From the Mailbag: Term Life Insurance or SBP?

Term Life Insurance or Survivor Benefit Plan?

Recently, I received the following question:

My husband is now facing retirement. He will retire as an E7 with 26 years of service.  We have decided to go the term life route.  However, I have not signed off on the SBP yet. At his retirement date, I’ll be 56 and he’ll be 49.  I feel the Term Life route makes more sense. I do know, because he’s almost 50, even the term rates will be high.  He’s been diagnosed with sleep apnea, so, although he’s pretty healthy, that is in his record. But he’s a smoker. He’s tried to quit several times.  We have seven months until his retirement date.

After a couple of emails, I found out that the wife also has adult children and has a couple of small retirement accounts.  Her husband has no interest in obtaining a post-military job.  She is starting her career as a professor, but still feels as though she depends on her husband for income.  She wants to work until she is physically unable to. Continue reading

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Dangers of Taking Out a TSP Loan

Recently, Michael Kitces published an article titled, “Why Paying Yourself 5% Interest On A 401(k) Loan Is A Bad Investment.”  My first thought was, “If it’s a bad idea for a 401(k) loan, it must be even worse for Thrift Savings Plan loans.”  After all, the interest on a TSP loan is nowhere near 5%…it’s tied to the G-Fund interest rate.  At the time of this writing, that would be 2.25%.  In other words, that’s less than than half of the 401(k) loan mentioned in Kitces’ article.

But that’s not why I wrote this article.  After all, I didn’t know whether people actually took out TSP loans.  As a matter of fact, they do.  According to Government Executive, TSP participants took out more in loans in 2015 than in 2014:  $4 billion compared to $2.9 billion.  In comparison, TSP participants took age-based withdrawals of $2.2 billion and $2.1 billion, respectively.  Age-based withdrawals are ones that you can make after 59 ½ without early withdrawal penalty.  In other words, TSP participants took out more in loans than they did in withdrawals aligned with the typical retirement strategy.

This discovery led me to these two questions:

  • “Why would someone take a TSP loan?”
  • Are there any situations in which a TSP loan would make sense?

That’s what this article is about.  But first, some TSP loan basics. Continue reading

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Are You Ready To Be A Landlord? Five Questions You Need to Answer

In the military, we face this decision more than most folks.  We buy a house because we intend to stay in it for a while.  We hope that we can hold it long enough to actually have prices rise over time, then either rent it or sell it for a profit.  Then life gets in the way.  We get an unexpected set of orders.  Exciting and nerve-wracking at the same time.  Career-enhancing, but life-altering.  As we get used to the new reality, we start to think:  “Am I ready to be a landlord?”

When real estate prices go down, sometimes we’re locked into the decision of renting it out because we can’t afford to sell it.  However, when real estate prices go up, we face a more challenging decision.  One that can have lasting effects—Do we rent it out, or sell it?

When we faced this decision, we ended up renting our house out.  Hindsight being 20/20, this is the ONE decision that I wish we could have taken back.  Although we didn’t know it at the time, we just weren’t cut out to be landlords (much less overseas, managing a property during the Great Recession during a deployment).  You can read more about my accidental landlord story here.

To help you decide for yourself, here are 5 questions you should honestly answer: Continue reading

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Employee Benefits For Transitioning Personnel-Employee Stock Options

There are many employer benefits that just aren’t available to servicemembers.  Before separating from service, it’s important to understand what types of benefits exist, and what impact they may have on our personal finances.  This article focuses on employee stock options, specifically:

  • What are stock options?
  • Why do stock options exist?
  • Why do employers offer employee  stock options?
  • What type of employee stock options are there?
  • Tax treatment of employee stock options

Continue reading

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Financial Regulation Offices (by State)

While the gossip of the moment is about the fiduciary standard, it’s important to realize that people can fall victim to bad financial advice, even from a fiduciary.  Most fee-only financial planners are registered as investment advisers.

