Change in Pockets...and Lifestyles
February 26, 2010
FORT HOOD, Texas - Military members have a moral and legal responsibility to ensure they manage their money properly, which could include everything from using credit responsibly to putting money away for retirement. To assist in financial management, DoD provides resources and information to assist.
Most in the military are relatively young. A practical question may be why it would be necessary to worry about investing at such a young age.
"Achieving your long term financial objectives is not about education, luck, work ethic or level of income. It is all about putting together a simple plan, getting started, and sticking to it. I encourage everyone to seek help and do that as soon as possible," said Michael Molosso, a financial planner and retired Army officer.
According to Edward Zurndorfer, a certified financial planner, a 25-year-old who contributes $2,000 a year to a retirement program, with an average rate of return of eight percent, will have $345,000 at age 60. At 10 percent, the amount would be $542,000.
Therefore, by putting away less than $167 a month, someone young could have nearly half a million dollars by age 60. As for the rate of return, now would be an ideal time to begin investing because of the poor market performance. In other words, stocks purchased now will be of greater value as the market recovers.
However, many Soldiers see the 50-percent retirement as an excuse to not think about their financial future.
While the retirement program certainly is robust, it can be supplemented. There are programs already in place to assist Soldiers financially after they get out of the military.
The Thrift Savings Plan is a Department of Defense program begun in 2001 for military members to invest a portion of their income toward retirement, similar to a 401K.
According to the TSP web site at www.tsp.gov, the TSP allows any and all contributions to be tax-deferred, meaning any money contributed is deducted from adjusted gross income when filing taxes. For example, someone who earns $50,000 and contributed $2,000 to the TSP would pay taxes for $48,000.
While managing income is important, another consideration is how to manage the amount of taxes paid each year. The Fort Hood Tax Center offers tax services year-round, according to Capt. Andrew Corimski, the officer in charge of the Tax Center.
"The actual Tax Center is open in its full capacity until 16 April," said Corimski. After the Tax Center is closed, tax services are available at the Client Services Building at building 4617 on 72nd St. and Santa Fe St.
For Operation Iraqi Freedom and Operation Enduring Freedom veterans, they are exempt from paying federal taxes on pay and bonuses and get an automatic 180 day extension to file taxes for being in a combat zone plus an extra day for every day deployed during the filing season, Jan. 1 to April 15.
Additionally, according to Corimski, to encourage potential homebuyers, the U.S. government is offering the First Time Homebuyers Credit and the Long Term Homebuyers Credit. To qualify as a first time homebuyer, someone must buy a first home as a main residence - not rental property - between Jan 1, 2009 and May 1, 2010. Those who qualify receive an $8,000 credit. Soldiers deployed for at least three months during 2009 until April 15, 2010 get an automatic extension to purchase a home, until May 1, 2011.
For the long term homebuyer's credit, a home owner who owned for any five consecutive years during the previous eight which was sold or converted into a rental property - who then purchased a new home between November 2009 and May 2010 -can qualify for a $6,500 credit.
Corimski added that there is also a new car purchase credit. A buyer who purchases a new car between Feb. 16 and Dec. 31, 2009 can receive a credit for the state sales and excise taxes paid.
Using the services is as simple as scheduling an appointment and ensuring the proper paperwork is available. In general, said Corimski, any W-2, 1099, 1098 or any other tax document must be present when filing the paperwork. For the purchase of a new home, the filer must have the HUD-1; for a new car the filer must bring the sales receipt that shows taxes paid. If in doubt on whether to bring a document or not, bring it.
In addition to managing taxes, many servicemembers must also contend with debt management.
Credit cards are available and plentiful. They have allowed people to live well beyond their means, but interest adds up quickly. A credit card with a 16 percent annual percentage rate with a balance of $5,000 would take more than 26 years to pay off if only the minimum payment is made each month, which is typically about 2 percent of the balance. That same credit card with a 10 percent APR would only take 17 years to pay off.
Presumably, poor management of credit cards is so ubiquitous that last year the U.S. Congress passed the Credit Cardholders Bill of Rights, which reportedly addresses practices "including retroactive changes in interest rates, excessive fees and penalties, short payment windows, and other practices," according to a release issued by the U.S. Congress. The new act goes into effect this month (February).
In fact, debt management is something more Americans are learning about every day; Soldiers are no exception. While Soldiers are deployed, they have the potential to amass a great deal of money. To help Soldiers manage this newfound wealth, the Army has embedded Personal Financial Counselors to provide information and advice on financial and consumer related concerns, according to Casey Jackson, a Personal Financial Specialist.
Jackson says the PFC assists Soldiers with understanding how to manage their spending habits, offers classes on buying privately-owned vehicles and provides information on credit monitoring.
According to Jackson, many commands had noticed their Soldiers were experiencing financial issues as a result of not changing their spending behavior following a deployment.
"Evidence shows that those who attend the financial training and follow-up with individual one-on-one counseling with one of the program's financial advisors tend to make positive changes in behavior," said Jackson.
Jackson recommends that Soldiers returning from a deployment not make any major purchases or financial decisions immediately. "It seems all too easy to make that impulse buy as soon as you touch down." He also recommends Soldiers ensure that the deployment entitlements are stopped and that they track and ensure that all casual pays received have cleared and processed.
Prior to any deployment, Jackson says a common oversight among Soldiers is to ensure they have a plan to take care of all financial responsibilities, and that there is an emergency fund available for unexpected events, without significantly changing their financial lifestyle.
Most are not in the military for the money. What money Soldiers do get is their responsibility to manage responsibly. If invested and managed wisely, and with a little restraint and forethought, military salaries can provide a comfortable lifestyle now and later in life.