1. PersonalMilitaryFinance for FamiliesYour One-Stop Guideto a SecureFinancialFuture Sponsored by CREDIT COUNSELING SOLUTIONS Credit Counseling You Can Trust

2. JuMpIntrOductIOnheadcOntentS SavInG StrateGIeS To U.S. Military Personnel Investing for Yourself andYour Future / 1and Their Families FInancIal FraudAvoiding Scams That Targete are pleased to present youthe Military / 4W with a personal-finance guidecreated especially for militaryBe prepared families. While our troops carry out theirStrategies Before and After difficult and dangerous missions, we know that they and their families are notDeployment / 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 resourcesTactics / 11 money for future expenses such as col- lege and retirement. for military families are tranSItIOn Thats where the Kiplinger-BBB Personal Finance Guide for Military often very different fromTime to Become a CivilianAgain / 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 KiplingerPersonal-Finance Magazine (now called Kiplingers 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 nations oldest nonprofit organization in the field of advancing marketplace trust, and specializes in providing consumers with information that helpsCopyright 2009 by the Kiplinger them make wise choices. It has long worked on behalf of military families, and BBBWashington Editors, Inc. All rights Military Line specializes in consumer education and advocacy for them.reserved. As you read the guide, youll 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 Kiplingers 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 Theyre 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-001191Knight A. KiplingerSteven J. ColeEditor in ChiefPresident and CEOPrINTED IN U.S.A.Kiplingers Personal Finance Council of Better Businessand Kiplinger.comBureaus 3. SavInG StrateGIeS Investing for Yourself and Your Future embers of the military haveMspecial financial-planning needs. And, as a servicemem- ber, you have access to many valuable investing programs that arent 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 theres no partial vesting. You wont get anything unless you stay in the military for 20 years, and, frankly, most people dont stick around that long.Even if you do qualify for a pension, its doubtful that the payments will cover all your bills. Youre usually entitled to 50% of your base salary if you retire at 20 years (and an extra 2.5% for everyPHOTOGrAPH 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) dont 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. Its a relatively painless way to build youre earning at the time you retire.a tax-free retirement fund.Its essential to do some of your own saving. The younger you are when you start setting aside even just a little eachYou can invest up to $16,500 in thefrom 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, membersreceive 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 in25% tax bracket. Do that twice a month options have recently improved. Uncle 2009. (Get this: $30,000 contributed this and youll save $7,200 for the year. If Sam helps, too, giving you tax breaks toyear would grow to more than $300,000 you start at age 25 and contribute for help supercharge your savings. Its 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 youre saving options.Because contributions from your55, if your investments return 8% per regular pay escape taxes, they dontyear. And even if you leave the military Thrift Savings Plan: An Easylower your paycheck nearly as much as at age 40 after 15 years of contribu- Way to Invest for Retirementyou might expect; contributing $10,000tions 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 youre 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 aassuming 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 automaticallyrecent stock-market returns, the long-Your One-Stop Guide to a Secure Financial Future 1 4. SavInG StrateGIeS term return of the stock market is evenand tap the account, youll generally pay higher. Despite the devastating 37% loss a 10% penalty to boot. For more informa- a realistic Way to plan of Standard & Poors 500-stock index oftion 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 standsTax-Free Earnings From a Roth IRAhow 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 fundswhich can earn you a tax deduction and world, for example, an employee that invest in large companies, smalltherefore lower todays tax bill, contri-might become 20% vested after companies, international firms, bondsbutions 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 deductionno partial vesting for militarynow is sweet indeed: All withdrawals pensions. If you dont stay for 20from a roth in retirement will be tax-free,years, you generally get nothing.whereas withdrawals from a regular For that reason, its usually bestIrA are taxed in your top tax bracket. to avoid including the pension in Tax-free combat pay canAnother advantage of the roth is thatyour retirement-planning calcula- go into a Roth IRA and you can withdraw roth contributions at tions until youre just a few yearsany time tax- and penalty-free if you getaway from qualifying. So many that money and all the in a pinch.things can happen between start earnings on it comeYou can contribute up to $5,000 to a and finish that you just dontroth IrA in 2009 (or $6,000 if youre 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 thats a sweet deal. income is $105,000 or less; or $166,000helicopter pilot who is now aor less if married filing jointly (you can certified financial planner inmake a partial contribution if you earnFairfax 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, andstaying 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 youd pay just $15 a year in investment- contributions as well as your earningsinvest 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 dont thats tough to beat. bracket to increase by the time you owe tax on earnings until you withdraw If you earn income but your spouseplan to withdraw the money, especially the money, and you wont ever be doesnt, you can contribute $5,000 to anif 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, creditbracket 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 rangepay 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 anotheror 30 years until retirement, its usuallyYou can invest either a lump sum employers 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 takeportfolio of mutual funds.cally shifted from your bank account or the money and spend it, youll face an You can invest the maximum in bothpaycheck. Investing $416.67 per month immediate tax bill and, if youre youngera roth IrA and the Thrift Savings Planwill get you to the $5,000 annual limit. than 55 in the year you leave the military in the same year. If you cant afford toYou have until April 15, 2010, to make2 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 5. 