Military Finance Report: January 2014

Friday, January 31, 2014

Discussion About Depoloyment Entitlements

***Please read bottom recommendation***
Deployments can be a stressful time for many people and their families but they also come with financial compensations; although, nothing can compensate for the loss time from your family.  The best economic advice is to save ALL the "extra" money and/or use it to reduce or eliminate your debt; however, the best realistic advice is to save SOME of it and then use the rest to help you and/or family emotionally recover by making a large purchase or traveling and spending time with the family.  That being said, here are the entitlements one could expect to receive depending on location deployed to.

·         Combat Tax Zone Exclusion (CTZE) - All enlisted and warrant officer pay is tax exempt in many deployed locations. Officer's pay is tax exempt up to the cost of the Service E-9 (Sergeant Major of the Army, Chief Master Sergeant of the Air Force, etc.). This is not prorated and your whole month's pay is exempt even if you only spend one day in the deployed location.
·         Hostile Fire Pay/Imminent Danger Pay (HFP/IDP) – This is payable in an HFP/IDP authorized location and is $225 a month on a prorated basis—meaning a per day basis.
·         Hardship Duty Pay-Location (HDP-L) - This is payable for performing duties in a hardship duty location for more than 30 days and ranges from $50-$150 a month.
·         Basic Allowance for Sustenance (BAS) – For members currently receiving BAS, they will continue receiving BAS.  For members not currently receiving BAS, they will when they arrive at their deployed location. FY14 BAS rates are: for enlisted $357.55 and officers $246.24 a month.
·         Per Diem – Members receive $3.50 every day while deployed.
·         Family Separation Allowance (FSA) – Members who have approved dependants are authorized FSA and it is $250 a month on a prorated basis.
Again, these entitlements may not ease the burden of a deployment, but they do offer some financial compensation and may help improve lifestyles upon returning. So a typical Afghanistan deployment could easily yield over $1K extra a month shielded from taxes.
***NOTE*** - Please ensure you file your travel voucher within 5 days of returning from your deployment with your military finance office. Excess CTZE and BAS from not filing your travel voucher quickly gets collected back in a lump sum and is 99% of the reasons why your pay will be zeroed for one or more pay periods.  Your local military finance office can help mitigate these but your pay will not normalize for several months.  It is IMPERATIVE that you file your travel voucher and ensure it gets processed with your military finance office.

Thursday, January 23, 2014

What is Bitcoin and Why Should I Care?

Over the last couple of weeks you may have heard that Bitcoin is being accepted at and, just today, it was announced that Tiger Direct will also be accepting it. Richard Branson’s Virgin Atlantic, some Las Vegas casinos, and the Sacramento Kings basketball team all have agreed to start accepting Bitcoin.  In the beginning of 2013 the Bitcoin price was under $20 and hit an all-time high of $1,100 before going back down and stabilizing at the $800 range.  So what is Bitcoin?
Bitcoin is a “crypto-currency” meaning that it is 100% digital; despite seeing little shiny coins with the Bitcoin currency symbol on the face—those are just to identify it in pictures. The currency is digitally encrypted with the strongest public encryption and is traded back and forth between users using encrypted “wallets”. The fact that the currency is digital versus printed concerns many people, but people must look at how digital their US Dollar has become over the last 10 years. Many people infrequently use printed money anymore. The encrypted “wallets” provide anonymity for those who wish to use it and an easy means to transfer funds to a wallet. A young man was pictured on ESPN holding up a sign that said all he wants for Christmas was Bitcoin and had a picture of his digital wallet scan (a QR [Quick Response] code for your Smartphone). Several forums gave him micro amounts of Bitcoin to his wallet using a blown picture of his wallet’s QR code and he made $23K in one weekend. Conversely, a drug circle called the Silk Road used Bitcoin to conduct transactions and has put Bitcoin on the radar of the Federal Government. That being said, popular online games known as Massive Multiplayer Online Role Playing Games (a.k.a. MMOs), have also been used for illegal operations because the online currency used in the game can be converted to real currency.
There are two main characteristics between Bitcoin and any other country-produced currency and they are 1) acceptability and 2) regulation. All currencies must be accepted by both the seller and the vendor. US Dollars are known throughout the world and almost all vendors and seller accept the US Dollar.  The Bitcoin must gain acceptance for it to be a legitimate currency. With the rise in popularity of Bitcoin, others such as LiteCoin and PeerCoin have started too. They are competing for the most regarded acceptance thus complicating the legitimacy for Bitcoin. The other characteristic of a currency is in its regulation. Countries use Central Banks, such as America’s Federal Reserve, to regulate its currency. Bitcoin is not regulated by any central authority. Its price changes on popularity, scarcity and other free-market principles.
This unique characteristic of not being regulated by a central authority is one of the sources of controversy and popularity of Bitcoin and other crypto-currencies. Some argue that crypto-currencies will be manipulated by the rich and powerful and all financial institutions should be auditable and regulated.  Some argue that is exactly what’s wrong with Central Banking and to this day, America’s Federal Reserve is not a federal entity or a civilian corporation and it is not auditable.
Another unique characteristic of the crypto-currency is that individuals can “mine” for currency. For people unfamiliar with highly technical computer terms, “mining” seems like something that would undermine (no pun intended) the legitimacy of Bitcoin. But this “mining” increases the security of the system as a whole and is another way of creating new Bitcoins in its decentralized currency scheme. It requires advanced computers and computer programming skills to do and it is often joked that the utility costs required to have a mining operation will consume any potential profit. If you are interested more in “mining” you can read it in plain English in this excellent article:
Bottom line:  This could be the start of the future and a potential amazing investment for those getting in early or this could be a fad and early investors could lose a lot of money.  What are your thoughts on this?
Disclaimer: The author has a small investment in Bitcoins yet it represents less than 5% of his overall portfolio.

