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    Military Families Military Families Document Transcript

    • Personal Military Finance for Families Your One- Stop Guide to a Secure Financial Future Sponsored by CREDIT COUNSELING SOLUTIONS Credit Counseling You Can Trust
    • JuMpIntrOductIOn head cOntentS SavInG StrateGIeS To U.S. Military Personnel Investing for Yourself and Your Future / 1 and Their Families FInancIal Fraud Avoiding Scams That Target e are pleased to present you the Military / 4 W with a personal-finance guide created especially for military Be prepared families. While our troops carry out their Strategies Before and After difficult and dangerous missions, we know that they and their families are not Deployment / 7 immune to the financial turmoil that is impacting every household in America. hOMe SWeet hOMe Times are tough and it is harder than The financial strategies, Smart Home-Buying ever to make ends meet, let alone save rules and resources Tactics / 11 money for future expenses such as col- lege and retirement. for military families are tranSItIOn That’s where the Kiplinger-BBB Personal Finance Guide for Military often very different from Time to Become a Civilian Again / 14 Families comes in. On these pages you those for civilians. will find practical, easy-to-understand information about being financially pre- at YOur ServIce pared for deployment, buying a home, Financial Resources for minimizing taxes, holding down insurance costs and avoiding financial schemes that Military Families / 16 too often target military families. This guide is a collaboration between two organizations that have been helping OrGanIze YOurSelF consumers — including members of the military — for a long time. When the Kiplinger Personal-Finance Magazine (now called Kiplinger’s Personal Finance) was launched in 1947, a driving Worksheet / Inside back motivation was to provide sound, unbiased personal-finance advice to military per- cover sonnel returning to the workforce after World War II. Better Business Bureau, estab- lished in 1912, is the nation’s oldest nonprofit organization in the field of advancing marketplace trust, and specializes in providing consumers with information that helps Copyright © 2009 by the Kiplinger them make wise choices. It has long worked on behalf of military families, and BBB Washington Editors, Inc. All rights Military Line® specializes in consumer education and advocacy for them. reserved. As you read the guide, you’ll realize that two people spearheading this project have deep personal interest in the topic. Kimberly Lankford has been providing solid advice Published by the Kiplinger Washington to readers of Kiplinger’s Personal Finance and Kiplinger.com for more than a decade. Editors, 1729 H St., NW, Washington, DC 20006 (202-887-6400). Since 2004, Holly Petraeus has headed up the Council of Better Business Bureaus’ BBB Military Line® program, where she provides financial education to military families. Editor in Chief: Knight Kiplinger In addition to their expertise in personal finance, they have a very special credential: Editorial Director: Kevin McCormally They’re both military spouses. They know firsthand that the financial strategies, rules and resources for military families are often very different from those for civilians. Written by Kimberly Lankford We hope you find this guide useful. Thank you for all you do in the service of our Design by Sensical Design & nation! Communication Printed by Concord Litho, a certified FSC Printer, Certification # SCS-COC-001191 Knight A. Kiplinger Steven J. Cole Editor in Chief President and CEO PrINTED IN U.S.A. Kiplinger’s Personal Finance Council of Better Business and Kiplinger.com Bureaus
    • SavInG StrateGIeS Investing for Yourself and Your Future embers of the military have M special financial-planning needs. And, as a servicemem- ber, you have access to many valuable investing programs that aren’t available to the general public. You may qualify for a pension in your late thirties or forties, far earlier than any civilian, and could receive health benefits for life. But there’s no “partial vesting.” You won’t get anything unless you stay in the military for 20 years, and, frankly, most people don’t stick around that long. Even if you do qualify for a pension, it’s doubtful that the payments will cover all your bills. You’re usually entitled to 50% of your base salary if you retire at 20 years (and an extra 2.5% for every PHOTOGrAPH BY JASON WALLIS year you stay beyond 20 years). Plus, and this is a real sweetener, the amount is increased each year after you retire to keep up with inflation. But special pay and allowances (such as your housing allowance) don’t count toward your pen- sion calculation, so you could end up Air Force fighter pilot Josh Andrews automatically contributes a few hundred dollars with much less than half of the income every month from his paycheck to his Roth IRA. It’s a relatively painless way to build you’re earning at the time you retire. a tax-free retirement fund. It’s essential to do some of your own saving. The younger you are when you start setting aside even just a little each You can invest up to $16,500 in the from each paycheck, and steady invest- month, the easier it will be to build a TSP in 2009, and even more if you ing can pay off big time. Say you contrib- healthy nest egg. Fortunately, members receive tax-exempt pay while serving in a ute $300 every paycheck, which lowers of the military have some excellent re- combat zone. You can contribute combat- your take-home pay by just $225 in the tirement-savings plans available, and the zone pay up to a total of $49,000 in 25% tax bracket. Do that twice a month options have recently improved. Uncle 2009. (Get this: $30,000 contributed this and you’ll save $7,200 for the year. If Sam helps, too, giving you tax breaks to year would grow to more than $300,000 you start at age 25 and contribute for help supercharge your savings. It’s up to over 30 years if your investments grow at the next 30 years, you could end up with you to make the most of your retirement- an average rate of 8% a year.) more than $900,000 by the time you’re saving options. Because contributions from your 55, if your investments return 8% per regular pay escape taxes, they don’t year. And even if you leave the military Thrift Savings Plan: An Easy lower your paycheck nearly as much as at age 40 — after 15 years of contribu- Way to Invest for Retirement you might expect; contributing $10,000 tions — and never add another dime to Military personnel have access to the cuts your take-home pay by just $7,500 if your TSP account, you could still end up same retirement-savings plan — the Thrift you’re in the 25% tax bracket (and even with about $670,000 by age 55 (again, Savings Plan — as do civilian federal less if your contributions also escape a assuming an average return of 8%). employees. Similar to a 401(k), the TSP state income tax). reality check: Although 8% might offers a low-cost, tax-advantaged way to The TSP makes it easy to save. seem outrageously high considering save for the future. Contributions are deducted automatically recent stock-market returns, the long- Your One-Stop Guide to a Secure Financial Future 1
    • SavInG StrateGIeS term return of the stock market is even and tap the account, you’ll generally pay higher. Despite the devastating 37% loss a 10% penalty to boot. For more informa- a realistic Way to plan of Standard & Poor’s 500-stock index of tion about the rules, visit www.tsp.gov, for Your Military pension large-company stocks in 2008, the aver- which also includes a calculator to help When it comes to pensions, a age return over the past 82 years — a pe- you project your future account balance. critical issue is how quickly your riod that includes several lousy markets, benefits are “vested” — that is, including the Great Depression — stands Tax-Free Earnings From a Roth IRA how quickly you really earn the at 9.6%. Unlike contributions to a traditional IrA, right to a benefit. In the civilian The TSP offers five index funds which can earn you a tax deduction and world, for example, an employee that invest in large companies, small therefore lower today’s tax bill, contri- might become 20% vested after companies, international firms, bonds butions to a roth IrA offer no instant two years on the job and 100% or government securities. Or you can gratification. But the delayed gratifica- after seven years. But there is opt for a lifecycle fund, which builds a tion of doing without a tax deduction no partial vesting for military now is sweet indeed: All withdrawals pensions. If you don’t stay for 20 from a roth in retirement will be tax-free, years, you generally get nothing. whereas withdrawals from a regular For that reason, it’s usually best IrA are taxed in your top tax bracket. to avoid including the pension in Tax-free combat pay can Another advantage of the roth is that your retirement-planning calcula- go into a Roth IRA and you can withdraw roth contributions at tions until you’re just a few years any time tax- and penalty-free if you get away from qualifying. “So many that money — and all the in a pinch. things can happen between start earnings on it — come You can contribute up to $5,000 to a and finish that you just don’t roth IrA in 2009 (or $6,000 if you’re 50 know what to bank on,” says out tax-free in retirement. or older) as long as your adjusted gross Patrick Beagle, a former Marine Now that’s a sweet deal. income is $105,000 or less; or $166,000 helicopter pilot who is now a or less if married filing jointly (you can certified financial planner in make a partial contribution if you earn Fairfax Station, Va., specializing in $120,000 or less; or $176,000 or less if military families. married filing jointly). For help figuring out how much diversified portfolio of