Financial Frontlines ™

I’ve been reading a lot about how everything in the investment world has changed with this recent market decline.  People are saying asset allocation is dead…that those that buy and hold aren’t too smart…that the recent crash is unlike anything we’ve ever seen.  Well let’s think about that for a second.

I don’t know about you, but I didn’t dump all my money into the market at its peak when the Dow was up around 14,000.  In fact, I’ve been doing that boring old dollar cost averaging since about 1987.  I’ve been in both active and passive mutual funds, own some bond funds and some international fund shares.  I’ve got some money in the TSP.  Pretty average, pretty boring.

But here is the interesting part.  Since I did dollar cost average and continue to do so, I’m up about 4.95% on an annual basis since I started investing in 1987 (based on Internal Rate of Return calculated on Quicken).  Over that same time period, inflation is up about 2.97% on an annual basis (from dollartimes.com).   So, over the last 22 years or so, my portfolio has performed just about like what one would expect for a diversified portfolio, despite the 30% or so loss in the S&P 500 within the last year.

Kind of makes you wonder what all the talking heads are talking about…

Sign-up for the Post 9-11 GI Bill here.

Comparing the Post 9-11 GI Bill with the Current Educational Programs.

For those of you with eligibility in the Post 9-11 GI Bill and another form of education benefits (MGIB, MGIB-Res, REAP, VEAP), you will be required to make an irrevocable decision about which benefit you will keep and use at the time you use your educational benefits.

If you are eligible for two or more other education benefits, in addition to the Post 9-11 benefit, you must make an irrevocable decision to give up ONE of the other education benefits. You will remain eligible to use the benefit from the one you did not surrender. Because you are now eligible for two education benefits, you MAY be able to change which education benefit you draw upon depending on your eligibility.

The details regarding which educational programs are covered by the Post 9-11 GI Bill are numerous. It is best if you view this side-by-side comparison chart of all the different education programs when determining whether you may want to convert your current GI Bill benefits over to the new Post 9-11 benefits–VA comparison chart. Remember, conversion to the Post 9-11 program is irrevocable once made.

Key point: The Post 9-11 GI Bill pays the educational facility directly and it only pays Institutions of Higher Learning (IHL). An IHL is defined as a degree granting institution. To pay for education at institutions other than IHLs, you have to use benefits from other GI Bill programs such as the Active Duty GI Bill, Reserve GI Bill, REAP, or VEAP. Certificate and diploma programs offered by institutions that do not grant degrees are not covered.

These case studies provide graphic examples of how the Post 9-11 and Montgomery GI Bills work under different scenarios. You can find case studies for the Post 9-11 and the Reserve GI Bills here.

You are not under a time crunch to make a decision to convert to the Post 9-11 GI Bill from your current GI Bill program. It may pay…so to speak…to wait until closer to the time in which you wish to use your benefits to make a better comparison. There may be a time crunch for you if the transferability option is important to you. See the Transferability section for more information.

The Benefit Transfer Option
The Department of Defense is using the transferability of Post 9-11 GI Bill benefits as a retention tool. This is a key aspect of the program because it may require you to commit to additional service time in order to receive the transfer benefit.

If you are currently serving, register and complete the transfer process for the Post 9-11 GI Bill before you leave the Service, even if you are not sure you want to transfer the benefit to family members some day. Family members not approved for transfer prior to leaving the Service are denied the Post 9-11 GI Bill opportunity forever. Transfer at least one month’s benefit to each family member before you leave the Service to ensure you can transfer more benefits to dependents later.

The military member always retains the authority to change or revoke the transfer of benefits after benefits have been transferred. Transferred educational benefits may not be treated as marital property or as the asset of a marital estate subject to division in a divorce or other civil proceeding by law.

To transfer benefits, you must go to https://www.dmdc.osd.mil/TEBto register on-line.

Check the web site occasionally to see if you are approved. Once approved, family members will apply to the VA for their certificate of eligibility to use their benefits. Contact the school’s VA rep or Financial Aid office to use the benefit.

Veterans who marry, remarry or have more children after leaving the Service are not able to transfer benefits to these new family members.

General rules:
• May transfer benefits at any time while serving as a member of the Armed Forces on or after 1 August 2009.
• You do not have to be serving on Title 10 active duty orders on 1 August 2009 to be eligible.
• The amount of your benefit is based on your active duty service time.
• Have eligibility for the Post 9-11 GI Bill with service since September 11, 2001.
• Public Health Service (PHS) and National Oceanic and Atmospheric Administration (NOAA) officers are not eligible.
• Maximum of 36 months educational benefit.
• If you are barred from serving the additional 4-year commitment due to Service policy or law, you are allowed an exception to the commitment policy.

