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Military Money and Finance
MILITARY RETIREMENT PLANNING
Diversifying Your Military Retirement Plan
Are you looking at your military retirement pay chart wondering how much you need to invest to make your Air Force, Army, Navy or Marine retirement pay work for you? There are some simple concepts to remember that can protect your investments even in the wildest of financial times. You can invest and save to make your post-military lifestyle just as you want it to be.
With a bit of planning, you can set yourself up for a very comfortable military retirement; one that goes far beyond the numbers on your retirement check. Start planning early and save for your entire career. The numbers you calculate over the span of a 20 year military career may surprise you.
To properly save for retirement, you need to have a diverse portfolio; a savings account is only one part of your plan. CDs and savings bonds can be another. Investments in stocks, bonds, and mutual funds can also be part of the plan, but no one of these should be considered your "main" investment. Spread your money evenly over a collection of choices and you give yourself the maximum protection against tough financial times.
You should also ask a financial planner or tax preparer about the implications of your current investment strategy; how will it affect you come April 15th? Military members have access to free tax help when it comes time to file, you'll find a few tax preparers at nearly every military base in the world offering free filing. You may need to pay extra for some expert advice, but it's worth the investment.
BUDGET TODAY, SAVE TOMORROW
The first step in planning for your military retirement is to create a budget and stick to it. The old adage "pay yourself first" applies here; your budget should include a set amount per month that goes into savings and does not get touched. While this is the simplest part of a military retirement plan, it's often the hardest to get right. Why? Aside from the obvious--people like to spend money to buy new things--many service members overlook one of the most important aspects of putting money into a savings account; the interest. How much interest will you earn over 20 years? It's very important to find a military bank or a local branch of an "ordinary" FDIC-insured bank offering the highest interest rates available on a savings account.
Don't make the mistake of leaving all your money in that savings account; once you get enough saved, consider investing in certificates of deposit, which have much better interest rates than a typical savings account. Don't invest your entire savings in CDs; it's better to take a set percentage out for this strategy. Should you have a genuine emergency, you'll have enough in savings to fall back on while still getting more on the money you have in CDs. Remember to read the terms of your certificate of deposit carefully before investing and never put money into a CD, savings bond, or any other investment you don't fully understand.
INVEST YOUR PROMOTION PAY
Once you become a non-commissioned officer your military pay chart shows a big step up in pay. The same goes for junior-grade officers. What do you do with that money once you make rank? There's no better time to start making informed investments based on sound financial counseling. Make an appointment with a financial counselor and ask how you can invest some of that extra money wisely. There are many options--you'll learn about savings bonds, mutual funds and money market accounts. The most important thing about setting money aside for your military retirement is to know exactly what you're getting into. What are the risks? What are the rewards? Military members who plan to invest over the long term do the best--over 20 years you can afford to put your hard-earned military pay into low-risk investments. Don't gamble with risky plans, invest your money conservatively. That said, military members are still tempted by what they see in the stock markets when times are good. The returns do seem promising when the market trends upward. Can you put some of your money into high-risk, high yield ventures? Is it possible to invest your military pay wisely in this area?
TAKING RISKS
Many people decide they want to try investing in some of the riskier financial products available, and there's nothing to stop you from including those investments as part of your military retirement planning. The key is to minimize the risk. Ask the advice of a financial planner first, do plenty of research and above all, don't invest the bulk of your money in risky ventures no matter how much you stand to gain. Protect your hard earned military pay by staying diverse and budgeting a specific, reasonable amount to use for investments that carry greater risk.
There are many tactics stock market investors use to judge the risks of a particular investment. In your research you'll learn about things like the price-to-earnings ratio, the 52-week average, and much more. But don't do a few weeks' research and expect to invest like a pro; here's another situation where it's best to get some sound expert advice before proceeding. You can include a small part of your military retirement budget to invest in stocks and other risk-taking, but you should live by the old gambler's philosophy--don't invest what you can't afford to lose.
BEWARE THE TAX MAN
One reason many military people choose to invest in 401K accounts even though they have a retirement check coming at the end of their 20-year career is for tax reasons. You can invest a specific amount of money per year and qualify for a tax break for that amount. While recent headlines about 401K accounts aren't good, you may wish to consider looking for a suitable tax-friendly retirement investment like a 401K--especially if you have a military family with two incomes. If you need this kind of investment, it's important to get some advice from a tax preparer or financial planner to learn what the current laws are and how you can legally benefit. Don't take the advice of any article or book until you've asked someone in the know---laws are constantly changing and yesterday's tax breaks are often today's expired regulations. Ask an expert first.
SPLIT YOUR BONUSES
It's tempting to spend a large portion of your re-enlistment bonuses, proficiency pay, hazardous duty pay or other bonuses. But a bit of careful budgeting in this area can go a long way towards beefing up your retirement savings account.
If you are a linguist, for example, and are receiving foreign language proficiency pay you can save or invest a portion of that money. Re-enlistment bonuses are taxed up front, so you don't have the same motivation to invest re-enlistment money in a 401K or other tax shelters, but you can take a portion of that bonus and think about savings bonds or just put it into your military savings account. Take a look at your military pay chart and figure out how many times you might re-enlist over a 20-year period. Then figure the right percentage of your re-enlistment bonuses to set aside and do the math. Over your 20-year career you could save a substantial figure for your military retirement savings.
There are more ways to save for the end of your military career than you think. Ask the experts before you invest any money and don't put cash into programs you don't understand. Ask questions, choose wisely, and retire in style.
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