5 Simple Steps to Improve Your Military Financial Plan

Our Mission

This webinar series is brought to you by AAFMAA Wealth Management & Trust. Our mission is to be the premier provider of financial planning, investment management, and trust services to the American Armed Forces Community. AAFMAA Wealth Management & Trust is a fully owned subsidiary of AAFMAA. AAFMAA, has proudly served America's Armed Forces since 1879. AAFMAA is a non-profit, tax-exempt (501[c] (23)), member-owned mutual aid association offering life insurance to all branches of the U.S. Armed Forces and their families.

Disclaimer

Also, a few disclaimers: This presentation is educational. It is for general information only and is not specific investment, legal, or tax advice for any of you individually. Do not rely on this presentation alone to guide your investment management decisions. Since each situation is unique, your needs for financial services will differ. For individual advice, please contact us directly. We produce this webinar series in-house with our professional staff as a service to our members to help them better understand the resources that are available to them. We have highlighted here two distinct characteristics that separate AAFMAA Wealth Management & Trust from other service providers: [1] Our fiduciary standard, which requires us to always act in our clients’ best interests, and [2] we exclusively serve the U.S. Armed Forces Community.

5 Simple Steps to Improve Your Military Financial Plan

Hello, I’m Danielle Nuxoll, an active-duty military spouse and Relationship Manager for AAFMAA

Wealth Management & Trust. Thank you for joining me today for our webinar, “5 Simple Steps to Improve Your Military Financial Plan.” A comprehensive financial plan takes a holistic approach to understanding your entire financial life and considers how one decision can impact other areas in your plan. As a Veteran, you may feel like you have the knowledge to improve your financial plan but would rather spend that time on your second career, your family, or your grandchildren. Plans are designed to change. Your retirement is only a blink of an eye, so don’t waste it playing with numbers. We value your time and I’m proud to present five steps you can take to improve your financial plan.

Agenda

Here is the agenda we will follow today. To improve your financial plan there are 5 key items to continue to improve and maintain in your financial plan. Goals and objectives, budget, insurance, investments, and estate documents. Last but not least, the importance of a partner. We’ll discuss how implementing concierge service from a financial professional who understands the military can improve your quality of life while staying on track towards achieving your financial goals.

Key Items to Update - Goals and Objectives

Step 1, Goal & Objectives. At AAFMAA Wealth Management & Trust, we start each financial plan by reviewing your goals and objectives. This is important because it is essentially the driving purpose behind your plan.

Goals and Objectives

In our process, we explore why are we working; why are we saving; where do we want to be; and how are we going to get there? These questions help establish the direction and steps necessary to take in your financial plan because a lot can change over time. It’s also important to reevaluate your goals and objectives periodically for how those changes impact cash flow. For example, during COVID a lot of families stayed home. Some of them may still be staying home. Instead of spending money on travel, eating out, entertainment, and other activities, some families saved more each month. What happened to those savings? Are they still idle in a checking account? Were they invested? Are they being saved for a major purchase? What effect does this have on long term objectives? This adjustment in life circumstances can have a big impact on your financial plan. One way we address goals & bjectives in our planning process is by scheduling a Financial Planning Discovery Call. It’s during this conversation that we take the time to establish a relationship and consider the impact these events can have on your overall financial plan.

Key Items to Update - Budget

Step 2, Budgeting & Cash Flow Analysis. This is an important update to maintain in your Financial Plan because it is the driving force behind the answers to some of the most popular financial planning questions.