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 Laszones qualify for a savings program that Vegas, automatically contributes a fewguarantees 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 regularare deployed until 90 days after you intervals, a strategy called dollar-costleave the eligible region. During that time, averaging, buys you more shares whenyour 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 bestyoull save in a combat zone by avoid- than the average price in the market next, so its much more sensible (anding federal taxes on your pay. If youre over the same length of time. I see a less scary) to make regular investmentsin the 25% bracket (with taxable income market downturn as an opportunity to in a well-diversified portfolio. If youre 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 helpyears in the future, like the Andrews arecombat-zone pay saves you $250; stick eliminate the urge to try to time thewith their retirement fund, then its best it in the 10% account. You can withdraw market which is virtually impossible toto start with most of your money in stockthe money and all that sweet interest 90 do successfully. Too often investors jumpfunds that include large companies, smalldays 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 positionthe markets ups and downs beforeSavings Deposit Program in the search of buying high and selling low. Nobody retirement.engine. Q aan early Start . . . and a Simple planMy son is in the Army in$16,500 to the Thrift Sav- an investing time frame.until hes in his fifties, thenIraq. He has no invest- ings Plan in 2009. But yourThey start out with morehed pick the L 2040 fund.ments to speak of and isson can also contribute allmoney invested in stock This fund starts with mostsingle. He wants to put of his tax-exempt combat-funds when you have of its money invested inmuch of his income into zone pay, as long as his to- many years before you planan S&P 500 index fundsome form of investment,tal contributions for the year to touch the money then (large U.S. companies),most likely a mutual fund.dont exceed $49,000. He gradually become more followed by an allocation toDo you have any advice forcan start very small the conservative as your goalsthe international fund andhim for selecting a fund? minimum contribution isget closer. The lifecycle small-company index fund,just 1% of basic pay eachfund automatically adjustsand just 15% of the moneyThe easiest way for him toperiod but you shouldthe investments every quar- in the fixed-income fund.get started is to invest in encourage him to set aside ter, so you dont need to The allocation graduallythe Thrift Savings Plan, andas much as he can. make any changes yourself.changes through time, withhe can open an accountThe simplest investmentYou should pick the most money invested in theeven while he is deployed.choice is a lifecycle fund lifecycle fund with a targetgovernment securities fundAll he has to do is sign up (the L Fund in the TSP). date closest to whenby 2040. Visit the L Fundsto have a percentage of Lifecycle funds some-you plan to withdraw thepage at www.tsp.gov to seeeach paycheck go directly times called target-date money. If your son is in hishow the allocation becomesinto the TSP. Troops canfunds invest in a portfoliotwenties and doesnt plan more conservative as timegenerally contribute up toof other funds based onon tapping the accountpasses. Your One-Stop Guide to a Secure Financial Future3 6. FInancIal Fraud Avoiding Scams That Target the Militaryilitary personnel are primemeat. And identity thieves are takingMilitary spouses looking for a new jobM targets for shady sales practicesof financial criminals who want advantage of deployments and the mili- tarys ubiquitous use of Social Securityin a new town are susceptible to work-at-home scams, and they often shell out a piece of the troops regular paychecksnumbers to find new victims. $50 to $200 or more for start-up kits and and often take advantage of their Increasingly, though, state and federalget nothing in return. And BBB recently frequent moves. Whenever you have aregulators, local organizations and theuncovered a scam in which a con art- major mobilization of the armed forces, military are on the alert. Weve 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, Georgias insur-director of BBB Military Line, whichtouching story, combined with a promise ance commissioner, who led a multistate provides consumer education to militaryto 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 flushwas 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 dont make a lot of money.change Commission charged three pro- Collectively, its a big payroll.practices and outright moters in 2008 with allegedly running a Five years ago, Kiplingers Personalscams, and find better real estate Ponzi scheme that cost about Finance magazine revealed that soldiers75 investors an estimated $10 million. had often been pitched investments that deals on the productsMany of the victims were in the military included a whopping 50% sales chargeand services you need. and had been solicited by a member of in the first year. Thats right, half thethe 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 servicemembers nest egg. This was for identity thieves because their Social followed by reports that young service-Heres how to protect yourselfSecurity numbers are everywhere, members were being sold expensive life- from inappropriate sales practices including military ID cards, dog tags insurance policies they didnt need and and outright scams that target militaryand medical cards (the Department of didnt even realize they were buying. families and find far better deals on theDefense 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 changeCriminals 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 