To Transfer to a Spouse:
• Must have served 6 years with a commitment to 10 years.
• Spouse’s eligibility is good for up to 15 yrs after member’s service.
• Spouses of active duty members cannot receive the housing allowance since they already receive a housing allowance or live on base.
• Spouses of active duty members have enhanced benefits that pay full tuition and fees at any school without costs limitations.
• Divorce does not cancel the transfer however the military member can revoke the transfer at any time.

To Transfer to the Children:
• Able to transfer to children only after 10 years service and agree to 4 more years.
• Eligible until child reaches age 26—no 15 year time limit.
• Housing and books paid while member is active duty unlike spouse benefit.
• The benefit continues even if the child marries.
• Military member retains the authority to revoke the benefit at any time.
• Child must be a graduate of secondary/high school (or equivalent) or be 18 years old.

The implementation date is around the corner, 1 August 2009.

So who qualifies?

• Members who serve or served full-time duty in the Regular components of the Armed Forces or those serving or served under a call/order to active duty (AD) under Title 10 with a few exceptions.
• Currently serving, former and retired members.
• You have min 90 aggregate days of AD service time since 11 Sep 01.
• Members with 30 days service if discharged with service-connected disabilities.
• Honorable discharge.
• Your education benefits start 1 Aug 09 or later.

Whether you participated or not in the older GI Bills, you are eligible for the new Post 9-11 GI Bill if you meet the service requirements. You may still earn some Post 9-11 GI Bill benefits even if you used your old GI Bill benefits. You may be due a partial refund of your old GI Bill investment if you didn’t use all your old benefits.

The benefits:

Your benefit provides up to 36 months of education benefits. The benefits are payable for 15 years following your release from active duty. Dependent children are eligible until they reach age 26—no 15 year limitation.

The amount of your benefit corresponds with the amount of active duty service you have. To learn how to apply these percentages outlined below, see this VA web page.

Act Duty Complete after Sep 10, 01/% of Max Amnt Payable
At least 36 months / 100%
Min 30 continuous days on AD-discharged, service-connected disability / 100%
30 months to 36 months / 90%
24 months to 30 months / 80%
18 months to 24 months / 70%
12 months to 18 months / 60%
6 months to 12 months / 50%
90 days to 6 months / 40%

The program will pay eligible individuals:

• Tuition & fees directly to the school not to exceed the maximum in-state tuition & fees at a public Institution of Higher Learning. Chart listing maximum rates by state.
           o For an example of tuition & fees the VA will pay your school click here
           o For an example of tuition & fee payments for a private institution click here
• A monthly housing allowance based on the Basic Allowance for Housing for an E-5 with dependents at the location of the school. To determine the BAH for your school’s ZIP code click here .
• An annual books & supplies stipend of $1,000 paid proportionately based on enrollment.
• A one-time rural benefit payment of $500 for eligible individuals.

Active duty members and their spouses (if the benefit is transferred) receive the enhanced benefit of 100% of their tuitions and fees paid, regardless of the costs. However you will not receive the housing allowance (you already receive a housing allowance) or books and supplies payment.

The Post 9-11 GI Bill benefit pays for education and training started on or after 1 Aug 09. There are no retroactive payments for education or training started or completed prior to 1 Aug 09.

On the next post, choosing between the current educational programs and the Post 9-11 GI Bill and the Transfer option.

This information is based on a proposal at this point. Everything is subject to change until the draft is signed into law. Based on my conversations with potentially affected military members, it helps if we start with a few ground rules to make this program easier to understand.

First, forget all you know about your Service pay and concurrent receipt AKA Concurrent Retirement and Disability Pay (CRDP). If you start with a clean slate it’s easier to comprehend. The barracks lawyers are putting out misinformation.

Next, you have to understand the definition of CRDP. This is critical. CRDP only restores Service pay based on your service time. That’s all it has ever restored. It does not restore Service disability pay. The law prohibiting two disability checks is still in force.

Third. Your Chapter 61 Service pay, for CRDP purposes, has two components. Part disability pay and part Service longevity pay; the part based on your years of service. The part based on your service time is figured like any retiree’s retired pay; 2.5% times years of service.

Fourth. Under this proposal you: 1) may already be getting what CRDP would provide you (in other words, you get nothing extra, no CRDP); or 2) may get CRDP.

