Military Finance Report: December 2017

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Sunday, December 31, 2017

2018 New Year's Financial Resolutions



Before you create your 2018 New Year’s Financial Resolution goals, make sure you’ve spent the time to track your monthly or annual expenses so you know your current financial position.  Every December, I create financial goals for the next year.  Additionally, I make stretch goals which require hard work, research, risk, and luck to achieve.  2017 has been the first year I’ve made all my stretch goals.  Here are my 2018 New Year’s Financial Resolution goals.

  1. Max out my IRA.  This is the first thing I do every year.  There’s a small debate whether it’s good to save the previous year so you can fund your IRA the first day of the new year or use new year money to fund it.  This is a silly debate to me.  The key is to take advantage of the small pittance of non-employer provided tax sheltering the [oppressive] government allows us to take.  When you do it in the tax year doesn’t really matter—only the investments you make with that money determine your return.
  2. Increase emergency savings account/short-term cash savings.  As my net worth increases, so does my desire to have money in a money market or high-yield savings account.  I also save for any short-term goals I have that year requiring access to cash.  I come from a poorer immediate family with little support from extended family.  This requires me to be more conservative with emergency savings accounts.  If you have a stronger support network, you can join the ever-popular movement foregoing emergency savings accounts.
  3. Save at least $X from each paycheck.  Most people prefer the “pay yourself first” method where you save money before doing anything else.  To meet my stretch goals, I usually reduce dining out expenses or find other ways to save money like reducing my monthly bills.  Excluding my mortgage payments, my 2017 savings rate was 38%--58% if you include my mortgage.  I plan to increase the savings rate in 2018.
  4. Increase passive income from previous year by 25%.  I don’t actively seek to increase the passive income because it depends on how well my long-term mutual funds do and distribute at the end of the year; if my short-term stocks are dividends stocks; and how much I put into savings and bond funds depending on my allocation percentages.  As stocks go up, I put more in bonds and as stocks go down, I sell out of bonds and buy quality stocks at cheaper prices.  I f I have a lot in bonds, I’ll earn more interest.
  5. Increase Net Assets to $X.  This is my furthest of a stretch goal.  It requires 12% or greater returns on nearly all my investments.  2017 was the first year I’ve met and exceeded this stretch goal because of good stock returns and the massive increase in my cryptocurrency portfolio.  Bitcoin alone made up nearly 20% of my net asset gain this year.  The only asset that didn’t significantly increase was my home equity.  Despite a year’s worth of mortgage payments, the housing prices barely moved in my location.

What are your financial goals in 2018?  If you need help, leave a comment and we’ll create some together.

Friday, December 15, 2017

Switching to GEICO Auto Insurance Saved Me 24%


THIS IS NOT A PAID POST.  I’VE RECEIVED NO COMPENSATION FROM GEICO.
We’re all familiar with GEICO’s slogan of “15 minutes can save you 15% or more.”  In my case, GEICO saved me 24% by switching to GEICO from USAA.  I’ve been a fan of USAA for a long time, but over the past 5 years I’ve personally noticed a significant drop in customer service.  Here’s my story of how and why I switched my auto insurance to GEICO.
I’m currently stationed in Louisiana (LA), which has one of the highest auto insurance rates that I’ve experienced.  LA rates are even higher than the California coast, which was my previous duty station.  LA does offer a 25% (well, not exactly 25%) discount for military members.  I completed my form in January of 2014 and in November of 2017, I found out you have to complete the form every time you renew your policy.  So in my case this is seven 6-month policy renewals where I missed out on the “25%” discount—costing me over $400.  Here are some problems with this process:
  • According to 2 customer service representatives, by LA law, they are not allowed to remind military members about the discount
  • Your policy renewal is sent through your message and nowhere in it does it say “Action”
  • The military discount sheet is on PAGE 10 of a multi-page document instead of upfront so you know you must take action
  • According to the 2 customer service reps, by LA law, they can’t retroactively pay you back for missed discounts. After talking to multiple military members, this may be untrue, as other LA military members have been back paid.
  • The 25% discount is not a true discount. It only applies to vehicles registered in LA, so in my case it was only going to be a 12% discount. I imagine a lot of military members have cars registered in multiple states.
  • Not all USAA agents can answer LA insurance questions, so the online chat can’t help you, nor can the initial representative help you. You will be transferred; you will have to be on hold.