theyre deployed. In 2007, the Department of Defense rules have been familys trust. Often these are small-time Federal Trade Commission discovered a passed to help protect military personnel operators who go door to door. In onebrazen ID-theft scam in which the thief, from the bad guys.case, a salesman was peddling phonyposing as a member of the red Cross, But you cant let down your guard:life insurance just before deployment, called a soldiers family members to tell The problems havent disappeared. preying on families fears . . . and disap-them their relative had been injured in Instead, abuses in the sale of insurancepearing 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 claimingfamily 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 contaminatedfamilies who lived on base.more details, which would have been4 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 7. surpassing 400%), used to line the com-mercial strips around many bases. Buta recent law caps payday-loan rates at36% for members of the military on ac-tive duty and their dependents, and hascaused some lenders to close up shop.A few states now ban payday loansentirely.That hasnt stopped some criminalsfrom targeting cash-strapped military per-sonnel with so-called advance-fee loans.Borrowers are told that they are severecredit risks and must make the firstseveral months payments in a lump sum PHOTOGrAPH BY MELISSA GOLDENin advance before the loan can be final-ized. Of course, the advance paymentsimply disappears. BBB gets hundredsof inquiries about this every month, saysPetraeus. What You Can DoHolly Petraeus, with Sergeant Major Rose Matthews, heads the BBB Military Line,Get a 0% loan through a militarywhich focuses on consumer education and advocacy for military families. emergency-relief fund. Contact thecommunity-service office at your base fordetails. At Fort Hood, for example, sol-enough for the crook to open accountsand resources specifically for service-diers can borrow up to $1,000 interest-in the servicemembers name. members and their families (www.bbb. free as often as twice a year through org/military). the commanders referral program. CarWhat You Can Do repairs and other basic needs gener-Check out the company or salesper- Put an active-duty alert on your creditally qualify, and hardship cases may beson with the base community-servicereport. This free alert notifies creditors eligible for more money.office. For example, Army Communitythat youre on active military duty andService at Fort Hood, Tex., has a data-asks them to take extra precautionsJoin a credit union. Credit unions onbase that cross-references complaintsto 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 offerassistance and housing offices on base,phone number of a trusted friend orsmall loans to members of the militaryas well as the local BBB. The bases family member for creditors to call whilewith little or no credit check.legal-assistance office will also help you youre deployed. To place the alert,review contracts before you sign.contact Experian.com, Equifax.com or Boost your emergency fund. Its evenThe Armed Forces Disciplinary Con- TransUnion.com.better to avoid having to take a loantrol Board at each base can blackball for unexpected expenses. Build up ancertain salespeople or companies and Check your credit report. You canemergency fund with at least six monthsprohibit anyone on base from doing busi- generally do this even while deployedworth of expenses in a safe and liquidness with them. Just the threat of being by visiting www.annualcreditreport.com,account, such as a money-market orput on the banned list can often helpwhere you can request a free copy of savings account, so you wont have to goresolve 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 toYou can check a businesss complaint Predatory Lendingtake out loans to cover your expenses,record and get help resolving problems Payday lenders, which make short-you may be dealing with a bigger issuethrough the local BBB (www.bbb.org). term loans against the borrowers next than a short-term emergency. ConsiderBBB Military Line focuses on informationpaycheck (sometimes at interest ratesmeeting with a financial-planning man- Your One-Stop Guide to a Secure Financial Future 5 8. FInancIal Fraud ager on base or a credit counselor whoin collaboration with the Investor Protec- can help you set up a budget, pay downtion Trust (www.investorprotection.org). debt, and prioritize your spending. You can get budgeting and debt help through Unsuitable Insurance the community-service office on baseregulators have levied multimillion-dollar or find a credit counselor through thefines 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 didnt need. on base are required to offer counselingNew rules now ban insurance agentsISTOCKPHOTO/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 youis not voluntary. In addition, agents arent owe creditors; in many cases, the credit permitted to use superiors or officers counselor runs off with the fee, and yourto help sign up service members who debt remains the same. The only thing are junior in rank or grade, and agents thats reduced is your ability to pay it. cant misrepresent insurance policies asSome salespeople pushinvestments. High-Fee Investments high-fee investments The new laws are helping reduce inap- Over the past few years, state andpropriate insurance sales on base. Now, federal regulators have cracked down near base. But you havehowever, sales of inappropriate life-in- on companies that targeted memberssurance products are occurring off base, better savings options. says a report by the Inspector Generals 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 scamsWhat You Can Do and learn more about legitimate finan-and all withdrawals after age 59 areMax out your military life insurance cial-planning strategies. tax-free, as long as youve had a roth forfirst. 