Roth TSP Option

Congress has proposed a Roth TSP option, which many consider to be a "game-changer" for military families. Right now a married couple where one spouse is serving can save $16,500 (more if deployed to a combat zone in a pre-taxed account, plus an additional $10,000 in a post-tax Roth IRA. Under the new proposal, couples could save the same $16,500, but pay the tax now, and let the investments grow tax free now, and come out tax free later.

Conventional wisdom has said that military members should fully fund the Roth IRA before saving money in the TSP. Now with the Roth TSP we can do both.

One additional word. You might want to stick with the strategy of fully funding your Roth IRA first before contributing to the Roth TSP. The reason is investment choices. The TSP options, which might be expanding, currently limit your to a small basket of index-linked funds. If you go with a discount brokerage, like USAA, Schwab, or TD Ameritrade, your options are almost limitless. That makes a difference if you want to add exchange traded funds, commodities, and real estate investment trusts to your mix.

Back to Basics

It's easy to read the business headlines and get out of synch with the basics. For example, military members might be fearful from contributing to the Thrift Savings plan because of stock market volatility. Others might think that because inflation is likely in the near future, they should go out and spend money now, or borrow money now to buy everything they want.

These are very dangerous choices. Now is a great time to return to fundamentals of financial planning.

1. Budget wisely. How much do you spend each month in restaurants, coffee shops, movie theaters, and other discretionary ways?
2. Pay yourself first. Put 10-15% of your income away for retirement either in Roth IRAs, the TSP, or other tax advantaged accounts.
3. Spend wisely. Consider a used vehicle, avoid a long term lease, carefully consider purchases, and avoid impulsive decisions. Carry cash and avoid credit cards whenever possible.
4. Pull your credit report. You can go to annualcreditreport.com and get your report for free. If it contains errors, report them right away.
5. Get adequate life insurance if you need it. If someone depends on you for their basic needs, you need life insurance. For many, SGLI is enough, and comes directly out of your pay. If you've been in the military more more than 10 years, you may additional coverage. I recommend you contact USAA for more information about their insurance products.
6. Learn more about taking care of your money. Pick up a book like Dave Ramsey's "Total Money Makeover" to get a good understanding of the principles.

Post 9/11 GI Bill Transfer Rules Announced

The rules surrounding the transfer benefit for the Post 9/11 GI Bill are beginning to come into focus. The press release, dated April 28th, warns that the rules are in the final stages, but have not been signed. The proposed policy will give any member of the Armed Forces who is eligible for the program and meets certain criteria, will be able to transfer their entire benefit to their spouse or children.

Here is the criteria:

• You must have at lease 6 years of service on the date of election and agree to serve 4 additional years.
• If you have 10 years of service on the date of election, you are eligible to transfer your benefit if further service is precluded by your service, as long as you serve the maximum amount of time allowed by your service component policy, or
• If you are, or become retirement eligible during the period from August 1, 2009 through August 1, 2013. If this applied to you, your retirement date is pushed back by as much as 3-years.

If you'd like to receive a copy of this document, e-mail me at leeflint3@gmail.com.

Long Term Care Insurance

With so many Americans living longer, more military veterans will eventually need long term care. Deciding how to pay for this is tough, and like buying life insurance, it's a benefit that we never really have to use. You might also think that your Tricare for Life Benefit will pay for long term care. According to "The Complete Idiot's Guide to Long-Term Care Planning," by Marilee Driscoll, Tricare pays nothing for long term care expenses, and the VA is of little benefit to middle class veterans. The truth is that you will likely need to supplement your Tricare benefit with additional money.

One way to pay for this is long term care insurance. The Federal Government has a program to provide effectively group coverage for military members, civil servants, and retirees who choose to participate. The Federal Long Term Care Insurance Program website will help you get an idea of what the coverage will cost.

Experts agree that it's important to add inflation adjustments to your plan. When I ran the numbers with and without the inflation adjustment the cost was 4 times as much. When you start a program like this one you are making a conscious decision to commit to insurance for life. Years of premium payments will be money that's not piled up for retirement expenses or other uses. It's similar to car or fire insurance. You hope you don't need it, but you also never get your money back. (Return of premium coverage is available, but may not be worth the added cost. Carefully review your offers before signing up for the benefit.)

Some people are reluctant to sign up for long-term care programs because they are confident that Medicaid or Medicare will pick up their bills for care late in life. They might justify this sentiment by saying that they've paid taxes in over the years, and like Social Security, this is a benefit to which they are entitled. It has been suggested to me that facilities that accept Medicaid patients might not be the facility of choice when the time comes. You may want a wider variety of options if the need arrises.

Finally, there is one other consideration, your legacy. Your spouse might have to undergo agony twice, once during your time in long-term care, and after your death with the weight of the bills or the lack of assets. In addition, your heirs would also see their inheritance be obliterated by the costs of care in your final days. Long-term care insurance can protect you and those close to you. This fact may be enough to tip the risk scale in favor of paying for the coverage.

Real money for military spouses for school and training

Military One Source, a great source of information relevant to military members and their families, has a link to the DoD "My Career Advancement Account." This program provides $6,000 of financial assistance for eligible spouses directly to participating schools or other approved training programs. This program will pay for tuition, licensing, and credentialing fees, but won't pay for computers, application, graduation, and student activity fees, childcare, or other indirect costs.

This program is real, and will take just a little bit of effort on your part to set up. But for military families considering transferring Post 9/11 GI Bill benefits so a spouse can attend school, this program will pay benefits without incurring additional active duty service commitment, and the benefit can be retained for the veteran or for children.

Quicken offers free online service

If you have several bank and brokerage accounts, credit cards, a mortgage, and a retirement savings account, and you want to have a single web-site to view them all, you have a couple of great choices.

I've been using Mint.com for several months, but the ad presence has been a bit annoying to me personally. Then I read about Quicken's online service. Like Mint, it's free, and I found that it only took me about 15-minutes to enter my accounts into the system. The upload was fast, and quickly I was able to see all of my recent transactions.

I've been a Quicken customer for many years, so the interface was familiar to me. What I haven't figured out is how to enter assets to offset my liabilities. For example, I can depict my outstanding mortgage, but I haven't found a way to enter the value of the house.

Quicken will save you alot of time if you periodically monitor all your accounts. This will simplify your financial life!

Southern California Living

In my previous post, I suggested a living budget of $80/day or $160/day for a couple. Military.com had listed Oceanside, CA, near Camp Pendleton, as among the top five cities for military families, so I started my search there. My budget was a monthly mortgage payment of about $1200 with a $70K down payment and annual property taxes of about $6,500 (remember, it's California!)

Here's what I found. It's a 3 bedroom, 2 bath home built in 2005 and is located just outside Oceanside in the city of Temecula. Temecula has been hammered by the financial downturn, and has lots of real-estate-owned and other foreclosure homes available right now. This house is has more than 1850 square feet of space, and is in a highly rated school district. The mortgage payment would be just a few dollars over $1200.

If you insisted on staying in Oceanside, you could live here. This older home has 4 bedrooms, 2 baths, and has more than 1750 square feet of living space. The price tag is less than $200,000 or a payment of about $1,260 per month. This amounts to about $42/day leaving you $118/day to live life the way you want to live it. I say buy a sailboat and tie it up at Camp Pendleton's marina.