Military Finance Report: 2013

Friday, December 27, 2013

How to Make a New Year's Resolution

Have you tried to make New Year's Resolutions in the past?  Is the resolution a financial one or a health one?  Does the resolution only last 3 days, 3 weeks or only 3 months?  Don't worry if this happens to you because it happens to a lot of people.  The secrets to making a New Year's Resolution a success are to make more than a one-sentence resolution and keep yourself accountable.  These steps are similar to my How to Set and Complete Financial Goals blog post.  Here's an example of a proper way to execute a financial New Year's Resolution.

Resolution:  I want to become debt free in 2014.  This is where people usually stop.  They may cut some spending the first couple of weeks but then they lose motivation and the New Year's Resolution disappears.  You have to create some short-term goals and a timeline like the one below:
  • Goal 1 - Identify which debt sources should be paid off first.  Always start with the smallest balance and then work your way up, using the free balance from the first source to go after the next, bigger source.  If balances are the same, then go after the one with the highest interest rate.
  • Goal 2 - Divide the total, or the amount of debt you want to reduce by, 12 months.  If you owe $12K, or want to reduce your debt by $12K, then you should shoot for $1K a month.
  • Goal 3 - Get your calendar out and mark each quarter and write it down.  Every two weeks, or every paycheck, remind yourself about the Resolution consistently.
  • Goal 4 - Make yourself accountable.
    • I always recommend using Facebook, Twitter and/or Instagram.  On January 1st, download little images you can post each month or each milestone so you always see what you were supposed to do when you look in your Pictures or Documents folder.  Post it on Facebook and ask your close friends to keep you accountable.  If it's a health goal than you should post progress pics as positive attention is addicting.
    • Make sure your spouse, if applicable, is on board and talk about it frequently with others.  Then when they see you next, they will ask you about how you are doing on it.
    • On a notepad or a Word document, write your January 1, 2015 Facebook post telling everyone that you stuck to your 2014 New Year's Resolution.  Read it frequently.
You can start out by leaving your New Year's Resolution on this blog so we can keep it together.

Sunday, December 22, 2013

Voluntary Separation Pay (VSP) Advice

The Reduction In Force (RIF) guidance, with the criteria, will start coming out from the individual services sometime next week before Christmas.  If you haven't yet read my RIF Advice, please click that link and read that blog post first.  This blog post will give you some information on what to do with a Voluntary Separation Pay (VSP) payment.

A VSP is usually offered to those with more than 6 years of service but less than 20 years.  It is determined by the service, but the Marines have already announced it will be 20% so I imagine the other services will follow suit.  So it is 20% times the Time in Service times the annual basic pay rate.  An E6 with 12 years of service would get $100K before taxes.  (.2 X 12 years X $41,940).  This may initially seem like a lot of money, but if you've read my retirement calculation blog post, you are actually losing out on a lot of "theoretical" retirement money.  But either way, if you are eligible for a VSP and take it, here is some advice on what to do with it.

If you keep up with blog, you should already have an emergency fund set aside with up to 6 months worth of bills.  If you don't, then a large portion of the VSP can be used for living expenses until you get another job.  If you move to a state that has a high unemployment rate, then you may have to use more of the VSP and vice versa if you move to a state with a high employment rate.  DO NOT spend the VSP until you have another job that covers your expenses.

After you have another job, then the VSP can be viewed as another form of a windfall amount of money.  The goal is to maximize your Return on Investment (ROI).  Typically the best ROI is to pay off excessive consumer debt.  Variable rate student loans and credit cards usually carry a 12% or higher rate.  Any money put into reducing this type of debt would give you the highest rate of return.

After this type of debt has been eliminated then you can compare your other debt like fixed student debt, a car and/or house loan.  If they are recent, the interest rate may be less than 5% and you could actually get a better rate of return in the stock market with an average ROI of 8% (4-12%) or real estate with an average ROI of 6% (4-8%).  That being said, there is an emotional ROI that comes with being debt free.  Everyone remembers the first time they felt being debt free and it feels great.

The worst thing to do with a VSP payment is to raise your current cost of living.  An example of this would be to get a new, fancy car.  Usually a fancy car would increase your registration and insurance costs.  So after the car is bought, you now have "theoretically" less money than you had before the VSP because of the increased recurring costs.  These recurring costs are what caused our junior Airmen to be in poor financial condition even after receiving large enlistment/reenlistment bonuses.  This being said, sometimes purchasing new furniture or making a large purchase that doesn't increase recurring costs may be most appropriate. 

Sunday, December 15, 2013

Financial Advice for Military Reduction In Force (RIF)

Most departments in the Department of Defense are facing a Reduction In Force (RIF) which is the military's version of "downsizing".  The Air Force is currently looking at military members with more than 1 year of service and less than 18 years.  Officers and enlisted have different programs, but leaving at 10 years or more would have significant financial implications for many.  Here are some suggestions on planning for a potential RIF.

  1. Emergency Savings - The most important thing in financial planning and for preparing for emergencies is to have an emergency savings account.  This should be about 6 months of living expenses in a "high-yield" savings account that you can access when needed (1 week or less).  I use Capital One 360, and I have a referral link and more analysis on this blog post: Capital One 360 Link.  This emergency savings account will be your first line of defense against a RIF.
  2. Post-Service Entitlements - Make sure you take full advantage of all post-service entitlements.  If the military isn't going to be as loyal as you were during your military service, then take as much as of the entitlements as you can.  The Montgomery GI Bill and Post 9/11 GI Bill will be the primary sources of entitlements for those going back to school if RIF'd.  But some entitlements have a time limit to use them like a VA home loan and both GI Bills (usually 10 years after service).
  3. Start Saving Now! - If you were reluctant to start saving before, then now is a perfect time to take advantage of the ROTH or Traditional Thrift Savings Plan.  You will be unable to contribute to these once you are separated, but you can roll it over to an IRA.  It's a cruel system, but unless you qualify for the 15-year retirement that may be offered, then you get 0% of your retirement.  In a civilian company you would retain some portion of your pension and/or your 401(k) with employer contribution.  In the military, you get NOTHING!  It's called the retirement cliff and is a quick way for the military to make and save money in the long-term.
  4. Reduce Your Debt - If you get notified that you will be RIF'd, you may be facing limited to no income for a while and you should use your current income to reduce your overall debt totals.  I suggest going for the smallest balances first and then roll all that money into the next smallest balance.  If you two balances are similar then pay off the higher interest rate.
  5. Lastly, Stay Connected - If you get RIF'd, it's not a good idea to start all over with a new passion in a new place you've always wanted to go.  There are few exceptions where this has worked for people, but the best thing to do is to go where you have support (i.e. family, old neighborhood, old job) and find a job in a similar field you were in to ensure you have continuity.  Unemployment may have dropped to 7%, but some people (like me) feel this is just economic trickery and doesn't reflect an actual increase in jobs.  Corporations are able to borrow money at low to no interest rates and are able to hire people because it doesn't affect their bottom line.  The interest rates will have to go up soon and corporations will cut employment to restore their bottom lines.
This is a tumultuous time for many but smart financial moves now can help reduce anxiety and prepare for a possible RIF.