Now, let’s look at some examples:

Example 1

• Member with 3 years of service when Chap 61’d.
• Service disability rating of 60%.
• VA rating of 80%.
• Service pay based on $1800 base pay per month at retirement.
• 60% Service rating provides disability retirement of $1080 ($1800 x 60%).
• 80% VA rating pays $1400 a month.
• Currently, member’s entire Service pay docked due to VA comp at a greater amount.
• Under CRDP the member will receive retired pay for years served.
• 3 years multiplied by a 2.5 percent is 7.5%.
• 7.5% times the $1800 base pay is $135 a month in retired pay for years served.
• Member will get VA comp of $1400 plus $135 Service pay (CRDP).

Example 2

• Member with 10 years of service.
• 90% Service rating.
• 90% VA rating.
• Base pay of $6500.
• $6500 base pay at 90% Service rating equals $5850.
• VA comp at 90% $1600.
• Member is receiving $1600 from VA and $4250 from Service ($5850 – $1600).
• Under CRDP there is no change—no CRDP payment since you already receive all of your Service longevity retired pay.
• 10 years of service times 2.5% equals 25% of base pay or $1625; this is the only amount CRDP restores.
• You’re receiving Service pay of $4250 so the VA comp is only docking your Service disability pay and by law the CRDP proposal doesn’t change that.

Example 3

• Member with 18 years’ service.
• Service rating 50%.
• VA rating 90%.
• Base pay $4500 a month.
• 50% Service rating times base pay equals $2250.
• VA comp at 90% is $1600.
• Member receiving $650 from Service (2250 – 1600) and $1600 from VA.
• Under CRDP you have to calculate Service longevity retired pay of 18 years times 2.5% for 45% times $4500 equals $2025. CRDP ensures the member receives this amount due to his vested service time.
• Member is owed $2025 from the Service (original $650 plus CRDP) AND $1600 from the VA.

Finally, please keep in mind, everyone with less than 90% VA rating will be phased in over time. You will see your CRDP later. See our MOAA Legislative Update for the proposed phase in schedule.

As I’ve alluded to in the past, I am a member of the National Association of Personal Financial Advisors (NAPFA)–not affiliated with MOAA.  With that said, I think the upcoming free webinars offered by the organization may be worth your time.  These will be web-based education programs touching on topics ranging from basic money issues to complex estate and investment topics.  For more information, read on…

NAPFA Launches Consumer Education Series to Help Americans Better Understand Personal Financial Issues

Arlington Heights, IL (July 8, 2009) – The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial advisors, has been a vocal advocate for consumer protection in the financial industry.  Now NAPFA is gearing up to further educate people on a variety of topics in an effort to help Americans become educated consumers of financial planning advice and products.

The Consumer Webinar Series is a year-long initiative beginning August 7, 2009 that will provide an opportunity for anyone in the country to learn about a wide range of financial issues from NAPFA-Registered Financial Advisors.  Each month a new session will be conducted live online. Consumers can attend the live session after registering for free, or listen to an audio file after the program.  The instructors NAPFA has recruited for the various sessions are among the industry’s leaders in truly comprehensive financial planning and includes members of NAPFA’s National Board of Directors, past NAPFA national chairs, educators, and authors.

“Each session is intentionally designed to help attendees better understand a specific issue and why it is of particular importance to them,” said NAPFA National Chair Diahann W. Lassus, CFP®, CPA/PFS.  “We want attendees to take something away from the sessions that helps them tackle these issues at home.  As an industry we have done a poor job of helping consumers increase their financial knowledge.  This program, along with the successes of the Your Money Bus Tour, is NAPFA’s way of doing its part.”

The series will include 12, one-hour sessions delivered via the internet.  The individual sessions will be conducted from 1 to 2 pm Eastern time and will include:

August 7, 2009 –         Money 101: Knowing the Basics

September 4, 2009 –    Kids & Money

October 2, 2009 –        What is Financial Planning?

November 6, 2009 –    Protecting What You Have

December 4, 2009 –    Investments: The Basics

January 8, 2010 –        Investments: Advanced Concepts

February 5, 2010 –      Managing Your 401(k)

March 5, 2010 –          Leaving a Legacy

April 2, 2010 -             Women and Money

May 6, 2010 -              Financial Planning and Small Business Owners

June 4, 2010 -             Your Retirement

July 1, 2010 –              Financial Windfalls

Registration for the 2009 sessions is open now.  Learn more about the Consumer Webinar Series by visiting .http://www.napfa.org/consumer/ConsumerWebinarSeries.asp

In addition to registering for the sessions, consumers can learn more about the topics and the NAPFA-Registered Financial Advisors who will be instructing the sessions.

“We hope people will take advantage of this opportunity to better themselves and their families.  Only through education will consumers be better capable of addressing their own financial situations,” added Lassus.