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 militarys 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 asalso 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 ofGulf region can deposit up to $10,000 ance product, and its a great price, says better legitimate savings options.into a special account that pays 10% perGeorgias 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 brokers record. Before do- licensing, complaints and disciplinary ac- even add all of your tax-exempt pay ing business with a broker, use FINrAs tions. Make sure the policy youre being while serving in a combat zone, as long BrokerCheck tool (http://brokercheck. offered doesnt have a war exclusion. as your total contributions dont exceedfinra.org) to get information on a brokers 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 andat the base. Find links to your insurance Make the most of a Roth IRA. You cancompany 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 $1,000 if youre 50 or older) even if all securities regulators offer programs to ciation of Insurance Commissioners Web of your income is tax-exempt pay from a help military families, such as Californiassite (www.naic.org). The NAICs www. combat zone. You can withdraw contribu- Troops Against Predatory Scams (TAP$) InsureUonline.org also offers insurance tions at any time tax- and penalty-free,and Floridas Investor University on Base,advice for members of the military. 6KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 9. 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 youre healthy, you can usually get an inexpensive term-insurance policy with a fixed premium for 20 or 30 years. If youre 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. Its much better to get turned down in the beginning than to have a U.S. NAVY PHOTO BY JACOB SIPPEL claim rejected because you didnt 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 youre about to be deployed.You can convert your SGLI policy into a ning decisions are throughoutyour 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 youve taken years to build. Military Servicemembers Group Life Insur- after discharge from the military. During personnel face unique risks especiallyance (SGLI) covers all of those special the first 120 days, you can qualify for when theyre deployed but they also needs and costs only 6.5 cents perVGLI 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 youre healthy, protect their savings and their families. a year for the maximum $400,000. Theyou may find a much better deal on your Its up to you to make the most of theseprice is the same regardless of yourown. But VGLI may be your best bet if resources.age or your health. You can also getyou have a medical condition that would $100,000 in coverage for your spousecause private insurers to hike your pre- Life Insuranceand up to $10,000 for each of yourmiums 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 financialDepartment of Veterans Affairs SGLI Web Save on Taxes trouble if you could no longer providesite (www.insurance.va.gov/sgliSite/Members of the military receive special for them. Needless to say, the need default.htm). Because its such a goodtax benefits, such as a tax-free housing al- becomes much more pressing if youredeal, 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 cant just buy anyBut 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 needeven more: Take advantage of the leeway exclusions or charge high rates if youmore than the maximum anyway espe-you have when it comes to choosing the plan to travel to a foreign country, making cially if youre 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 dont pay them, if you become a residentYour One-Stop Guide to a Secure Financial Future 7 10. Be prepared of an income-tax-free state). a post-military job, which may be subjectpay such as if you had to take a payWhen youre in the military, you can to state income taxes that you didntcut 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 youre stationed else- Guard. This rule applies only to debts where; or you may be able to switch yourSpecial 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 plannera 1940 law that was recently updated while on active duty. To qualify, you need Patrick Beagles colleagues who wentgrants special legal rights to reservists, to send your lender a written request to flight school in Florida switched theirmembers of the National Guard andand a copy of your mobilization orders. residency to that state, which doesntactive-duty military personnel.For more information about your legal have a state income tax, while they wereFor instance, you have the right torights, visit the legal-assistance office on living there. And they continued to keepterminate 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 remainedor are deployed to a new location for 90 law.af.mil/index.php for contact informa- in the military, even if they moved todays or more. You can terminate a cartion) or the U.S. Department of Justice another state later.lease without an early-termination fee ifservicemembers and veterans rightsYou cant pick a state just becauseyou 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 toest rate on a mortgage, credit card, car Preparing to Deploy one of the seven states that dont 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 toopportunities: Your paychecks will be South Dakota, Texas, Washington and Wyoming) or one of the two that taxes only interest and dividends (New Hamp-Q aprotect Your Identity While Youre deployed shire and Tennessee). You generally have to be living in the state when youI am in the Army and am about to you susceptible to ID theft while establish residency there, and intendbe deployed. Should I put an active- youre 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 drivers license, registering three credit bureaus (Experian.com, your car and registering to vote in that Thats a great idea. An active-dutyEquifax.com or TransUnion.com), state are usually signs of intent, but the alert can protect you from identitywhich will notify the other two. Youll rules vary by state. The state departmenttheft, which is particularly important generally find the information in the of revenue and the legal-affairs officewhile you are deployed and willsection of the bureaus Web sites on base can answer questions about have a tough time monitoring yourthat focuses on fraud alerts. the states residency rules. If you switch mail and accounts. The alert is free and will not affect residency, be sure to change your payAn active-duty alert notifies credi- your ability to use credit while youre records, too, so you dont have taxestors that youre on military activedeployed. It just helps to prevent ID withheld for the wrong state.duty and asks them to take extra thieves from taking out new