the other funds You need to have earned income you might receive if you do end up to match your time horizon (see Q&A on in order to qualify for a roth IrA, and staying in the military, go to www. page 3 for more information). Expenses tax-free combat-zone pay counts. In fact, defenselink.mil/militarypay and for all of the funds are extremely low: the roth can be a particularly good deal click on “retirement.” about 15 cents a year for every $1,000 if you have tax-exempt deployment pay. invested. So for a $100,000 portfolio, Your money goes in tax-free and your you’d pay just $15 a year in investment- contributions as well as your earnings invest in both plans, consider a roth IrA management fees. come out tax-free, a double tax benefit first if you expect your income — and tax The TSP is a tax shelter, so you don’t that’s tough to beat. bracket — to increase by the time you owe tax on earnings until you withdraw If you earn income but your spouse plan to withdraw the money, especially the money, and you won’t ever be doesn’t, you can contribute $5,000 to an if you had tax-free income in a combat taxed on contributions from tax-exempt IrA in his or her name, too. zone. Because of other tax-free benefits, combat-zone pay. (A portion of every You can open a roth IrA with a bro- most military personnel are in a lower tax withdrawal will be tax-free to ensure that kerage firm, mutual fund company, credit bracket now than they will be after they you never pay tax on that combat pay.) union or bank. When selecting an IrA ad- leave the service, so it makes sense to You can keep the money in the Thrift ministrator, look for low fees and a range pay tax on roth contributions now and Savings Plan after you leave the military, of investment choices. If you have 20 enjoy tax-free income later. or you can roll it into an IrA or another or 30 years until retirement, it’s usually You can invest either a lump sum employer’s 401(k), where it can con- best to invest the money in a diversified or sign up to have money automati- tinue to grow tax-deferred. If you take portfolio of mutual funds. cally shifted from your bank account or the money and spend it, you’ll face an You can invest the maximum in both paycheck. Investing $416.67 per month immediate tax bill and, if you’re younger a roth IrA and the Thrift Savings Plan will get you to the $5,000 annual limit. than 55 in the year you leave the military in the same year. If you can’t afford to You have until April 15, 2010, to make 2 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • your 2009 roth IrA contributions, but No Scam: Get 10% Guaranteed the sooner the money is tucked into the Too-good-to-be-true offers should usu- account, the sooner tax-free earnings ally send you running in the other direc- begin to grow. tion. But this deal is for real: Servicemem- Josh Andrews, a fighter pilot sta- bers deployed in designated combat tioned at Creech Air Force Base in Las zones qualify for a savings program that Vegas, automatically contributes a few guarantees 10% a year. U.S. NAVY PHOTO BY DAVID rUSH hundred dollars to his roth IrA and to a The Savings Deposit Program allows spousal IrA for wife Kelli every month. you to invest $10,000 from the time you Investing the same amount at regular are deployed until 90 days after you intervals, a strategy called dollar-cost leave the eligible region. During that time, averaging, buys you more shares when your savings earn a rate of 10% a year. prices are low and fewer when prices are At the very least, plan to stash in the high. As a result, the average purchase Savings Deposit Program the amount price of your stock or funds will be lower knows which investment will do best you’ll save in a combat zone by avoid- than the average price in the market next, so it’s much more sensible (and ing federal taxes on your pay. If you’re over the same length of time. “I see a less scary) to make regular investments in the 25% bracket (with taxable income market downturn as an opportunity to in a well-diversified portfolio. If you’re over $33,950 on an individual return), buy cheap,” says Josh. investing for a goal that is more than ten waiving the tax-free wand over $1,000 in Dollar-cost averaging can also help years in the future, like the Andrews are combat-zone pay saves you $250; stick eliminate the urge to try to time the with their retirement fund, then it’s best it in the 10% account. You can withdraw market — which is virtually impossible to to start with most of your money in stock the money and all that sweet interest 90 do successfully. Too often investors jump funds that include large companies, small days after you return. into the market to chase rising prices, companies and international firms. At age For more information, go to www. then bail out when prices begin to fall, 32, Josh has plenty of time to weather dfas.mil/militarypay.html and type putting them in the unenviable position the market’s ups and downs before “Savings Deposit Program” in the search of buying high and selling low. Nobody retirement. engine. ← Q a an early Start . . . and a Simple plan My son is in the Army in $16,500 to the Thrift Sav- an investing time frame. until he’s in his fifties, then Iraq. He has no invest- ings Plan in 2009. But your They start out with more he’d pick the L 2040 fund. ments to speak of and is son can also contribute all money invested in stock This fund starts with most single. He wants to put of his tax-exempt combat- funds — when you have of its money invested in much of his income into zone pay, as long as his to- many years before you plan an S&P 500 index fund some form of investment, tal contributions for the year to touch the money — then (large U.S. companies), most likely a mutual fund. don’t exceed $49,000. He gradually become more followed by an allocation to Do you have any advice for can start very small — the conservative as your goals the international fund and him for selecting a fund? minimum contribution is get closer. The lifecycle small-company index fund, just 1% of basic pay each fund automatically adjusts and just 15% of the money The easiest way for him to period — but you should the investments every quar- in the fixed-income fund. get started is to invest in encourage him to set aside ter, so you don’t need to The allocation gradually the Thrift Savings Plan, and as much as he can. make any changes yourself. changes through time, with he can open an account The simplest investment You should pick the most money invested in the even while he is deployed. choice is a lifecycle fund lifecycle fund with a target government securities fund All he has to do is sign up (the L Fund in the TSP). date closest to when by 2040. Visit the L Funds to have a percentage of Lifecycle funds — some- you plan to withdraw the page at www.tsp.gov to see each paycheck go directly times called target-date money. If your son is in his how the allocation becomes into the TSP. Troops can funds — invest in a portfolio twenties and doesn’t plan more conservative as time generally contribute up to of other funds based on on tapping the account passes. Your One-Stop Guide to a Secure Financial Future 3
    • FInancIal Fraud Avoiding Scams That Target the Military ilitary personnel are prime meat. And identity thieves are taking Military spouses looking for a new job M targets for shady sales practices of financial criminals who want advantage of deployments and the mili- tary’s ubiquitous use of Social Security in a new town are susceptible to work- at-home scams, and they often shell out a piece of the troops’ regular paychecks numbers to find new victims. $50 to $200 or more for start-up kits and and often take advantage of their Increasingly, though, state and federal get nothing in return. And BBB recently frequent moves. “Whenever you have a regulators, local organizations and the uncovered a scam in which a con art- major mobilization of the armed forces, military are on the alert. “We’ve seen ist pretending to be a soldier about to there are opportunities for individuals the increasing costs of these personal- deploy advertised a too-good-to-be-true to use very aggressive sales practices,” finance problems,” says Holly Petraeus, price for a used car in an online ad. His says John Oxendine, Georgia’s insur- director of BBB Military Line®, which touching story, combined with a promise ance commissioner, who led a multistate provides consumer education to military to use an escrow account to protect the investigation into insurance-sales abuses families. “People were even losing their buyer, attracted immediate attention. But targeting soldiers. security clearances.” the escrow account was phony and there Crooks know when units return flush was no car. with extra cash from tax-free combat Sometimes scams are on a larger pay. “The sharks are circling the bases,” scale, as when thieves target a tightly says Kathy Graham, president and chief knit group by associating themselves executive officer of the Better Business Protect yourself from with a respected member of the group. Bureau of Coastal Carolina. “Individually, inappropriate sales For instance, the Securities and Ex- our soldiers don’t make a lot of money. change Commission charged three pro- Collectively, it’s a big payroll.” practices and outright moters in 2008 with allegedly running a Five years ago, Kiplinger’s Personal scams, and find better real estate Ponzi scheme that cost about Finance magazine revealed that soldiers 75 investors an estimated $10 million. had often been pitched investments that deals on the products Many of the victims were in the military included a whopping 50% sales charge and services you need. and had been solicited by a member of in the first year. That’s right, half the the Air Force who had been sucked into money went into the pocket of the in- the scheme. vestment firm and salesman, not