairs, and so on.
2. Make a list of all your income sources.
3. Write down all your deposits over the past 12 months.
4. Write the monthly payment next to each expense category. For variable expenses such as food and utility costs, find the average cost over a certain time period. For semiannual or annual expenses, divide by six or 12 to get a monthly cost.
Develop a budget based on these figures, comparing them to your actual expenses over the next few months. If there’s a difference between the amount you budgeted for an item and the amount you spent, adjust your budget or find a way to reduce spending for that item.
This article was reprinted from a First Command Financial Services publication.
May 14th, 2012
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Katherine Kirkpatrick
Research shows that military households have responded to the recent economic turmoil by taking control of their personal finances. Their continued focus on fiscal responsibility is a model for the nation at large.
So how strong are your financial habits? Do you make saving money and cutting debt a priority? Or does money slip through your fingers in spite of all your good intentions?
Here are a few tips:
Tip #1: Establish specific goals for things you really want. Saving as a matter of principle just doesn’t provide the necessary motivation for most people. You must have definite goals – things you really wish to have.
Tip #2: Set definite deadlines for reaching your goals. Be realistic about how much will be required to reach your goals. How soon will you need it?
Tip #3: Pay yourself first – fundamental to every financial plan. When you make out the checks to pay the bills, don’t put yourself last. You may never get there. Make that first check out to yourself.
Tip #4: Get your money out of sight and out of mind. Automatic savings tools – such as bank drafts and the Thrift Savings Plan – are an excellent means to this end.
Tip #5: Establish specific accounts for each separate goal. If you have two or more basic objectives, establish two or more accounts to achieve them.
Tip #6: Stick with your plan. The best plan in the world is useless if it is not activated or if it is abandoned. If your goals are meaningful to you, you must stick with your plan.
This article was reprinted in part from a First Command Financial Services publication.
May 7th, 2012
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Katherine Kirkpatrick
How much is enough to retire on? Too often, American families fail to address this question until they’re nearing retirement, only to discover they must adjust their expectations. While, military families typically report a higher level of satisfaction with retirement planning than their civilian counterparts, current legislation in Congress is putting that notion in jeopardy. The legislation, still being debated, would phase out the traditional retirement system that provides lifetime income to retirees after 20 years of service. A recent survey by the First Command Financial Behaviors Index revealed that two-thirds of middle class military families have growing concerns about potential changes to the popular system.
With no end to the current economic uncertainty in sight, and no clues as to what Congress may do, it is incumbent upon each military family to take it upon themselves to create and follow a comprehensive retirement plan.
Estimating how much you’ll need for a comfortable retirement can be complex, and there’s no definitive rule for reaching a magic number. For many years, experts suggested planning to live on 70 to 80 percent of your pre-retirement income. But that estimate may not be appropriate for you, because it assumes a fairly short, sedentary retirement with low fixed costs. Retirees are now living longer and more active lives, and must account for more years in retirement and higher expenses. Healthcare costs also continue to rise and there is mounting uncertainty about Social Security benefits. It may be more realistic to plan for full-income replacement.
To determine if you’re on the right track, you’ll need to consider several variables, including:
- At what age do you want to retire?
- Do you plan to serve in the Military for a full 20-year career?
- How many years do you plan for your money to last?
- What do you have in savings and investments?
- How are your investments allocated?
- Do you have other assets – a home, for example?
- What are your spouse or partner’s retirement needs and expected contributions?
- What are your current liabilities?
- What do you expect your retirement expenses to look like?
Do you have a comprehensive retirement plan in action? Let us know in the comment section below.
This article was reprinted from a First Command Financial Services publication.
May 2nd, 2012
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Joe Morrin, CFP®
For military servicemembers, the Thrift Savings Plan (TSP) mirrors the private sector’s 401(k) plan. It offers the opportunity to invest for
your future with taxes deferred on both your contributions and their earnings until withdrawn, which typically happens during your retirement.
If you serve the 20 years required for a military pension, the funds you accumulate in your TSP can provide an additional source of retirement income. If you separate from service without a pension and enter the private sector, your TSP funds may be rolled over into a 401(k) or Individual Retirement Account (IRA). If you enter federal employment, you can continue to contribute to the TSP—and even enjoy matching contributions from the agency in which you’re employed.
The Tax Code sets limits on the amount of tax-deferred contributions you may make annually to your TSP, but also allows additional “catch-up” contributions for persons 50 and older as well as additional contributions from combat zone pay. Because these limits may change, your best source for current information is www.tsp.gov or a knowledgeable financial advisor.
If you max out your tax-deferred contributions, consider putting additional funds in a Roth retirement account. Although contributions to a Roth account are not tax-deductible, there are generally no taxes on earnings and distributions, making it a source of tax-free income in retirement.
April 30th, 2012
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Joe Morrin, CFP®
The list of federal agencies offering early retirements or buyouts, including Department of Defense, continues to grow. Air Force is offering a second round of early retirements and buyouts that ends in April.
As a refresher, Voluntary Early Retirement Authority, or VERA, allows federal agencies to temporarily lower retirement age and service requirements to age 50 with at least 20 years of creditable federal service, OR any age with at least 25 years of creditable federal service. Voluntary Separation Incentive Payments, or VSIP, also known as “buyouts” allows agencies to offer employees lump-sum payments of up to $25,000 as incentive to voluntarily separate from federal employment.