Saturday, November 23, 2013

Make Money With Me!

One of the most important steps in financial planning is to ensure you have an emergency savings account.  If you have trouble saving, then putting your money into another account that has a time delay in getting access to your money is the best advice.  I use CapitalOne 360 (formerly known as ING Direct).  It takes a couple of days for your money to be available and another couple of days to get your money transferred back to your account.

If I were to need to dip into my emergency savings account then I would put the expense on my credit card and withdrawal the money back into my normal checkings account to instantly pay off the credit card.  All interest rates are low in the country and CapitalOne 360 is currently at .75%.  You can find higher interest rates at several banks and you can always check the rates using www.bankrate.com.  Make sure there is $0/$1 to open and no annual fees.

An emergency account should be 3-6 months of all your expenses.  Emergency requirements are usually where financial troubles start; whether it be your car broke down, some medical expenses or any other unexpected requirement.  People will use credit cards or worse, pull money out of retirement accounts and end up paying interest and/or taxes and the unexpected requirement costs even more.  When people are strapped, these emergencies can be the breaking point.  Before saving for retirement or even reducing debt, it is important to have an emergency savings account that earns interest.

When I first started using ING Direct, they were consistently rated 5 stars and were in the top 5 highest interest rates.  I've been with them for a very long time and the interface is super easy.  They are still rated 5 stars on Bankrate but their interest rate is lower than some other banks.

If you have $250 to start an emergency savings account and are interested in starting your emergency savings account with CapitalOne 360, then please use this link to sign up.  https://r.capitalone360.com/V1AVDPYTUb You will get a $20 sign up bonus and so will I.  Remember, you need to open the bank account with at least $250.

Tuesday, November 12, 2013

Opinion: Military Pay and Benefits To Be Cut?

During a recent keynote address at the Global Security Forum, Defense Secretary Chuck Hagel warned that we need to look at cuts in military pay and benefits so we don't have a military that is, "well-compensated, but poorly trained and equipped, with limited readiness and capability."  This is a very emotional, politically-charged and uncomfortable conversation to have and any politician looking to support this viewpoint would be facing certain election death.  This may surprise many of my readers, but I support this viewpoint.

There are many reactions that you may have against cutting military pay and benefits and they are understandable.  As a Finance Officer in the United State Air Force, I admittedly am suggesting that my pay and benefits get cut.  But this country and our culture has a problem with overspending.  We do it as a population and it bleeds into our political policy. The Department of Defense (DoD) is the largest expenditure of taxpayers' dollars so it makes mathematical sense that the DoD should bear a large portion of the reductions.

According to Secretary Hagel, over 50% of our costs come from military pay and benefits and while budgets have decreased our pay and benefits have increased.  Our pay and benefits are a prime target until the DoD can learn to be fiscally responsible with their contract over runs, a horrible fiscal-year process and reducing the normal "fraud" that has become part of our culture.  Our pay should be normalized to the rest of the country.  Politicians are too scared to reduce our pay like a civilian corporation would which leads to the opposite of not increasing our pay like a civilian corporation would.  Our pay should match the ebb and flow of our civilian population and the economy since it is taxpayers' that fund the DoD.

The military offers the best benefits package of any civilian corporation.  At the end of a 20-year career, people can become theoretical millionaires.  Our health-care costs have skyrocketed past the civilian populations.  Take a sample size of your lowest-level unit and see how many aren't even using the amount of benefits that we get as military members.  Our fitness centers are becoming larger and larger at every base while we have flying operations that can't fly and soldiers that can't be equipped properly.  These are all additional costs that can be reduced.

Many people would argue that we should cut CEOs' pay and celebrities' pay before we touch an Airmen's pay currently serving in Iraq protecting our freedoms.  Now, while that example brings up emotional truths, we must realize that the consumer funds CEO and celebrities' pay while the taxpayer funds the DoD.  Right or wrong, our civilian population has voted with their dollars to keep CEOs and celebrities' pay at the levels they are at now, but they did not choose to pay for the large military industrial complex.

Many people would also argue that we shouldn't touch the pay and benefits and we should stop spending all the money on our broken end-of-year process that encourages a soft level of fraud to ensure we zero out the books so we don't get cuts the next year.  While this is infuriating to me in my career, the amount of money that is actually spent wouldn't come close to a meaningful percentage enough to make significant changes to our force.  I've personally seen the process and while I'll admit it's broken, leadership from the lowest levels to the highest levels can reduce and stop it.

Many people would argue that the DoD is not the problem and it's all the entitlement spending our country gives out.  This is a politically-charged emotion and indeed, this country's entitlement spending is out of control.  But to achieve the amount of reductions we would need to reduce the deficit and control the national debt, we would have to totally eliminate our social safety net in America and in real economics that is as dangerous as spending too much on entitlements.  A country must have a strong social safety net to encourage and support massive growth.  That being said, a compromise could be worked out for a matching reduction.  So for every dollar that we reduce in military pay and benefits we should also reduce entitlement spending by a dollar.  I don't know if that has been recommended by any politician yet, but if it hasn't, I would like the credit :)

Our personal debt, national deficit and the national debt are becoming too large too ignore.  We must reduce spending and we must lower our dependence on foreign credit.  In my opinion, our national debt is more of a security threat than any terrorist group in the world.  In my opinion, everyone in America believes we should reduce spending as long as it doesn't affect their own lifestyle.  They want cuts to everyone else.  It's the "not my bubble" theory.  By percentages, the majority of the spending comes from the DoD hence a proportional amount of cuts should come from the DoD.  And if 50% of the DoD's costs come from military pay and benefits, then mathematically the cuts should also come from pay and benefits.  Although it's a difficult position to take, I support Secretary Hagel's decision on reducing military pay and benefits.

Sunday, November 10, 2013

USAA Mover's Advantage Program Review Part 3: The Offer and The Loan

Read Part 1 here: Part 1: First Contact
Read Part 2 here: Part 2: Update

As I mentioned in Part 2, Louisiana has complicated school zoning laws so my wife had to go there two months before and try to find a house so we can close before we arrive.  Louisiana was going to allow us to use the Temporary Lodging Facility zip code but that placed our kids in undesirable schools.  We had to find the schools we wanted then find which housing communities are in that zone and then refine our search.

Our USAA-sponsored realtor had his site populated with houses in those zones, in our price range with the requirements we wanted so we had a good idea of what we wanted to see.  My wife flew in and saw a couple of houses that night.  The next day she saw more houses, and using Skype, we discussed her top three houses.  To her surprise, I picked one of the more pricier houses on her list and was her #1 choice.  The reason why I chose that is because all of the houses were comparable in meeting our requirements, but the more expensive one was actually a better value. 

The value of comparable houses is expressed in cost per square foot.  This house was only $125 a square foot versus $133 and $136 for the other two in her top three.  Based off asking prices, the average for the Barksdale AFB area was $135.  So I was getting this house for $10 a square foot cheaper; or a 7% discount to the area average.  Our realtor told us he would calculate all the prices of our top three and see what kind of flexibility we had.  The next day my wife told our realtor that we selected the more expensive one and he told us that the house's, we picked, price was just lowered so we didn't have any price flexibility.  But since the owners were trying to move out quickly, our offer was the asking price minus closing costs and to keep the hot tub (our realtor's idea, not ours...lol).  Our offer was accepted!

