personal finance
Long-Term Care, Disability, and Umbrella Insurance: Do I Need All of This?
This video podcast/screencast is a recording of a talk I gave at a national Emergency Medicine conference two months ago. Bottom line up front:
- Long-Term Care Insurance – You probably don’t need it if you’re financially disciplined.
- Disability Insurance – You might need it.
- Umbrella Liability Insurance – You definitely need it.
Where can you get disability insurance as a military provider?
PhysicianFinancialServices.com
NOTE: I have no financial relationship with these sites, and there is more information on insurance on this page.
Here are the slides:
Playing the Odds – Long-Term Care, Disability, and Umbrella Insurance – Do I Need All of This?
Here is the screencast:
2017 Medscape Physician Compensation Report
Medscape does a large annual survey that examines the physician marketplace. Everyone eventually gets out of the Navy, so I wanted to post a link to it. You may have to register for a free Medscape account to see it:
Navy Implements SGLI On-Line
From Navy Personnel Command Public Affairs
MILLINGTON, Tenn. (NNS) – The Navy announced in NAVADMIN 085/17 that Servicemember’s Group Life Insurance (SGLI) will be available online for Sailors to verify, update and change their insurance coverage amount and beneficiaries starting April 6.
To view or change information, Sailors may access SOES through My Navy Portal at https://my.navy.mil, by choosing the milConnect tab and logging into milConnect system. Once logged into milConnect, Sailors select the “SOES” option under the “Benefits” tab and follow the prompts. Users may access milConnect with a Common Access Card (CAC), DFAS (myPay) account, or DS LOGON account.
“Moving from paper to electronic beneficiary forms will provide a faster, easier method for Sailors to make changes to their coverage and beneficiary information,” said Ann Stewart, Assistant Chief of Naval Personnel for Pay and Personnel.
Using SOES, service members may manage coverage amounts and name and update their beneficiaries. Members may also elect coverage for their dependent children and nonmilitary spouses under the Family SGLI program.
The paper form will still be accepted if a change to beneficiaries must be made and the Sailor has no access to internet, but it is recommended that the change be made online at the first available opportunity.
If a married service member declines coverage, elects other than the maximum amount of coverage, or designates beneficiaries other than the spouse or a child of the member, the spouse is automatically notified by an SOES generated notification.
“This change will help Sailors more effectively manage their insurance needs,” said Alan Gorski, acting deputy director, Navy Casualty Office. “We encourage all Sailors to login and make sure that their SGLI information is uptodate to prevent unexpected stress on their loved ones should something happen to them.”
SGLI is a program of low cost group life insurance for service members on active duty, ready reservists, members of the National Guard, members of the Commissioned Corps of the National Oceanic and Atmospheric Administration and the Public Health Service, cadets and midshipmen of the four service academies and members of the Reserve Officer Training Corps. SGLI coverage is available in increments of $50,000 to a maximum of $400,000. SGLI premiums are currently $.065 per $1,000 of insurance, regardless of the member’s age.
For more information about SOES visit: www.dmdc.osd.mil/milconnect. For more news from Navy Personnel Command, visit www.navy.mil/local/npc/.
USAA Launches New Online Calculator to Assist with Changes from DoD’s New Blended Retirement System
Here is a link to an article about this tool:
USAA Launches New Online Calculator to Assist with Changes from DoD’s New Blended Retirement System
Here is a direct link to the tool:
Opt-In to Blended Retirement System NAVADMIN
Below is the Blended Retirement System (BRS) NAVADMIN that just came out. If you are one of the people who can choose between the current system and the BRS, you can read what I think about it here. Active duty are opt-in eligible if their Date of Initial Entry into Military Service (DIEMS) is on or before 31 December 2017 and they have less than 12 years of service as of 31 December 2017. You can find your DIEMS on your LES on the right-hand side. Here is an image of my LES where you can see my DIEMS is February 21, 1997:
Because I have more than 12 years of service, I am not opt-in eligible and have to stay with the current system (thankfully).