Budget

We typically hold a Data Confirmation meeting to review your budget in our planning process because a plan can only be as good as the data inputted. For example, if you say you spend $40,000 in living expenses and we craft a beautiful financial plan, then in reality you spend $60,000 each year… all the projections will show growth when in reality you might not be saving as much as the plan expected. This can lead to a very different result in your financial security and cause your goals and objectives to be missed. Does your budget align with your goals and objectives? The more insight that you can provide to your everyday living expenses, the more accurately changes can be made. Understanding your income, expenses, lifestyle, and desired standard of living are important because this will impact savings. When we discuss your cash flow, it includes a detailed annual listing of income vs. expenses. In calendar years where there is a surplus or excess cash flow, we look at the best use of the extra funds. This could be paying down debt, building a cash reserve, maximizing retirement plan contributions, or investing in a non-qualified, post-tax account. In years with a deficit, we look at the best way to cover the deficit in the most tax-efficient way. Most of us spend a significant amount of our lives working. It’s easy to get caught up in focusing on our income while neglecting monitoring our expenses. Focusing on both can have the greatest impact on our financial success. We like to call this budget a “pulse check.” AWM&T Chief Investment Officer, Arthur Lyons thinks of it as a speedometer, so you can evaluate how fast you’re going. For example, if you set a budget of $80,000 per year, and in March you have already spent more than $40,000, then we know you may be moving a little fast. This is when we need to ask ourselves if an adjustment needs to be made. It could be avoiding what is known as “lifestyle creep,” or it could be amending our budget. Many will opt to take the easy road and change their budget because it’s harder to make changes to our standard of living.

Key Items to Update - Insurance

The next step, step 3, is insurance. This is for when mayhem strikes and anything that can go wrong will.

Insurance

Take time to review. There are bound to be moments in your life when you are making big changes. This could be retiring from the military, transitioning to a civilian career, or embarking on full retirement. These changes can lead to a number of questions and concerns. One of the most common questions we hear is “How much insurance do I need?” So let’s first talk about property insurance to protect our personal use assets. This can include auto, homeowners, boats, motorcycles, and even umbrella policies. Some questions to begin with are…Is the insurance coverage on your car enough? Is the deductible the right amount? Are your assets protected if you cause an automobile accident due to inclement weather? Are there discounts for bundling services? Policy amounts and premiums can change each year so be sure to include this as a part of your review.

In addition to property insurance, we need to consider Life Insurance, Disability Coverage, and LTC. We see three purposes for life insurance. The first and most common is income replacement. If an income earner in the household has a premature death and his or her income stream ceases, do the surviving family members have sufficient assets and benefits to maintain lifestyle, cover education costs, etc. for the surviving spouse’s lifetime? Another purpose is liquidity needs. These are more typical for business owners or those heavily invested in real estate. If the surviving spouse doesn’t want to sell the business or property during a down market, life insurance proceeds need to provide the adequate cash flow. The third reason is estate planning purposes. Perhaps your goal is to leave a certain amount of money for children, grandchildren, or a charity, and your current assets are not sufficient to fund that goal. Life insurance can be a cost-effective way to provide for that goal if you have a premature death. And lastly, always take time to verify appropriate coverage for your specific needs and beneficiary information. We can also review your current disability insurance coverage and analyze if it is sufficient should you become disabled and unable to work. We examine the different tax treatment of benefits you would receive from disability coverage paid by your employer vs. a policy that you pay the premiums on. This impacts whether it’s considered ordinary taxable income or tax-free dollars. As it relates to long-term care, we stress-test your financial plan to see if you could self-insure for a possible long-term care situation. We discuss your current medical/health status and family medical history. If there are cases of dementia, Parkinson's, or Alzheimer's that run in the family, we would recommend a test of long-term care expenses that start at age 70, 75, or 80 and continue until your full life expectancy of 90-95. Then if appropriate, we discuss long-term care insurance or long-term care settlement options on permanent life insurance policies and illustrate the cost/benefit in an alternate scenario. All in all, insurance is an important consideration in your financial plan because you have worked hard for the personal use assets you’ve acquired and for the lifestyle that you’ve accomplished. Let’s work together to ensure your family’s financial success through troubled times.

Key Items to Update - Investments

Step 4 is investments. Investments are the flashy part of financial planning especially with today’s market volatility being driven by investor’s emotions, fear, and anxiety. It’s important to understand some basic concepts in regard to investing – time horizon and risk tolerance.

Investments - Time Horizon

If 2008 taught us anything, it’s that you should always be prepared and protect yourself from a downturn in the market. Do you know what your financial outlook would be if you were to experience a bear market? Knowing you would have less time to recover, have you planned to change your investment strategies as you near retirement to protect your finances in this scenario?