toward Military families are also magnets the servicemember’s nest egg. This was for identity thieves because their Social followed by reports that young service- Here’s how to protect yourself Security numbers are everywhere, members were being sold expensive life- from inappropriate sales practices including military ID cards, dog tags insurance policies they didn’t need — and and outright scams that target military and medical cards (the Department of didn’t even realize they were buying. families — and find far better deals on the Defense is gradually phasing out the After a flurry of nationwide investi- products you need. use of full Social Security numbers on gations and congressional hearings, ID cards over the next two years). Plus, several companies were ordered to Affinity Fraud and Scams servicemembers may be hard-pressed pay multimillion-dollar fines and change Criminals have no qualms about fabricat- to monitor their credit records and bills their sales practices. And new laws and ing an affiliation with the military to gain a when they’re deployed. In 2007, the Department of Defense rules have been family’s trust. Often these are small-time Federal Trade Commission discovered a passed to help protect military personnel operators who go door to door. In one brazen ID-theft scam in which the thief, from the bad guys. case, a salesman was peddling phony posing as a member of the red Cross, But you can’t let down your guard: life insurance just before deployment, called a soldier’s family members to tell The problems haven’t disappeared. preying on families’ fears . . . and disap- them their relative had been injured in Instead, abuses in the sale of insurance pearing with hundreds of dollars in “pre- Iraq. The caller then claimed that the and investments — not to mention out- miums.” In another case, a man claiming family members would have to complete right fraud — continue to surface. Con art- to be with the naval-base commissary certain paperwork and provide personal ists use military insignia to sell everything in San Diego sold tainted meat to Navy information before they could get any from bogus insurance to contaminated families who lived on base. more details, which would have been 4 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • surpassing 400%), used to line the com- mercial strips around many bases. But a recent law caps payday-loan rates at 36% for members of the military on ac- tive duty and their dependents, and has caused some lenders to close up shop. A few states now ban payday loans entirely. That hasn’t stopped some criminals from targeting cash-strapped military per- sonnel with so-called advance-fee loans. Borrowers are told that they are severe credit risks and must make the first several months’ payments in a lump sum PHOTOGrAPH BY MELISSA GOLDEN in advance before the loan can be final- ized. Of course, the advance payment simply disappears. “BBB gets hundreds of inquiries about this every month,” says Petraeus. What You Can Do Holly Petraeus, with Sergeant Major Rose Matthews, heads the BBB Military Line®, Get a 0% loan through a military which focuses on consumer education and advocacy for military families. emergency-relief fund. Contact the community-service office at your base for details. At Fort Hood, for example, sol- enough for the crook to open accounts and resources specifically for service- diers can borrow up to $1,000 interest- in the servicemember’s name. members and their families (www.bbb. free as often as twice a year through org/military). the commander’s referral program. Car What You Can Do repairs and other basic needs gener- Check out the company or salesper- Put an active-duty alert on your credit ally qualify, and hardship cases may be son with the base community-service report. This free alert notifies creditors eligible for more money. office. For example, Army Community that you’re on active military duty and Service at Fort Hood, Tex., has a data- asks them to take extra precautions Join a credit union. Credit unions on base that cross-references complaints to verify the identity of an applicant base often offer short-term loans at com- made to the community-service, legal- before extending credit. Include the petitive interest rates. Some even offer assistance and housing offices on base, phone number of a trusted friend or small loans to members of the military as well as the local BBB. The base’s family member for creditors to call while with little or no credit check. legal-assistance office will also help you you’re deployed. To place the alert, review contracts before you sign. contact Experian.com, Equifax.com or Boost your emergency fund. It’s even The Armed Forces Disciplinary Con- TransUnion.com. better to avoid having to take a loan trol Board at each base can blackball for unexpected expenses. Build up an certain salespeople or companies and Check your credit report. You can emergency fund with at least six months’ prohibit anyone on base from doing busi- generally do this even while deployed worth of expenses in a safe and liquid ness with them. Just the threat of being by visiting www.annualcreditreport.com, account, such as a money-market or put on the banned list can often help where you can request a free copy of savings account, so you won’t have to go resolve complaints. your report from each of the credit bu- into debt to cover unexpected expenses. reaus mentioned above once each year. Contact the Better Business Bureau. Get credit counseling. If you have to You can check a business’s complaint Predatory Lending take out loans to cover your expenses, record and get help resolving problems Payday lenders, which make short- you may be dealing with a bigger issue through the local BBB (www.bbb.org). term loans against the borrower’s next than a short-term emergency. Consider BBB Military Line® focuses on information paycheck (sometimes at interest rates meeting with a financial-planning man- Your One-Stop Guide to a Secure Financial Future 5
    • FInancIal Fraud ager on base or a credit counselor who in collaboration with the Investor Protec- can help you set up a budget, pay down tion Trust (www.investorprotection.org). debt, and prioritize your spending. You can get budgeting and debt help through Unsuitable Insurance the community-service office on base regulators have levied multimillion-dollar or find a credit counselor through the fines against insurers that used high- National Foundation for Credit Counsel- pressure tactics to coerce servicemem- ing (www.nfcc.org). Also, credit unions bers into buying expensive insurance and other financial institutions that are they didn’t need. on base are required to offer counseling New rules now ban insurance agents ISTOCKPHOTO/SHELLY PErrY services at no charge. from soliciting military personnel in bar- Beware of firms that ask you to pay racks or at meetings at which attendance a large upfront fee to reduce what you is not voluntary. In addition, agents aren’t owe creditors; in many cases, the “credit permitted to use superiors or officers counselor” runs off with the fee, and your to help sign up service members who debt remains the same. The only thing are junior in rank or grade, and agents that’s reduced is your ability to pay it. can’t misrepresent insurance policies as Some salespeople push investments. High-Fee Investments high-fee investments The new laws are helping reduce inap- Over the past few years, state and propriate insurance sales on base. Now, federal regulators have cracked down near base. But you have however, “sales of inappropriate life-in- on companies that targeted members surance products are occurring off base,” better savings options. says a report by the Inspector General’s of the military with high-fee investments. The Department of Defense and several office at the Department of Defense. organizations have also made a big push to help military families identify scams What You Can Do and learn more about legitimate finan- and all withdrawals after age 59 ½ are Max out your military life insurance cial-planning strategies. tax-free, as long as you’ve had a roth for first. Servicemembers’ Group Life Insur- But there are still salespeople who at least five years. ance, or SGLI, costs only 6.5 cents per push high-fee investments near base $1,000 of coverage per month, or $312 and pounce on members of the mili- Take advantage of the military’s Sav- per year for the maximum $400,000, tary who receive a substantial windfall, ings Deposit Program. Troops deployed regardless of your age or health. You can whether at retirement or from a reenlist- in designated combat zones — such as also get $100,000 in coverage for your ment bonus or deployment pay. The Iraq, Afghanistan and most of the Persian spouse. “SGLI is a phenomenal insur- good news is that you have plenty of Gulf region — can deposit up to $10,000 ance product, and it’s a great price,” says better legitimate savings options. into a special account that pays 10% per Georgia’s insurance chief Oxendine. year. The interest, which is taxable when What You Can Do withdrawn, stops accruing 90 days after Check out insurers and agents with Max out your Thrift Savings Plan. You you leave the eligible region. your state insurance department before can invest up to $16,500 in this low-fee, you buy additional coverage. Ask about tax-deferred account in 2009. You can Check the broker’s record. Before do- licensing, complaints and disciplinary ac- even add all of your tax-exempt pay ing business with a broker, use FINrA’s tions. Make sure the policy you’re being while serving in a combat zone, as long BrokerCheck tool (http://brokercheck. offered doesn’t have a war exclusion. as your total contributions don’t exceed finra.org) to get information on a broker’s report problems to insurance regula- $49,000 for the year. licensing status and any