A surprise to us, our USAA-sponsored realtor actually recommended that we at least consider a local mortgage company versus going with the USAA-mortgage company.  I was already concerned with USAA's mortgage company's communication and response (read more about that in Part 1, link above) so we got the information from a local mortgage company.  They were very friendly and gave us an Itemized fee worksheet for each loan at each percentage rate.  USAA Mortgage company didn't offer any of that visibility/transparency.  I used that itemized worksheet and called USAA to go over each fee.  Since I was using my Veteran's Affairs loan, there was little difference in the fees, but the advantage was that the local mortgage company was able to work with the logistics of us not being in Louisiana during closing.  USAA's mortgage company did not offer that service.  We would have to close by mail and could significantly extend the closing price if we went through USAA.  We chose the local mortgage company.

So far, these were the costs that I've incurred while purchasing a house:
  • $50 for the USAA pre-approval (they were going to charge another $300 if I chose to go with them).  I will have to call them and tell them we are going with a different mortgage company, so that $50 may be lost.
  • $1,000 for my wife to fly out, rent a car and stay in a hotel to find the house and put an offer on it
  • $1,200 for the escrow deposit
  • $350 for the home inspection.  The buyer pays this cost to ensure that the seller doesn't purchase a shady inspector
  • $400 for an appraisal fee but this check won't get cashed unless we (the buyers) back out of the deal
I look forward to hearing other stories of purchasing homes using any other method specific to military members.  

Saturday, November 2, 2013

USAA Mover's Advantage Review Part 2: Update and Pre-approval Increase

To read my first review go here: Part 1: First Contact.

After the troubles with the first contact, I was referred to a realtor.  Since then, house hunting has been going great.  We gave the realtor our wish list and he updated his website which automatically gives us houses to look at in the areas we are searching for and in the price range we indicated.

Due to the uniqueness of Louisiana's school zoning laws, my wife is going to travel to Barksdale two months prior for a couple of days and look at homes; and possibly put an offer on one we like.  The zoning laws complicated our search because we must be living in a zip code to attend the schools that we want.  The school system will allow us to use Barksdale's Temporary Lodging Facility's (TLF) zip code but the respective schools aren't ranked well.  So we are going to try and get an established zip code before we get there so our kids can go to the higher rated schools.  Louisiana's public schools aren't rated that well and as you get further from certain locations, it gets really bad really fast.

In Part 1: First Contact, we initially set up a pre-approval and then I called to get it increased before my wife gets there.  I just called the mortgage center and it only took about 10 minutes and the representative was really nice.  Things will move quickly once we put an offer down on a house and as promised, I will keep this blog updated.

If you have any experiences using USAA's Mover's Advantage Program please leave a comment.

Monday, October 14, 2013

The Federal Budget and You

The Federal Budget is comprised of four components: 1) Tax Revenue (or Receipts) 2) Spending (or Outlays) 3) the difference between the two known as a Surplus or a Deficit and 4) The National Debt.  You are part of all four and here is how each one affects you on a daily basis.
  • Taxes - The top three sources of income for the government is the Income Tax, Social Security Tax and the Corporate Income Tax.  Your attitude towards these taxes depends on your political ideologies.  But for financial planning purposes your goal should be to minimize the taxes you pay.  One of the advantages of a being a military member is that only your Base Pay is taxed; our BAS, BAH, deployment and travel entitlements are not taxed.  Another way to minimize taxes is to contribute to a Traditional or ROTH Thrift Savings Plan (TSP) and/or an Individual Retirement Account (IRA).  For the difference between the two, please read my article here: Should I Invest in Traditional or ROTH TSP?  In fact, every decision you make should be to pay the least amount of taxes throughout your lifetime to maximize your earnings.  Each year the government spends more than it gets in tax revenue, which increases our national debt, and we can assume that your income taxes will go up in the next 1-50 years so you need to do what you can to take advantage of today's tax rates. 

  • Spending - The top four sources of spending in order or most amount spent is Department of Health and Human Services (includes Medicare/Medicaid), the Social Security Administration, the Department of Defense, and the Interest on our National Debt.  Again, your attitude on the importance you place on the different reasons for spending depends on your political ideologies.  But one thing in common is that both main political parties have been/are increasing the size of the government.  This increased spending compared to tax revenue generates a National Deficit (often confused with the National Debt).

  • Surplus/Deficit - The difference between Spending and Revenue is what generates a Deficit or Surplus condition.  It's common knowledge that the U.S. Government has ran a Deficit almost every fiscal year (1 Oct - 30 Sep) for several Presidential terms.  At the end of the fiscal year the Deficit is added to our National Debt.

  • National Debt - The National Debt has become a common discussion and worry for our current generation.  Large National Debts that become unsustainable have been one of the causes of civilization collapses since the Roman Times.  The interest on the national debt is the fourth largest expenditure for the federal government.  If our financial uncertainty becomes worse, the interest rate at which we pay for the National Debt will go up and every dollar we pay on the national debt is either one dollar that can be returned to a taxpayer or the federal government can spend elsewhere.
You are a taxpayer and are critical to these four components.  The only way to stop generating a Deficit is to cut spending or raise taxes.  Over the last two decades it seems that only increasing taxes has been approved and thus we all face higher taxes in the future if spending can't be cut.  It is important to see your role in this process and watch it carefully because it directly impacts your personal finances. (Q99VSR8GSWXG)

Thursday, October 10, 2013

How to Set and Complete Financial Goals: Work in Reverse


A lot of people have difficulties setting goals and then completing them.  I read a lot of biographies and self-improvement books as well as practice this theory myself and I think one of the best ways to set and complete goals is to work in reverse.  Think about 60 years from now or think about your obituary (seems a little morbid right?) and then set goals of what and where, financially or otherwise, you want to be at that point.  Once you’ve done that, then work in reverse on what you need to do to get to that point and then start completing each task in order to get to your goals.  Instead of just preaching about, I will let you know mine goals; letting people know about my personal life is something I rarely do.  My goal at 60 or when I pass away is to build a multi-headed Empire.  I want to own everything.  So here is each task, how I plan to get there and where I’m at now.  The goals are incredibly high, so if I miss a mark I still hope to achieve major success.

· Hedge Fund ManagerI would like to retire as a hedge fund manager.  I want to own so many investments, including all possible types of assets, that I can affect political policy, change corporate strategies.  I want to own stocks, bonds, gold, art, real estate, land, etc.  To get to that point I have to have displayed success with my own portfolio, once I retire from the Air Force, I will have to work up the corporate ladder and then sell myself to potential investors.  I’m currently an Air Force Finance Officer and plan to get my CPA, Accounting Certification, or the required mutual fund/stockbroker licenses.

· Real Estate Empire – I want to own several properties and land in several cities in several states.  My goal is to be a major player in America’s real estate future.  At 31, I’m starting late in the game, but my wife and I plan to purchase our first house when we PCS to Barksdale AFB, Louisiana.  I will have to keep purchasing homes at the right time, taking advantage of the greed-to-fear cycles American continuously has.  To have a real estate empire, I’m going to have to learn a lot about multi-property management and ensure I balance the risk-to-reward ration that I’ve been comfortable with.