credit inOne caveat: Military spouses are gen- precautions to verify the identity your name. erally considered to be residents of the of the applicant before extendingIf youd like extra protection, state where they are currently living and, credit. Include the phone number ofconsider a credit freeze. The cost if employed, must pay taxes there, evena trusted friend or family membertends to be $10 per bureau ($30 for if the servicemember remains a residentfor creditors to call and verify yourall three) to place and lift a credit of another state. This can add a level ofidentity while youre inaccessible (be freeze, but the freeze does prevent complexity at tax-filing time, but mostsure to give them a heads up thatpotential creditors from access- state tax forms have special instructionsyouve chosen them). ing your credit report without your to help members of the military and theirThis alert stays on your creditpermission. spouses figure things out. file for one year and also lets youAlso review your credit-card andAfter you leave the military, youllopt out for two years of promo-bank accounts online if possible generally need to file taxes in the statetional mail such as preapprovedwhile deployed, so you can catch any where you actually live. Keep this in mind credit-card offers that could leavesuspicious activity before you return. when calculating your income needs for8KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 11. higher when you receive tax-free incomepaid automatically from your checking in a combat zone, and you have accessaccount or to pay them online. Find out to extra savings programs that help youhow to access your bank account and stretch your money even further. But itscredit-card records while deployed, so also important to take some key stepsyou can catch any errors before you to protect your money while youre return home. gone from identity thieves, unexpected events, and bills you cant control whileContact your service providers. If your away from home. The more you do to family wont be using your cell phone, prepare ahead of time, the better youll cable, Internet, phone or other servicesISTOCKPHOTO/SHErrI NEWILL be able to protect your family and yourwhile youre gone, be sure to let the ser- finances while you are deployed. vice providers know. Many have specialrules for deployed servicemembers. For Gather key estate-planning docu- example, some cell-phone companies al- ments. Make sure your estate-planninglow customers in the military to suspend documents are up to date. If you haveservice for up to 18 months, with no sus- children, its important that you have pension fee, if they are sent to an area a will that names guardians for yourDeployment can bring not served by that provider. They can children as well as spells out what is tothen have their cell-phone number and happen to your property. This becomesfinancial opportunities.rate plan reinstated when they return. critical, of course, if youre about to But its also importantThe rules vary by company, so contact deploy. You can draw up a medical direc- your provider for details. tive, which authorizes a family member toto take some key steps Make sure bills dont accidentally pile make medical decisions on your behalf to protect your moneyup while youre away, which can build if youre incapacitated. The JAG legal-up late fees and cause serious credit affairs office on base can handle most while youre 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 youre being deployed and need additional help if you have childrenso make sure yours is still up to date if let the company know if other family from a previous marriage, children withyoure about to be deployed again. Themembers may be driving your car while special needs or other complicatinglegal-affairs office on base can draft this youre gone. You may get a discount if circumstances. document, too.the car isnt used for commuting.If youre putting your car in storage, Grant a power of attorney. One of theUpdate beneficiary designations. Theyour state may not allow you to drop most important documents to have inbeneficiary designations on insurance auto-insurance coverage unless you place when youre deployed is a powerpolicies and retirement accounts super- hand in your license plates. But you can of attorney, which gives your spouse orsede your will. So, if your will says yourcut your premiums in half or more by another trusted family member or friendspouse gets everything, but your mother lowering your liability coverage to the authority to handle your finances whileis the beneficiary on a life-insurancestate minimum and dropping collision youre gone. policy, Mom will get the proceeds fromcoverage, says USAAs 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 retirementfor contact information) about the specific financial transactions. Or you can use a accounts are up to date, especially ifrules in your state. Keep comprehensive power of attorney for specific transac-youve gotten married, remarried or had coverage, which will pay out if your car tions, such as if youre planning to buy a child in the past few years.is damaged or stolen while in storage. a house or car while youre deployed.You can lower the rate by raising your Since this document hands off controlAutomate your bills. If you dont have adeductible. of your finances, be very careful aboutspouse or family member at home to pay whom you name. A power-of-attorney your bills, make it as easy as possible toGet 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 remainsYour One-Stop Guide to a Secure Financial Future 9 12. Be prepared in your home, then you dont need to change your homeowners insurance. But if youre renting out the house while youre gone, contact your insurer and ask about your options. If you arent 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 youre putting possessions in storage while youre 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 dont Sign up for the Savings ahead to determine how much money need to file an income-tax return whileDeposit Program andyou can afford to invest and find out youre deployed to a combat zone. Inthe steps youll need to take. The tax- fact, you and your spouse can file upearn 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 youre 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 extendeddfas.