We are regular listeners to Michael Savage's radio talk show. On a recent show, Michael remembered conversations with his father where his father refused to borrow money for cars because it was cheating. By this he meant that people were expected in those days to pay for cars with cash. If you borrowed money to buy a car you couldn't afford to pay cash for you were living a lie!
What an idea! We've forgotten this completely. A 2007 New York Times story stated that about 11% of car buyers paid cash for the deal. Many others borrowed money using home equity loans to take advantage of tax deductible interest.
Another widely listened to talk show host, Bruce Williams used to preach that you should always drive exactly the car you want, just buy it a couple of years old. That's something that you could probably do paying cash, and start living better-and honest.
Tuesday, May 27, 2008
Saturday, May 24, 2008
Five Risks that Military Retirement Mitigate
Robert Powell, writing for Market Watch, quoted the Society of Actuaries story saying that retirees face financial five risks that have to be actively managed.
These risks are:
Inflation: Your retirement benefit is adjusted annually to keep pace with inflation unless you accept the REDUX retirement. (See my post on why the REDUX isn't a great idea.)
Outliving one's assets: The military retirement is guaranteed by the U.S. Government for the life of the military retiree.
Loss of spouse: If you opt for the Survivor Benefit Plan at retirement, your spouse is guaranteed up to 55% of your retirement benefit for life!
Declining health: This risk refers to long-term care. Military members have access to a wide variety of world class long-term care options. The government also offers a long term care insurance program. You can get a quote for coverage at the Federal Long Term Care Insurance Program web site.
Medical expenses: Have you heard of Tricare-for-life? The fees for this service have been going up but compared to traditional pay-for-service plans, the fees are much lower. You can go to the Tricare web site for more details on this incredible retiree benefit.
BOTTOM LINE: The generous military retirement answers these five concerns vigorously. As the U.S. Federal budget gets squeezed, I encourage all military members to pay attention to these benefits. Stay involved with military issues political organizations such as the American Legion and Veterans of Foreign Wars, and to write to their elected officials. Let them know how important these benefits are to those who have devoted their lives to protecting our nation.
These risks are:
- Inflation
- Outliving one's assets
- Loss of spouse
- Declining health
- Medical expenses
Inflation: Your retirement benefit is adjusted annually to keep pace with inflation unless you accept the REDUX retirement. (See my post on why the REDUX isn't a great idea.)
Outliving one's assets: The military retirement is guaranteed by the U.S. Government for the life of the military retiree.
Loss of spouse: If you opt for the Survivor Benefit Plan at retirement, your spouse is guaranteed up to 55% of your retirement benefit for life!
Declining health: This risk refers to long-term care. Military members have access to a wide variety of world class long-term care options. The government also offers a long term care insurance program. You can get a quote for coverage at the Federal Long Term Care Insurance Program web site.
Medical expenses: Have you heard of Tricare-for-life? The fees for this service have been going up but compared to traditional pay-for-service plans, the fees are much lower. You can go to the Tricare web site for more details on this incredible retiree benefit.
BOTTOM LINE: The generous military retirement answers these five concerns vigorously. As the U.S. Federal budget gets squeezed, I encourage all military members to pay attention to these benefits. Stay involved with military issues political organizations such as the American Legion and Veterans of Foreign Wars, and to write to their elected officials. Let them know how important these benefits are to those who have devoted their lives to protecting our nation.
Friday, May 23, 2008
Roth IRA or TSP?
A common question is whether a military member should contribute to the Thrift Savings Plan or a ROTH IRA. According to Walter Updegrave, CNNMoney's personal finance expert, the best strategy is to fully fund the ROTH before putting money into the TSP. For single people, the max is $5,000 for 2008, and $10,000 for couples. After that, military members can contribute $15,500 into their TSP accounts. If you've still got money left over, you can put money into tax managed accounts such as index funds.
Why is this a good strategy? Remember, ROTH IRA contributions are made after the taxes have been paid. Once invested, ROTH proceeds aren't taxed again! It's likely that if you invest wisely, you will pay taxes on your income while its small, and retire wealthy.
