Financial Frontlines®

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.

Due to the 2011 NDAA retirees will be paid 13 times in 2011 (after 2011 it will return to 12 times per year). Basically what happened is the law was changed to require that the 1 Jan 2012 retiree payment be made on 30 Dec 2011.  This will increase your taxable income by one month’s pay for 2011.

But wait. Some of you are saying that your January retiree paycheck always hits the bank on the last business day of December. That was true for me. But when I cross checked against my 2010 1099R, I confirmed that the January paycheck (paid in December) was not included in my 2010 income.

So, what does it mean? Well, you may owe more taxes this year. Your withholding should take care of the additional tax unless the additional paycheck puts you into a higher bracket. The other “bad” scenario is if the additional paycheck puts your Adjusted Gross Income (AGI) above cut-off limits (For example cut-offs for IRA deductions, Rental Real Estate loss deductions, Medicare Part B premiums, or college expense deductions/credits). Finally, the extra paycheck will also reduce any itemized deductions you can take that are limited by AGI (medical expenses, some miscellaneous expenses).

There is still time to plan or adjust your withholding.

See this site for more details. http://www.dfas.mil/dms/dfas/aboutdfas/pdf/DFASRelease091102_RetPay.pdf

This content is provided courtesy of USAA.
By Joseph Montanaro, USAA Certified Financial Planner™ Practitioner

U.S. investors had more than $300 billion invested in target retirement date funds as of the end of the third quarter last year, according to the Investment Company Institute. With that type of participation, you’d think the funds would be better understood, but unfortunately, that’s not the case.

All things considered, I think this type of investment can be an excellent choice for investors who are unwilling, unable or uninterested in spending a significant amount of time managing their investment portfolio. Note that I’m not saying these investments don’t require time and attention — just not an extreme amount.

Overview

A target retirement date fund is a professionally managed mutual fund that allocates your investment among a variety of different types of assets: stocks, bonds, cash, etc. The portfolio is rebalanced by the fund managers and becomes more conservative as the target date nears. This type of fund is designed to be a one-stop shop — invest in this type of fund and you should have a diversified portfolio. The Lifecycle or “L” funds available within the Thrift Savings Plan are a good example of this type of investment.

Low Maintenance

Being a glass-half-full guy, let’s first look at some of the potential benefits of target retirement funds. You invest in a single fund and get a variety of investments that are managed for you. Since the portfolio of investments is picked, automatically rebalanced and designed to become more conservative as you approach the target date, this type of fund offers the advantage of allowing you to build and maintain a diversified portfolio. Then, keep your investments going and bump them up with each pay raise or promotion.

Look Under the Hood

You should understand that not all target retirement funds are created equal, even if they have the same target date. An informal survey of data available at www.morningstar.com reveals some sharp discrepancies between different funds with the same date. For example, when I looked at a few funds with a target date of 2020, I found the stock component of the portfolios varied from a low of 38 percent all the way up to 72 percent. And, expense ratios ranged from a paltry 0.18 percent to a whopping 1.96 percent. These differences impact the bottom line for you, the investor, and the returns reflect just that.

In both years, the performance varied substantially. In fact, in each year there was more than an 11% difference between the best and worst performers. That’s huge! What do you take from all this? You do need to do your homework. Look for a fund with low expenses, an equity weighting that won’t keep you up at night and performance. While past performance does not guarantee future results it can be a good indicator, so look before you leap.

No Guarantees

Target retirement funds do not offer a guarantee and are certainly not without risk. Unfortunately, some folks didn’t understand that and may have been shocked when their funds took a beating in 2008.

Any fund is just an investment tool and not a cure-all. You still have to figure out how much you need to save to meet your goals, monitor your overall portfolio and progress towards those goals, as well as set aside money for your short-term needs. But, if you’re looking for a convenient way to invest for retirement, a target date retirement fund may be worth considering.

Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Download a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.
Diversification and rebalancing does not protect against losses or guarantee that an investor’s goal will be met.
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.
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.
The risks of the Target Retirement Funds reflect the risks of the underlying funds in which the Funds invest. The target date is the approximate date when investors plan to start withdrawing their money for retirement purposes. In general, the Target Retirement Funds’ investment program assumes funds will start being withdrawn for retirement purposes at age 65. The principal value of the Target Retirement Funds is not guaranteed at any time, including at the target date. The Funds’ objectives do not change over time.
Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.

This content is provided courtesy of USAA.

It’s never too late, or too early, to plan for retirement.  Throughout life, you’ll experience many financial milestones: buying your first car or home, getting married, raising a family and paying for your children’s education.  But sometimes those milestones can be a challenge. Illness, a job loss or other unexpected emergencies can make investing for your future seem like a low priority.  If you don’t know how to get started or your retirement savings plan has hit a bump, there are strategies that can help you get and stay on track.

Use the guide below to figure out what you should consider. Check out ages besides your own, in case you missed a few steps earlier in life or want to get ahead of the game.

20s

• Harness your most powerful asset. When it comes to retirement planning, you’ve got something that older Americans envy: time. Thanks to the power of compounding and dollar-cost averaging, even small amounts saved at this age may turn into big bucks later.¹
• Set a budget. Nothing is more important to your financial success than spending less than you earn. Create a budget that keeps your spending in line and makes saving a top priority.
• Earn some free money. If your employer offers a retirement plan that matches your contributions, contribute at least enough to get every free dollar allowed.
• Take things into your own hands. If your employer doesn’t match your contributions, you don’t have a retirement plan at work or you’re self-employed, set up your own plan. Learn about IRAs.