· Media Empire – A person’s relevancy is increasingly becoming more dependent on his or her success on social media.  I DO NOT want to be famous at all.  I would like a large following of people who share my values and/or want to learn from my mistakes and successes.  I want to educate people on what I believe (some may call it brainwashing) through normal media, social media and fictional novels.  Frequency and persistence is the key to success in forming a solid following.  Currently, I have this blog, Military Finance Report, that I try to spread around.  I’m frequently offer financial advice and discuss politics on my personal Facebook page.  Lastly, I self-published my own fictional novel called Blood Flows Like Wine, that I’m currently re-writing.  I hope to make a series out of it called, The Vampire Wealth Chronicles, and is a covert and overt attempt at pushing my ideological beliefs through fictional Vampire novel.  Check out the books Facebook page at www.facebook.com/vampirewealthchronicles and the Twitter page @vwcbooks.  You can purchase it on Amazon here: http://www.amazon.com/dp/ASIN/B00AEFFHRW or on Smashwords here: https://www.smashwords.com/books/view/300393.

This is just a small sampling of what my future goals are.  As you can see, I set the main goal in the future, then I identify all the milestones needed to execute each one and then I start completing each milestone.  I continuously review them and check my progress and adjust as needed.  Your goals can have shorter time horizons or not be as grandiose.

Tuesday, October 8, 2013

Government Shutdown Lessons Learned


I have refrained from publishing my personal opinion on the Government Shutdown, what led to it and who is to blame, but I thought it was necessary to publish some lessons learned from it and how it impacts your personal finances.


· Emergency Savings - I joined the military because of the "security" and the "guaranteed paycheck", among other benefits.  This is no longer a benefit and the security of our pay has been affected by Sequestration, the Government Shutdown and we'll see from here.  It is required by law that military members must be paid for services completed; however, there is no law that states when we must be paid.  Luckily for us, Congress passed the Preservation of Military Pay Act to ensure we got paid.  For this reason, having an emergency savings available would help alleviate any short-term disruptions to your pay.  If our pay was delayed for a long time, you could rely on this emergency savings.  Having an emergency savings account is usually the top of any personal finance recommendations.

· Tuition Assistance (TA) – If you’ve been waiting for the “right time” to start college, then you may miss the opportunity to take advantage of 100% TA, or no TA with the current Government Shutdown.  Decreased budgets, Sequestration and the Shutdown have all proven that TA is an expense that will be continuously looked to reduce or get rid of.  During a Chief of Staff of the Air Force Visit recently, he told our base that there are strong discussions that will most likely to reduce TA to 75%.  That means you will have to pay the remainder or use some of your applicable GI Bill.  Bottom Line: You should start taking advantage of the college benefits now before this benefit goes away.

· Separating/Retiring from the Military – Ensure that if you are planning on separating or retiring from the military that you’ve done considerable planning ahead.  Make sure you aren’t making the decisions based off of one bad assignment.  Civil Servants are an extremely valuable part of our Military’s total team and have provided the continuity while the military was engaged in Iraq and Afghanistan but as the wars wind down and we get into worse financial constraints, our civilian personnel will be primary targets for reductions.  Sequestration and the Government Shutdown has shown that hiring freezes, furloughs, reductions in annual price index raises and other entitlements are top tools for budget reductions.

Wednesday, September 25, 2013

Military Spouse: Financial Institutions to Advance Pay If There Is a Government Shutdown

Author: 

http://www.militaryspouse.com/articles/financial-institutions-to-advance-pay-if-there-is-a-government-shutdown/

USAA, Navy Federal, and Marine Federal Credit Union emerge to the aid of military members if the government shuts down.

On September 30 at 11:59 p.m. if Congress has not reached an agreement on the continuing resolution, the government will shut down. When that occurs, the military’s October 15th paycheck may be delayed.  We reached out to financial institutions to see what solutions they may have in place for their military members.

Sunday, September 15, 2013

Thrift Savings Plan - Lifecycle Funds Information

Do you know you have to save for retirement but are intimidated by the whole process?  Do you wish you could just give your money to someone and they would invest it for you?  If this is you, then don't worry about it and know you're not alone.  The Thrift Savings Plan, and other corporate banks, have mutual fund options for you that mimic having someone invest for you.  In the Thrift Savings Plan you have the Lifecycle Funds.

The Lifecycle fund automatically invests using the strategy of taking more risk while you're younger and less risk as you get older.  Each year that you get closer to the target retirement date, your fund will automatically "reallocate" your money to safer investments.  Anytime you set up your TSP in MyPay, the default fund is the "G" fund.  You must log onto www.tsp.gov and change your allocation to one of the Lifecycle funds.

There is the L Fund Income, 2020, 2030, 2040 and the 2050.  The goal is to pick a fund that's closest to your retirement date and choose that.  The income is reserved for people already in retirement, 2020 will be for those getting close to retirement in the next 7 - 10 years and so on until the 2050.

Corporate banks have similar funds called "Target" funds.  They have target dates just the way the TSP does.

All investments carry risk with them.  The risk of investing in Lifecycle funds is that the variable they invest with is risk-to-age models.  This risk may put someone at the risk of unpredictable changes in the market that some people would like to avoid or to take advantage of.  These funds take away the flexibility of active management.  As with all TSP funds, you can sell in and out of the funds so you can stay in the Lifecycle funds for as long as you're comfortable and then switch to avoid or take advantage of market patterns.

Tuesday, September 3, 2013

The Secret to Personal Finances

Once you understand the secret to personal finance, you will look at the world differently.  Financially independent people learn the secret early and continue to use it throughout their life.  Notice how I don't use the adjectives "rich" or "wealthy" people.  Just because you are rich or wealthy doesn't mean you are financially independent.  Financially independent means you have the means to live within your means and self-sustain at current income levels for long periods of time.  The secret to personal finances is understanding RETURN.

I remember being in my early twenties and becoming debt free and feeling like I was on top of the world.  After the excitement wore off, I realized that I still wasn't financially independent.  It is then that I realized that debt used correctly, also known as leverage, can RETURN you more money than being debt free.  Consider acceptable levels of student loan debt, a house loan or investment debt. Financially independent people utilize debt to get more RETURN on their money than debt-free people do.

Anytime someone asks me for financial advice I look at the maximum RETURN on every dollar they are asking me about.  Some people automatically assume that I will recommend paying off any debt before doing anything else and then are surprised when that's not always the case.  For example, you can buy a stock paying dividends at 3% or a 30-year bond for 3.6%.  If you have debt that is at 2.75%, then I would recommend you let that debt ride and invest in the dividend-paying stock or the 30-year bond and make the .5% plus difference.  Or if an employer offers a 5% matching retirement contribution, it would make sense to do that than to pay off debt at less than 4.9%.  Conversely, you should pay off debt at higher interest rates than you could find in any investment type.  If you use this scenario to guide every decision and let the secret of RETURN guide you, you will become financially independent.

