Financial Management

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Nov 10, 2013 (3 years and 10 months ago)

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Financial

Management

Larry Diddlemeyer

Captain, US Navy (Ret)


The USAA Educational
Foundation


Does not endorse or promote any commercial
supplier, product or service, nor does DOD

or the U.S. Coast Guard.


This is an educational presentation only.


All examples are for illustrative purposes only.


Guide to Financial Management
is a “take
home” tool
.


2

A Nonprofit Organization

Financial Security



1.
Protecting Yourself


2.
Managing YOUR Money


3.
Planning for the Future




37

Insurance

38

Parts Of An Auto Policy


Liability


Medical expense



Uninsured/underinsured motorists


Comprehensive


Collision

Price vs. Liability Limits

43A



2010 Honda Accord



6
-
month premium



23
-
year
-
old male with 7 years driving experience



Minimum coverage, clean driving record



$500/$1000 deductible


VA requires: 25/50/20

$860
(s) /
$688
(m)


$1027
(s) /
$819
(m)

$1099
(s)/
$875
(m)



15/30/10


100/200/50

300/500/100


Location: San Diego, CA

Version A

Price vs. Type Of
Vehicle



Both 23 years old


Male


Female

2010 Chevrolet Corvette

$750


$596

2010 Honda Accord

$596


$477





45A



6
-
month premium



Jacksonville, Florida

Version A

Price vs. Driving Record

46A

Location: Ft. Benning, Georgia



2010 Honda Accord



6
-
month premium



23
-
year
-
old male



Minimum coverage



$500/$1000 deductible

$631


Clean

$861

2 tickets

$1178


2 accidents

$1749

Drunk

Driving

Version A

Renters Property Insurance

A type of homeowners insurance that covers your
personal property and your personal liability (including
your pets) WORLDWIDE.


Covers you and your possessions in an apartment, a
condo, a rented house, government quarters, the
barracks and even on a ship.


Three out of four people do NOT have this coverage, but
if you move, keep items in storage or in your car, you
NEED it.

Renters Property
Insurance


Covers property


Stolen


Damaged by fire, vandalism, lighting, hail,
wind, smoke, explosion, power surge etc.


Average annual premium: $150

$200


Named Perils vs. All Risk


Actual Cash Value vs. Replacement
Cost


48

Renters Liability
Insurance


Pays others for:



Damages you cause



Injuries you cause

49

Life Insurance


Covers your debts


Funeral expenses


Outstanding bills


Provides income source for your survivors


SGLI
may

be enough: $400,000


Spouse coverage:

$100,000 SGLI


Children Coverage: $10,000 per child


50

Active Duty Survivor Benefits

47A/B

0

Version A/B



Dependency and Indemnity Compensation (DIC)



Spouse receives for life (unless remarries prior to age 57)



Child receives until age 18 (23 if in school)



Tax
-
Exempt



Survivor Benefit Plan (SBP)



No cost while on active duty



Benefit is 55% of Base Amount (75% of High 3 Average)



Spouse receives for life (unless remarries prior to age 55)



Reduced by Amount of DIC for Spouse



Taxable



Social Security Survivor Benefits



Based on service member’s earned income



Spouse receives until youngest child is age 16



Child receives until age 18 (19 if in school)



May be taxed or reduced depending on other sources of income

Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may b
e m
odified,
reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

0
-
3 / 8 YOS



Dependency and Indemnity Compensation (DIC)



$1195/month to spouse

$ 1195



$296/month to each child

$ 296



Survivor Benefit Plan (SBP)



$1,675/month reduced by DIC ($1195)

$ 480



Social Security Survivor Benefits



$1,153/month to spouse

$ 1,153



$1,153/month to each child

$ 1,153

Total:


$ 4,277/month


or



$51,324/year



47O

0

Version O

Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may b
e m
odified,
reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Wills and Powers of
Attorney

15

Credit Card Debt


Americans owed $1.1 trillion on credit
cards/revolving credit accounts (in 2009)


Average balance = $9,000 for each family


Yearly interest paid > $3,000





17



How To Get Out Of Debt



Get rid of all but lowest
-
rate credit card



Use credit card only for emergencies



Pay highest interest rate debt first



Get free credit advice



Use debit card instead of credit card


AVOID PAYDAY LOANS


18

National

Credit Bureaus


Equifax 800
-
685
-
1111


www.equifax.com


TransUnion 800
-
888
-
4213


www.transunion.com


Experian 888
-
397
-
3742


www.experian.com



Credit

Reporting

Agencies

18


Free Credit File Disclosure (Credit report)



Once every twelve (12) months from
each agency


www.annualcreditreport.com


1
-
877
-
322
-
8228



Will not include your Credit Score





Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

22


Saving

And

Investing



4





Social Security Survey


52% have only Social Security


Median Income: $18,778


Sources of retiree income:


23% from a job


18% from pensions


18% from assets




Income Of Americans

Over Age 65

5

Making A Million
… By Age 65

Assumes 10% compound total return, slightly less

than the S&P average for the past 75 years.





7

$2,500

$1,500

$2,000

$500

$1,000

Monthly Investment Required

Age

20

25

30

35

40

50

$95

$261

$439

$748

$2,393

$157

Assumes 10% compound total return, slightly less

than the S&P average for the past 75 years.