disciplinary tors and to the community-service office actions. Also look up the broker and at the base. Find links to your insurance Make the most of a Roth IRA. You can company through your state securi- department, and insurance advice for invest up to $5,000 in 2009 (plus an ex- ties regulator (www.nasaa.org). State military personnel, at the National Asso- tra $1,000 if you’re 50 or older) even if all securities regulators offer programs to ciation of Insurance Commissioners Web of your income is tax-exempt pay from a help military families, such as California’s site (www.naic.org). The NAIC’s www. combat zone. You can withdraw contribu- Troops Against Predatory Scams (TAP$) InsureUonline.org also offers insurance tions at any time tax- and penalty-free, and Florida’s Investor University on Base, advice for members of the military. ← 6 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • Be prepared Strategies Before and After Deployment life insurance needs calculator (available at the Kiplinger.com Insurance Center or in the insurance-tools section of the SGLI Web site) to see how much insurance you need, then search for extra cover- age to fill in any gaps beyond SGLI. If you’re healthy, you can usually get an inexpensive term-insurance policy with a fixed premium for 20 or 30 years. If you’re still on active duty, make sure any policy you consider does not have a war exclusion or restrictions on foreign travel. Be upfront with the insurer about your job and the fact that you may be deployed. It’s much better to get turned down in the beginning than to have a U.S. NAVY PHOTO BY JACOB SIPPEL claim rejected because you didn’t tell the whole story. Plenty of insurers offer coverage without a war exclusion. review your insurance options at least six months before you leave the military, recommends June Walbert, a certified financial planner with USAA and Lieutenant Colonel in the Army reserves. o matter how smart your invest- sive if you’re about to be deployed. You can convert your SGLI policy into a n ing decisions are throughout your life, an unexpected event At the same time, U.S. troops have ac- cess to one of the lowest-cost life insur- Veterans’ Group Life Insurance (VGLI) policy as long as you submit your ap- could suddenly wipe out the savings ance programs available anywhere. plication within one year and 120 days you’ve taken years to build. Military Servicemembers’ Group Life Insur- after discharge from the military. During personnel face unique risks — especially ance (SGLI) covers all of those special the first 120 days, you can qualify for when they’re deployed — but they also needs and costs only 6.5 cents per VGLI without a medical exam; after that, have access to special programs to $1,000 of coverage per month, or $312 an exam is required. If you’re healthy, protect their savings and their families. a year for the maximum $400,000. The you may find a much better deal on your It’s up to you to make the most of these price is the same regardless of your own. But VGLI may be your best bet if resources. age or your health. You can also get you have a medical condition that would $100,000 in coverage for your spouse cause private insurers to hike your pre- Life Insurance and up to $10,000 for each of your miums or reject your application. You need life insurance if anybody is de- children. For a full price list, go to the U.S. pending on you and would be in financial Department of Veterans Affairs SGLI Web Save on Taxes trouble if you could no longer provide site (www.insurance.va.gov/sgliSite/ Members of the military receive special for them. Needless to say, the need default.htm). Because it’s such a good tax benefits, such as a tax-free housing al- becomes much more pressing if you’re deal, SGLI should be at the very top of lowance and tax-free combat pay. Those about to go into a combat zone. But your shopping list. breaks come automatically. But there is members of the military can’t just buy any But you lose SGLI coverage when something you can do to lower your taxes policy: Some policies have specific war you leave the military, and you may need even more: Take advantage of the leeway exclusions or charge high rates if you more than the maximum anyway — espe- you have when it comes to choosing the plan to travel to a foreign country, making cially if you’re the sole breadwinner for state where you pay income taxes (or the coverage worthless or very expen- a large family with young children. Use a don’t pay them, if you become a resident Your One-Stop Guide to a Secure Financial Future 7
    • Be prepared of an income-tax-free state). a post-military job, which may be subject pay — such as if you had to take a pay When you’re in the military, you can to state income taxes that you didn’t cut from a more lucrative job when be- keep your home state as your official do- have to pay in the past. ing activated to the reserve or National micile, even when you’re stationed else- Guard. This rule applies only to debts where; or you may be able to switch your Special Legal Rights incurred prior to military service or activa- residency and benefit from lower taxes. The Servicemembers Civil relief Act — tion; it does not apply to debts taken on For example, many of financial planner a 1940 law that was recently updated — while on active duty. To qualify, you need Patrick Beagle’s colleagues who went grants special legal rights to reservists, to send your lender a written request to flight school in Florida switched their members of the National Guard and and a copy of your mobilization orders. residency to that state, which doesn’t active-duty military personnel. For more information about your legal have a state income tax, while they were For instance, you have the right to rights, visit the legal-assistance office on living there. And they continued to keep terminate an apartment lease if you have base (see the Armed Forces Legal Assis- Florida as their domicile — and not pay orders for a permanent change of station tance Web site at http://legalassistance. state taxes — as long as they remained or are deployed to a new location for 90 law.af.mil/index.php for contact informa- in the military, even if they moved to days or more. You can terminate a car tion) or the U.S. Department of Justice another state later. lease without an early-termination fee if servicemembers’ and veterans’ rights You can’t pick a state just because you are deployed for 180 days or longer. page (www.servicemembers.gov). you like its tax climate. Otherwise, most And in some situations, the inter- servicemembers would likely gravitate to est rate on a mortgage, credit card, car Preparing to Deploy one of the seven states that don’t have loan or other debt can be capped at 6% Deployment can bring a lot of financial an income tax (Alaska, Florida, Nevada, if military service affects your ability to opportunities: Your paychecks will be South Dakota, Texas, Washington and Wyoming) or one of the two that taxes only interest and dividends (New Hamp- Q a protect Your Identity While You’re deployed shire and Tennessee). You generally have to be living in the state when you I am in the Army and am about to you susceptible to ID theft while establish residency there, and intend be deployed. Should I put an active- you’re away from home. To place an to live there after you leave the military. duty alert on my credit report? active-duty alert, contact one of the Getting a driver’s license, registering three credit bureaus (Experian.com, your car and registering to vote in that That’s a great idea. An active-duty Equifax.com or TransUnion.com), state are usually signs of intent, but the alert can protect you from identity which will notify the other two. You’ll rules vary by state. The state department theft, which is particularly important generally find the information in the of revenue and the legal-affairs office while you are deployed and will section of the bureaus’ Web sites on base can answer questions about have a tough time monitoring your that focuses on fraud alerts. the state’s residency rules. If you switch mail and accounts. The alert is free and will not affect residency, be sure to change your pay An active-duty alert notifies credi- your ability to use credit while you’re records, too, so you don’t have taxes tors that you’re on military active deployed. It just helps to prevent ID withheld for the wrong state. duty and asks them to take extra thieves from taking out new credit in One caveat: Military spouses are gen- precautions to verify the identity your name. erally considered to be residents of the of the applicant before extending If you’d like extra protection, state where they are currently living and, credit. Include the phone number of consider a credit freeze. The cost if employed, must pay taxes there, even a trusted friend or family member tends to be $10 per bureau ($30 for if the servicemember remains a resident for creditors to call and verify your all three) to place and lift a credit of another state. This can add a level of identity while you’re inaccessible (be freeze, but the freeze does prevent complexity at tax-filing time, but most sure to give them a heads up that potential creditors from access- state tax forms have special instructions you’ve chosen them). ing your credit report without your to help members of the military and their This alert stays on your credit permission. spouses figure things out. file for one year and also lets you Also review your credit-card and After you leave the military, you’ll opt out for two years of promo- bank accounts online if possible generally need to file taxes in the state tional mail — such as preapproved while deployed, so you can catch any where you actually live. Keep this in mind credit-card offers that could leave suspicious activity before you return. when calculating your income needs for 