G.I. Bill Comparison Tool: Compare Schools Before You Enroll

Feb 04 2014

Mouse handToday, the government launched a long-awaited G.I. Bill Comparison Tool.  The user-friendly online tool is designed to assist service members and veterans make better choices about their schooling options before they apply for G.I. Bill benefits.

In response to a growing chorus of complaints from student veterans, policy makers and veteran organization stakeholders, President Obama charged the VA with developing a comparison tool in April 2012.

Executive Order 13607 directed Federal agencies to implement “principles of excellence” for institutions that provide educational opportunities for veterans and families, and to encourage them to make informed decisions before applying.

The VA also recently released a G.I. Bill Feedback System to give student veterans, service members and their families a channel to provide feedback if they experience problems with educational institutions receiving funding provided under the Post-9/11 GI Bill and the Dept. of Defense’s military tuition assistance programs.

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Improved Servicemember Mortgage Protection

Jan 30 2014

housekeysImproved Mortgage Protection rules for active military servicemembers were recently written by the Consumer Financial Protection Bureau (CFPB) aimed to alleviate financial challenges unique to military families.

The Consumer Financial Protection Bureau’s mission is “to make markets for consumer financial products and services work for Americans…” through education of consumers; enforcement of laws; and perhaps most importantly, “watching out for American consumers in the market for consumer financial products and services.”

Key mortgage protection changes include:

  • Restrictions on lenders working to foreclose and assist servicemembers simultaneously.
  • Single applications for all options available vice having to repeatedly re-apply for different options.
  • Rules to improve customer service quality and efficiency

Separately, Fannie Mae and Freddie Mac, government-sponsored mortgage backers, have also improved mortgage assistance for military Servicemembers, to include: Short Sale debt relief (similar to VA’s loan “compromise sale” assistance); and military Permanent Change of Station (PCS) moves as a “qualifying hardship” – allowing military families to obtain mortgage assistance before they fall behind on payments.

For more information, check out CFPB’s blog titled Servicemembers, you have new mortgage protections in 2014.

MOAA LIFE and PREMIUM members also have access to NOLO’s Real Estate Guide – answering questions on everything from how to find a real estate agent, to finding loans and mortgages and listing your home for sale!

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Say Hello to Your New Health Care Partner: The IRS

Jan 15 2014

doctor_calculatorI was recently at a two day session on tax preparation for the upcoming year(s). I know…I know, who would willfully do that? One quarter of the instruction covered the tax implications of the Affordable Care Act (ACA) also known as ObamaCare. That is how big a presence the IRS will have in enforcing this law.

I know a lot of the readers of this blog have TRICARE or other government coverage and don’t need to worry too much about ObamaCare. But, a lot of us have relatives (like kids) who will be affected. A lot of this is still being determined, but here is what I’ve learned so far. In no particular order…

  • There are new forms to fill out for some of us. Those with earned income in excess of $200,000 (Married or Single) will have to complete a new Form 8959.  Those with total income (AGI) in excess of $250,000 ($200,000 Single or HoH) and investment income will need to complete a Form 8960. This applies now, as in the 2013 tax year.
  • Families who purchase insurance on the exchanges that want to qualify for subsidies will have to calculate a new number…family income.  This will include the income of all individuals listed on the Form 1040 (i.e. dependents).  So if Junior has a summer job, his income will be counted towards family income.  If things line up just right (or wrong, depending on your point of view) Junior’s income could cause a family unit to lose subsidies.
  • When applying for insurance on the exchange you can receive a subsidy (if qualified) for insurance.  This subsidy is paid directly to the insurance company.  To receive the subsidy, the taxpayer will need to estimate income for the upcoming year.  If the income is estimated too low, then when taxes are filed the taxpayer will need to pay back the “undeserved” subsidy.
  • You are required to have qualifying coverage.  If not, the taxpayer will be subject to a fine (I mean tax, according to the Supreme Court).  Everyone has been talking about the $95 per adult penalty (it is also $47.50 for children, max of two).  BUT, the law also states the fine is 1% of Family Income whichever is GREATER.
  • There are requirements to prove that you have insurance.  For those with insurance provided completely by their employer, insurance coverage will be documented on the W-2.  For those that pay for insurance themselves there will be yet another form to get prior to filing your taxes.  The form should be called a 1099-HTC.  Finally, for those who receive coverage from the government (TRICARE, MEDICARE) I think the IRS will go into your electronic records to verify coverage.
  • The IRS has no authority to levy or assess to enforce the penalty.  They can only withhold penalties from refunds.  So, in other words, if you never have a refund due, you’ll never have to pay the penalty.  However, the penalty will incur interest and they may eventually get you with your final tax return.

Those are some of the big things.  I’ll keep an eye on this for you and provide updates here as I learn them.

For more information on health care for veterans, servicemembers and their families, including the latest on TRICARE premiums, long term care, and pharmacy options, visit www.moaa.org/health.