Whenever you spend a dollar, you must consider the RETURN on that dollar.  I struggle with spending money correctly; or spending in general rather.  Some sort of survival mechanism kicks in from my past and it's difficult for me to let go.  A $20 fun day with your family can have a greater intangible RETURN than saving that money.  Going out to dinner as a family every Sunday can provide more intangible dividends that just being at home or having my kids spend more time with friends than with me.  And the cliché, "A happy wife is a cheaper wife" is a cliché I totally agree with.

Understanding personal finances is like playing a board game without knowing all the rules and players that have been playing for a long time (the government, banks, corporations) know all the rules.  Understanding the concept of RETURN can be difficult at times, but that's why this blog is here and that's why I'm here to help.

Wednesday, August 21, 2013

USAA Mover's Advantage Review Part 1 - First Contact

In June of 2013, I found out that I was going to be stationed at Barksdale AFB, LA.  After 14 years in the military, I decided it was time to buy my first house.  I did some research and wanted to try USAA's Mover's Advantage program to purchase a house.  This is the first of many posts about the whole process so people can learn from my process.

The first thing I learned was that USAA offers up to $3,100 in cash bonus for buying or selling a home in certain states.  One of the states that you can't get that bonus is Louisiana, so that was disappointing.  I still pressed and applied to be entered in the program on the USAA website.  At the time of applying, I am/was stationed at Kunsan AB, Korea so in the comments section I put that my primary means of communication is my e-mail.  For some reason that request was ignored, because it's most likely an automated process.  They called my wife's phone number and sent correspondence my mail to my home address in California.  I was disappointed in this because USAA is usually well equipped to handle these type of situations where the primary means of contact is e-mail.

I decided to call them directly and talked to a nice representative and explained my situation.  She said she would update my primary means of contact to e-mail and then transferred me to the mortgage section.  Again, I was disappointed because I still get charged for 1-800 numbers from the Korean service I have.  But, the USAA is customer service was still far superior to any other bank I've ever dealt with.  After about 10-20 mins of questions, and after pulling me and my wife's credit report, I was pre-approved.  I chose to go with the VA loan pre-application.  Here were some considerations that the mortgage representative brought up:

  • There is a VA Fee of 2.2% of the home loan (you can put it on your loan)
  • As of August 2013, the VA was 1/8th of a percentage better and less likely to impacted if interest rates were too rise before January
  • There is a $50 pre-approval fee that you have to pay upfront to USAA but they can automatically take it from your USAA Checkings and/or Credit Card
  • Once you find the house you like, then you will have to pay another $300 for a conversion fee from pre-approval to actual approval
  • I approved for the VAs' no down payment loan and there is no Premium Mortgage Insurance
I'll be interested in my readers' experiences.  Please share them by leaving a comment.

Wednesday, August 7, 2013

Check Your Credit Report and Score for Free

I don't know how long this is going to last, but you can check your Credit Score and Report free on www.myfico.com.  They will make you purchase a free 10-day trial of their Score Watch, but you can cancel within 10 days and you won't be charged.  It's the full access to include the simulator at the end which I recommend to everyone.  It's 7 August today and I don't know how long it will last.  Check it out today!

Once you view your information, you will have to call within 10 days to cancel your subscription or else you will be charged $14.95 for a 3 month subscription to that service.

Sunday, August 4, 2013

The Secret to Make More Money with the TSP

The Thrift Savings Plan is meant to be a retirement investment.  When investing with the TSP, you should have a long-term outlook.  That being said, it's still essential to want to make the most money as possible with it.  The secret to making more money with your TSP is to START NOW!

Time is the single most important variable on determining on how much you saved in retirement.  The sooner you start, the more you will have when you retire.  Most people wait for an arbitrary time to start saving money or dieting or making a positive lifestyle change.  The more time they wait, the harder it will be to achieve their goal.

The next time you are at your work computer, log into your Mypay (https://mypay.dfas.mil) account and increase how much you are currently saving.  If you are investing in the Traditional TSP, then up your percentage by 1% and then in a month or six months see if you can increase it by another 1%.  If you are investing in the ROTH TSP, then increase it by $25 or $50 a month and then in a month or six months see if you can increase it by another $25 or $50.  If you don't know the difference between the traditional or ROTH TSP, then read my article I've written: Traditional TSP vs. ROTH TSP

Sunday, July 28, 2013

3 Steps to Stop Living Paycheck to Paycheck

I know a lot of people, especially the junior enlisted, are quite literally living paycheck to paycheck.  After all their bills are paid, they almost have no money for anything else.  Any entertainment or unplanned expenses go on credit cards and starts the path to bankruptcy, depression and/or divorce.  Every day that passes like this makes it harder to recover from.  Their only option is to start today and get out of the negative cycle.  Here are 3 steps to stop living paycheck to paycheck:
  1. Get back to zero.  The first and most important step is to get back to zero.  Track what you spend everyday and see if there are small changes you can make to get back to zero.  If you make $2K a month ensure that you only spend $2K a month.  If you are using your credit cards to supplement your income, then you will never get out of your situation.  The interest on your credit card will slowly keep increasing and your minimum payments will keep increasing.  This negative feedback loop will eventually bankrupt you the second you don't have access to new credit.  Mathematically, you can't do anything else until you get back to zero.
  2. Micro-invest.  The next step is to start getting out of debt.  You can either pay the minimum payment until a credit card is paid off and wait for months or years for that to happen.  Once the credit card is paid off, you will eventually have a little more flexibility to stop living paycheck to paycheck.  A better option is to track everything you spend for 30 days and, I can almost guarantee, you can find $25 a month in places you can cut.  Put this extra $25 with your minimum payment and the math behind the compounding interest will be in your favor.  You can cut off months from paying off that credit card and finally have some flexibility from living paycheck to paycheck.  Moving small amounts of money is called micro-investing and can be very powerful for those not making a lot of money.
  3. Focus fire.  Make sure you aren't rounding up on all your payments.  For example, someone has a $246 car payment and they put $250 a month towards it; a $56 minimum credit card payment and they put $60; etc.  It's better to tally up all those extra cents and dollars and focus them on paying down a credit card.  It's a mathematical principle why it's important to focus fire on your money.  Start by paying off the smallest balance and keep rolling those minimum payments to the next smallest balance.
If you are beyond the help of these tips, it's best to see your First Sergeant to see if they can help. Self identifying a problem is a courageous act.  If you're a civilian, try seeking help from your local church, friends or family members or a professional money manager.

Monday, July 22, 2013

USAA Career Starter Program

Have you heard about USAA's Career Starter loan?  It is a "signature" loan (meaning no collateral down) for officers about to graduate from a commissioning program.  The max amount of the loan is $30K and the interest rates range from .5% - 2.99% and payments are deferred for 6 months after your commissioning date.  A common question is, "Is the USAA commissioning loan a good idea?"  As always, there are two sides to a personal finance decision: the economical and the emotional.  Here are my thoughts:

This USAA Career Starter Loan is an excellent economic decision.  It's the lowest interest rate you can find on a signature loan.  When comparing a loan versus cash decision, you must use the "Rate of Return" to help guide you.  One of the smartest things you can do is to pay down any debt you currently have; i.e. other student loans, credit card debt or a car loan.  Most consumer debt ranges from 5-25%, so consolidating them into a .5-2.99% loan could save hundreds and/or thousands of dollars.  Another option is to only use enough to purchase a car which would cut the interest payment in half of what a normal car loan would have been.  Another option would be to invest in something that earns more than 2.99%.  Either way, this "cheap source of money" could be utilized very effectively.

