1. Financial
focus May 2012
Roth TSP Coming Soon
The Defense Finance and Accounting Service (DFAS)
will begin processing Roth Thrift Savings Plan (TSP)
Happy Armed Forces Day
elections for its civilian and military customers using a
phased approach beginning
in June 2012 and
continuing through
May 19
October 2012.
As a new choice for
retirement investment
planning, the Roth TSP
will give service members
the option to contribute
after-tax wages into TSP
for the first time. Both the contributions and the earnings
will be tax free when withdrawn, as long as the Internal
Revenue Service (IRS) requirements are met.
The phased implementation will ensure taxable wages
and TSP contributions are computed accurately.
According to DFAS officials, the schedule will provide
time to complete and thoroughly test the complex
changes needed to the various civilian, active duty
military, and reserve component payroll systems. The
complex changes address the unique and multiple pay
types in the pay systems including the different
requirements of the Army, Navy, and Air Force and the
active duty and reserve component requirements.
Implementation will begin with Marine Corps service
members in June 2012, then all Department of Defense
(DoD) civilians, as well as other civilians serviced by
DFAS in July 2012, to be followed by the Army, Navy,
and Air Force service members in October 2012.
Look for more specific deployment dates Roth TSP
elections coming soon on www.dfas.mil. For more
information about the Roth TSP, see www.tsp.gov.
(Source:
http://www.militaryfamily.org/publications/enewsletters/military-family-
topics/roth-tsp-updated-information.html)
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2. Investing 101: What is Investing?
It's actually pretty simple: investing means putting your money to work
for you. Essentially, it's a different way to think about how to make
money. Growing up, most of us were taught that you can earn an income
only by getting a job and working. And that's exactly what most of us do.
There's one big problem with this: if you want more money, you have to
work more hours. However, there is a limit to how many hours a day we
can work, not to mention the fact that having a bunch of money is no fun if we don't have the leisure time to enjoy it.
You can't create a duplicate of yourself to increase your working time; so instead,
you need to send an extension of yourself - your money - to work. That way,
Investing is the act of
while you are putting in hours for your employer, or even mowing your lawn,
committing money or
sleeping, reading the paper or socializing with friends, you can also be earning
money elsewhere. Quite simply, making your money work for you maximizes capital to an endeavor
your earning potential whether or not you receive a raise, decide to work with the expectation of
overtime or look for a higher-paying job. obtaining an additional
There are many different ways you can go about making an investment. This income or profit.
includes putting money into stocks, bonds, mutual funds or real estate (among
many other things), or starting your own business. Sometimes people refer to
these options as "investment vehicles," which is just another way of saying "a way to invest." Each of these vehicles has
positives and negatives, which we'll discuss in later issues of Financial Focus. The point is that it doesn't matter which
method you choose for investing your money, the goal is always to put your money to work so it earns you an additional
profit. Even though this is a simple idea, it's the most important concept for you to understand.
What Investing Is Not
Investing is not gambling. Gambling is putting money at risk by betting on an uncertain
outcome with the hope that you might win money. Part of the confusion between
investing and gambling, however, may come from the way some people use investment
vehicles. For example, it could be argued that buying a stock based on a "hot tip" you
heard at the water cooler is essentially the same as placing a bet at a casino.
True investing doesn't happen without some action on your part. A "real" investor does
not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital
only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is
more than simply hoping Lady Luck is on your side.
Why Bother Investing?
It's pretty easy to understand that people invest because they want to increase their
personal freedom, sense of security and ability to afford the things they want in life.
However, investing is becoming more of a necessity. The days when everyone worked
the same job for 30 years and then retired to a nice fat pension are gone. For average
people, investing is not so much a helpful tool as the only way they can retire and
maintain their present lifestyle.
In much of the industrialized Western world, governments are tightening their belts.
Almost without exception, the responsibility of planning for retirement is shifting away
from the state and towards the individual. There is much debate over how safe our old-
age pension programs will be over the next 20, 30 and 50 years. But why leave it to chance? By planning ahead you can
ensure financial stability during your retirement. (Source: http://www.investopedia.com/university/beginner/beginner1.asp#ixzz1tjVqO5lV)
MAY 2012 FINANCIAL READINESS
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3. Test Your Knowledge: Life Insurance
Life insurance is critical to financial planning. It's a necessity for anyone with dependents who would be affected
financially by your demise. Yet life insurance is one of the hardest financial products to understand and it's sold by
agents who are sometimes more concerned with their commissions than your needs. Answers on page 6.