Every registered investment advisor (RIA) is required to file form ADV, which contains a lot of information.  RIAs are also required to register with either a state regulatory office or the Securities & Exchange Commission.

These regulatory offices are responsible for ensuring that RIAs comply with federal and state laws.  They should also be your first checking point to ensure:

  • The person you’re about to hire is actually registered and that they are who they say they are
  • You know of any disclosures that might impact your decision to hire this person. Disclosures can range from conflicts of interest to financial issues (like bankruptcy), to criminal convictions.  You know, things that might make you want to NOT hire this person.

Below is a list of the regulatory websites by state, as well as the SEC’s website. Continue reading

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Five Financial Lessons I Learned From My Mother

My mother isn’t what you would call a financial planner.  She isn’t even really that savvy when it comes to money.  In fact, a few years ago, she asked me to help her manage her finances.  When I looked at her financial picture, though, I realized that she was much better off that I had thought.  Since then, I’ve come to learn some personal finance lessons from my mother…lessons that I did not learn in the CFP curriculum.  Below are five of them: Continue reading

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State Community College System Websites (by State)

College affordability is a hot topic.  Community colleges can provide a cost effective way to obtain a college diploma from a public university.  Many states allow community college attendees to transfer credits within their public university system.

Not only that, but community colleges can provide trade certification education, continuing education credits, or refresher training on any number of topics.  Not only that, but they can do this at a fraction of the price of most institutions.

Below are the links to each state’s community college system’s website: Continue reading

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Why SGLI Isn’t Enough Life Insurance For Most Military Families (Part 2)

This is the second of a two-part article, designed to outline why SGLI isn’t enough life insurance for most military families.  Part one discussed SGLI coverage on the servicemember.  This article discusses the reason why Familymember SGLI (FSGLI) is usually not enough to cover the death of a spouse.

Overview

Every successful military family succeeds not just because of the military career, but because of the spouse.  In this article, we’re going to discuss three major factors that should be considered when insuring a supportive spouse.  Continue reading

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Why SGLI Isn’t Enough Life Insurance For Most Military Families (Part 1)

Most people know that SGLI is the cheapest life insurance available.  At $28.00/month for $400,000 in coverage (or about 7 cents/month for every $1,000 in coverage)—by far.  Unfortunately, this creates two problems:

  1. SGLI’s pricing leads people into thinking that all life insurance should be this cheap.
  2. The $400,000 ceiling leads many people into thinking that all they need is $400,000 in life insurance, regardless of what’s going on in their life.

Both of these assumptions leave many families in a very precarious financial situation.  This article won’t address why commercial life insurance (even term insurance) isn’t as inexpensive as SGLI.  It also won’t give you a ‘one size fits all answer on how much life insurance you need.’  There is no ‘best’ answer here.  The best answer is one that helps you sleep at night.

This two-part article will outline three ways many fee-only financial planners help families figure out their life insurance needs so they can obtain coverage that’s appropriate for them.  Part one focuses on determining the life insurance needs to cover the primary breadwinner’s lost income.  There are families where the servicemember is not necessarily the primary breadwinner.  However, for purposes of this article, we will assume that the primary breadwinner is the servicemember. Continue reading

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10 Considerations About the Blended Retirement System (BRS)

Recently, I sat down with someone who asked me whether she should take the military’s Blended Retirement System (BRS).  As most people know, the BRS is the military’s attempt to slowly move away from a defined benefit pension to a defined contribution pension.  So her question was, “Should I take some money now, in exchange for a lower pension later?”

As a member of the military community, I’ve seen this discussion a lot.  There are any number of opinions across the spectrum.  As a financial planner, though, I’ve seen less discussion.  However, from my experience, personal finance is more personal than finance.  In other words, it’s not just crunching the numbers.

Immediately, these thoughts came to my mind.  Granted, this is not for the majority of people who only stay for their initial obligated service (enlistment or officer obligation).  Nor is this for those who truly don’t plan to stay in for at least 20 years.  However, if there is even an inkling that you might, you should consider these thoughts: Continue reading

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