8 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • higher when you receive tax-free income paid automatically from your checking in a combat zone, and you have access account or to pay them online. Find out to extra savings programs that help you how to access your bank account and stretch your money even further. But it’s credit-card records while deployed, so also important to take some key steps you can catch any errors before you to protect your money while you’re return home. gone — from identity thieves, unexpected events, and bills you can’t control while Contact your service providers. If your away from home. The more you do to family won’t be using your cell phone, prepare ahead of time, the better you’ll cable, Internet, phone or other services ISTOCKPHOTO/SHErrI NEWILL be able to protect your family and your while you’re gone, be sure to let the ser- finances while you are deployed. vice providers know. Many have special rules for deployed servicemembers. For Gather key estate-planning docu- example, some cell-phone companies al- ments. Make sure your estate-planning low customers in the military to suspend documents are up to date. If you have service for up to 18 months, with no sus- children, it’s important that you have pension fee, if they are sent to an area a will that names guardians for your Deployment can bring not served by that provider. They can children as well as spells out what is to then have their cell-phone number and happen to your property. This becomes financial opportunities. rate plan reinstated when they return. critical, of course, if you’re about to But it’s also important The rules vary by company, so contact deploy. You can draw up a medical direc- your provider for details. tive, which authorizes a family member to to take some key steps Make sure bills don’t accidentally pile make medical decisions on your behalf to protect your money up while you’re away, which can build if you’re incapacitated. The JAG legal- up late fees and cause serious credit affairs office on base can handle most while you’re away. problems when you return home. of the paperwork free and can help you go through a list of key estate-planning Adjust your auto insurance. Tell your documents before you deploy. You may insurer that you’re being deployed and need additional help if you have children so make sure yours is still up to date if let the company know if other family from a previous marriage, children with you’re about to be deployed again. The members may be driving your car while special needs or other complicating legal-affairs office on base can draft this you’re gone. You may get a discount if circumstances. document, too. the car isn’t used for commuting. If you’re putting your car in storage, Grant a power of attorney. One of the Update beneficiary designations. The your state may not allow you to drop most important documents to have in beneficiary designations on insurance auto-insurance coverage unless you place when you’re deployed is a power policies and retirement accounts super- hand in your license plates. But you can of attorney, which gives your spouse or sede your will. So, if your will says your cut your premiums in half — or more — by another trusted family member or friend spouse gets everything, but your mother lowering your liability coverage to the authority to handle your finances while is the beneficiary on a life-insurance state minimum and dropping collision you’re gone. policy, Mom will get the proceeds from coverage, says USAA’s Walbert. Call your You can grant a general power of the policy. Double check to be sure the insurance company or ask your state in- attorney, which authorizes your repre- beneficiaries for your life insurance, IrA, surance department (go to www.naic.org sentative to file your taxes and conduct Thrift Savings Plan and other retirement for contact information) about the specific financial transactions. Or you can use a accounts are up to date, especially if rules in your state. Keep comprehensive power of attorney for specific transac- you’ve gotten married, remarried or had coverage, which will pay out if your car tions, such as if you’re planning to buy a child in the past few years. is damaged or stolen while in storage. a house or car while you’re deployed. You can lower the rate by raising your Since this document hands off control Automate your bills. If you don’t have a deductible. of your finances, be very careful about spouse or family member at home to pay whom you name. A power-of-attorney your bills, make it as easy as possible to Get the right insurance on your home document generally has a time limit, pay them yourself. Sign up to have them or apartment. If your family remains Your One-Stop Guide to a Secure Financial Future 9
    • Be prepared in your home, then you don’t need to change your homeowners insurance. But if you’re renting out the house while you’re gone, contact your insurer and ask about your options. If you aren’t keeping your possessions there, then you may be able to switch to a less expensive policy that covers only the structure, and let your tenant get renters’ U.S. AIr FOrCE PHOTO BY AMN JENNIFEr rOMIG coverage to cover his or her stuff. Your mortgage lender may have specific cov- erage demands, though, so check with the lender, too. Also let your insurer know if you’re putting possessions in storage while you’re gone; you may be able to buy an inexpensive renters’ insurance policy to cover the items if they are damaged or stolen while you are away. after you are deployed, but you can plan Know the tax-filing rules. You don’t Sign up for the Savings ahead to determine how much money need to file an income-tax return while Deposit Program and you can afford to invest and find out you’re deployed to a combat zone. In the steps you’ll need to take. The tax- fact, you and your spouse can file up earn 10% per year in free status of income in a combat zone to 180 days after you leave the eligible interest, guaranteed, means your paychecks will increase by combat zone. Your deadline is also ex- the amount not going to the IrS. Con- tended for six months after the last day while you’re deployed sider dedicating that boost in take-home of any continuous qualified hospitaliza- and for 90 extra days. pay to the Savings Deposit Program. tion for injury from service in the combat For more information, go to www. zone. Both deadlines can be extended dfas.mil/militarypay.html and type even more days if you entered the com- “Savings Deposit Program” in the search bat zone between January 1 and April 15. engine. Even though the tax-filing deadline it’s even more important to prepare for can be extended, you may want to file these possibilities if you are about to de- Create a “brain book.” Financial on time — or even early — if you are ploy. Try to build up at least six months’ planner Beagle recommends putting due a refund. You can give a spouse or worth of expenses in a safe and acces- together a “brain book” — a compilation trusted family member or friend a power sible account, such as a money-market of key information that might be needed of attorney to file your taxes while you’re or savings account. You want the money in your absence. Inventory your financial gone. In addition to the general power-of- somewhere that is easily available to accounts and how to get access to them, attorney form, you can also use IrS Form your spouse for any emergency home plus your online accounts and pass- 2848, “Power of Attorney and Declara- improvements, car repairs or other unex- words. Include a copy of your will, power tion of representative,” specifically for pected costs. of attorney, medical directive and a letter tax filing (available at www.irs.gov). For of instruction should anything happen to more information, see IrS Publication 3, Sign up for the Savings Deposit you. Also include a set of keys for things Armed Forces Tax Guide, at the IrS Web Program. Servicemembers have access such as storage units you may have rent- site. The family-support center and legal to one of the best savings deals when ed to hold your belongings while you’re services on base can help with tax issues. they’re deployed. You can invest up to away. Since this book has such sensitive $10,000 in the Savings Deposit Pro- financial information, only give it to a very Build up an extra emergency fund. It’s gram and earn 10% per year in interest, trusted family member or friend. always important to have an emergency guaranteed, until three months after you For help getting your information fund so your family won’t land in debt leave the eligible region. You can only together, see the “Organize Yourself” if they have unexpected expenses. But sign up for the Savings Deposit Program worksheet at the back of this booklet. ← 10 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • hOMe SWeet hOMe Smart Home-Buying Tactics or many families, their largest F investment is their home. But home buying is extra complicat- ed for military families, who tend to move frequently and sometimes with little notice. At the same time, servicemem- bers have access to special mortgage programs and tax breaks to help them af- ford a home. Be sure you make the most of these special benefits and protect your investment. Should you buy or rent? Members of the military receive a tax-free housing allowance to cover all or part of their monthly rent or mortgage payment. And if you own a home, you can deduct 100% of your mortgage interest, even if you’re paying it with tax-free money. None- theless, it can still be tough to decide whether to rent or buy a house when you may only be stationed in an area for a few years. When home prices were rising quickly, many servicemembers bought homes even if they only expected to live in an area for a relatively short period of PHOTOGrAPH BY COLIN TODD time, with the hope that