TSP contributions are made before the taxes are paid. They grow tax deferred, meaning that you pay taxes on all the proceeds when they are withdrawn. Over time, this money will also grow to a substantial sum but it will be taxed as ordinary income when it is withdrawn.
The last pot of money is your taxable investment account. A lot of small investors discovered that their mutual funds were not tax managed very well at the end of 2007. While the investments had performed poorly over the year, they discovered that there were large capital gains taken at the end of the year, and those triggered tax consequences.
Tax managed accounts prevent the stock turnover that triggers these taxable events, and reduce the tax burden over time.
Why is this a good strategy? Remember, ROTH IRA contributions are made after the taxes have been paid. Once invested, ROTH proceeds aren't taxed again! It's likely that if you invest wisely, you will pay taxes on your income while its small, and retire wealthy.
TSP contributions are made before the taxes are paid. They grow tax deferred, meaning that you pay taxes on all the proceeds when they are withdrawn. Over time, this money will also grow to a substantial sum but it will be taxed as ordinary income when it is withdrawn.
The last pot of money is your taxable investment account. A lot of small investors discovered that their mutual funds were not tax managed very well at the end of 2007. While the investments had performed poorly over the year, they discovered that there were large capital gains taken at the end of the year, and those triggered tax consequences.
Tax managed accounts prevent the stock turnover that triggers these taxable events, and reduce the tax burden over time.
Thursday, May 1, 2008
Don't Take the REDUX!
Here's a great synopsis of why the REDUX retirement plan is a BAD idea for military members:
Another great information source is Office of the Secretary of Defense Military Retirement Comparison site.
As a commander, I refused to sign off on a REDUX payment until the member had viewed this site and been counseled about the implications of accepting the payment.
In 2 years I never successfully talked anyone out of taking the payment!
$30,000 Knife Has Careerists Cutting Their Own Retirement
By Tom Philpott
Summer 2004
Career counselors advise against it. Financial experts say it's a poor deal. Economists estimate that a typical enlisted member with 20 years of service will cut the lifetime value of his or her retirement by $309,000.
Read the rest of the article by clicking the title, but taking the REDUX option of a one-time $30,000 (taxable) payment, has a dramatic impact on your total lifetime income.Another great information source is Office of the Secretary of Defense Military Retirement Comparison site.
As a commander, I refused to sign off on a REDUX payment until the member had viewed this site and been counseled about the implications of accepting the payment.
In 2 years I never successfully talked anyone out of taking the payment!
Why military members are losing their security clearances
A great article on the hazards of financial problems with military members appeared in the March 17, 2008 issue of the Montgomery, AL advertiser. In the article, written by Jenn Rowell, the author discussed a problem I saw personally as an Air Force squadron commander.
When a private individual has financial problems, it can lead to stress, emotional distress, and embarrassment. When a military member has serious financial problems, it can lead to a loss of their security clearance, which prevents many of them from performing the tasks that they were trained to do. Units have to prevent these members from having access to classified materials, which often means that they cannot even be in their unit's building!
Military members who have their clearances suspended can appeal the ruling, and may have their clearance reinstated, but this is a long and painful experience, both for the member and his or her unit.
I personally experienced this on several occasions. In an often deployed combat unit, members were prevented from deploying without a clearance. This had a dramatic impact on the morale and welfare of my squadron.
Take a look at the Montgomery Advertiser to read the article.
When a private individual has financial problems, it can lead to stress, emotional distress, and embarrassment. When a military member has serious financial problems, it can lead to a loss of their security clearance, which prevents many of them from performing the tasks that they were trained to do. Units have to prevent these members from having access to classified materials, which often means that they cannot even be in their unit's building!
Military members who have their clearances suspended can appeal the ruling, and may have their clearance reinstated, but this is a long and painful experience, both for the member and his or her unit.
I personally experienced this on several occasions. In an often deployed combat unit, members were prevented from deploying without a clearance. This had a dramatic impact on the morale and welfare of my squadron.
Take a look at the Montgomery Advertiser to read the article.
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