Bottom line…stay with the current system if you are staying in for 20 years.
UNCLASSIFIED
ROUTINE
R 281546Z NOV 16
FM CNO WASHINGTON DC
TO NAVADMIN
INFO CNO WASHINGTON DC
BT
UNCLAS
PASS TO OFFICE CODES:
FM CNO WASHINGTON DC//N1//
INFO CNO WASHINGTON DC//N1//
NAVADMIN 259/16
MSGID/GENADMIN/CNO WASHINGTON DC/N1/NOV//
SUBJ/NOTIFICATION OF ELIGIBILITY TO OPT-IN TO THE BLENDED RETIREMENT SYSTEM//
REF/A/DOC/NDAA/13APR15//
REF/B/MSG/CNO WASHINGTON DC/271444ZSEP16//
REF/C/MSG/COMNAVPERSCOM MILLINGTON TN/151015ZAUG16//
NARR/REF A IS SECTIONS 631 THROUGH 635 OF NATIONAL DEFENSE AUTHORIZATION ACT,
SUBTITLE D – DISABILITY PAY, RETIRED PAY, AND SURVIVOR BENEFITS.
REF B IS NAVADMIN 217/16, ANNOUNCEMENT OF THE BLENDED RETIREMENT SYSTEM FOR
THE UNIFORMED SERVICES.
REF C IS A GENADMIN, PAY AND PERSONNEL INFORMATION BULLETIN 16-12.//
RMKS/1. This NAVADMIN is the official notification of eligibility to opt-in
to the Blended Retirement System (BRS) in accordance with references (a) and
(b).
2. Reference (a) states all Service members with a Date of Initial Entry
into Military Service (DIEMS) on or before 31 December 2017 are automatically
grandfathered under the current retirement system. However, some Service
members are eligible to opt-in to the BRS.
(a) Active component members are opt-in eligible if their DIEMS is on or
before 31 December 2017 and they have less than 12 years of service as of 31
December 2017, based on their Pay Entry Base Date.
(b) Reserve component members, to include Full-Time Support members, are
opt-in eligible if their DIEMS is on or before 31 December 2017 and they have
accumulated fewer than 4,320 retirement points as of 31 December 2017.
(c) United States Naval Academy, Reserve Officer Training Corps
Midshipmen and Delayed Entry Program members are opt-in eligible if their
DIEMS is on or before 31 December 2017.
3. The window for opt-in eligible members to enroll in BRS will be open from
1 January 2018 until 31 December 2018. Opt-in eligible Service Members must
be in a paid status at the time of enrollment. Service Members who meet the
criteria above but are not in a paid status during the election window, will
be given an opportunity to enroll during their first period of paid status.
Hardship extensions to the enrollment window for opt-in eligible Service
Members who are unable to enroll in BRS during the 2018 enrollment period
will be considered on a case by case basis in line with reference (a). If a
Service Member chooses to opt-in, their decision is irrevocable. Whether you
choose to opt-in or not, all Service Members who are opt-in eligible must
complete the Blended Retirement System Opt-In Course.
4. Commands must notify all opt-in eligible Service Members within their
command. Command administrative departments should also contact their
personnel support divisions on a regular basis to access a list of all opt-in
eligible Service Members within their command. Additionally, those opt-in
eligible Service members who have an up-to-date email address in Navy
Standard Integrated Personnel System in line with reference (c) will receive
notification of opt-in eligibility via e-mail.
5. All Navy commands must ensure that opt-in eligible Service Members
complete the Blended Retirement System Opt-In Course. This course will be
available in January 2017 on Joint Knowledge Online and Navy E-learning.
Although this course will be accessible by all Service Members, completion no
later than 31 December 2017 is mandatory for all opt-in eligible Service
Members. Additionally, command financial specialist can provide support for
unit-level basic financial literacy and BRS education. More robust financial
counseling services are available through personal financial managers at your
local Fleet and Family Support Center or online via a Military OneSource
personal financial counselor.