The other side to a personal finance decision is the emotional side and the one I used to make my own decision.  I graduated Officer Training School in 2009 and in 2009 I had been debt free for 5 years and wanted to keep it like that.  I love the feeling of being debt free and it is worth more to me than some small percentages of return if I had chosen to invest it.  If I lost money investing it, I would have increased my losses because I would still owe that money back plus interest; albeit, a low interest rate.  Another emotional factor comes from those who know they can't handle debt.  If you are living paycheck to paycheck, then adding more debt, regardless of the interest rate is not a smart move.  You must know your self and your own debt/risk profile.

Friday, July 12, 2013

5 Tips for Dealing With Military Finance

The military pay system is very dynamic.  Unlike most civilian companies, your pay, and things that affect it, change continuously.  In the past 14 years that I've been in (10 of which were not in finance), finance hasn't had the best reputation with military members.  Our career field is constantly working on how best to manage the systems we are forced to use and provide the best customer service possible.  Here are some things that you can do to help yourself.

- File your travel voucher within 5 days.  This is on the back of your orders and is considered a Direct Order; however, it's not enforced.  The majority of complicated pay cases stem from individuals not filing their travel vouchers within 5 days.  You can't help the long part of rejects, slow finance response times and actual processing, but you can help your portion which is filing the voucher.  Filing your travel vouchers w/in 5 days reduces pay debts and travel card delinquencies and also ensures you are receiving the correct entitlements.

- Don't suffer in silence.  If you're not receiving the answer or service you think you should from finance, then ask for an NCO, the flight chief or the OIC (a.k.a. the Financial Services Officer).  Don't abuse the junior enlisted technician or you may create a negative response for that technician and will increase poor customer service.  Regardless of what most people think, most finance personnel want to help customers.  Don't leave finance feeling like your problem is unresolved.

- Know our regulations.  Most people say, "Why do I have to know your regulations?  That's your job."  That is very true, but it's your pay.  No one cares more about you getting paid correctly than you.  Our military pay comes from appropriated funds, which means it's taken from taxpayers and given to us by Congress.  This means the money has to only go to what's it authorized for.  So, unfortunately for many customers, if a military pay technician tells you the wrong answer, the government will still seek collections in the form of a debt.  It sucks that the military pay technician gave the wrong advice, but you still owe the money back.  The most common regulation cited for all services is the Joint Federal Travel Regulations (JFTR) for military and the Joint Travel Regulations (JTR) for civilians located here: http://www.defensetravel.dod.mil/site/travelreg.cfm

- Be persistent.  Due to various reasons, some finance can control, some we can't, resolving your pay issue may be a lengthy, laborious and complicated process.  Be persistent, but professional, with finance to ensure it gets resolved.  Don't just fire an e-mail and forget and hope it gets resolved.  Get a positive ID on the corrective action.  If we say it will pay out in 5 days and on the 5th day it doesn't, give us a call back.

- Leave constructive feedback.  If you have constructive feedback, please give it to us.  Use whatever method your local finance has for customer service feedback.  We can't improve unless we know what to improve.  If you had a positive experience, please leave that feedback too.  Nothing is more motivating than the Commander receiving a thank you note due to a positive customer service feedback.

I was a customer like you for 10 years before crossing into finance, so I bring those experiences with me and we, at least in the Air Force, are doing everything we can to get back to the basics and give the best possible service we can.  We need your help to ensure you're doing your part to take care of your finances and focus on the mission.

Tuesday, July 9, 2013

Does USAA Have Good Mutual Funds?

USAA has done a great job in improving it's mutual fund choices and performance.  On 30 Jun and according to their site, USAA has seven 5-star rated mutual funds and eighteen 4-star rated mutual funds.  From a quick glance, it looks like most of their highest-rated funds are from their bond family of mutual funds and might be doing well because bonds have been doing well, but there are some non-bond mutual funds on the list too worth checking out.  If you like USAA's solid customer service and appreciation for the military and want to invest with them, I would start looking at these mutual funds first.

https://www.usaa.com/inet/imco_mutualfund/ImMorningstarFunds

Friday, July 5, 2013

What do I Need to Retire?

The day after Independence Day is a great time to start your journey to becoming financially independent.  So What do I Need to Retire...This is one of the most popular questions that I get from people.  What do I need to retire?  Or another similar question, How do I create a good retirement plan?  What you need to retire is...a chair.  You will need to create a metaphorical retirement chair.  Each leg represents a revenue stream, so the more legs you have, the sturdier the chair will be.  If you have no legs, then you are sitting on the ground like being homeless, metaphorically.

1.  The first leg of your retirement chair is a pension or a defined retirement plan.  This is becoming more rare with civilian employers now, so finding a job with a pension may be difficult.  The most common, and most applicable to this blog, is the military retirement.  Civil Servants have the FERS pension and teachers, firefighters and police have their individual state pensions.  I would like to say this is the safest leg to lean on, but I can't anymore.  Corporations, with help of corrupt government officials, have made it where companies in financial trouble can reduce or eliminate pensions promised to workers that have fulfilled the requirements of earning a pension.  Either way, defaulting on pensions is uncommon and defined retirement plans should be a leg in your retirement pay.  The higher you go up in your career and the longer you work there, the stronger this leg becomes.

2.  The second leg of your retirement chair is your own retirement investments.  This leg is my favorite because it's something within our own control.  We make the leg as big or as small as we want.  Your retirement investments can be from 401(k)s, TSP, 403(b)s, etc.  At the minimum, and if applicable, you should ALWAYS at least invest enough to maximize your employer's contributions.  Your employer's contributions are basically free money.  This leg is also where your IRAs, both ROTH and/or traditional, fall under.  And lastly, this is where any other taxable money that you've managed to save comes in.  The more you save, the more revenue you can generate making the leg stronger.

3.  The third leg of your retirement chair is property.  This leg should include a paid-off house in good condition, and depending on your income range, a rental property that is managed by a property management company.  If your plan is to retire by 60, then you should own a house by 30 if you plan on getting a 30-year mortgage or 45 if you get a 15-year mortgage.  Due to unknown health reasons, you may be unable to take care of the house by yourself anymore once you reach retirement age, so make sure it's continuously in good condition by doing all the required preventative maintenance.  Your retirement income is usually less than your working income (it's usually 75-85% of your income) so it's sound financial planning if you could have the house paid off to maximize your disposable retirement income (and to spoil any grand children rotten :).  A rental property, managed by a good property management firm, is a great way to strengthen this leg and keep some good passive income.

4.  The fourth leg, and my least favorite, is your social security check.  I have plenty of personal opinions regarding Social Security, but I'll keep them to myself.  Your social security benefits can be increased by the length of time you work.  Also, you can increase your benefits by delaying when you get them when you are of the applicable age.  Social Security benefits continuously reduce while we continuously pay more to it, but there's nothing we can do about it.  The best way to use Social Security is to get as much of it you can and as soon as you can.