they could sell for a profit (or rent it out for more than their monthly payments) when they were transferred. But you can’t count on either outcome in this economy. Patrick Beagle, a certified financial planner who specializes in helping Gary and Regina Bartels, with son Sammy, used a no-down-payment VA loan to buy military families, recommends renting for their home, and used their cash to pay down high-interest credit-card debt. at least a few months when you move to a new area, so you’ll learn about the neighborhoods and can pick the best expenses. Don’t forget to include the lowance may be more or less than you’re place to live. Then, he recommends buy- cost of homeowners insurance, property currently receiving. To check on the BAH ing a house only if you plan to live in the taxes, utilities and regular maintenance for your rank and zip code, use the tool area for at least three years — five years when toting up the real cost of owning. at the Department of Defense Web site is even better. (remember, the home The housing calculators in the tools sec- (http://perdiem.hqda.pentagon.mil/ will probably have to appreciate in value tion of Kiplinger.com can help you run perdiem/bah.html). by 6% or more just to cover the costs the numbers. When deciding how much house you associated with buying and selling.) He Also remember that your Basic Allow- can afford, be particularly careful if you’ll also recommends limiting housing costs ance for Housing (BAH) will vary depend- be leaving the military soon. After you to no more than 30% of your take-home ing on the cost of living in your location; if leave, you won’t get the tax-free housing pay, so you won’t struggle with monthly you move to a new area, your housing al- allowance anymore, you may have to Your One-Stop Guide to a Secure Financial Future 11
    • hOMe SWeet hOMe pay state income taxes for the first time, Should you take advantage of special counties; go to www.homeloans.va.gov and your job may not be as stable (a mortgage options? Active-duty military for a full list of the current limits). potential layoff becomes much more of personnel, as well as certain veterans, VA loans are made by private lenders a concern when you’re in a civilian job). reservists and National Guard members, and interest rates may vary. But they can Keep these realities in mind when cal- are eligible for Veterans Administration be particularly valuable for people who culating your expenses, and build up a loans, which generally allows them to don’t have the money to make a 20% bigger emergency fund to help you pay borrow up to $417,000 with no down down payment, would otherwise have a the bills for at least a few months if you payment or private mortgage insurance tough time qualifying for a loan, and who or your spouse lose your job. (the cap is higher in certain high-cost would be required to buy private mort- Q a how a home Fits into the Financial puzzle I am currently serving Meanwhile, use $9,000 want to spend on a house efits — making the money in Iraq and will be com- of the bonus to pay off in the next few years in the tax-free going in and tax- ing home soon. I recently your credit-card debt. stock market. “Investing in free coming out. You can reenlisted in the Army Getting rid of those inter- the stock market is just for invest long-term money in and received a bonus of est payments will make it money that you won’t need a diversified portfolio of $29,000, and I have extra easier to reach your other for at least three to five stock and bond funds. Or money from my tax-free goals — and having a lower years,” says Brooke Salvini, you can put it in a target- income and combat pay balance could also improve a CPA and financial adviser date fund, which invests while deployed. Where is a your credit score and help in San Luis Obispo, Cal. your money in a portfolio good place for the money? you qualify for a better If you take a VA loan of funds to match your I’m paying 7.9% in interest mortgage rate. and don’t need a down time frame, then gradually on a $9,000 credit-card Then use some of the payment, add some of the shifts to more conservative balance, but my main goal remaining money to build money to your emergency investments as your with- is to support an upcoming up your emergency fund, fund — you’ll probably need drawal date gets closer. down payment for a home which can help you avoid cash for an earnest-money If you’re worried about and long-term investments. landing in more debt if deposit on the home and timing your investments you have any unexpected closing costs, and it’s a during a volatile market, It’s such a great idea to expenses. Advisers gener- good idea to have extra consider using dollar-cost plan for the bonus while ally recommend keeping money for unexpected averaging to invest a por- you’re still deployed. That at least six months of ex- costs, because you won’t tion of the extra money way, you can take ad- penses in a money-market have home equity to tap in with each paycheck; dollar- vantage of the military’s or savings account that you emergencies. Homeowners cost averaging buys more Savings Deposit Program, can access in an emer- with VA loans can always shares when prices are low which lets you invest up to gency — or more if you can add money to their pay- and fewer when they’re $10,000 in an account that afford it, especially when ments to pay extra prin- high. Or you could break earns 10% per year. Interest you buy a home. cipal without penalty — a your investments into stops accruing 90 days After the money in the good way to build instant three sections and invest after you leave the combat military Savings Deposit equity. one-third of the bonus zone, and the interest is Program stops earning Once you have a cash money every six months, taxable when the money is interest, you can put some cushion, add some of the a strategy that Dan Joss, a withdrawn. of it toward the down pay- extra money to your retire- certified financial planner Try to keep the maxi- ment on a house. You can ment nest egg, investing in Fairfax, Va., calls “di- mum in that account as buy bank or credit-union either in your Thrift Savings versifying by time.” Joss’s long as it continues to earn certificates of deposit or Plan or a Roth IRA. Since reasoning: You won’t know interest, which will give you other short-term invest- part of your income for whether stock prices have a much better return than ments to match your home- the year was from tax-free bottomed until sometime any other short-term sav- buying time frame. But combat pay, the Roth will after the fact, so hedge ings option. don’t risk the money you give you extra tax ben- your bets. 12 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • gage insurance, which usually costs 0.5% Gary ended up getting a VA loan, and Most homeowners need to live in a to 1% of the loan amount each year. For because he didn’t need to make a down house for two of the five years leading more information about VA loan eligibility payment, he used the extra cash to at- up to the sale in order to claim tax-free and rules, visit the Department of Veter- tack his high-interest credit-card debt. He profit on the deal (up to $250,000 if ans Affairs Web site (www.homeloans. also kept some extra money on hand for you’re single, or up to $500,000 tax-free va.gov). moving expenses, closing costs, mainte- profit if you’re married filing a joint re- If you have a good credit rating and nance and other unexpected costs that turn). But because they move frequently, enough money to make a down payment, come with a move. military families need to live in the house however, you might get a better deal on Opting for the no-down-payment for just two of the preceding ten years a standard mortgage. To improve your route makes it particularly important for in order to qualify for the tax break. For chances of getting a good rate, check the Bartelses to plan to stay put for a more information on this and many other your credit report for errors. You can while. A dip in home values could put the tax rules, see IrS Publication 3, Armed get one free copy of your credit report Forces Tax Guide, at www.irs.gov. each year from each of the three credit If you do rent your house after you bureaus at www.annualcreditreport. move, set aside an emergency fund to com. Active-duty servicemembers and help cover your mortgage and other ex- their spouses can also get a free Bright- Special tax rules are penses if you don’t receive rental income Score report, which includes a summary designed to help military for a few months — a lesson that many of your credit report and an action plan families are learning in a tough economy. to improve your credit score. Contact the families who decide to A San Diego military family recently Personal Financial Manager on base or rent out their homes called on financial planner June Walbert your base community-service office for for help. The family had bought a big more information and resources. And you when they are transferred house in the midst of the housing boom can learn about strategies for improving to their next duty station. and rented out their old home. The rent your credit score at www.MyFico.com, arrived on time for two years, but then a consumer-information site run by Fair hard times hit their tenant, and the pay- Isaac, which developed the credit score ments stopped. most lenders use. Housing values in San Diego had Deciding whether to take the VA loan family in the unenviable position of be- plummeted by that time, flooding the or a standard loan also depends on your ing “upside down” — that is, owing more rental market with other homes and mak- family’s circumstances and other poten- on their home than they could get by ing it tough to maintain the level of rental tial uses for your cash. selling it. The bigger the down payment income the couple had counted