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 its 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 areploy. Try to build up at least six monthsplanner Beagle recommends putting due a refund. You can give a spouse orworth 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 youre or savings account. You want the moneyin 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 Formyour spouse for any emergency homeplus 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). Forof 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 WebProgram. 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 youre services on base can help with tax issues.theyre deployed. You can invest up toaway. 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. Itsgram and earn 10% per year in interest, trusted family member or friend. always important to have an emergency guaranteed, until three months after youFor help getting your information fund so your family wont land in debtleave 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 13. hOMe SWeet hOMe Smart Home-Buying Tacticsor many families, their largest Finvestment is their home. Buthome 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 youre 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 ofPHOTOGrAPH 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 cant 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 youll learn about the neighborhoods and can pick the best expenses. Dont forget to include thelowance may be more or less than youre 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 yearswhen 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 youll also recommends limiting housing costsance 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 wont get the tax-free housing pay, so you wont struggle with monthly you move to a new area, your housing al- allowance anymore, you may have toYour One-Stop Guide to a Secure Financial Future11 14. hOMe SWeet hOMe pay state income taxes for the first time, Should you take advantage of specialcounties; 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 ofpersonnel, as well as certain veterans, VA loans are made by private lenders a concern when youre 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 Administrationbe particularly valuable for people who culating your expenses, and build up a loans, which generally allows them to dont have the money to make a 20% bigger emergency fund to help you payborrow up to $417,000 with no downdown 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 puzzleI am currently servingMeanwhile, use $9,000 want to spend on a houseefits making the moneyin Iraq and will be com-of the bonus to pay off in the next few years in thetax-free going in and tax-ing home soon. I recently your credit-card debt.stock market. Investing in free coming out. You canreenlisted in the ArmyGetting rid of those inter- the stock market is just forinvest long-term money inand received a bonus of est payments will make it money that you wont need a diversified portfolio of$29,000, and I have extra easier to reach your otherfor at least three to fivestock and bond funds. Ormoney from my tax-freegoals and having a loweryears, says Brooke Salvini,you can put it in a target-income and combat pay balance could also improvea CPA and financial adviser date fund, which investswhile deployed. Where is ayour credit score and helpin San Luis Obispo, Cal.your money in a portfoliogood place for the money? you qualify for a betterIf you take a VA loan of funds to match yourIm paying 7.9% in interest mortgage rate.and dont need a down time frame, then graduallyon a $9,000 credit-card Then use some of thepayment, add some of theshifts to more conservativebalance, but my main goal remaining money to buildmoney to your emergency investments as your with-is to support an upcoming up your emergency fund, fund youll probably need drawal date gets closer.down payment for a home which can help you avoidcash for an earnest-money If youre worried aboutand long-term investments.landing in more debt if deposit on the home and timing your investmentsyou have any unexpected closing costs, and its a during a volatile market,Its such a great idea to expenses. Advisers gener- good idea to have extra consider using dollar-costplan for the bonus whileally recommend keepingmoney for unexpectedaveraging to invest a por-youre still deployed. That at least six months of ex-costs, because you wonttion of the extra moneyway, you can take ad- penses in a money-markethave home equity to tap inwith each paycheck; dollar-vantage of the militarys or savings account that you emergencies. Homeowners cost averaging buys moreSavings Deposit Program,can access in an emer-with VA loans can alwaysshares when prices are lowwhich lets you invest up to gency or more if you canadd money to their pay- and fewer when theyre$10,000 in an account thatafford it, especially whenments to pay extra prin-high. Or you could breakearns 10% per year. Interestyou buy a home. cipal without penalty a your investments intostops accruing 90 daysAfter the money in thegood way to build instant three sections and investafter you leave the combatmilitary Savings Depositequity. one-third of the bonuszone, and the interest is Program stops earning Once you have a cashmoney every six months,taxable when the money is interest, you can put somecushion, add some of thea strategy that Dan Joss, awithdrawn.of it toward the down pay-extra money to your retire- certified financial plannerTry to keep the maxi- ment on a house. You canment nest egg, investingin Fairfax, Va., calls di-mum in that account asbuy bank or credit-unioneither in your Thrift Savings versifying by time. Jossslong as it continues to earncertificates of deposit orPlan or a Roth IRA. Since reasoning: You wont knowinterest, which will give you other short-term invest-part of your income for whether stock prices havea much better return than ments to match your home- the year was from tax-freebottomed until sometimeany other short-term sav- buying time frame. Butcombat pay, the Roth will after the fact, so hedgeings option.dont risk the money yougive you extra tax ben- your bets. 12 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 15. gage insurance, which usually costs 0.5%Gary ended up getting a VA loan, andMost homeowners need to live in a to 1% of the loan amount each year. Forbecause he didnt 