These four legs create a sturdy chair of retirement.  If you open a side business, get another job, write a book, etc. and earn a revenue stream with it while in retirement, then you are just increasing the sturdiness of your retirement and will be more independent. 

Wednesday, July 3, 2013

Military Financial Tips on Yahoo! Finance's Main Page

Wow, I'm impressed.  On Yahoo! Finance's main page, I actually saw some military specific financial information on it.  I had to share it.

Three Financial Tips For Military Members

Tuesday, July 2, 2013

Quickest Way to Make More Money

Whether they are strapped for cash, having difficulties making ends meet or want to save more money, people want to know what's the quickest way to make more money.  In my opinion, the quickest way to make more money is to make sure you aren't paying ANY fees for your normal banking needs.

  • Start with your normal checking or savings accounts.  Are you paying a minimum balance fee?  Are you getting hit with overdraft fees (some are as high $39)?  Military members: are you paying ATM withdrawal fees?  If you are paying ANY fees for your normal banking needs, then you need to switch banks today.  Military members can use USAA or Wells Fargo's military accounts, or any big banks' military accounts and eliminate almost every fee.  If you frequently get hit with overdraft fees, then get overdraft protection.  "Consumer advocates say the best method is the standard overdraft protection which is offered when the checking account is opened and involves a signed agreement between the bank and the customer."
    Read more: http://www.bankrate.com/finance/investing/fdic-study-outrageous-overdraft-fees-1.aspx#ixzz2Xtm1GWhZ
    Follow us: @Bankrate on Twitter | Bankrate on Facebook
  • Next, look at your credit card.  Are you paying an annual fee or any other fees?  My main audience is the military and unless you are a high-ranking general or have a side business that is doing well, none of us are making enough money to fully use the benefits of having a super credit card that has an annual fee.  Most credit cards have better services the larger the annual fees get.  I don't think many military members would fully utilize the services enough to recoup the $30 - $100 annual fee.  There are so many free credit cards through most main banks that it's just money you could get back to yourself.
  • Next look at any of your investment accounts.  Unless you are managing more than $1M, then you shouldn't be paying more than $9.99 for commissions and you shouldn't be paying any normal fees within your investment account.  Almost every large bank offers investment options and TDAmeritrade and ETrade are still the top 2 investment houses for anyone to enter the stock market.
This may not apply to you and you've eliminated all your fees which is great.  If you don't do it on a regular basis, then read over your statements or online banking every six months and see if your banks have added any fees.  The usually mail your a 70-page pamphlet that's written by a lawyer to inform you about the new fee without informing you about the new fee, so it's good to check yourself frequently since banks or so shady.

Sunday, June 30, 2013

Why Do I Need a Good Credit Score?

Some people are very scared of credit and they are right to be scared of it.  But not having any credit can cost you as much as having bad credit.  In my opinion, our current financial system "rewards" people for over utilizing credit.  I've always called it "playing the game".  But here's why living without credit can be costly.

Without "playing the game" you will have a low credit score just like those with bad credit from credit "mistakes".  Having a low credit score can quite literally cost you thousands of dollars.  Using MyFico's national averages today, a $250,000 house with a 760-850 (the max bracket) credit score at a 4.025% interest rate will cost you $1,197 a month in a mortgage payment and you will pay $180K in interest over 30 years.  A credit score of 700-759 will cost you $1,229 a month and you will pay $192K in interest...over $12K more in interest.

Here's a breakdown of what the score brackets will cost you:

 
Image/Calculator courtesy of MyFico.com http://www.myfico.com/myfico/CreditCentral/LoanRates.aspx

Saturday, June 29, 2013

Should I Invest in the Traditional TSP or the ROTH TSP

Here is some information about the two types of Thrift Savings Plan (TSP) contribution options you can invest in.  They are the Traditional TSP and the ROTH TSP (started in 2012/2013).  If you want a short answer in which one you should invest in, then I suggest that people under 50 should do the ROTH TSP.  This is because ROTH accounts aren't taxed when the money is finally withdrawn.  But there are many variables before making this decision.

Traditional - The traditional option takes money out pre-tax and lowers your taxable income for that year.  So if you make $25K a year and invest $5K in a traditional TSP, then you will only have $20K of taxable income.  This benefit can be very useful for people that need to lower their taxable income to qualify for financial aid, have variable student loans or annuities and anything else that benefits you to have a lower taxable income.  Once you invest, then you can choose the fund allocation you want and your money will grow tax free.  Once you withdraw the money, it will be taxed as income that year.  Being taxed in retirement is unfavorable because you need to maximize your income as a retiree.  As time goes by, you will become  more dependent on that income which I why recommend the ROTH option.

ROTH - The ROTH option takes money out post taxes and has no affect on your taxable income.  Your money will also grow tax free and WILL NOT be taxed when you withdraw your money.  This option is amazing for people that start investing early in their career because they are currently at a low tax bracket and will get to be tax free when they are in a larger tax bracket because their money grew so much with so much time.

Both TSP accounts are retirement accounts and act like 401(k)s more than IRAs.  There are no income limits to invest in the TSP like IRAs, but most people in the military or civil service don't have to worry about that.  This is an important choice for anyone.  Seek advice or do your own research before making the final choice; however, most financial advisers will recommend the ROTH option for those under 50.

For more detailed information go here: https://www.tsp.gov/PDF/formspubs/tspbk08.pdf

Thursday, June 27, 2013

5 Tips to Increase Your Credit Score

Here are 5 tips to increase your credit score.  Some people get a pay raise, a new job or get some extra cash and want to know how to increase their credit score.  These tips should help and I'll post more about each one in detail later.  Increasing your credit score could save you hundreds, thousands or hundreds of thousands of dollars in your future.  A small investment of time and money now may pay off big time both financially and emotionally.

  1. Keep good standing with all current debts - You can't change the past.  If you are struggling to make ends meet, then you should stick with this step until you have some extra money to tackle previous debts or trying to increase your credit score.  Your credit score weighs the most recent activity higher, so keeping good standing with current debts will maintain or increase your score more than going into past credit troubles.
  2. Make sure your credit reports are accurate - There are a number of reasons why there maybe something incorrect on your credit report.  Go to www.annualcreditreport.com and get your free credit reports and make sure everything is accurate.  If something is wrong, the credit bureau should have a phone number to challenge an item.  I'll tell you upfront that it's not easy to change something and the burden is on the member, not the company who did something wrong or a person that may have used your identity.
  3. Pay off any outstanding prior debts - Now that you have your free credit reports, you can try and pay off anything you may have in collections.  Call only one agency at a time because collection agencies are aggressive.  If you have a lump sum, then great, pay it in full.  If you want to make payments, then call the collection agency and be firm.  Use ultimatums like, "Take this payment plan or else I'm walking away."  They may threaten to garnish your wages, but they won't because you calling them to make payments debunks any legal case against you.  Also, try the old "Let me talk to your supervisor" line to make payments.  Go in order of smallest balances so you can get it off your record sooner.
  4. Maximize your score - If you have nothing in collections, your credit reports are all accurate and you are current on everything, then it's time to maximize your credit score.  Credit scores are made from "corrupt" math that us humans have decided to make to oppress other humans.  Sorry, that's a little of my own ideologies coming out.  But really, it helps to get help from the source with credit scores.  I recommend going to www.myfico.com and paying $14.95 for their credit report & score.  At the end of the report, there are summaries, tips, recommendations and simulators that you can use to maximize your credit score.
  5. Get professional help - Sometimes getting professional help is the best way to increase your credit score.  For military members, USAA offers great free financial advice. Most Airman Family Readiness Centers (or whatever other non-Air Force services call it) have trained or certified financial planners that give free financial advice.  Other civilian-based companies may charge for an hour or two of time.  Either way, sometimes professional help is a great investment.