on to Captain Gary Bartels, 32, left the Army you make, the more cushion you have afford their bigger house. The family put in June 2008 to start a job as a produc- against that happening to you. the small house on the market but had tion supervisor at Mitsubishi Caterpillar, Once the credit-card debt is paid off, no luck selling it. Because they lived in and moved his family to Houston from Gary and regina should focus on build- the same area (which isn’t an option for Sackets Harbor, N.Y., near Fort Drum, ing up their emergency fund to hold at military families who have moved), Wal- where he had been stationed. Gary and least six months’ worth of living ex- bert recommended that they downsize: his wife, regina, were anxious to buy penses. Then they can put extra money “My advice was to go back to the house their first home so they could settle in toward retirement savings, college funds they knew they could afford and sell the with 2-year-old son, Sammy, and new for the kids or paying extra principal on bigger house.” baby, Joe. the mortgage. “One thing I learned at Walbert says that building an emer- Although Gary qualified for a VA loan West Point,” says Gary, “is that when you gency fund for their original house with no down payment, he also consid- accomplish small goals, it increases your before they started renting it would have ered other options. Just before he left confidence and momentum.” been a smart move. Then, if it wasn’t the Army, he was earning extra money at rented out 100% of the time, “they could Fort Bragg, in Fayetteville, N.C., by train- Should you rent or sell? What do you still afford the mortgage payment without ing National Guard troops for deploy- do when you’re transferred after buying throwing their finances into a tailspin.” ment in Iraq. He wondered whether he a home: sell the place or hold on to it That emergency fund becomes particu- should use the additional income to pay and rent it out? Special tax rules help larly important if you’re stationed in a down $18,000 in credit-card debt or save military families who do plan to rent their new city and don’t have the option of for a down payment on a traditional loan. homes after they move. returning to your old home. ← Your One-Stop Guide to a Secure Financial Future 13
    • tranSItIOn Time to Become a Civilian Again he shift from military to civilian If you have a preexisting condi- after you leave the military, which you t life demands a lot of decisions. The Transition Office at your tion that makes it tough to find health coverage on your own, you can sign up may prefer if you’d like different investing options. installation will help explain the bureau- for the Continued Health Care Benefit If you do roll your TSP into another cratic procedures you must go through, Program for up to 18 months. This is plan, keep track of any TSP contributions the specific benefits you’ll receive and similar to the COBrA benefits available that had been made with tax-free combat resources available to help. to civilians who leave their jobs. You pay, so you don’t end up paying tax on But you’ll also need to make some have 60 days after you leave the military that amount when you withdraw the important personal-finance decisions to to enroll in CHCBP, which has similar money in retirement. A portion of each replace some of your benefits, adjust coverage to TrICArE, the health-care withdrawal will be tax-free to account for your post-military budget and protect system for members of the military and the tax-free contributions. your investments for the future. You want their families. The coverage costs $933 to make a smooth and financially sound per quarter for individuals or $1,996 per Get ready for state income-tax transition. quarter for families. If you’re healthy, changes. If your state of residency while however, you may well find a better deal you are in the military is a tax-free state, Replace your health insurance. If you on your own. Plus, go to the Depart- be prepared for a state tax bite if you stay in the military for at least 20 years, ment of Veterans Affairs Web site (www. move to a state that imposes income then you qualify for health care in retire- va.gov/healtheligibility) to find out if you taxes after your leave the service. Be ment, although you may still want to buy are eligible for VA health care. sure to crank the extra cost into your supplemental medical insurance. But post-military budget. if you leave before then, your health- Find new life insurance. Your Service- insurance bills can be surprisingly steep. members’ Group Life Insurance (SGLI) Prepare to lose your tax-free housing Even if you get a new job that provides expires 120 days after you leave the allowance. You’ll no longer have a tax- health insurance, you’ll probably have to military. You have one year and 120 days free housing allowance after you leave pay for part of the premiums yourself, in after discharge to convert your policy to the military, which means you’ll need addition to out-of-pocket expenses you Veterans’ Group Life Insurance (VGLI). to earn a higher income to end up with didn’t have before, such as deductibles, Again, if you’re healthy, you may find a similar take-home pay. Keep those lost co-payments and medications. much better deal on your own. But VGLI benefits in mind when negotiating your If you need to buy health insurance on may be your best bet if you have medical salary at a new job and calculating how your own, you can lower your premiums conditions. You can qualify for VGLI with- much of a mortgage you can afford. by buying a high-deductible policy and out a medical exam if you apply for cover- pairing it with a health savings account. age within 120 days of discharge. Shop Build your emergency fund. A stash of To qualify for an HSA in 2009, your policy around for other coverage at least six safe and accessible cash is even more must have a deductible of at least $1,150 months before you leave the military, so important once you leave the military and for single coverage ($2,300 for family you have time to get VGLI coverage if you take a civilian job, which may be much coverage); people with single coverage don’t find a better option. For quotes on more susceptible to layoffs. Keep at can make tax-deductible contributions of individual policies, check out Accuquote. least six months’ worth of expenses in a up to $3,000 in 2009 ($5,950 for family com and Insure.com. For more infor- money-market or savings account. coverage). The money grows tax-deferred mation on VGLI, go to www.insurance. inside the account and you can use the va.gov/sgliSite/vgli/vgli.htm. Reassess your retirement savings. funds tax-free to cover out-of-pocket When you’re close to leaving the military, medical expenses — including that big de- Make smart decisions about your you’ll have a much better handle on how ductible on your health plan. Money you Thrift Savings Plan. You can keep the much of a pension and other benefits don’t use remains invested in the account. money growing tax-deferred in the ac- you’ll receive. Gather those numbers, You can always use the money tax- and count even after you leave the military, then calculate how much more money penalty-free for medical expenses, or you which can be a good deal because the you’ll need to save to reach your retire- can use it penalty-free for anything (you’ll expenses are so low. Or you can roll it ment goals (the savings calculators in the owe taxes) after age 65. into a new employer’s 401(k) or an IrA tools section at Kiplinger.com can help). 14 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • your money in the next two years.” Even if you’re 65 or older, ritter recommends keeping about 55% of your retirement savings in a diversified portfolio of stocks and stock mutual funds. The first step, though, is for retirees to keep as much as two years’ worth of expenses in cash, such as in a money- market account or short-term CD. You might not need quite that much if you have sources of guaranteed income (such as robert Parsons’s military pen- sion and the couple’s Social Security checks). In fact, they don’t plan to tap their IrA until they’re required to at age 70 ½. And because robert is a retired member of the military, TrICArE for Life PHOTOGrAPH BY MArK PETErSON/rEDUx helps fill the gaps in Medicare and low- ers the couple’s out-of-pocket costs. retirees who aren’t as fortunate can bolster their depleted savings by withdrawing less money than they had originally planned. One common guide- line recommends withdrawing 4% of your savings in the first year of retirement, Robert Parsons’s military pension from 26 years as a Navy air-traffic controller is then bumping up withdrawals by about providing critically needed buoyancy as he works to protect his other savings. 