Fall 2010 USAA Magazine

In This Issue

Garage Band Playoff 5

New Year’s Resolutions 14

The Greatest Gift 24

m aga z i n e A M e m b e r ’s G u i d e to F i n a n c i a l S e c u r i ty

How to Manage Your Money

Now

Put the Brakes on Investing? Proceed With Caution? Accelerate? Page 16

Plus

Scam Defense

Smart advice from military advocate Holly petraeus PagE 20

winter 2010

Welcome TO USAA Magazine

«

message from the president and ceo

»

Looking Out for One Another

Photography by Paul Elledge

USAA started out in 1922 as a community of military officers looking out for one another. Eighty-eight years later, this same sense of community is alive and well. When you’re a member of USAA, you’re part of a vibrant community that’s nearly 8 million strong and growing. You have more in common with your fellow members than just an association dedicated to looking out for your financial interests. Our members share a connection to the military and to its core values of loyalty, honesty, integrity and service to country. Because community is all about connecting, USAA continues to introduce ways for our members to connect to one another. Join the 100,000 USAA members who are our friends on Facebook® (facebook.com/usaa) and our 10,000 followers on Twitter® (twitter.com/usaa) and interact with fellow USAA members on topics as diverse as reducing personal debt and favorite movie lines. In our “Ask a Financial Planner” forum on usaa.com, you can pose your personal finance questions to Certified Financial PlannerTM practitioner Scott Halliwell and explore financial issues with other members. And don’t forget to tell us about your experiences and post your photos on the “What Our Members Say” section of usaa.com. The holidays are a perfect time to celebrate family, friends and community – and to say thank you for being part of the USAA family. Rest assured that in the year ahead, USAA will continue to align our organization around our members’ needs and make it even easier for you to do business with us. It’s all part of looking out for one another.

Josue (Joe) Robles Jr. Major General, USA (Ret.) President and Chief Executive Officer

Our members share a connection to the military and to its core values of loyalty, honesty, integrity and service to country.

usaa.com

winter 2010 usaa magazine

3

Winter 2010 | Volume 46 Number 4

A Member’s Guide to Financial Security

USAA

This icon indicates you can find more information online or via your mobile device.

m aga z i n e

Contents 5 6 8 10 12

The front Money Credit Cards, Health Care Costs Invest Roth IRAs, Annuities Auto Emergency Repairs, Car Buying Home Gift Insurance, Rebuilding Cost

14 16 20 24

What Should I Do With My Money?

Cover photography by David Yellen

Under a Watchful Eye

The Greatest Gift

Homeward Bound

High-Five for Hybrids

I found “Looking for a Home? Shop Smart” [Fall 2010] very educational. It touched on things that are often only revealed in hindsight. I will definitely take the advice into consideration while house hunting.

I disagree with the discussion on hybrids [“Find the Car That Fits,” Fall 2010]. I am on my fourth hybrid. After driving a 29 mpg Saab, I got a Honda Civic. It was, contrary to your author’s assertion, not expensive. It got 45 mpg. So did my second Civic. I then switched to the Toyota Prius. The author did your readers a disservice with a cursory, incomplete evaluation.

Sorry, It’s a Job for a Pro In “Teens and Money” [Fall 2010], Jean Chatzky suggests teens make money by being a website designer. Successful web design requires best-practice knowledge, content and visual appeal, and target-audience experience that teens wouldn’t have. This article may be a disservice to both the customer and web-design professionals.

4 usaa magazine winter 2010

Kristin Adolfson, Charlottesville, Va.

Editor Lance Elko Executive Editor Alicia Miller Senior Editor Melissa Byrd Assistant Editor Ben Fromson Copy Editor Sarah Lindsay Contributors Greg Anderson, Mark Anderson, Lee Brookman, Molly Culbertson, Kristen Gough, Jane Hodges, Brian McGlinchey, Roger Slavens, Jennifer Chappell Smith Design Director Larry Williams Art Director Lisa Summerell Account Executive Robin Sutton Anders Assistant Account Executive Carrie Pacifico

To comment on magazine content or submit story ideas, call 800-531-8646, or log on to usaa.com and click Contact Us.