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Give Pause – Rebalance or Reallocate Your Asset Allocation Portfolio

Jan 14 2014

U.S. stock markets begin 2014 near record highs, with 2013 recording the best annual return for the S&P 500 index since 1997. With the current stock bull market approaching five years old, financial pundits are still predicting further gains for this year, albeit much more modest, and probably not without some noticeable market swings up and down.

eggbasket_WEBLong-term investors following the investor’s ethos ‘don’t put all your eggs in one basket’, needn’t concern themselves with market swings, or even year-to-year performance. These investors follow a widely popular strategy of portfolio asset allocation and systematic rebalancing. If you are not already following this strategy, a few simple changes will provide you some protection from market volatility over the long-term.

Asset Allocation

Simply, asset allocation is based on the notion that stocks and bonds perform differently. Portfolio asset allocation aims to balance the investor’s potential risks and rewards by allocating a percentage of investment funds into various asset classes; in broadest terms, either stocks, bonds, or cash. The right amount of ‘eggs’ in each basket is the investor’s target asset allocation mix based on the investor’s goals, time horizon and risk tolerance.

And because stocks and bonds perform differently given market and economic conditions, over time, an investor’s current asset allocation will drift from their target allocation – requiring the investor to ‘rebalance’ or buy and sell to redistribute assets back to the target mix.

scales_WEBAsset Rebalancing

Systematic rebalancing prevents the distortion of an investor’s desired risk-reward balance of the target portfolio allocation that occurs when one asset class significantly out-performs other asset classes and subsequently dominates an investor’s portfolio.

Think of the 2000 dot-com tech bubble collapse or the 2008 financial crisis – these particular events had significant stock market increases prior to the collapse – these run-ups skewed many investors’ risk-reward balance, and the investor, in effect, had ‘too many eggs in one basket’ at the time of market collapse.

Given the higher returns run of the stock markets this past year – rebalancing may be your best course of action. While it may seem counter intuitive to scale back a hot performing asset class, by rebalancing, an investor is in fact, selling high, and using the proceeds to maintain the desired risk-reward exposure based on risk tolerance and time horizon to goals.

However, investors with a shorter time horizon should give pause before rebalancing.

Your Risk Tolerance

The Federal Reserve has indicated that it will likely raise interest rates starting in 2015 creating headwinds in the bond market; in addition pundits have argued that low interest rates have artificially propped up the stock market. As such, the potential for increased interest rates looms ominously over the financial markets. This uncertainty combined with continuous rhetoric and speculation creates so much confusion that it serves to fuel market swings in both stocks and bonds.

How much, how fast, and exactly when the Fed raises interest rates is still anyone’s best guess. To the long-term investor this is just ‘noise’ to simply ignore and stay on course with systematic rebalancing.

But, if this ‘noise’ keeps you awake at night, then it is likely that your tolerance to risk or time horizon has changed; in this case, don’t re-balance… Re-allocate.

As mentioned earlier, a portfolio asset allocation mix should be a reflection of the investor’s risk-reward balance based on an investor’s goals, risk tolerance and time horizon. If your risk tolerance and time horizon has changed, since establishing your current asset allocation mix – invariably unavoidable as an investor ages through life and work paths – portfolio re-allocating, and not portfolio re-balancing may be more appropriate.

If you would like to know more, call and talk to one of MOAA’s on-staff Financial Planners, or check out The MOAA Investors’ Manual.

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Market Ups and Downs—Cause for Concern?

Jan 09 2014

The stock markets have been on a roll since March of 2009. As is the case after a lengthy run up, many experts are starting to wonder about how high this market can go.

The economists and market analysts all have their opinions and research but most of the experts we read tend to maintain a positive outlook; and it’s not because we only read the optimist. Per their wisdom, compared to the late 1990s, the stock markets are not over valued as they were then.

While there are many ways to measure the value of the stock markets, most experts believe there is more room to grow. Many point to indicators like, high unemployment, the economy has not caught fire, interest rates are low, inflation is not a factor, and companies are sitting on large cash reserves, as the gauges that stock markets still have legs for a longer upward run.

In the light of increasing stock market values and optimism above, that doesn’t mean a “pull back” or downward correction isn’t possible. Since March 2009, there have been noteworthy corrections, in April 2010-July 2010 (down 14%) and July 2011-September 2011 (down 15%). These are normal and healthy corrections after run ups. A 10 to 15% correction wouldn’t be unusual on the horizon.

10yr DOW-SP500 chart 2014Click on image to enlarge.

That said; should any of this matter to you? I suggest it shouldn’t. The key to managing your investments is how you employ proven portfolio strategies. Swings in the markets should not be a factor. If you use suitable investment strategies, short-term market swings are anticipated in your game plan and whatever happens, up or down, is expected and dips are desired in some cases.

For more information on the strategies I refer to, see the MOAA Financial Frontline Blog by clicking on “Investments” under the “Categories” title on the right side.

Market swings should concern you if:

  • your portfolio allocation is not appropriate for your life’s objectives.
  • you are a speculator; someone who tries to time the markets for your buys and sells.

You can easily fix the allocation issue in the first bullet. If you are market timer in the second bullet, you may not want to change but probably should.

Employed people should consider concentrating on their 401k/TSP/IRAs by averaging down, having an allocation that enables the accumulation of ownership, and rebalancing your portfolio annually. Fully retired people should consider a focus on a well allocated portfolio that balances principal preservation with growth and income production.

Download The MOAA Investors’ Manual online or order it by calling MOAA. Also read other articles on the MOAA Financial Frontlines Blog.

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