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 foryoure single, or up to $500,000 tax-free va.gov). moving expenses, closing costs, mainte- profit if youre 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, checkthe 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 reportForces 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 andhelp cover your mortgage and other ex- their spouses can also get a free Bright- Special tax rules arepenses if you dont 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 toA 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 youwhen 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 Fairhard times hit their tenant, and the pay- Isaac, which developed the credit scorements 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 youring upside down that is, owing more rental market with other homes and mak- familys circumstances and other poten-on their home than they could get bying 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 Armyyou 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 isnt an option for Sackets Harbor, N.Y., near Fort Drum,ing up their emergency fund to hold atmilitary families who have moved), Wal- where he had been stationed. Gary andleast six months worth of living ex- bert recommended that they downsize: his wife, regina, were anxious to buypenses. 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 fundsthey knew they could afford and sell the with 2-year-old son, Sammy, and newfor the kids or paying extra principal on bigger house. baby, Joe. the mortgage. One thing I learned atWalbert says that building an emer- Although Gary qualified for a VA loanWest 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 leftconfidence and momentum. been a smart move. Then, if it wasnt the Army, he was earning extra money atrented 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 youre 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 payand rent it out? Special tax rules help larly important if youre stationed in a down $18,000 in credit-card debt or save military families who do plan to rent their new city and dont 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 Future13 16. tranSItIOn Time to Become a Civilian Againhe shift from military to civilian If you have a preexisting condi- after you leave the military, which yout 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 upmay prefer if youd like different investingoptions. 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 youll receive andsimilar to the COBrA benefits availablethat had been made with tax-free combat resources available to help.to civilians who leave their jobs. You pay, so you dont end up paying tax onBut youll also need to make somehave 60 days after you leave the militarythat amount when you withdraw the important personal-finance decisions to to enroll in CHCBP, which has similarmoney 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 soundper quarter for individuals or $1,996 perGet ready for state income-tax transition. quarter for families. If youre 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 buyare eligible for VA health care. sure to crank the extra cost into your supplemental medical insurance. Butpost-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. Youll no longer have a tax- health insurance, youll 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 tothe military, which means youll need addition to out-of-pocket expenses youVeterans Group Life Insurance (VGLI). to earn a higher income to end up with didnt have before, such as deductibles,Again, if youre 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 onmay 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 andout 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 policyaround 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 familyyou have time to get VGLI coverage if youtake a civilian job, which may be much coverage); people with single coveragedont find a better option. For quotes onmore susceptible to layoffs. Keep at can make tax-deductible contributions ofindividual 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 theva.gov/sgliSite/vgli/vgli.htm. Reassess your retirement savings. funds tax-free to cover out-of-pocketWhen youre close to leaving the military, medical expenses including that big de- Make smart decisions about youryoull have a much better handle on how ductible on your health plan. Money you Thrift Savings Plan. You can keep themuch of a pension and other benefits dont use remains invested in the account.money growing tax-deferred in the ac-youll 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 youll need to save to reach your retire- can use it penalty-free for anything (youllexpenses are so low. Or you can roll itment goals (the savings calculators in the owe taxes) after age 65.into a new employers 401(k) or an IrA tools section at Kiplinger.com can help).14 KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 17. your money in the next two years. Evenif youre 65 or older, ritter recommendskeeping about 55% of your retirementsavings in a diversified portfolio of stocksand stock mutual funds.The first step, though, is for retireesto keep as much as two years worth ofexpenses in cash, such as in a money-market account or short-term CD.You might not need quite that much ifyou have sources of guaranteed income(such as robert Parsonss military pen-sion and the couples Social Securitychecks). In fact, they dont plan to taptheir IrA until theyre required to at age70 . And because robert is a retiredmember of the military, TrICArE for Life PHOTOGrAPH BY MArK PETErSON/rEDUxhelps fill the gaps in Medicare and low-ers the couples out-of-pocket costs.retirees who arent as fortunatecan bolster their depleted savings bywithdrawing less money than they hadoriginally planned. One common guide-line recommends withdrawing 4% of yoursavings in the first year of retirement, Robert Parsonss military pension from 26 years as a Navy air-traffic controller isthen 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 tokeep pace with inflation. But in a downmarket you may need to base your 4% Doing this calculation right before the was driven home with a vengeance bywithdrawals 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 torobert Parsons, 67, retired in 1985balance, 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 wont 