A coworker overheard the troubles I was having and recommended switching to GEICO.  I was with GEICO 17 years ago and they did not offer competitive prices.  At the time, USAA was 75% cheaper than GEICO when I was young and enlisted.  This week, I called GEICO and ran through three different scenarios.
  1. I could keep my USAA Auto and Property insurance (status quo).  To keep an apples-to-apples comparison with GEICO, I added the Auto and Home combination discount of $11 ($132 divided by 12 months) that I get for my property insurance, to my current auto insurance policy adjusting my monthly payment to $220.  I have a 17-year old son which is why my payment is so high.  Start budgeting now if you’re approaching teenage years.
  2. I could switch to GEICO Auto and keep my USAA Property insurance.  To maintain the equal comparison, I added USAA’s Auto and Property insurance discount of $11 to my GEICO quote and my adjusted monthly auto payment would be $167—though the actual payment will only be $157.
  3. I could switch to GEICO Auto and GEICO Property insurance.  GEICO was unable to match USAA’s $1,100 worth of annual discounts and savings, theoretically adding an additional $92 to the reduced monthly cost of $147, giving an adjusted cost of $239 a month.  The reason why I added the increased insurance premium to my auto insurance is because I needed a way to compare switching auto insurance policies alone by keeping all things equal.  In economics, we use the Latin phrase Ceretis Parubis, which means “all other things being equal.”
As you can see, by comparing the adjusted costs between the status quo of $220 a month and switching just my auto insurance to GEICO at $167, I could save nearly $53—a 24% savings.  It’s sad to leave a company after 17 years, but GEICO has nearly the same customer service satisfaction rate as USAA and after this week’s dealings with both companies, I can say that GEICO may exceed USAA’s customer service—at least in the insurance division.  Check it out yourself to see if 15 minutes can save you 15% or more.


Monday, December 4, 2017

Blended Retirement System Continuation Pay Details

Continuation Pay
The Air Force released PDSM 17-88 (dtd 30 November 2018) giving more information on the Calendar Year (CY) 2018 Blended Retirement System (BRS) Continuation Pay.  The continuation pay is a critical piece of the BRS and a key component for members struggling with the choice of opting in to the BRS or staying with the current 50% at 20 annuity.  Continuation pay is for active component and reserve component on active guard reserve Title 10 orders who:
  • Are covered under the BRS (they will have to opt in on 1 Jan 18)
  • Completed 12 years of service
  •  Are able to obtain 48 months of retainability
The continuation pay for CY18 is 2.5 times the member’s monthly BASIC PAY.  It’s important to note that this is for basic pay only.  Many military members go straight to their LES and look at their gross pay and use that for bonus and retirement calculations.

Military members call it the “hump” after 10 years of service and it typically means we plan on staying in for 20 years—especially for those married with kids.  To take this pay, a military member will have to opt in to the BRS and will have the reduced annuity to 40% and only have 8 years of “saving” with the matching TSP contributions.  The military member will have a 4-year active duty service commitment, so the member will be in for 16 years after taking the continuation pay.

RECOMMENDATION:  Based off this information, and for people having to make the choice in the next couple of years, my recommendation is:  If you’re at 12 years, and know 100% sure you will retire from the Air Force, you should stick with the current 50% annuity retirement system. 

If there’s any chance you’ll get out prior to 20 years, then the continuation pay, plus 4-8 years of TSP contributions can be a nice separation bonus.  If you don’t opt into the BRS and separate before 20 years, under the current system, you get nothing but your unmatched TSP contributions to that point.  Current available information states very few of us will actually do 20 years, so not taking the continuation pay and getting the matching contributions, puts you at risk at separating with nothing.