6. The importance of the decision to enroll in BRS or remain in the current
retirement system cannot be overstated. This decision is among the most
important financial decisions an opt-in eligible Service Member may make. I
am depending on an all-out leadership effort to ensure that the training is
completed and Service Members are making the most informed financial decision
possible.
7. This NAVADMIN remains in effect until superseded or cancelled, whichever
comes first.
8. Released by Vice Admiral R. P. Burke, N1.//
BT
#0001
NNNN
UNCLASSIFIED//
The New Blended Retirement System
There has been a lot of recent activity surrounding the new Blended Retirement System (BRS), and I don’t intend to reinvent the wheel and explain the whole system to you when there are some nice resources that already exist:
Military OneSource BRS Frequently Asked Questions
What I intend to do is give you a bottom line recommendation if you have a choice about using the current retirement system or going with the BRS.
If you know you are going to resign before you are eligible for retirement, you should select the BRS. Under the current system, you would get no retirement benefit, so that is a no-brainer.
If you are not sure how long you are going to stay in the Navy, you’ll have a tough decision to make. I’d read the above resources but also check out this article that discusses how flawed the BRS is:
New Military Retirement System Has Major Flaw
If you know you are going to stick around long enough to be eligible for retirement, my personal opinion is that you should choose to stay with the current retirement system. There are a few reasons for this:
- The BRS shifts risk from the government to you. We buy insurance when there is a risk that we can’t bear ourselves. People buy health insurance because a huge hospital bill could financially ruin them. We buy life and disability insurance because if a breadwinner died or was disabled in our household we wouldn’t have enough money to continue our desired lifestyle. The current government pension system is like retirement insurance. When it comes to retirement, the largest financial risk you run is that you outlive your financial assets. Social security insures against that, but so does your military pension, which regular readers know I highly value. Although the BRS has a pension as well, it is reduced, shifting more of this risk to you.
- Shifting risk to yourself is fine if you invest diligently and aggressively and the market earns a decent return. The problem is that most people don’t invest diligently or aggressively and no one knows what the market return will be over the next 10, 20, or 30 years. There are many people who lack the financial education they need (go here or here to get it) and invest in the Thrift Savings Plan but keep their money in the default option when you sign up, the G Fund. There is nothing wrong with the G Fund and I have some of my own retirement assets invested in it, but it is not designed to earn a high return. It is designed to not lose money and beat inflation. In order to benefit from the extra TSP money that comes with the BRS, you have to earn a high return and will need to be smart enough to invest in something more aggressive than the G Fund.
- If you control your spending, live in a reasonable house, and drive a reasonable car, you can enjoy the higher pension of the old retirement system and fill up your TSP every year, enjoying the benefit of both worlds. We have routinely saved 30% of our pre-tax income for retirement during nearly our entire Navy career, invested aggressively, and reaped the benefits. And I have a retirement pension on top of that?!?! It doesn’t get any better than that.
The $121,500+ Guest Room
I have a wife, two children, two dogs and the need for three bedrooms and two bathrooms. In March 2015 I purchased what I consider to be a modest 4 bedroom, 3.5 bath, 3000 square foot house in a nice neighborhood with quality public schools. The 4th bedroom is largely unnecessary, but like many people we occasionally have visitors and feel that it is nice to offer them a bedroom as opposed to a hotel. This is the story of how that 4th bedroom cost me over $100,000, far more than it would cost to provide our visitors with a hotel room…a REALLY NICE hotel room.
The Guest Room
The guest room and its accompanying full bathroom are approximately 600 square feet. The house sold for $140/square foot, meaning that this extra room and bathroom cost me $84,000. Where I live, you can get a decent hotel room for $100/night. In other words, I could have purchased 840 nights in a hotel room for any guests we have and I don’t think we’ll ever have 840 guest-nights unless we stay in this house for a very, very, long time. In addition, we have a quite comfortable queen size Lazy Boy sleeper couch that could have substituted for the guest room.
