Financial Management

Larry Diddlemeyer Captain, US Navy (Ret)

The USAA Educational Foundation

A Nonprofit Organization

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.
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Financial Security
1. Protecting Yourself

2. Managing YOUR Money

3. Planning for the Future

Insurance

37

Parts Of An Auto Policy

Liability Medical expense Uninsured/underinsured motorists Comprehensive Collision

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Price vs. Liability Limits

$860(s) / $688(m) 15/30/10 $1027(s) / $819(m) 100/200/50 Location: San Diego, CA $1099(s)/$875(m) 300/500/100

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
Version A
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Price vs. Type Of Vehicle

Both 23 years old

2010 Chevrolet Corvette 2010 Honda Accord

Male $750 $596

Female $596 $477

6-month premium Jacksonville, Florida

Version A
45A

Price vs. Driving Record

$631
Clean

$861
2 tickets

$1178
2 accidents

$1749
Drunk Driving

Location: Ft. Benning, Georgia 2010 Honda Accord 6-month premium 23-year-old male Minimum coverage $500/$1000 deductible
Version A
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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
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Renters Liability Insurance Pays others for:

Damages you cause Injuries you cause

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Life Insurance
Covers your debts
Funeral expenses Outstanding bills

Provides income source for your survivors SGLI may be enough: $400,000

Spouse coverage:
Children Coverage:

$100,000 SGLI
$10,000 per child
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Active Duty Survivor Benefits

Dependency and Indemnity Compensation (DIC)

Survivor Benefit Plan (SBP)

Spouse receives for life (unless remarries prior to age 57) Child receives until age 18 (23 if in school) Tax-Exempt No cost while on active duty 0 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 Based on service members 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 be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Social Security Survivor Benefits

Version A/B

47A/B

0-3 / 8 YOS
Dependency and Indemnity Compensation (DIC)
$1195/month to spouse $296/month to each child $ $ 1195 296
480

Survivor Benefit Plan (SBP)

$1,675/month reduced by DIC ($1195) $
0

Social Security Survivor Benefits

$1,153/month to spouse $1,153/month to each child $ 1,153 $ 1,153

Total:
Version O

$ 4,277/month or $51,324/year
Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

47O

Wills and Powers of Attorney

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

15

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
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National Credit Bureaus

Equifax TransUnion 800-685-1111 www.equifax.com 800-888-4213 www.transunion.com 888-397-3742 www.experian.com

Experian

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Credit Reporting Agencies

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

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Saving And Investing

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Social Security Survey

Income Of Americans Over Age 65

52% have only Social Security
Median Income: $18,778

Sources of retiree income:

23% from a job 18% from pensions 18% from assets

Making A Million By Age 65

Assumes 10% compound total return, slightly less than the S&P average for the past 75 years.
$2,500

$2,393

$2,000
$1,500 $1,000 $500 Age

$748 $95
20

$157
25

$261
30

$439
35 40 50

Monthly Investment Required

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Making A Million By Age 65

Assumes 10% compound total return, slightly less than the S&P average for the past 75 years.
$250K

$239K

$200K
$150K $100K $50K Age

$92K $13K
20

$22K
25

$35K
30

$57K

35

40

50

One-Time Investment Required

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Increasing The Rate Of Return

Starting at 20 years of age, savings at age 65 $4M
$3M $2M $1M $500K
$277K $139K
6%
Version A

$4.54M $2.27M $2.17M $1.08M $531K $268K $1.06M $529K

8%

10%

12%

14%
9A

$50/Mo.

$100/Mo.

Rule Of 72
72 = Years until % rate $ Doubles
Age 20 to 65 = 45 years

72 = 7.2 years 10%

72 = 6 years 12%

45 Doubles 6.25 = times 7.2

45 = Doubles 7.5 6 times

11A

Financial Goal Setting

Time Needs/Wants Affordability Family Involvement

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

36 months living expenses
7

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

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Higher-Risk Investments
Corporate bonds Municipal bonds Stocks Real estate Mutual funds

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Mutual Fund Advantages

Diversification Liquidity Flexibility Professional management Dollar-cost averaging

25

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% 1st year sales charge; none in subsequent years

No-Load Funds
No sales charge 100% principal invested
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Load, Contractual Plans, No-Load Mutual Funds

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

Total Payment Sales Charges Monthly Investment Total Invested Total

Load $30,000 1,500 100 28,500 $126,049

Contractual $30,000 2,159 100 27,841 $118,719

No-Load $30,000 0 100 30,000 $132,683

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Tax-Relief Accounts
Individual Retirement Accounts (IRAs)
Traditional Roth

Thrift Savings Plan (TSP) ROTH TSP (est. June 2012)

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

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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 591/2 without 10% penalty Must start required minimum distributions by age 701/2 Some penalty-free withdrawals prior to age 591/2
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Copyrighted material of The USAA Educational Foundation, 2004. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

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 591/2 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 be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

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Thrift Savings Plan (TSP)

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 for normal withdrawal

Financial hardship withdrawals available

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

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Thrift Savings Plan (TSP)

Fund
G F C

Type Investment
US Government Securities Bonds Stocks Large US Companies Stocks Small and medium size US Companies Stocks Non-US Companies

Risk Level
None Moderate Moderate/High

Potential Return
Low/Moderate Moderate High

High

High

High

High

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Thrif t Savings Plan L Funds

12% 18% 25% 5% 10% 42% 38% 9% 16% 21% 34% 16% 8% 27%

19%

L 2040 2006 = 16.53%

G-Fund F-Fund C-Fund S-Fund I-Fund

L 2030 2006 = 15.00%

8% 27% 15%

L 2020 2006 = 13.72%

6% 12% 3% 5%

7% 43%

74%

L 2010 2006 = 11.09%

L Income 2006 = 7.59%

5

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Thrift Savings Plan (TSP)

Withdrawal Options at Separation

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

Automatic if balance is less than $200 You decide on dollars/month or number of monthly payments Single Life Joint life with spouse (50% or 100%)

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

Life Annuities

Spouse entitled to Joint and Survivor with 50% survivor benefit Must have an insurable interest

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

Mandatory distributions starting at 70 Traditional IRA or 401(k) Rollovers are available

Copyrighted material of The USAA Educational Foundation, 2007. All Rights Reserved. No part of the attached publication may be modified, 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 be modified, reprinted or reproduced without the written consent of The USAA Educational Foundation, a nonprofit organization.

Start Saving Early

Saved $250 every month at 10% interest $51,211 Smith Age 21 30 10 Years Jones Age 3165 35 Years

$1,513,024
$30,000

$856,347
$102,000
Contributions Value at 10 yrs.

Totals at age 65
Value at Age 65
35A

Version A

People Do Not Plan To Fail They Just Fail To Plan.

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