Staff Sgt. Kory Morris, U.S. Army, Hope Mills, N.C.

All or part of your letter may be printed in an upcoming issue. It may be edited for clarity and length. The opinions expressed here are those of individual members and not necessarily of USAA. If you have comments regarding an individual claim or concerns that do not pertain to items in the magazine, please refer to usaa.com for a comprehensive list of contact numbers.

USAA’s mission is to facilitate the financial security of its members, associates and their families through provision of a full range of highly competitive financial products and services; in so doing, USAA seeks to be the provider of choice for the military community.

New Year’s Resolutions

On the cover Smart Defense Holly Petraeus, director of BBB Military Line®, with Command Sgt. Maj. Rose Matthews, longtime U.S. Army liaison to BBB Military Line

Mail Call

Mission

Features

iN EVERY ISSUE 26 USAA ON THE GO Quick, Easy, Everywhere 27 Member savings Tools, Services, Offers

USAA Managing Editor Suzanne McAuliffe Production and Circulation Manager Lisa Severson Vice President, External Communications Chris Talley

Lt. Col. Robert Burns, U.S. Air Force (Ret.), Blue Springs, Mo.

pacecommunications.com Senior Vice President, Custom Content Jacqueline Hughes Ponzoni Chief Marketing and Sales Officer Craig Waller President and Chief Executive Officer Bonnie McElveen-Hunter USAA products and services are available only in those jurisdictions where USAA is authorized by local law to promote and sell them. USAA Magazine is published quarterly by USAA as an informational and educational service to members. Material in this magazine may not be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, photocopy or otherwise) without permission from the publisher. The post office does not forward copies from incorrect addresses. For information about reprinting material from USAA Magazine, please write to Lisa Severson at the address on Page 26. Requests must be in writing. © 2010 USAA.

Kudos This latest USAA Magazine [Fall 2010] is the best by far. This new format is great. I love it. Chief Warrant Officer Dale Dimler, U.S. Army Reserve (Ret.), Las Vegas, Nev.

800-531-USAA (8722)

USAA Magazine

In This Section

MONEY


INVEST

auto

home

Ready to Rock?

Enter USAA’s Garage Band Playoff — our annual battle-of-thebands contest — and you could win $4,000, a professional photo shoot and a chance to be featured in USAA Magazine. We’re looking for original songs from unsigned, amateur musicians on either of these topics: » Cars, driving and the freedom of the open road » Home and what it means to you USAA’s judges will review and select the best songs to compete for listeners’ votes in a series of online, head-to-head matchups starting in February. To get started, go to garagebandplayoff.com and fill out the online entry form. Deadline is Jan. 16, 2011. Solo artists or at least one band member must be a USAA member to enter. No purchase necessary to enter or win. See official rules at garagebandplayoff.com.

Photography by Robert Llewellyn/Getty Images

Use this Quick Response, or QR, code to find out more about the contest and listen to songs from last year’s contestants via your mobile device. How? Visit your app store and download a QR code reader such as QR App for iPhone®, Barcode Scanner for Android™ or ScanLife for BlackBerry®. Install the reader on your smart phone, launch the reader, and hold your phone over the black-and-white box above to scan it.