Running total: $84,000
The HVAC Incident
“The way they installed this, I don’t even think I can fix it.” That is not what I wanted my HVAC repair man to say, but that is what he said. The guest room did not have its own HVAC zone and because it is above the garage and the insulation is not what it could be, the guest room is always too hot or too cold. And what’s the point of a nice guestroom if it’s not comfortable? After spending $5,000, the guest room had its own wall mounted HVAC unit and zone.
Running total: $89,000
The Exchange Student
Since we have an $89,000 extra room with a bathroom and its own HVAC, we are hosting a Spanish exchange student during the upcoming school year. Hosting an exchange student will likely be a great experience for us all, as I assume it will expand our horizons and hopefully forge a lasting relationship with someone for us to visit in Spain.
I suspect this student, like most humans, will eat and drink and cost some money, so I’m adding that to the running total.
Running total: $89,000 plus whatever a 16-year-old boy eats and drinks during a school year.
Despite the fact that he is of driving age, he is not allowed to drive in the US. This, of course, led to…
The Manny Van
Sometime in August, I will have a wife, two kids, two dogs, and an exchange student. It is (was) going to be tough to get around and do the traveling we’d like to do in our Toyota Prius and Ford Fusion Hybrid. Having a 12, 15, and 16-year-old in the back seat, while technically feasible, was not going to be fun for anything other than the shortest of trips. Plus, we like to bring the dogs.
Enter the $32,500 2015 Toyota Sienna minivan, which I like to call the “manny van” when I’m driving it. I can now haul all living beings for whom I am responsible in the manliest of vans.
Running total: $121,500 plus whatever a 16-year-old boy eats and drinks in a school year
The Moral of the Story
One of the classic financial mistakes that almost all physicians make (including me apparently) is that they spend too much money, buying too expensive a car and too large of a house. Sometimes something as simple as wanting a guest room can lead to unintended and expensive consequences. If we didn’t have a guest room, I would probably have an extra $100,000 and I wouldn’t be driving a “manny van”.
Getting Your Annual CFE (Continuing Financial Education)
We are all required to get continuing medical education or CME. Just as important, however, is continuing financial education (CFE). I’m as busy as the next guy, but I am able to stay reasonably up to date on all aspects of personal finance that are relevant to my situation. Thanks to podcasts, blogs, RSS readers, Facebook, and good old fashioned books, it is easy to stay up to date. Here are some resources I recommend:
- Jonathan Clements Money Guide 2016 and his annual updates. Mr. Clements was a personal finance columnist for The Wall Street Journal, has written many financial books, and has a stellar reputation. He offers solid, no-nonsense advice and covers every topic I can imagine in this guide. Since he updates the book annually, reading it is a guaranteed way to keep up to date on personal finance. In addition, he has a blog at JonathanClements.com that you can follow, and a Facebook site as well.
- The White Coat Investor. This website is free and contains a wealth of information on personal finance topics. Founded by a physician, this site is specific to high-income professionals and often focuses on physicians. There are usually three posts per week, and you can follow on Facebook, e-mail, RSS reader, or by manually checking the blog. If you have questions on any aspect of personal finance, you can probably find a physician-focused answer on this site.
- Vanguard. The Vanguard blog and Investment Commentary podcast focus on the low-cost, passive, index fund investing that have made Vanguard the king of investment companies. The blog is an excellent source of contemporary investment information and current market trends. The podcasts occur monthly and are usually less than 15 minutes in length, making them easily digestible by busy physicians.
- Wealthfront Blog. Written by Burton Malkiel, acclaimed author of A Random Walk Down Wall Street, and other well respected financial writers, this blog is an excellent source of investing information. As you might imagine, the posts tend to focus on the benefits of utilizing Wealthfront’s robo-advisor service, but even if you don’t invest with Wealthfront the information discussed is universally applicable, especially if you invest passively with index funds.
