Financial Frontlines®

Are you a person who planned ahead and prepared legal documents such as a durable power of attorney for health care, a living will, and a power of attorney for your other personal/financial affairs? Well, if you have contact with any VA services, you would probably be well served by filling out the VA’s specific legal documents to make things really official.

You see, the VA is federal and your legal documents are based in state law. That can make things confusing depending on where you signed your state documents, what your state of residence was at the time of signature, your state of residence when you are patient, or where your treatment as a patient is administered. We military retirees are a mobile group.

The VA Advanced Directive for Durable Power of Attorney for Health Care and a Living Will is VA form 10-0137. The VA power of attorney forms to appoint a Veteran Service Office or an individual as your representative to handle a VA claim or appeal are VA form 21-22 and VA form 21-22a respectively. All are available on-line, just Google the form numbers or go by your VA office or Veteran Service Office (VSO). Find a local VSO at http://www.va.gov/statedva.htm to ask specific questions.

I’ve written about annuities and posted USAA content about annuities on this site several times. Annuities are confusing financial products because they come in so many varieties and every insurance company puts their own features on their products. In this post, I’m limiting the topic to “income annuities” only.

An “income annuity” is the simplest of all annuities. You make a one-time, lump-sum deposit into the annuity and it provides you income. You can structure the income to meet your needs. A common income option is a monthly lifetime payment for you and your survivor.

There is a very good USAA video on this site that discusses income annuities in general but this post is specifically meant for you military retirees. It’s worth 6 minutes to watch the USAA video just to provide a foundation of knowledge on income annuities.

Income annuities have received a good deal of press lately because of the turbulent stock and bond markets and the lack of guaranteed interest-bearing accounts that pay decent rates of interest. The sales pitch is that an income annuity will guarantee you a stable income for life while your other stock and bond investments are not dependable.

Generally I believe a military retiree has no need for an income annuity. I would have to see a unique situation in a military retiree’s financial situation to recommend an income annuity.

A military retiree already has an income annuity; your military retirement check. In fact, you have two annuities when you add Social Security. Both of these income annuities offer cost-of-living increases to boot.

Why would you consider another source of steady income with an income annuity? Well…

• Maybe you want another source of steady, guaranteed income to help meet your fixed liability needs—bills, debts, mortgage, etc.
• If you didn’t enroll in the Survivor Benefit Program (SBP) to continue your military retirement pay, you may want another plan to compensate for the lack of SBP. You could purchase an income annuity now with a continuing survivor benefit. Or, your survivor could use life insurance proceeds to purchase an income annuity. Or, your survivor could use other investment assets to purchase an income annuity. Point being, survivors often prefer steady, guaranteed income instead of managing investments and dealing with the unknown nature of the economy and the markets.
• If you took Social Security early, you may want to compensate for the decrease in monthly or survivor’s Social Security income.
• You may get a better payout with an income annuity than with interest rates on CDs, bonds and money market accounts.

Shop carefully for an income annuity. The amount of income differs so shop around. Some offer cost of living adjustments or refunds of principal in case of early deaths but your income amount will suffer.

This content is provided courtesy of  USAA

Want to know more about annuities?  Call us at MOAA if you have questions at (800) 234-6622 and ask to speak with a financial counselor.

Views and opinions expressed in this webinar are provided for informational purposes only and are subject to change. This discussion is not tax, legal, estate planning or USAA product advice and is unique to the member only. The law concerning tax and retirement plans is complex, penalties are severe, and the laws of your state may differ. Consult with your tax, legal or estate planning professional regarding your specific situation.

Investments/Insurance: Not FDIC Insured • Not Bank Issued, Guaranteed or Underwritten • May Lose Value

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.

Examples given are hypothetical illustrations and not necessarily an indication of the benefits or features of any USAA product.

Withdrawals made before age 59½ may be subject to a 10% federal penalty and ordinary income taxes.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX, and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. Each company has sole financial responsibility for its own products.

USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.

How Long Will I Live In Retirement…or, how long does my money need to last?

Running out of money in retirement is one of many stresses facing retirees today. Military retirees are some of our nation’s healthiest retirees and with planning, many can expect to remain physically and financially fit long into their retirement years. The DoD Office of the Actuary recently published life expectancy statistics for military retired officers (see below). You can compare the average life expectancy of all military officer retirees at your current age (more exact) or estimate your Retirement Life Expectancy by anticipating your age when you intend to stop working.

Life Expectancy
in Years
at Current Age:           Male Retired Officers        Female Retired Officers
         45                                  38.6                                             40
         50                                   34                                               35.2
         55                                  29.4                                            30.3
         60                                  24.8                                            25.6
         65                                  20.4                                            21.1
         70                                  16.1                                            16.8
         74                                   13                                               13.7
Source: Statistical Report on the Military Retirement System Fiscal Year 2010, DOD Office of the Actuary, May 2011. You can view the entire report here: http://actuary.defense.gov/statbook10.pdf. The complete Life Expectancy tables are at the back of the report.

Of course, there are many factors that afffect life expectancy besides the actuarial projections. Heredity, for one, has a strong link to longevity. If your parents were long-lived, odds are that you will be too. Lifestyle choices have a lot to do with a long life too. Are you smoker or a heavy drinker? Odds are you’ll be checking out earlier than most, and might not need to save as much for retirement. Just overall heavy? Time to hit the gym. When is the last time you saw an obese centenarian?

Exercise regularly? Some think that exercise is the Fountain of Youth. Are you married? More years for both of you. Lots of friends and an upbeat view of life? You’re on your way to a long life.

Roll the dice if you want, or start saving!

Need Long Term Care insurance? Health not the best, or not sure whether you can pass medical underwriting? Check out the Federal Long Term Care Insurance Program (FLTCIP). It’s offering an Open Enrollment Season, running from today, April 4, until June 24, 2011. The opportunity is that for the first time since this program was inaugurated in 2002, abbreviated insurance underwriting will be used during this Open Season.

Abbreviated underwriting is only available to folks still in uniform (which includes SELRES) or working for the federal government as a civilian employee. For a full explanation of eligibility during this Open Season visit http://www.ltcfeds.com/FLTCIP_OpenSeason.html If you’re health isn’t the best and you’re concerned about passing the underwriting requirements for a long term care insurance policy, this might be a good opportunity for you.

Non-enrolled annuitants, which include retired military and other qualified relatives, can still apply for FLTCIP coverage at any time, but must complete a full underwriting application. Again, abbreviated underwriting during this open season is only for employees still working for Uncle Sam.

All MOAA members should realize that Medicare and Tricare for Life, like most major medical plans, do not cover Long Term Care expenses. Many financial advisers consider a financial plan incomplete if it fails to address protection against the potentially devastating costs of Long Term Care.

If you haven’t looked into coverage in the past, start with the MOAA-endorsed Long Term Care Insurance Program. You can speak to a counselor well acquainted with MOAA-endorsed LTC plans by calling 1-800- 698-7943.

The federal plan provides excellent value as well and can be a good benchmark against other plans. Keep in mind that the federal plan is not subsidized by the federal government in any way, even though the plan is administered by the Office of Personnel Management. The coverage is underwritten by a commercial insurance  firm. Many life insurance companies also offer long term care riders on their life insurance policies.

Use MOAA’s Long Term Care comparison worksheet (PDF) to compare the federal long term care plan with other plans.

If this open season can benefit you, take advantage of the opportunity. If not, consider looking into another solution to protect your family’s finances should you someday need Long Term Care.