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 hiswork 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 mightThe military community-service officejust a few weeks during the 2008 marketalso get you an employee discount. on your base and the Army Career andmeltdown, he was confronted with the In addition, working at an extra job for Alumni Program (www.acap.army.mil), orneed 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 retirementyou delay taking Social Security. And for offer valuable resources to help with the nest egg take a beating in your sixties, iteach 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 orincreased by 8% for the rest of your life. several months or more before you 30 more years, so its no time to panicIf you qualify for $1,600 a month at age leave the military. and abandon the fundamentals. You66, 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 Retirementbut you also need growth via the stock by about $500 a month (see the retire- Even if you have a military pension, youll market over the long term, says Stuart ment Estimator at www.socialsecurity. need to decide how to invest the rest ofritter, a certified financial planner in gov). Future cost-of-living increases would your money after you retire a point thatBaltimore. You are not going to use all ofadd to that higher base. Your One-Stop Guide to a Secure Financial Future15 18. 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-financeMyArmyBenefits (http://myarmybenefits. Investor Protection Trust (www.topics, from saving and investing to insur-us.army.mil), includes information about investorprotection.org). The site is ance, taxes and financial planning.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 governmentresources 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, andSavings Plan for military personnel. U.S. Department of Justice service- other valuable information for investors. members and veterans rights pageMilitaryPay (www.dfas.mil/militarypay. (www.servicemembers.gov) provides The Securities and Exchange Com- html) includes information about militaryinformation about special legal rights of missions 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 salesClearPoint 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 familiescialist at 877-465-2227 or go to www.prepare for deployment. SaveandInvest.org alerts militaryClearPointCCS.org/military, or meet in families to active scams, includes adviceperson at their offices near military basesNational Military Family Association on saving and investing, and providesin 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 aboutnaic.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 strategiesbers 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 programshouse for information related to all things during Military Saves week (the last weekmilitary, including deployment, legalArmy (www.MyArmyLifeToo.com) in February).rights and finances. Air Force (www.afcrossroads.com, Department of Veterans Affairs SGLIArmed 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 Lifetary and includes contact information for Insurance. legal-assistance offices at nearby bases.Marine Corps (www.usmc-mccs.org)16KIplInGer-BBB perSOnal FInance GuIde FOr MIlItarY FaMIlIeS 19. OrGanIze YOurSelFBelieve 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 its needed. Emergency Contact Info Personal ContactEmployer ContactName:Street Address:City, State, Zip:Phone:E-mail:BanksChecking Savings Location ofLogin forBank Name Account Number Account NumberStatements Online Banking LoansBank Name Account NumberMonthly Payment Due DateLocation of Statements Credit CardsIssuer Name Account NumberPayment Due DateLocation of Statements InvestmentsFinancial Institution Type of InvestmentAccount NumberLocation of Statements Insurance PoliciesCompany/AgentType of Policy Premium Due DatePolicy NumberLocation of Policy Legal Information Location, including additional information such as the executor or attorneyWillPower of AttorneyPassportMarriage CertificateDivorce/Separation Papers 20. About KiplingerKiplingers Personal Finance magazine has been providing millions ofAmericans with down-to-earth advice on managing their money and achievingfinancial security since 1947. Along with Kiplinger.com, it is a highly trustworthysource 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 LineBBB Military Line is a program of the BBB Center, a 501(c)(3) organizationaffiliated with the Council of Better Business Bureaus, Inc. The BBB Centerseeks to foster consumer trust and business ethics in North America and theevolving international marketplace. The BBB Center produces independentresearch and analyzes issues that impact consumer trust, as well as developingeducational material for consumers. http://us.bbb.org About the SponsorsThe Investor Protection Trust (IPT) is a nonprofit organization devoted toinvestor education. More than half of all Americans are now invested in thesecurities markets, making investor education and protection vitally important.Since 1993 the Investor Protection Trust has worked with the states and atthe national level to provide the independent, objective investor educationneeded by all Americans to make informed investment decisions. The InvestorProtection Trust strives to keep all Americans on the right money track.The Investor Protection Institute (IPI) is a nonprofit organization thatpromotes investor protection by conducting and supporting research andeducation programs.A variety of non-commercial investor education and protection materials,including booklets, video and curriculum, are available and can be downloadedfor 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 SOLUTIONSFoundation for Credit Counseling and a system-wide member of the Better Business Bureau.Credit Counseling You Can Trustwww.ClearPointCCS.org/military The Defense Credit Union Council is a nonprofit association, supporting the interests ofdefense credit unions that operate on military installations worldwide. By maintaining a closeand constant liaison with the Pentagon, DCUC assists the Department of Defense and itsmember credit unions in coordinating policy, procedures and legislation, as it relates to financialreadiness, morale and welfare, and the delivery of quality financial products and services to thetroops and their families. http://www.dcuc.org