Some questions to ask yourself and/or your financial professional include:

• Am I properly allocated to meet my goals?
• How much risk am I taking in my overall portfolio?
• What is the impact of a bear market on my portfolio?

Market volatility and time horizon must coexist. Until you’ve taken a distribution, sold an asset or rebalanced your portfolio, the market’s volatility is just noise. When you have a long-time horizon (10+ years), we encourage our clients to ignore the noise and let their investment strategy ride the wave. The most dangerous thing an investor can do is allow emotions to drive their investment decisions. This alone is why it may be valuable to have active management of your investments by a financial professional. Let’s focus on some time horizon examples. As we talk through these, a simple rule of thumb to remember is buy low, sell high. First up, new roof. The national average to put a new roof on your home is about $8,000. This may not be an expense that you anticipate and may need to be a critical, time-sensitive project. This is especially if an old leaky roof is causing additional damage and expenses. This type of expense should come from an emergency fund that is invested very conservatively -- or better yet -- sitting in cash. Otherwise, you could land yourself in a situation in which you’re trying to “time the market.” Hoping that when you need the money, the stars align, and the markets are high, is a dangerous game to play in your financial plan. Although you will still want the markets to be in a strong position, you may be able to use investments to fund the purchase of an RV or that dream vacation. Both of these goals are likely wants versus needs and can be planned for on a longer time horizon and adjusted to coincide with the markets. Another example of differing time horizons is retirement. Retirement for everyone looks different. When can you retire? Are you going to work in retirement? Are you going to travel during retirement? How much can you spend in retirement? Are you charitably inclined? We hear these questions frequently during financial planning engagements. By understanding your goals and objectives for retirement, pinpointing time horizon, and discovering your risk tolerance, we can become a little more optimistic. Those questions will switch to “Where do we want to vacation?”, “Which charities should I donate to?” and “How much can I leave to the kids?” It’s rewarding to establish goals and objectives, analyze data, run tests, and increase the financial confidence of those we serve.

Investments - Risk Tolerance

Continuing on with investments. I’ve already mentioned risk tolerance a few times, but what does this mean? Risk tolerance is really just your financial professional trying to figure out, “How will you feel if your portfolio drops 25% overnight?” and “What would your emotional response be to the stock market’s fluctuation?” You want to take a closer look not only at your current investments, but also your risk tolerance. Consider differing risk tolerance between you and your spouse. Are you being overly aggressive as you are nearing retirement? Is this outside your “financial comfort zone”? Are you letting emotions get in the way of your financial decisions? Through a multi-question risk tolerance questionnaire in Riskalyze and in talking with you directly, we are able to help gauge the type of investor you are or strive to be. From here, we can make recommendations on your current asset allocations and investment bjectives. We will also review excess cash flow and look for ways to best maximize this, whether that is paying down debt, maximizing retirement contributions, or investing in a non-qualified, fter-tax account. Something that we typically incorporate in our financial planning process is to stress-test your portfolio against specific scenarios. What happens if there is a major bear market correction the day you retire? How does that impact your financial situation? What is the financial impact of a long-term care event? Or a premature death? We can help plan for those and provide peace of mind. So, to wrap up investments, the most common financial planning questions we are asked are, “How much should I save?” or “How much do I need to retire?” These are such subjective questions, but by identifying your time horizon and risk tolerance accurately from the very beginning, we can develop the right investment and savings strategies to meet your goals and objectives.

Key Items to Update - Estate Documents

Our final step to improve your financial plan and ensure it is up to date is Estate Documents. We address Estate Plans in our planning process by reviewing the current documents you have in place and discussing them with you in layman’s terms to verify if they are still appropriate and aligned with your overall intentions. It’s important to note, that as a trust company we do not provide legal or tax advice as we do not practice law or prepare tax returns, but we do explain and illustrate estate planning techniques that you may want to consider. So, when you make a decision and go to your estate planning attorney, you know exactly what you want and why. This will save you time and money in attorney fees.

