Who Really Wants to Be a Millionaire

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Who Really Wants to Be a Millionaire

• Lt Col Kevin Forbush
• Capt Michael Safko
• Department of Law

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10 Rules For Financial Success
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Overview

• Building the Foundation for Your Family
• Who Really Wants To Be a Millionaire?
• 10 Tips to Financial Success
• Military Disability and Death Benefits
• How to Make the Wrong People Rich - 10 Estate
  Planning Mistakes That Can Hurt Your Family
  
• Planning for a Comfortable Retirement and Family
  Security
  
• Estate Planning for the Career Airman
• Planning for a Comfortable, Secure Retirement

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Building the Foundation for Your Family
Who Really Wants to Be a Millionaire?
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10 Rules for Financial Success

• 1. Invest often
• 2. Invest early
• 3. Invest well
• 4. Fully fund all retirement accounts
• 5. Never increase spending to meet increased
  income
  
• 6. Eliminate non-mortgage/non-educational debt
• 7. Make sure you are properly insured
• Remember your house is your most important
  investment
  
• Avoid guruslearn about financial matters
• 10. Make a budget and stick to it

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1 Invest Often

• Aim for 15-25 of your income
• Automate your savings
• Dollar-cost-averaging leverages your investments
• Geometric growth the power of compounding

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The Beauty of Compounding
285,345
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2 Invest Early

• Compounding means geometric growth largest
  payoff comes in later years
  
• But it also means theres a penalty for
  procrastination
  

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400,000 Penalty For Procrastination
713,823
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Start Early and Invest More
1,427,647
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3 Invest Well

• Risk vs. Return
• Asset allocation
• Diversification

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Risk v. Return
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Asset Allocation
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Diversification

• Put all your eggs in one basket

• Or.
• Invest across different companies
• Invest across different industries
• Invest across different countries

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Mutual Funds

• A way to diversify and balance your portfolio?

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Mutual Funds

• Pros
• Instant Diversification
• Asset allocation (balanced funds)
• Easy to get started
• Low initial minimums and subsequent monthly
  contributions
  
• Dollar cost averaging

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Mutual Funds

• Cons
• Fees
• Management Fee (Expense Ratio)
• Load vs no-load
• Long-term performance
• Fund objectives vary substantially
• Yearly taxes

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Mutual Funds

• Consider Index Funds
• Very cost efficient
• Diversified
• Outperform 1/2 of actively managed funds
• SP 500 / Total Market

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SP Growth
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SP Return
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SP 500 After Tragedies
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4 Fully Fund All Retirement Accounts

• This includes
• IRAs
• 401(k)
• 403(b)
• Thrift Savings Plan (TSP)

Hughs Mortgage Financial Calculators
http//www.interest.com/hugh/calc/
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IRAs

• 4000 per person/8000 per couple
• Roth v. Traditional
• Deductible?
• Taxable?
• Mandatory Withdrawals?
• Penalties?

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IRAs
Not deductible beyond certain income
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IRA Changes

• Increased Amount
• 2005-2007 - 4,000
• 2008 and on - 5,000 indexed for inflation
• New Over 50 Catch Up Provisions
• 2002-2005 - 500/year
• 2006-2007 - 1,000/year
• 2008 and on - 1,000 indexed for inflation

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401(k) and 403(b)

• 401(k) and 403(b)
• Max the matching dollars!
• Similar rules to IRA, except maximum
  contributions are 14K and these accounts are
  deductible and deferred

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401(k) and 403(b)

• 401(k) and 403(b) Changes
• 2004 - 13,000 3,000 Catch up
• 2005 - 14,000 4,000
• 2006 - 15,000 5,000
• 2007 and beyond - indexed for inflation

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DoD Thrift Savings Plan

• Up to 10 of base pay special pays
• Up to 14,000 annual contribution, no matching
  for uniformed military
  
• Automatically deducted from pay so paid for
  with pre-tax dollars
  
• Grows tax deferred
• Open seasons soon to be eliminated

http//tsp.gov
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DoD Thrift Savings Plan

• 5 Investment Vehicles Currently
• G - (Govt Securities Fund)
• F - (Fixed Income Index Fund)
• C - (Common Stock Index Fund)
• S - (Small Cap Stock Index Fund)
• I - (International Stock Index Fund)
• 1 Investment Vehicle Coming Soon
• Lifecycle Fund

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5 Never Increase Spending to Meet Increased
Income

• Invest your pay raises
• Investing small amounts counts
• Ramen Noodles Lunch of Investment Champions!
• Turn your 5.00 lunch into 229,000!

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6 Eliminate Non-Mortgage/Non-Education Debt

• The real cost of credit card spending
• Pay 70 more
• Impulse spending
• The best rate of return on your money!
• Pay it off and cut it up!
• Car payments

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The Real Cost of Debt
1,000 balance
and 18 APR
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7 Be Properly Insured

• Life Insurance
• Do you need it?
• How much?
• What type?
• Liability Insurance
• You do need it!
• How much?

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Do I Need Life Insurance?

• Two purposes of life insurance
• Protecting family (resource replacement)
• Liquidity need cash now!

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Types of Life Insurance

• Life Insurance
• Term-pure insurance
• Hybrid-insurance forced savings
• Whole life
• Guaranteed rate of return
• Guaranteed insurability
• Buy term, invest the difference
• Assumes discipline

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Liability Insurance Limits

• Dont just buy the minimums
• If you want to save, save on comprehensive,
  collision deductibles
  
• Umbrella liability policy

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How Much Life Insurance?Capt w/12 Years Active
DutySpouse and 2 Children (Ages 6 8)
Monthly Income
GAP
SS
SGLI
DIC
DIC
Age
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8 Housing Is Your Most Important Decision

• Should you rent or live on base?
• Stretching your BAH dollar
• Value of utilities, quality of life
• Buying or renting housing
• Assess the housing market
• Length of stay, desirability of location
• Interest rates
• Tax considerations
• Saving on real estate commissions

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9 Avoid Gurus and Scammers

• Authentic good deals dont need boiler room phone
  solicitors or junk mailers!
  
• Beware of free offers they arent
• Remember that the power of compounding works
  both ways

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Too Good to be True?
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Looks Like a Good Offer
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Look at the Back
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What am I Endorsing?
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What are the Terms?
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Read the Fine Print
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Too Good to be True?
You Bet . . .
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10 Make a Budget and Stick To It

• The Best (and worst) investment decisions you can
  make
  
• BMWs, RVs, ATVs, snowmobiles, boats and other
  money-eaters
  
• The cost of time payments
• Staying informed

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THERE IS IT ALL CLEAR NOW?

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PEP Team Contact Info

• FOR SCHEDULING VISITS OR QUESTIONS
• Captain Michael Safko
• Assistant Professor of Law
• Address HQ USAFA/DFL
• 2354 Fairchild Drive, Suite
  I-J145
  
• USAF Academy CO 80840-6248
• Phone DSN 333-3680 or [phone]
• Email Michael.Safko_at_USAFA.AF.MIL

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I n t e g r i t y - S e r v i c e - E x c e l
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