USAA’s Dec. Financial Readiness Digest

As you know we periodically have USAA experts on the NWR show to share timely and money saving advice. Here is more great info….just thought I’d share.

USAA FINANCIAL READINESS DIGEST

In the December 2007 issue:

Help for Spouses of Deployed Service members
Military Retirement Benefits
Survivor’s Benefit Plan vs. Life Insurance

The new Financial Readiness Digest features answers to real financial questions from military members and their families. The answers, which are provided by June Walbert, a Certified Financial PlannerTM with USAA Financial Planning Services and Lt. Col. in the U.S. Army Reserve, are also featured in her “Ask June” column on military.com.

Getting Off the Investing Starting Line

Like losing weight or going to the gym, once you decide to invest, you’ll find the time. Remember these five easy steps from USAA:

1. Speak the language. The more you learn about the different types of investments, the less fear you’ll have about getting started.

2. Know what you’re working toward.
Your goals will help you pick the right asset mix for you — among stocks, bonds, and cash. It makes a difference whether you’re saving money for retirement or your first home.

3. Max out your savings plan.
Automatically investing through your 401(k), 403(b), or TSP retirement plan is the fastest and easiest way to start investing. Take full advantage of these tax-deferred investments.

4. Stay diversified. Asset allocation and index funds are great places to keep the proper balance between stocks and bonds as you near retirement.
Go easy on individual stocks. Stocks may sound sexy, but limit the number you own unless you have plenty of time to research and monitor your holdings on a regular basis.

Help for Spouses of Deployed Service members

Q: At times, we military spouses are at a loss. Our soldiers are deployed more often and for much longer periods of time. We can no longer raise our children and keep on top of our bills with just our soldier’s income. Those of us who have both children and a job spend so much on childcare that we would be better off staying at home. It is extremely hard to keep a job when we are the only ones who can take the kids to the doctor, school, etc. Most employers understand at first, but their patience often wears out quickly.

Do you know of a legal and honest home-based job that is available so I can be at home with my children? I am not looking for a “get rich quick” type job, but I would like to be able to at least help with the bills and occasionally take my children out to eat. There are so many scams out there; I’d love to get your opinion on any good opportunities.

The hardest part of our lives is being without the love of our life, so it would be a win-win situation if we could make money from home to help our deployed spouses. During my husband’s second deployment, I was the FRG (Family Readiness Group) Leader and spent most of my time helping other families. Compared to his first deployment, the time seemed to go so much faster. Even though I wasn’t getting paid, I was doing something that made a difference in my and other families lives. Thank you for listening and any advice you offer will help not only me but countless other’s lives.

Proud wife of an Army Sgt. and proud mother of a son who is a Private First Class and will be serving in Iraq at the same time as his father.
– Lori, Ft. Hood, TX

A: Thank you so very much for all that you have done and will continue to do! A husband and a son serving overseas…it is hard for me to even imagine the strength and courage it takes you and so many others like you just to keep going during these difficult times. You’re a real trooper! It’s going to require creativity and a dose of patience, but you can figure out a way to add to the family’s bottom line!

I checked in with our friends Tara Crooks and Star Hendersen at fieldproblems.com and armywifetalkradio.com. They said working from home requires a lot of discipline and perseverance. And, that it might take longer than you think to really get going. Please see their full article and several helpful links at http://www.fieldproblems.com/fparchives.shtml.

There are no perfect answers, but here are some thoughts:

  • Daycare. With so many spouses asking the same question, maybe there is an opportunity to provide the same help you need to others. You would be able to stay home with your kids while making a little money and offering your kindred spirits a cheaper price than they can get down the street.
  • Share the burden. Would it be possible to get together with several of your friends who are in a similar situation and essentially trade babysitting service with each other? Consider tapping into your Family Readiness Group. This might provide a reliable schedule and allow all parties to gain employment outside the home to earn a little extra moolah.
  • Ask for help. Maybe this is the perfect time to reach out to your immediate and extended family. Would it be possible for them to “rotate” to your house to help out with the kids? In many cases, family can provide the level of trust and caring you need?and if you build a calendar, they can each offer a little time which will add up to a lot of relief for you, and, at the right price!
  • Work from home. An increasing number of employers offer the flexibility of working from home. In many cases, this is an option to employees that have already proven themselves as reliable and valuable.

My sister is a great example of making this work. She’s a stay-at-home mom, and very involved in everything that’s kids (Boy and Girl Scouts, PTA, Teacher Appreciation Day, all sorts of sports, etc.). Like you, she wanted to come up with a plan to add to the family’s coffers. After a couple of experiments, she landed on something that works for her. She attends trade shows, fairs, dog shows, and conventions peddling super comfy footwear. She has a blast, takes her kids with her when possible and makes a decent income.

Again, I wish you the very best. Talk to your friends and family, together you may be able to do a lot more than you can on your own! Good luck.

Survivor’s Benefit Plan vs. Life Insurance
Q: I am retiring from active duty Army in October of 2007. Do you recommend the Survivor’s Benefit Plan (SBP) for my spouse? I have to decide between SBP, term and universal life insurance within the next month. I have to decide on SBP, term or universal life insurance within the next month.
– Patrick, Newport News, VA

A: Congratulations on your upcoming retirement and thanks for your many years of service! Retirement is quite a milestone and with it comes a big decision with respect to how you protect your spouse and your family’s lifestyle—should you participate in the Survivor Benefit Plan (SBP)? First, let me say that I think SBP is the deal of the century and that most service members should choose the maximum SBP coverage. The protection that SBP provides is difficult and expensive to duplicate through life insurance coverage and I, personally, think protection should be your main focus!