Source: http://cgi.money.cnn.com
1. The two basic types of insurance policies are: 6. The key factors in determining the term of your
a) General and term. policy are:
b) Whole and indemnified. a) The number of years you need to keep the
policy in force to cover your dependents.
c) Term and whole life.
b) The number of years before your children
d) Load and no-load.
leave the nest.
2. True or false: Insurance policies cost pretty much
c) When you plan to retire.
the same and they are very much alike.
d) All of the above.
a) True
7. Mortgage life insurance is:
b) False
a) Just like life insurance.
3. When shopping for life insurance, the best
strategy is to: b) A good supplement to life insurance.
a) Do what the agent tells you. After all, they are c) Something you should steer clear of.
the experts and it is the agent's job to make 8. You'll pay substantially more for life insurance
sure you get the products that are right for due to which of the following factors:
you. a) You are over age 60.
b) Buy your coverage at work if possible. b) Your health is poor or you smoke.
c) Figure out how much you need, then c) Your driving record is poor.
comparison shop using the Web and other
d) All of the above.
resources.
9. The best time to get life insurance is when:
4. The purpose of life insurance is to:
a) You are a baby.
a) Pay your funeral and final expenses.
b) You get out of college or start working.
b) Provide investment income and help fund
retirement. c) You have dependents.
c) Allow your dependents to maintain their 10. When shopping for life insurance on the Internet
lifestyle in the event of your demise. you should look for:
5. You should buy a policy with sufficient face value a) A low rate.
to: b) A company with a good rating
a) Match your current annual salary. c) A company with a low rate and a good rating
b) Match two times your annual living expenses. d) A company that gives frequent flier miles
c) The answer to this question varies, but most with its policies.
planners say five to ten times your annual
salary is normal.
d) Pay your funeral expenses.
“The chief beneficiary of
life insurance policies for
young, single people is the
life insurance agent.” – Wes
Smith
MAY 2012 FINANCIAL READINESS
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4. How Much Are Funeral Costs?
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5. Just for Laughs . . . Something to Think About
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6. Answers to Quiz: Life FREE Credit Scores
FICO® credit scores are now available
Insurance FREE to active duty service members
1. C) Term and whole life. Whole life combines and their spouses. Every Wednesday
insurance with an investment component, and from 1000-1500. Call (301) 677-5590
term is pure life insurance, nothing added. for your 30 minute appointment today!
2. B) False. There's a huge difference in pricing
and products when it comes to life insurance.
3. C) Figure out how much you need, then
comparison shop using the Web and other
resources. The best approach is to do it
yourself. Buy term and buy from a low-cost
company that has a top rating.
4. C) Allow your dependents to maintain their
lifestyle in the event of your demise. You want
to have enough face value so that the proceeds
of the policy could be conservatively invested
to yield enough to cover the loss of your
income.
5. C) The answer to this question varies, but most
planners say five to ten times your annual
salary is normal. Five to ten times your annual
salary is the normal range, but this can vary
widely. For most people, the idea of life
insurance is to help them get through the first
five to 10 years after your tragic loss. That's
why some experts fall back on the old life
insurance rule of thumb: Buy enough to
replace your salary for five to seven years.
However, we highly recommend using an
online insurance calculator to help you
determine your needs, such as
http://www.bankrate.com/calculators/insura
nce/life-insurance-calculator.aspx.
6. D) The correct answer is all of the above.
7. C) Something you should steer clear of. This is
a product you don't need. It's often more
expensive than life insurance and provides
declining coverage as your mortgage is paid
down. Buy enough life insurance to take
mortgage payments into account should you
die.
8. D) The correct answer is all of the above.
9. C) You have dependents. The purpose of life
insurance is to allow your dependents to
maintain their lifestyle in the event of your
demise.
10. C) A company with a low rate and a good
rating. This is the combination for a great deal
on life insurance.
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