For most Americans, veterans and civilians alike, financial stewardship is a taboo topic. The colloquial phrase “money cannot buy happiness” carries a significant amount of weight. While the phrase is true, financial mismanagement does in fact carry significant problems, which can make happiness seem like a long forgotten dream. Why are Americans so terrible with money? The richest industrialized nation in the world carries more debt than any other, and has the least number of retirees that are prepared for retirement. How did this happen? The biggest issues with Americans and their money comes down to several factors. Financial disorganization, lack of education, misconceptions, and failed products and strategies are among the top culprits.
Transitioning Benefits & A Change in Philosophy
When leaving the military, many people do not understand how to transfer their benefits in preparation for future health issues or other life possibilities. During the transitioning process, benefit elections can be daunting and confusing, yet are of the utmost importance. In a system where we are rarely educated of our options, it is difficult to know which benefits we should keep, transfer, or supplement in anticipation of losing the full suite of benefits offered while in service.
Most veterans realize that while in active duty, they receive a $400,000 life insurance policy offered through the SGLI plan. During transition, many do not realize the importance and benefit of transferring their SGLI policy into a VGLI policy before the offer expires. Transitioning service members are given one year and 120 days to transfer to the VA’s version of the service members’ life insurance. The VA will offer a comparable amount without health testing if applied for within 240 days of separation. This is called guaranteed issue. The threat of not availing of this benefit can leave one uninsurable after service, and thus unable to receive additional policies in the future. The VGLI product is also guaranteed at the same rate as at issue date, which is based on your age at separation, without increases for the lifetime of the service member. This is a benefit which is hard to come by outside of whole life products, which grow cash values, often offer dividends, and can act as more of an investment vehicle than a simple life product.
Other key military offerings that merit transferring include TSP accounts and health care insurance. These are often products veterans can look to their employers to provide, but will sometimes require them going to outside investment strategists or brokerage firms. It is important to take care of these transfers, as being without them can create financial vulnerability. If an employer is willing to match a 401k investment, it can be worthwhile to use this tax-deferred option. However, if an employer does not offer a match, using a Roth IRA can make more sense for taxing purposes, as it is likely that future realized tax rates could be higher than current rates.
Healthcare coverage is also a very important proponent of financial stability. There are companies who cater to veterans and their families, and if an employer will not offer a healthcare plan with partial premium coverage, health brokers can be very beneficial.
Supplementing Financial Security
Some coverage types are not included within military benefits, but can be imperative in financial security. These include disability insurance, umbrella liability coverage, and supplemental or critical illness products. Working veterans’ largest asset is their ability to make money. If this asset is debilitated, liabilities increase. In short, people spend through their savings accounts or use credit cards, hindering themselves from creating strong balance sheets moving forward. They may grow past it, but without income protection, a vicious cycle is created when a new accident or critical illness occurs. Ensuring you have protection from these crises can preserve your overall financial stability.
Start Now - Break the Cycle
Alas, wavering financial stability and the inability to save for retirement are nothing new, and becoming increasingly problematic. With the increase in the average lifespan, inevitable extinction of pensions, and terribly poor savings habits, more Americans are stepping off, if not forced due to extenuating circumstances, into retirement with insufficient savings. More retirees are having to drastically cut their post-career lifestyle, while increasing their dependence on an underfunded social security program, in hopes that their savings will last. Unfortunately, this is often not enough. Many Baby Boomers are stepping off into retirement with only enough money to last them a decade or so. Further, with constant advancements in technology, our elders will have tremendous difficulty finding employment to cover their retirement funding gap and cover increased healthcare costs.
What is the Solution? START NOW! Today is the day to begin taking yourself seriously financially. It’s natural to want to live in the moment, especially after going through the trials and tribulations of being in the service. Though it is of utmost importance to find the joys in life, be weary of spending your wealth with reckless abandon. Stop getting in your own way of being successful. Whether it is fear, embarrassment, or procrastination, we are the largest hurdle to our own effective financial stewardship.
Steps to Financial Stewardship
• Get Organized - Awareness and organization is of utmost importance. Considering the increased number of financial institutions, we regularly transact with, we run an increased risk of taking on unnecessary debt, overages, and late fees, slowing the growth of our savings. Stay cognizant of all the financial institutions you work with, have a full understanding of the costs & fees associated with them and build a strategy to grow your wealth.
• Become a World-Class Saver - The wealthiest understand that it literally takes money to make money. As we save large pools of money, we become able to allow our dollars to grow over time. Increase your savings habits to eventually save 20% or more of your income. This may not happen overnight, but is possible with continuous awareness. Make a game of it; set goals, stay aware, and continue to adjust your savings strategies.
• Have Proper Protection - Protect your health, assets and your ability to have an available fund to fall back on. If you are sick or hurt and don’t have health, disability, or other types of insurance, any savings you had attained will be spent down to deal with the situation. Financially stable people pool their risks. Regardless of the level at which you are needing coverage, keeping that risk pooled is always going to be important.
• Build Cash Reserves - Building an opportunity/emergency fund is integral for financial freedom. Having 6-months of one’s income in liquid (accessible) savings vehicles, allows one to endure times of financial distress or avail of once-in-a- lifetime business opportunities.
• Live Debt Free - Unlike the common belief, some debt is ok. If you can leverage your debt at a lower interest rate than what your savings can earn, it may be better to keep your own liquidity rather than giving away your personal assets. Carrying high interest debts, though will only damage your future financial prospects, and should be kept to a minimum. Paying these debts off should not come before personal emergency funds, though.
• Get Professional Help - Emotional decision making is the number one cause of financial distress. It takes an outside perspective to have a full understanding of one’s finances. A qualified advisor who operates with integrity will have access to a full suite of savings vehicles to fit for your needs. They understand the importance of efficient cash flows, business structuring and tax strategies and can make professional recommendations, eliminating emotion from the equation.
- Allen Devers, Shawn Kuehn and Andrea Duhon