30s

• Build the right mix of investments for you. To keep risks in check, a strong retirement portfolio combines many different types of investments.²
• Polish your credit record. A low credit score can cast a big shadow over your financial picture, resulting in higher interest rates, difficulty getting approved for a mortgage, steeper insurance premiums and even rejection by landlords and employers.
• Guard your life. If others depend on you, life insurance is a must. Start by figuring out the right amount of coverage for you. Term insurance will give you the most coverage for your dollar over the short term, but permanent insurance may be more economical over your lifetime. Permanent insurance offers the ability to accumulate a cash value not available with term insurance. While permanent insurance can establish extra cash at retirement, it isn’t considered an investment vehicle.³

40s

• Tackle long-term care. If an illness, accident or advancing age puts you in a position of needing help with daily activities, long-term care insurance can help cover bills that could reach more than $70,000 a year, according to the U.S. Department of Health and Human Services. If you buy it now, you’ll generally pay lower premiums over the life of the policy than if you wait until you’re older.
• Keep your priorities straight. If you have children, another big goal is probably on your mind: saving for college. A 529 college savings plan offers a tax-advantaged way to do that, but retirement should still be your top priority. Loans are available for college but not for retirement.
• Review your life insurance. Make sure your coverage has kept up with life changes, such as marriage, children, mortgages and other commitments. If you don’t have permanent insurance, consider switching some of your coverage to a longer-term solution.³
• Consider moving to a Roth IRA or contributing to a Roth 401(k) if it is provided by your employer. Internal Revenue Service rules allow you to shift money from traditional IRAs and employer plans to Roth IRAs. Why would you want to? Because, unlike traditional retirement accounts, qualified withdrawals from Roth IRAs are tax free. See how a conversion might help your bottom line.⁴

50s

• Simplify your retirement savings. If you’ve worked for several employers over your career, you may have retirement money scattered in different places. Managing your money may be easier when it’s all under one roof — use IRA rollovers to bring it all together.⁴
• Estimate your retirement expenses. The closer you get to retirement, the easier it is to see how much spending money you’ll need — and what you need to save.
• Double-check your investment mix. You’re getting closer to the day when your paycheck is going to come from your portfolio. If you’ve had the stomach for risky investments, it may be time to become more conservative in your approach. Guaranteed savings annuities help protect your assets, provide tax benefits and can be turned into income you’ll never outlive.⁵
• Plan for your estate. While everyone should have a will, living will, power of attorney and other estate planning documents, the need grows more urgent as you get older.

60s and beyond

• Make a savvy Social Security decision. Most people are eligible to begin receiving Social Security payments at age 62, but the longer you wait, the higher your income may be. Learn to maximize your payout.
• Make an income plan. Tapping your retirement portfolio can be more complicated than building it. Use a retirement income planner to figure out the best way to create the income you’ll need.
• Build your own pension. Ideally, you’ll have enough income from guaranteed sources, such as employer pensions and military retired pay, to cover your regular living expenses. If you don’t, consider using some of your savings to buy a guaranteed income annuity. It can provide income that lasts a lifetime.⁵
• Plan for a healthy retirement. While many expenses drop in retirement, don’t expect health care to be one of them. Before retiring, find out if your employer offers retiree medical coverage and learn about other options for securing health care in retirement.

¹ Systematic investment plans do not assure a profit or protect against loss in declining markets.

² Rebalancing and diversification does not protect against losses or guarantee that an investor’s goal will be met.

³ Permanent insurance may establish extra cash at retirement but is not considered an investment vehicle.

4  Since conversions are subject to ordinary income taxes, you should consult a tax advisor regarding your particular situation.

⁵ There may be tax consequences associated with the transfer of assets. Indirect transfers may be subject to taxation and penalties. Consult with your own advisors regarding your particular situation.

⁶ The fixed annuity guarantee against principal loss depends on the claims paying ability of the insurance company.

Investment and insurance products are not deposits, not insured by FDIC or any government agency, not guaranteed by the Bank. Investment and certain insurance products may lose value.

Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan.

There are costs associated with annuities, including surrender fees, early withdrawal penalties and mortality risk expenses.

Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.

Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

I was doing some research on the Thrift Savings Plan the other day and discovered something I didn’t know and I suspect a lot of folks don’t realize as well.  What is it?  Well, you can move money into a TSP from IRAs and qualified retirement plans.

You can do this either before or after you leave government/uniformed service, but you do have to have a TSP in place before you can make the transfer (i.e. you can’t open a TSP account with a rollover/transfer).  And, you can only open a TSP account while you are still employed by the government.

Why would you want to do this?  Expense ratios are a pretty good reason.  TSP has an overall expense ratio of .025%.  Even a low expense leader like Vanguard has an expense ratio of .07% on its Total Stock Market ETF.  The difference in expense ratios for target date funds is even greater (.025% for TSP vs. a .59% industry average).  Expenses matter and in a recent Morningstar research report they stated that expense ratios are a very strong indicator of future performance.

Using TSP might not be the right choice for everyone, but once you’ve left government service you won’t have the choice if you haven’t opened an account already.  Something to think about…

For more information, see the link below.

https://www.tsp.gov/planparticipation/transfers/benefits.shtml