5 Key Financial Moves Before and After Deployment
Ignoring money matters until the last minute can be a costly mistake. Start planning now.
When you think about deployment, financial opportunities may be the last thing on your mind. But ignoring money matters at this busy time could be a costly mistake. Start with the fact that your paychecks grow when you receive tax-free income in a combat zone, and you have access to extra savings programs that help you stretch your money even further. It’s also important to protect your money from identity thieves while you're gone and to be ready for unexpected bills you can't control. The better you prepare, the better you’ll be able to protect your family and your finances.
Lt. Col. Greg Nowak, 39, is a security forces officer and squadron commander in his 17th year in the Air Force. He’s usually stationed at the U.S. Southern Command in Miami, but has been deployed to Saudi Arabia and Iraq, and is currently in Southwest Asia. He and his wife, Amy, have plenty of experience preparing for deployment. You can learn from the steps they took to prepare their family finances.
Review Estate-Planning Documents and Beneficiaries
Before he left for his latest deployment, Nowak had the base legal affairs office draw up a power of attorney that gives Amy authority to handle his finances while he's gone. This is one of the most important legal documents to execute because you never know what financial issues will crop up while you're away. You can grant a general power of attorney, which gives your representative broad powers over financial transactions. Or you can use a power of attorney for specific transactions, such as buying a house or car while you’re deployed. Since this document hands off control of your finances, be very careful about who you name. A power-of-attorney document generally has a time limit, so make sure yours is still up to date if you’re about to be deployed again.
The Nowaks also updated their wills, which, Greg admits, "was long overdue since the birth of our youngest child." With three daughters, ages 2 to 7, having a will and naming guardians for the children is a must. "While we were at it, we updated all of our beneficiary information on our life insurance, Thrift Savings Plan and IRAs." Such designations legally supersede a will. So, even if a will directs all of your property to a spouse, if a parent is named as the beneficiary on an IRA, the money goes to the parent. (Visit legalassistance.law.af.mil to find a legal assistance office near you.)
Save on Auto Insurance and Phone Service
"In preparation for this deployment, we did a number of things to maximize our saving," says Nowak. "For starters, we garaged my vehicle to save on insurance costs." You can lower premiums by about 75% while deployed by eliminating liability and collision coverage on the stored car, says June Walbert of USAA, Nowak's insurance company. You'll want to keep comprehensive coverage, which will pay if your car is damaged or stolen. Liability and collision coverage can be restored without a rate hike when Nowak is home for a 15-day R&R. Ask your insurance company about specific rules or other potential breaks in your state.
Nowak also suspended his cell-phone service. The Servicemembers Civil Relief Act requires cell- phone companies to let you terminate your contract, without penalty, if you receive military orders to relocate for more than 90 days to an area that is not supported by the contract. (Go to servicemembers.gov for more information about the SCRA.)
Create a Bill-Paying Plan
The Nowaks also came up with a nifty bill-paying strategy. Amy took over the family finances fully (they usually share responsibility) before Greg left, so they could talk about any issues that came up face to face. "Although we've had to discuss some things, mostly over e-mail, it's generally been pretty smooth," he says.
If you don't have a spouse or family member at home to pay your bills, make things as easy as possible by signing up to have bills paid automatically from your checking account or to pay them online. Find out how to access your bank or credit-union account and credit-card records, so you can catch any errors or suspicious activity.
It's also a good idea to put together a "brain book"—a compilation of key information that might be needed in your absence, recommends Patrick Beagle, a former Marine helicopter pilot and now a financial planner. Inventory your financial accounts and how to access them. Include a copy of your will, power of attorney, medical directive and a letter of instruction should anything happen to you. Since this book has such sensitive financial information, only give it to a very trusted family member or friend. For help getting your information together, see the "Organize Yourself" worksheet at the back of this manual.
And be sure to notify your bank, credit union, credit-card companies and other financial institutions about your deployment. Fraud departments have become proactive about preventing theft by spotting and denying unusual charges. It’s better to give them a heads up about your deployment rather than run the risk that your account could be frozen temporarily if the card issuer is unable to reach you with questions about charges from an unexpected location.
Start an Emergency Fund
It's always important to have an emergency fund so unexpected expenses don't drive your family into debt. But it's particularly crucial if you are about to deploy. Try to build up enough cash in an accessible account to cover at least six months' worth of expenses.
Also think about extra costs your family may have while you’re gone. "Try to set aside some extra money to help out the spouse left at home with things such as yardwork and cleaning, or a babysitter to give the spouse a break from parenting," says Nowak. "My family doesn't live in a traditional military community with all of the typical support systems in place, so we budgeted some money for all of those things. It doesn't make being a single parent easy, but it does help."
Make the Most of Extra Savings Opportunities
Your take-home pay will increase while you're receiving tax-free income in a combat zone, making it the perfect time to make the most of the special savings opportunities available to servicemen and servicewomen while they are deployed.
A Savings Plan That Guarantees 10% Returns. Usually, the words "guaranteed 10% returns" are a warning to run away from a scam. But the military's Savings Deposit Program is no rip-off. Deployed servicemembers can invest up to $10,000 in the program and receive 10% annual interest, compounded quarterly. This sweet deal lasts while you are deployed and for up to three months after you return.
You can't contribute to the plan until you're deployed, but you should try to stockpile some money beforehand so you can contribute as much as possible as soon as you are eligible. You don’t want to miss the chance to pocket 10% interest.
For more information, see the Savings Deposit Program at the Defense Finance and Accounting Web site.
Higher Thrift Savings Plan Limits. Deployed servicemembers can supercharge contributions to the Thrift Savings Plan. Most participants are limited to investing $17,000 in the TSP in 2012, but if you receive tax-exempt pay while serving in a combat zone, you can contribute up to $50,000 for the year. Any tax-free pay that goes into the TSP will also be protected from taxes when withdrawn. For more information, visit www.tsp.gov.
Totally Tax-Free Income in a Roth IRA. Saving in a Roth IRA can be a particularly good deal if you're receiving tax-free combat-zone pay. In that case, your money goes into the Roth tax-free and your contributions as well as your earnings come out tax-free, a double tax benefit that's tough to beat. You can contribute up to $5,000 to a Roth IRA in 2012 (or $6,000 if you're at least age 50 by the end of the year). The right to contribute is gradually phased out as modified adjusted gross income for the year rises between $173,000 and $183,000, if you are married filing jointly, and between $110,000 and $125,000 if you are single.