If you or a family member are offered VERA or VSIP, you’ll have some serious questions to consider. Here are some of the most relevant:
- If you leave the federal government, but are not ready to retire permanently, what is the likelihood of finding a private sector position with a comparable salary and benefits? Keep in mind that although CSRS and FERS participants receive annuities, private sector employer retirement annuities are virtually a relic of the past. And finding a private company that matches 5 percent of your 401(k) contributions, just as the federal government matches 5 percent of FERS TSP contributions may be difficult.
- What will you do with the money in your TSP account?
- Will you need an alternative to FEGLI?
- If you accept VSIP, what will you do with the lump-sum payment?
If you’re presented with the opportunity, be sure to get assistance weighing the options available to you. Try to get help from your human resources representative. Additionally, a Financial Advisor can aid you in determining the pros and cons of an early retirement, a buyout, staying with the federal government, or leaving to pursue another career or retirement.
For more information, download the recent webinar “Contemplating Your Future in a VERA, VSIP World” from First Command and Federal Times: federaltimes.com/firstcommand .
April 25th, 2012
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Joe Morrin, CFP®
You may already enjoy coverage from Servicemembers’ Group Life Insurance (SGLI). But a key word in SGLI is “group,” meaning that coverage is not tailored to your specific insurance needs. So don’t assume that, even with $400,000 of insurance, SGLI necessarily provides the right amount of coverage for you. Take the time to calculate exactly how much life insurance will meet the needs of your survivors.
For example, suppose you have the full $400,000 in SGLI coverage. In the event your family would need it, you’d like it to pay off your home mortgage, auto loan and credit card debt, and help pay for your child’s college expenses. After all is said and done, SGLI may replace your income for only a few short years.
An insurance strategy that includes a policy to supplement your SGLI coverage may be right for you for a number of reasons:
- Commercial coverage can help you maintain insurability if you separate from military service.
- Buying today may enable you to lock in lower premiums and avoid the possibility of being denied coverage later due to your age or a pre-existing health condition.
- Commercial insurance may provide options unavailable in SGLI. And it may give you more control of the product, as it is a binding contract between you and the insurer.
One option to consider is permanent insurance, a policy that guarantees insurability for life with a locked-in premium. This can provide this additional financial security and may help you avoid the progressively expensive premiums for Veterans’ Group Life Insurance later on.
This article was reprinted from a First Command Financial Services publication.
April 23rd, 2012
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Vickie C. Mauldin
In 2004, the Senate passed Resolution 316 that recognized April as National Financial Literacy Month. Since then, many organizations have developed programs to promote financial literacy for young persons and adults. In 2005, First Command Educational Foundation added financial literacy education as one of its primary goals. The Foundation has developed online training programs, community-based outreach programs, instruction in Spanish, special curriculum for schools, and most recently our new Money Matters Online, a web-based financial literacy program for secondary-school age students. We are now in the process of developing a military-oriented version of Money Matters Online, and following that, a version for non-military adults.
Why is financial literacy so important? Life has become very complicated and hectic, and requires decisions every day: where to buy gas, how much to put in the savings account, how much money to allocate for clothing and how much for meals out, which car to buy, where to invest for retirement, and even which cell phone and cable plans are best. Not knowing the answers to these questions, or not knowing where to find the answers, can be very stressful – and costly!
So where do you find the answers?
- Ask at your local bank or credit union if you have questions about checking and savings accounts, CDs, and other savings accounts. They can help you understand your credit card account, too.
- Visit your local library. There are many guides and books on finance and money management.
- Check your local community college for financial literacy classes.
- Military members can usually consult with the unit financial counselor.
- Look for organizations that provide general financial knowledge, such as National Endowment for Financial Education (NEFE), Jump$tart Coalition for Personal Financial Literacy, or First Command Educational Foundation (FCEF).
- Look online for financial literacy training or forums. (Be careful though, a lot of advertising masquerades as advice on the internet.)
- Make an appointment with a financial advisor.
Be patient. It can take time for you to gain the knowledge you need to handle your finances successfully and comfortably. But once you’ve gained that knowledge, you’ll feel much better about your life, and you’ll have a much better chance at achieving the comfortable retirement you’d like.
It’s also very important to make sure your kids learn about money and finances. Explain to them that learning about finances is a key step in reaching their own goals. Support financial literacy education in schools. As our next generation reaches adulthood in this ever-more hectic world, they’ll be better prepared to successfully answer life’s complicated questions.
Vickie Mauldin retired from the United States Air Force in 2004 after 30 years, serving her two final tours as Command Chief Master Sergeant for United States Air Forces in Europe and Air Force Materiel Command. The mission of First Command Educational Foundation (FCEF) is to educate those who serve. Learn more on Facebook: http://on.fb.me/xFbCgs .
April 19th, 2012
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Katherine Kirkpatrick
Every day, early retirement offers and separation incentives hit federal employees’ desks. More than 20 agencies have already made VERA and VSIP offers, with more to come. First Command and the Federal Times are hosting a FREE webinar to help those who are facing reductions in force and early retirement options. Called “Contemplating Your Future in a VERA, VSIP World”, the webinar will be held live at 1-2 p.m. ET on Tuesday, April 24. It may also be viewed on demand after that date.
Join us and discover:
- Why buyouts and early retirements are offered
- The effect of VERA/VSIP on your annuity, benefits and future employment
- The issues you need to consider: Are you financially, professionally and personally prepared?
- Steps for transitioning to a new career
- Strategies to strengthen your financial security today and for tomorrow
Register at federaltimes.com/firstcommand today.