3% of the first-year amount each year to keep pace with inflation. But in a down market you may need to base your 4% Doing this calculation right before the was driven home with a vengeance by withdrawals on the reduced value of transition can be a quick reality check recent stock-market volatility. your nest egg, rather than the original about how much money you need to robert Parsons, 67, retired in 1985 balance, and temporarily discontinue earn from a post-military job. after 26 years as a Navy air-traffic con- those 3% increases. troller, then spent several years in law You won’t need to dip as deeply into Get advice on the transition. Talk with enforcement before he retired for good. your retirement savings if you can boost someone who has already left the military He and his wife, Judy, now live in Eden- your income. And combining part-time and ask about unexpected expenses, lost ton, N.C. After watching the value of his work with a hobby — such as working at benefits, and other financial surprises. IrA shrink from $130,000 to $98,000 in a golf course or veterinary clinic — might The military community-service office just a few weeks during the 2008 market also get you an employee discount. on your base and the Army Career and meltdown, he was confronted with the In addition, working at an extra job for Alumni Program (www.acap.army.mil), or need to protect his nest egg. a few years after retirement could help similar programs for the other branches, As scary as it is to see a retirement you delay taking Social Security. And for offer valuable resources to help with the nest egg take a beating in your sixties, it each year after your normal retirement transition and new-job search. Make the is still a mistake to pull all of your money age that you hold off, your benefits will be most of free counseling and information out of the market. You could live 20 or increased by 8% for the rest of your life. several months — or more — before you 30 more years, so it’s no time to panic If you qualify for $1,600 a month at age leave the military. and abandon the fundamentals. You 66, for example, delaying the start of ben- need cash for your immediate needs, efits until 70 could bump up your benefits How to Invest After Retirement but you also need growth via the stock by about $500 a month (see the retire- Even if you have a military pension, you’ll market over the long term, says Stuart ment Estimator at www.socialsecurity. need to decide how to invest the rest of ritter, a certified financial planner in gov). Future cost-of-living increases would your money after you retire — a point that Baltimore. “You are not going to use all of add to that higher base. ← Your One-Stop Guide to a Secure Financial Future 15
    • at YOur ServIce Financial Resources for Military Families Better Business Bureau (www.bbb.org) Defense Credit Union Council (www. Military Homefront (www.military- can help you check out businesses in dcuc.org) includes contact information homefront.dod.mil). This Department of your new town. BBB Military Line® (www. for credit unions on base, and other Defense Web site focuses on resources bbb.org/military) focuses on information financial information for servicemembers. and benefits for military families. specifically for members of the military. Kiplinger.com covers all personal-finance MyArmyBenefits (http://myarmyben- Investor Protection Trust (www. topics, from saving and investing to insur- efits.us.army.mil), includes information investorprotection.org). The site is ance, taxes and financial planning. about military pay and benefits, transition packed with information about investing information, tax rules and other military and protecting your money, including MyMoney.gov includes helpful infor- benefits by state and life event. resources specifically for the military. mation from a variety of government resources about budgeting, taxes, home- Armed Forces Tax Guide, IRS Publica- North American Securities Adminis- ownership, credit and avoiding scams. tion 3 (at www.irs.gov) explains special trators Association (www.nasaa.org). tax rules for military personnel. This site includes links to state securities TSP.gov features details about the Thrift regulators, tips on avoiding scams, and Savings Plan for military personnel. U.S. Department of Justice service- other valuable information for investors. members’ and veterans’ rights page MilitaryPay (www.dfas.mil/militarypay. (www.servicemembers.gov) provides The Securities and Exchange Com- html) includes information about military information about special legal rights of mission’s military site (www.sec.gov/ and retired pay, benefits and savings. members of the military and veterans. investor/military.shtml) tracks enforce- ment actions regarding military sales ClearPoint Credit Counseling Solutions Military.com/deployment helps active- practices and affinity fraud, and provides offers budget, housing and debt coun- duty personnel, reservists and members general investor education. seling. You can reach a financial spe- of the National Guard and their families cialist at 877-465-2227 or go to www. prepare for deployment. SaveandInvest.org alerts military ClearPointCCS.org/military, or meet in families to active scams, includes advice person at their offices near military bases National Military Family Association on saving and investing, and provides in Illinois, Maryland, Missouri, North Caro- (www.nmfa.org) features resources to resources for checking out advisers. lina, Tennessee, Virginia and Washington. help military families prepare for deploy- ment and deal with other financial issues. MilitaryMoney.com offers advice on all National Association of Insurance aspects of personal finance for military Commissioners’ military site (www. Department of Veterans Affairs VA loan families, plus links to information about naic.org/consumer_military_ site (www.homeloans.va.gov) includes discount and support programs. insurance.htm). This site focuses on detailed information about VA loans. special insurance considerations for mem- MilitarySaves.org focuses on strategies bers of the military, and includes contact Additional Resources for building savings and reducing debt, information for state insurance regulators. The following sites include information and includes success stories from service- about benefits and support for military members who made savings a priority. MilitaryOneSource.com is a clearing- families: The site also highlights special programs house for information related to all things during Military Saves week (the last week military, including deployment, legal Army (www.MyArmyLifeToo.com) in February). rights and finances. Air Force (www.afcrossroads.com, Department of Veterans Affairs SGLI Armed Forces Legal Assistance (http:// www.afcommunity.af.mil) (www.insurance.va.gov/sgliSite/default. legalassistance.law.af.mil) explains the htm). Visit this site for in-depth informa- special legal rights of members of the mili- Navy (www.nffsp.org) tion about Servicemembers’ Group Life tary and includes contact information for Insurance. legal-assistance offices at nearby bases. Marine Corps (www.usmc-mccs.org) 16 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS
    • OrGanIze YOurSelF Believe it or not, a key step toward protecting your financial life is to organize it. This worksheet is a good place to start. Complete this “executive summary” of key details, put it in a safe place, and make sure your loved ones either have a copy or know how to put their hands on one if it’s needed. Emergency Contact Info Personal Contact Employer Contact Name: Street Address: City, State, Zip: Phone: E-mail: Banks Checking Savings Location of Login for Bank Name Account Number Account Number Statements Online Banking Loans Bank Name Account Number Monthly Payment Due Date Location of Statements Credit Cards Issuer Name Account Number Payment Due Date Location of Statements Investments Financial Institution Type of Investment Account Number Location of Statements Insurance Policies Company/Agent Type of Policy Premium Due Date Policy Number Location of Policy Legal Information Location, including additional information such as the executor or attorney Will Power of Attorney Passport Marriage Certificate Divorce/Separation Papers
    • About Kiplinger Kiplinger’s Personal Finance magazine has been providing millions of Americans with down-to-earth advice on managing their money and achieving financial security since 1947. Along with Kiplinger.com, it is a highly trustworthy source of information on saving and investing, taxes, credit, homeownership, paying for college, retirement planning, car buying and many other personal- finance topics. About BBB Military Line BBB Military Line® is a program of the BBB Center, a 501(c)(3) organization affiliated with the Council of Better Business Bureaus, Inc. The BBB Center seeks to foster consumer trust and business ethics in North America and the evolving international marketplace. The BBB Center produces independent research and analyzes issues that impact consumer trust, as well as developing educational material for consumers. http://us.bbb.org About the Sponsors The Investor Protection Trust (IPT) is a nonprofit organization devoted to investor education. More than half of all Americans are now invested in the securities markets, making investor education and protection vitally important. Since 1993 the Investor Protection Trust has worked with the states and at the national level to provide the independent, objective investor education needed by all Americans to make informed investment decisions. The Investor Protection Trust strives to keep all Americans on the right money track. The Investor Protection Institute (IPI) is a nonprofit organization that promotes investor protection by conducting and supporting research and education programs. A variety of non-commercial investor education and protection materials, including booklets, video and curriculum, are available and can be downloaded for educational purposes at www.investorprotection.org. ClearPoint Credit Counseling Solutions is a national 501(c)(3) nonprofit offering budgeting, housing and credit-counseling services in all 50 states. ClearPoint is a member of the National CREDIT COUNSELING SOLUTIONS Foundation for Credit Counseling and a system-wide member of the Better Business Bureau. Credit Counseling You Can Trust www.ClearPointCCS.org/military The Defense Credit Union Council is a nonprofit association, supporting the interests of defense credit unions that operate on military installations worldwide. By maintaining a close and constant liaison with the Pentagon, DCUC assists the Department of Defense and its member credit unions in coordinating policy, procedures and legislation, as it relates to financial readiness, morale and welfare, and the delivery of quality financial products and services to the troops and their families. http://www.dcuc.org