8

$250K

$150K

$200K

$50K

$100K

One
-
Time Investment Required

Age

20

25

30

35

40

50

$13K

$35K

$57K

$92K

$239K

$22K

Making A Million
… By Age 65

Increasing The

Rate Of Return

Starting at 20 years of age, savings at age 65



$4M

$3M

$2M

$1M

$500K



6%
8%
10%
12%
14%
$50/Mo.
$100/Mo.
$277K

$139K

$531K

$268K

$1.06M

$529K

$2.17M

$1.08M

$4.54M

$2.27M

9A

Version A

11A

Rule Of 72

72

10%

=

45

7.2

=

45

6

=

72

12%

=

72

% rate

=



Years until



$ Doubles








7.2 years






6 years

Age 20 to 65
=

45 years








Doubles 6.25


times





Doubles 7.5


times

6

Financial Goal Setting


Time


Needs/Wants


Affordability


Family Involvement

7

Start Now


Have a budget


Spend less than you make


Pay yourself first


Save 15% of your net pay


Save regularly


Allotment or Direct Deposit


Set up an emergency fund


3

6 months living expenses

23

Low
-
Risk Investments


Insured


Savings accounts


Certificates of deposit


Money market deposit accounts


Not Insured


Money market mutual fund accounts


Backed by “full faith and credit of the
United States”


U.S. savings bonds


U.S. Treasury bills


24

Higher
-
Risk Investments


Corporate bonds


Municipal bonds


Stocks


Real estate


Mutual funds

25

Mutual Fund
Advantages


Diversification


Liquidity


Flexibility


Professional management


Dollar
-
cost averaging


29

Load And No
-
Load
Funds


Load Funds


Sales charge paid to the investment professional


Only part of principal invested


Front
-
end when buying


Back
-
end when selling


Contractual plans


10
-
25 year contract requiring scheduled contributions


Typically up to 50% 1
st

year sales charge; none in

subsequent years



No
-
Load Funds


No sales charge


100% principal invested

Load, Contractual Plans,

No
-
Load Mutual Funds





Savings over 25 years, $100/month, 10% return

$132,683

$118,719

$126,049

Total

30,000

27,841

28,500

Total Invested

100

100

100

Monthly
Investment

0

2,159

1,500

Sales Charges

$30,000

$30,000

$30,000

Total Payment

No
-
Load

Contractual

Load

31


Individual Retirement Accounts (IRAs)


Traditional


Roth


Thrift Savings Plan (TSP)


ROTH TSP (est. June 2012)

Tax
-
Relief Accounts

26

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Traditional IRA


$5,000 maximum contribution


May be tax
-
deductible based on income

and coverage by retirement plan


Taxed
-
deferred accumulation


Taxed upon withdrawal


May withdraw at age 59
1
/
2

without 10% penalty


Must start required minimum distributions

by age 70
1
/
2



Some penalty
-
free withdrawals prior to age 59
1
/
2




31

Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may b
e m
odified,
reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

32

Roth IRA


$5,000 maximum contribution


NOT tax
-
deductible


Tax
-
deferred (and potentially tax
-
free)
accumulation


Tax
-
free, penalty
-
free qualified withdrawals

after 5 years and either


Age 59
1
/
2

and older


First
-
time home purchase


Disability or death


No mandatory age requirement to withdraw
money


Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may b
e m
odified,
reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.


Tax
-
Deferred (Pay tax when withdrawn)


Contributions made while in a combat zone are never
taxable and do not count against your elective
deferral limit ($15,500 in 2008.)


Total contributions including matching contributions
and tax
-
free combat zone pay are currently limited to
$46,000/year (IRC Sec. 415)


Earnings on contributions made in a combat zone are
taxable when withdrawn



59 ½ for normal withdrawal


Financial hardship withdrawals available


28

Thrift Savings Plan (TSP)

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Fund


Type Investment

Risk Level

Potential Return


G


US Government Securities None



Low/Moderate





F


Bonds




Moderate


Moderate




C


Stocks


Large US


Moderate/High


High




Companies




S


Stocks


Small and medium

High



High




size US Companies




I


Stocks


Non
-
US Companies

High



High

Thrift Savings Plan (TSP)

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

5

Thrif

t Savings Plan L Funds

G
-
Fund

F
-
Fund

C
-
Fund

S
-
Fund


I
-
Fund

L 2040

42%

18%

5%

25%

10%

L 2020

34%

12%

8%

27%

19%

L 2010

27%

8%

7%

43%

15%

L Income

12%

3%

74%

5%

6%

L 2030

38%

16%

21%

9%

16%

2006 = 16.53%

2006 = 15.00%

2006 = 13.72%

2006 = 11.09%

2006 = 7.59%

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.


Withdrawal Options at Separation


Single Payment (10% tax penalty if before age 59 ½ )


Automatic if balance is less than $200


Monthly Payments (10% tax penalty if before age 59 ½ )


You decide on dollars/month or number of monthly payments


Life Annuities



Single Life


Joint life with spouse (50% or 100%)


Spouse entitled to Joint and Survivor with 50% survivor benefit


Joint life with someone other than your spouse (50% or 100%)


Must have an insurable interest


Mandatory distributions starting at 70 ½


Traditional IRA or 401(k) Rollovers are available



Thrift Savings Plan (TSP)

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

www.tsp.gov



Select from

Uniformed Services

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may b
e m
odified,

reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

35A

Start Saving Early

Saved $250 every month at 10% interest

Contributions
Value at 10 yrs.
Value at Age 65
$856,347

$1,513,024

$102,000

$30,000

Jones

Age 31

65

35 Years

Smith

Age 21


30

10 Years

$51,211

Totals at

age 65

Version A

People Do Not Plan To Fail


They Just Fail To Plan.

53