Sunday, June 23, 2013

What's the Value of a Military Retirement?

With all the talk about the Federal Reserve eventually raising interest rates, we should discuss how it affects the value of the military retirement.  As interest rates rise, the theoretical value of a military retirement is reduced.  This is because you can get a higher rate of return on safer, long-term assets with civilian 401(k)s or saving-account equivalents.  Also, the military retirement is fixed for that year and as mortgage rates and loan rates go up, it makes the retirement worth less than the previous year.  The COLA annual increase helps decrease the impact of rising interest rates.

If an O4 with 20 years was about to retire this year (2013), he or she could expect to receive $43,702, annually, before taxes in retirement ($7,283.70/50% * 12 months).  To generate this annual income, one would have to invest in the safest, longest-term asset and the usual measure for this is the 30-year US government bond which currently yields 3.567%.  The value of the retirement at this interest rate is $1,225,175.  This is all theoretical and the only practical use would be to compare what you would have had in a 401(k) after 20 years in a civilian company.

Using the same assumptions, an E7 at 20 years would expect to receive $25,970 before taxes.  The value of the retirement would be $728,074.

If the 30-year bond interest rate goes up 1% to 4.567%, then the O4's retirement value would decrease to $956,913 and the E7's to $568,653.  Again, these values are theoretical, but it is important to know that fixed incomes, like a military retirement, is worth "less" in an environment of higher interest rates.

Saturday, June 22, 2013

Hale Koa Review

My wife and I recently spent our 10-year wedding anniversary in Hawaii, the first week of June 2013, and we stayed at the Hale Koa on the island of Oahu.  For the price, exclusivity, and location, I believe the Hale Koa is an excellent choice and would recommend it to anyone in the military.  Here's a list of the pros and cons.

Pros:
Price - Based off our research, the Hale Koa was $100 cheaper than nearby hotels in the Waikiki area.  We booked 6 months in advance and I don't know if that affected the price the of hotel rooms.  The surf was really low in June, so the prices may rise in Aug - Nov when the infamous surf hits the North Shore.

Exclusivity - The hotel serves the military only, including their guests and dependents.  There is an AAFES Base Exchange in the hotel, a small gym, an adult pool, a kid pool and direct access to the beach.  They have a "briefing" in the morning and offer discounts to their Luau which is also exclusive to military members and the show ends with military support.  The Luau wasn't that expensive with the discount and the food, drink and the show was well worth the money.

Location - The location is perfect.  It's in the heart of Waikiki, and only a 30-min drive to Hickam AFB (it's technically a joint base now).  Plus, downtown Waikiki, with its expensive stores and great dining, is less than a 1/2 mile walk away.  During the one week we stayed, we drove around the entire island and saw all the stuff we wanted to.

Cons:
Parking - The parking structure is across a busy street so if you purchase a rental car, you will have to walk to your car by taking a long awkward staircase leading to the outdoor lobby area.  You also have to pay $7 a day to park across a busy street.

Modern amenities - The hotel rooms don't have Wi-Fi.  There is free Wi-Fi available in the kids pool area and the lobby but not in the rooms.  They have wired internet available for free though.  The room comes with a small fridge but no microwave.  There is a community microwave available on each floor.  But if you like to have some food in your hotel room to save on eating out expenses, you'll have to eat small microwaveable items or small fridge items.

Airport shuttle service - Hale Koa was one of the only hotels not to offer a free shuttle service from the airport to the hotel (and vice versa).  The taxi ride can cost up to $40 each way.  This may be due to OPSEC of having a easily identifiable shuttle carrying only military members though.

All things totaled, my wife and I highly recommend the Hale Koa to military members wanting to explore Oahu and Hawaii. 

Wednesday, June 19, 2013

How to Make More Money with TSP

You can change the amount you invest in the TSP by going to https://mypay.dfas.mil (most users use the CAC login and will need a .mil computer).  You can either enter a percentage amount to invest in the Traditional TSP or you can enter a dollar mount to invest in the ROTH TSP.

Your money will automatically invest into the "G" Fund and you will have to log into www.tsp.gov to actually change the allocation of the money that is donated.  To make more money with TSP you will need to change the allocation out of the "G" fund.  The more risk you can tolerate, the more you should move out of the "G" fund and into the stock funds.  I recommend to always have money in the "C" fund.

Since inception of the funds, the "G" fund has returned 5.69% annually versus the "C" fund's 9.5%.  In the investment world, having all your money in the "G" fund and losing out on the extra return is a LOSS of money.  We call it an opportunity loss because you had the opportunity to earn the money but didn't by investing in the "C" fund.  So to make more money with the TSP, you will need to log onto www.tsp.gov and change your asset allocation out of the "G" fund.

Tuesday, June 18, 2013

Best Finance Quote

"Saving 3% in a retirement account is like going to the gym for six minutes," says Stuart Ritter, a financial planner and vice-president of T. Rowe Price Investment Services.  I think this is a great quote because sometimes people save a small amount and think, "it's better than nothing," but as retirement gets closer the amount is much less than they hoped and/or planned for.

I wish all people could start saving 10% the day they enter the workforce as teenagers and continue until retirement.

Clark, J.B., (July, 2013) Retirement Setbacks. Kiplinger's Personal Finance.

Monday, June 17, 2013

Market summer pullback, correction, or crash

Many believe, including me, that we will see a summer pullback from the markets highs we are seeing now.  I think we'll see a correction and then a market rally to end the year off.  You can sell your gains and buy back in at a better price with some mutual funds or your TSP account.  You can also wait for your favorite stock to go on sale at a cheaper price and then buy it after the correction.  Cramer agrees...

http://www.cnbc.com/id/100820959

Sunday, June 16, 2013

Information about the TSP "C" Fund

Invests exactly inline with the S&P 500. Top ten holdings as of December 2012:

1. Apple
2. Exxon Mobil
3. General Electric
4. Chevron
5. International Business Machines (IBM)
6. Microsoft
7. Johnson & Johnson
8. AT&T
9. Google
10. Proctor and Gamble

https://www.tsp.gov/PDF/formspubs/CFund.pdf

How to get out of debt quick...(great show)

CNBC's "Til Death Do Us Part."  Great show, great idea...

http://www.cnbc.com/id/33421145

Saturday, June 15, 2013

Wednesday, June 12, 2013