Friday, January 17, 2014

3 Steps to Reduce the Impacts of the Military Retirement Cuts

As you may have read in the news, a two-year budget deal was proposed by Rep Paul Ryan (R) and Senator Patty Murray (D). The deal proposes to reduce the Cost of Living Adjustment (COLA) by 1% from the Consumer Price Index for military retirees under 62. The proposal enraged the public and may be taken out of the bill this month. The political fallout was too much and was exasperated when Mr. Ryan said that military retirement reform was supported by all the Secretary Chiefs; however, none of the Chiefs knew nor did they, later we found out, agree with the COLA reduction. But if this is/was as concerning to you, as it was for me, then this blog post will explain what the reduction would mean to your retirement and how to reduce those impacts.
How would or does this COLA decrease affect you?
First of all, this would start in 2015 for only those currently receiving a military retirement check and for those under the age of 62. The Consumer Price Index (CPI) measures the price changes for different goods and services and basically tracks if prices of the stuff we purchase everyday is increasing or decreasing. The CPI is measured by the Bureau of Labor and Statistics and more information can be found here:  Currently, at the start of every year, your military retirement is adjusted for inflation based off the CPI change.  Your military retirement is “fixed” and is based on the retirement plan you retired with.  It only changes with inflation, but once it is adjusted for inflation, then you are still getting paid the same.  Inflation is a slow, often invisible killer and is the biggest risk to anyone’s financial plan.  Inflation reduces your purchasing power and you have to pay more to purchase the same goods or services (i.e. movie theatre tickets, gas, food, electricity, etc.)  This is one of the major reasons that the military retirement system is highly coveted and we sacrifice so much for it.
This budget deal proposes to reduce the annual COLA by 1% of the CPI.  So, if implemented, every year your retirement check would always lag the CPI by 1%.  Over a long period of time, this “decoupling” from CPI would have a huge, negative-compounding effect.  If this deal were to be passed, here are some steps that would have stopped the negative-compounding problem and should be considered by retirees regardless.
Steps to reduce the impacts of the proposed military retirement budget cuts.
  • Move to a lower cost area – Except for the annual COLA, your retirement is fixed based on your basic pay.  If you move to a high cost of living area then your retirement check would be worth “less” than someone who chose to move to a lower cost area.  The COLA is adjusted to the national CPI and is applied equally to all retirees regardless of location.  If these budget cuts were imposed, then moving to a lower cost of living area would give you a “theoretical” increase in purchasing power that could limit the impact of a COLA reduction.  This is something all retirees and those close to retirement should consider.  Most civilian pensions operate the same way as the military retirement and living in a higher cost of living area takes more of your “fixed” retirement income.
  • Reduce debt levels – Reducing your debt is always a quick way to “increase” your income whether you pay something off and now you have that payment back as disposable income or you reduce your debt levels and your minimum payment is decreased.  Either way, when facing a potential decrease in your “fixed” income, paying off debt is always a good way to have more money.
  • Purchase inflation-protected investments – There are several investments you can make that would help bridge the gap from a 1% loss of your retirement compared to the CPI.  The first is dividend-paying stocks.  You could modify your current portfolio and increase the yield by 1% by investing in higher-paying dividend stocks.  If you stick to “blue-chip” stocks then you would also be better protected against violent volatility as dividend-paying stocks tend to weather market volatility better.  Another option is to invest in Inflation-protected bonds through major mutual fund companies like Fidelity or Vanguard.  These types of bonds have a yield that goes up as inflation goes up and would protect you against inflation increases.  Both of these strategies should be considered for retirees, but not really for younger people as they are more conservative and wouldn’t have as much capital appreciation.
What do you think about the potential COLA cuts?  Should we reform the military retirement?

Saturday, January 11, 2014

USAA Mover's Advantage Program Review Part 4: Closing, Moving In and My Recommendation

Read Part 1 here: Part 1: First Contact
Read Part 2 here: Part 2: Update
Read Part 3 here: Part 3: The Offer and The Loan

To recap so far, we initially used USAA's Mover's Advantage Program and were considering a USAA Mortgage.  After some initial communication hiccups with the Mover's Program we were assigned a USAA-sponsored realtor and we put an offer down on a house.  After going through the logistics of me coming back from Korea and taking leave before traveling to my new assignment and several unresolved communication problems, we decided not to go with a USAA Mortgage and chose a local mortgage company.

On December 16th, we closed on the house using a local notary, a service the local mortgage company offered and USAA did not.  One of the problems I had was with trying to communicate the whole process over e-mail.  I asked the mortgage company if a personal check for the down payment and final closing costs would suffice and they said yes, but really meant that a wire transfer or cashier's check would have to be used.  I used USAA's wire transfer service but had to pay a $20 wire transfer fee.

After leave and a week in TLF (Temporary Lodging Facility) waiting for our household goods to be delivered, we finally moved in.  All in all, it was a much smoother process than I thought.  There are quite a bit of expenses that are normal to moving and purchasing a new house.  Here are some that you should consider.
  • 1 year of homeowner's insurance due at closing
  • VA Funding Fee due at closing (based on amount of loan)
  • Closing Costs (ours was paid by our seller)
  • Utility set up costs
In summary, I RECOMMEND USAA's Mover's Advantage Program so they can assign you a realtor that deals with the uniqueness of military moves and at this time I do NOT RECOMMEND USAA's Mortgage's company for people with unique military moves.  I'm disappointed that a bank that deals almost solely with military members is not set up to handle unique military moves like mine with me being stationed in Korea and my wife doing the house hunting.  The initial communication and customer service problems were inconsistent with other USAA products and services.