SBP typically protects your spouse (or children and others with financial interest) by continuing a portion of your military retirement should you pass away. You can choose SBP coverage of up to 55% of your full military retirement pay. The annual SBP cost of living adjustments makes the benefit hard to duplicate with life insurance. While a term life insurance policy might initially cost less than SBP, it is likely that the term policy would lapse (or cost substantially more!) by the time your loved ones actually needed it. Because of a term policy?s expiration date, you really can not effectively replace SBP with term insurance.

On the other hand, a permanent policy (universal or whole life) can do the trick, provided you continue to make the payments needed to keep the policy in force. [Suggestion only. Big concern with these products is that they are expensive and it is up to the member to ensure he can continue to make the required premium payments — often much more difficult than the member expects it to be. Remember “buy term and invest the difference”? Very few people actually invested the difference and don’t have the savings they could have had with a permanent policy. Here, continuing to pay the high premiums equates to that “invest the difference” requirement — how many can actually follow through with it?] It will typically cost substantially more than the SBP coverage it’s meant to replace. To give you a rough idea, an O-5 with 22 years of service would need over $600,000 of whole life insurance to provide approximately the same protection as SBP.

Here are some other important SBP features:

  • The 6.5% premium is deducted from your retirement check on a pre-tax basis
  • Premiums are discontinued after 30 years of payment and attainment of age 70 (effective October 2008)
  • Cost of SBP is shared between the service member and the government—again, making it difficult to duplicate

I almost always recommend SBP, but there are some situations when a closer look is advised before electing the coverage. For example, if you are much younger than your spouse and therefore anticipate outliving them, SBP may not be for you. If your spouse has a pension of their own or your spouse has a serious medical condition that will likely negatively impact their life expectancy, SBP may not be needed. However in most circumstances the SBP decision is an easy one—go for it!

Devote the New Year to Digging Out of Debt

By Joseph Montanaro, USAA Financial Planning Services

First come the holiday parties with fancy foods and “secret Santa” games. Then there are the big-ticket gifts under the tree with stocking stuffers to boot. And just when you think the holiday spending spree is over, it’s time to ring in the New Year with a stylish night on the town. Come January, your credit cards have had all the abuse they can take.

Racking up a small mountain of debt during the holiday season may be an annual tradition for many consumers, but it’s problematic nonetheless. Overspending can cost you dearly in the form of high interest charges, and it can derail important financial goals like saving for retirement.

The damage may be done for this year, but here are several ideas to help you ditch your debt quickly and avoid the credit card crunch next December.

Tighten the reins

If you were a little too generous for your budget last month, it’s time for a reality check. Start tracking your expenses – line by line – to determine exactly where your money’s going each month. You may be surprised by how much you’re really spending on lunches or spontaneous trips to the mall, and chances are you’ll find some places to cut back. The more you save, the more money you can put toward paying off those credit card bills.

Set realistic goals

The most common New Year’s resolution is simply to “lose weight,” but most people never make progress because they don’t aim for a specific target. Dropping debt is similar to shedding pounds. You’re more likely to get results if you vow to reduce your debt load by a certain dollar amount within a specific time frame. For example, you might shoot to pay off $500 by the end of February. Even if you still have $1,000 left to go, hitting that first goal will give you the confidence you need to stay on track.

Plan strategically

If you have more than one credit card, focus your biggest payments on the card with the highest interest rate. This will minimize the amount of money you’re wasting on interest charges. Typically, credit cards from department stores have the highest rates.

A different strategy would be to pay off the card with the smallest balance first, which would allow you to see progress quickly and give you one fewer bill to pay each month. Either way, the important point is to make a plan and stick to it.

Card-hop with care

As another way to minimize interest charges, you might look into transferring your balance to a new card with a lower annual percentage rate. It can make sense under the right circumstances, but be warned – a credit card offer that sounds too good to be true probably is. Many cards offer extremely low rates for an introductory period, but make it up through extraneous fees and a sky-high rate after several months. Read the fine print carefully to make sure you’re getting a good deal.

Another danger of card-hopping too frequently is damaging your credit score. Every move you make is recorded on your credit report, and lenders tend to see frequent balance transfers as a sign of high risk. Too much skipping around could hurt your ability to qualify for loans and low interest rates.

Start saving for next time

Once you’ve successfully banished that monstrous debt, make sure it stays away for good. As soon as possible, establish a “holiday fund” and begin stashing away a small amount from each paycheck. Many banks and credit unions offer interest-bearing “Christmas Club” accounts specifically for this purpose. But stuffing $10 a week into a shoebox can work just as well if you have the discipline not to touch it. [A shoebox is not interest-bearing so it would not “work just as well.” Please clarify or delete.]

When gift-buying season rolls around, start with a firm budget and a detailed shopping list. If Santa can stick to his list, so can you! Start early to give yourself plenty of time for comparison shopping. You may be able to find better deals online if you have a few weeks to spare for shipping. Don’t exceed your budget and if it’s not on your list, don’t buy it—even if it’s on sale. Ideally, you should be able to make most of your purchases with the cash you saved throughout the year.

And spreading holiday cheer will be all the more enjoyable when you know you won’t be paying for it later.

Joseph “J.J.” Montanaro is a CERTIFIED FINANCIAL PLANNER TM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro served in the U.S. Army for six years on active duty. He is currently a Lieutenant Colonel in the U.S. Army Reserve.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

The Financial Readiness Digest is provided by USAA, a diversified financial services company serving the military community and their families.

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