Estate Planning

The next few slides make note of important estate planning documents. Estate planning will be unique to each family’s situation so not all of these documents may be critical, but the conversation with your loved ones about your intentions is essential. Two of these documents include wills and durable powers of attorney. These ensure that your wishes are guaranteed either prior to or following your death, to include the appointing of an executor of your estate, directing the distribution of your estate and in situations with minor children, appoints a guardian. A will passes your assets through probate for retitling. This is an open, orderly legal process. The disadvantages can be that probate is costly, there are delays with the courts, and publicity. Additionally, the durable general power of attorney enables a trusted individual that you select to handle your financial affairs if you are no longer able to do so. There are two types. The first is immediate, which means that it is effective immediately. This may be appropriate for deployment or when facing a serious operation or illness. The second is springing, which is not effective until incapacitation. This is not permitted in some states, so be sure to partner with your Estate Planning Attorney. Be sure to check with your financial institutions for any specific requirements they may have in accepting a POA drafted by your estate planning attorney. Oftentimes institutions have their own forms required for their accounts.

Estate planning also includes a living will or advanced medical directive and durable power of attorney for health care. In the event that a life-sustaining treatment is required, this document provides instructions to your loved ones and physician regarding your treatment. If you are not able to make decisions about your medical care, naming a health care proxy enables a trusted individual to make decisions about your medical care. If you don’t have this directive in place, medical care providers must prolong your life using artificial means if necessary. You might feel like this is very similar to the above powers of attorney and you’re correct. Each state allows only a certain type or certain types of medical directives. You may find that one, two, or all three types are required to carry out all of your wishes for medical treatment. This includes: (1) a Will, (2) a Durable Power of Attorney for Health Care, and (3) a Do Not Resuscitate - DNR.

Lastly, when looking at estate planning, consider a revocable trust. This is created during your lifetime and can be changed or revoked at any time while you’re living and have mental capacity. This can be your main estate planning document and can be partnered up with a will. A trust provides for seamless management of assets, privacy, creditor and creditor protection and prevents them from being held in probate. All in all, it is important to keep your estate planning documents up to date in the case of a premature death. We want to ensure your financial success and take care of your family and friends.

Agenda

That concludes our discussion on the 5 simple steps to improve your military financial plan. However, let’s take a moment to acknowledge the importance of a partner.

The Importance of a Partner

Time is money, and at AAFMAA Wealth Management & Trust, we understand your time is precious. While serving in the military, you spent months away from home and loved ones. As a Veteran, you have the freedom to spend your time as you choose while our team of Relationship Managers does the heavy lifting for you. We help military families everyday with their financial situation by getting them on track and keeping them focused on their goals. Our financial planning process is designed to begin by building a strong foundation in relationships, understanding goals and objectives, and discovering your risk tolerance and time horizon. This allows us to build a blueprint for your financial journey and provide continued support to review that plan when life-changing events occur.

Plan for Success

Maintaining your financial plan is the most important step toward success, so talk with a Relationship Manager today to begin reviewing the five steps that we discussed today. If you would like to have a one-on-one conversation about your financial landscape please reach out to me. It would be my pleasure to talk through some Discovery questions to identify and address concerns about your budget, financial strategy, financial plan or lack thereof, goals and objectives. We can complete a complimentary risk tolerance questionnaire together to begin our conversation about investments. Then in combination with recent account statements I can provide a complimentary portfolio review analyzing risk, return performance, and other potential risk factors. As our Chief Investment Officer Art Lyons says, “Our financial success often depends on our partner.” Everyone needs the right partner to help talk through our thoughts and concerns. You don’t have to do this alone, and at AAFMAA Wealth Management & Trust, we understand the unique financial needs of military families like yours.

RM Contact Information

Thank you so much for your time today! It’s been my pleasure sharing with you the importance of a current, customized financial plan. A healthy and strong plan should complement how you spend your days today and envision your future tomorrow. I look forward to connecting with each of you to provide concierge service that will save you time and improve your quality of life. Please reach out to schedule a follow-up conversation in which we can continue to discuss these topics personalized to your unique family’s needs. I look forward to helping you reevaluate and fortify your financial strategy.