- Mr. Money Mustache. There is an entire early retirement culture online, of which many physicians are unaware. If you have an interest in early retirement, you’ll love this website and the story of Pete (Mr. Money Mustache), a software engineer who retired in his thirties. It is filled with investing information, as well as practical advice on how to save money in everyday life. The site has an anti-consumerism, pro-Earth bent and Mr. Money Mustache is a strong proponent of using a bicycle instead of driving a car, even in the dead of winter. He will show you that retiring early and controlling your spending doesn’t have to lead to unhappiness. In fact, he’ll probably convince you that the less you own the happier you’ll be.
- Money for the Rest of Us. This podcast is hosted by a former investment manager. He does an excellent job of reviewing personal finance and economics topics in shows that are usually about 30 minutes in length. He offers additional content to those that join his “hub,” and like most money managers he thinks he can invest on the “leading edge” of the market. In other words, he thinks he can predict the future and is a little too slanted towards active management for me. That said, however, the shows are well done and extensively researched, and very entertaining with high-quality audio. Even though I don’t agree with active management, many of the topics he discusses are excellent food for thought.
If you regularly utilize these six sources of financial information, it will be easy for you to stay up to date on your CFE.
6th Step to Financial Freedom – The Rent vs Buy Real Estate Decision
The classic advice has always been to purchase your home if you can afford it, but in the military the decision is much more complex. You can’t simply compare your rent versus a mortgage payment. You have to consider tax breaks, fees associated with purchasing real estate, and how long you expect to stay at your duty station. Here’s a breakdown as I see it:
Benefits of Home Ownership
- Interest payments and property taxes are deductible.
- When you sell, gains on home value are federal tax exempt up to $250K if single and $500K if married.
- Making regular mortgage payments forces you to save.
- You can get some significant asset protection as many states protect home equity from lawsuits.
- As you make mortgage payments and accumulate home equity, it serves as a diversifier in your investment portfolio. Real estate is a great hedge against inflation and is only moderately correlated with traditional investments like stocks and bonds.
- Mortgage rates are rock bottom right now, making it easier to purchase a home.
Downsides of Home Ownership
- Most home purchases have a 3-5 year break even period, which just happens to coincide with the length of most residencies and military tours of duty.
- Real estate appreciation barely keeps up with inflation over the long haul.
- Sudden moves can force you to either sell your house or become a landlord.
- The classic teaching is that purchasing a home is a great investment because you don’t have to pay rent, but buying a home that is too expensive will harm you financially because of all the associated costs, such as heating, cooling, insurance, maintenance, buying, and selling. Expect to pay 5% of the value of the house when buying it, 1-2% of the value each year to maintain it, and 10% of the value when selling it.
Benefits of Renting
- You avoid the fees and ongoing expenses associated with buying, maintaining, and selling a home.
- Rental contracts have military clauses that will allow you to get out of a lease in the event of a sudden military directed move.
- In high-cost areas (Hawaii and San Diego are frequent duty stations that fit this description), it is often much more affordable to rent than to buy.
Downside of Renting
- You don’t get the benefits of home ownership listed above.
Rent vs Buy Calculators
You don’t have to make this decision on your own. Here are two on-line calculators to help you make your decision:
New York Times Rent vs Buy Calculator
The reality is that this is a very personal choice, and there really isn’t a right or wrong answer. What you should do will be based purely on your personal values and likely career path. My personal bias would be to make sure that by the time I retire I have paid off the mortgage on my primary (and hopefully only) residence.
“Flaw” in New Military Retirement System?
Here is an interesting read from Military Times that discusses discount rates and what some experts consider a “flaw” in the new retirement system:
The New Military Retirement System has Major Flaw, Financial Experts Warn
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