Jan. 16, 2011, is the deadline to enter your song for a chance to win $4,000 and be featured in USAA Magazine. To enter, go to garagebandplayoff.com. Sponsored by USAA’s Auto Circle™ and Home Circle™

Talk To Us | TWITTER® | FACEBOOK® | E-MAIL | call | WRITE | For more details, go to Page 26. usaa.com

winter 2010 usaa magazine 5

Winter 2010 | Volume 46 Number 4


USAA

This icon indicates you can find more information online or via your mobile device.

m aga z i n e

Contents The front

6

Money Credit Cards, Health Care Costs

8

Invest Roth IRAs, Annuities

14 16 20 24

Auto Emergency Repairs, Car Buying

12

Home Gift Insurance, Rebuilding Cost


iN EVERY ISSUE 26 USAA ON THE GO Quick, Easy, Everywhere Member savings Tools, Services, Offers

On the cover How to manage your money now Cover illustration by Coherent Images

Under a Watchful Eye

The Greatest Gift

Homeward Bound

High-Five for Hybrids

I found “Looking for a Home? Shop Smart” [Fall 2010] very educational. It touched on things that are often only revealed in hindsight. I will definitely take the advice into consideration while house hunting.

I disagree with the discussion on hybrids [“Find the Car That Fits,” Fall 2010]. I am on my fourth hybrid. After driving a 29 mpg Saab, I got a Honda Civic. It was, contrary to your author’s assertion, not expensive. It got 45 mpg. So did my second Civic. I then switched to the Toyota Prius. The author did your readers a disservice with a cursory, incomplete evaluation.

Sorry, It’s a Job for a Pro In “Teens and Money” [Fall 2010], Jean Chatzky suggests teens make money by being a website designer. Successful web design requires best-practice knowledge, content and visual appeal, and target-audience experience that teens wouldn’t have. This article may be a disservice to both the customer and web-design professionals.


Kristin Adolfson, Charlottesville, Va.

Editor Lance Elko Executive Editor Alicia Miller Senior Editor Melissa Byrd Assistant Editor Ben Fromson Copy Editor Sarah Lindsay Contributors Greg Anderson, Mark Anderson, Lee Brookman, Molly Culbertson, Kristen Gough, Jane Hodges, Brian McGlinchey, Roger Slavens, Jennifer Chappell Smith Design Director Larry Williams Art Director Lisa Summerell Account Executive Robin Sutton Anders Assistant Account Executive Carrie Pacifico

To comment on magazine content or submit story ideas, call 800-531-8646, or log on to usaa.com and click Contact Us.

Staff Sgt. Kory Morris, U.S. Army, Hope Mills, N.C.

All or part of your letter may be printed in an upcoming issue. It may be edited for clarity and length. The opinions expressed here are those of individual members and not necessarily of USAA. If you have comments regarding an individual claim or concerns that do not pertain to items in the magazine, please refer to usaa.com for a comprehensive list of contact numbers.

USAA’s mission is to facilitate the financial security of its members, associates and their families through provision of a full range of highly competitive financial products and services; in so doing, USAA seeks to be the provider of choice for the military community.

New Year’s Resolutions

10

Mail Call

Mission

Features

5

27

USAA Managing Editor Suzanne McAuliffe Production and Circulation Manager Lisa Severson Vice President, External Communications Chris Talley

Lt. Col. Robert Burns, U.S. Air Force (Ret.), Blue Springs, Mo.

pacecommunications.com Senior Vice President, Custom Content Jacqueline Hughes Ponzoni Chief Marketing and Sales Officer Craig Waller President and Chief Executive Officer Bonnie McElveen-Hunter USAA products and services are available only in those jurisdictions where USAA is authorized by local law to promote and sell them. USAA Magazine is published quarterly by USAA as an informational and educational service to members. Material in this magazine may not be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, photocopy or otherwise) without permission from the publisher. The post office does not forward copies from incorrect addresses. For information about reprinting material from USAA Magazine, please write to Lisa Severson at the address on Page 26. Requests must be in writing. © 2010 USAA.

Kudos This latest USAA Magazine [Fall 2010] is the best by far. This new format is great. I love it. Chief Warrant Officer Dale Dimler, U.S. Army Reserve (Ret.), Las Vegas, Nev.

800-531-USAA (8722)

USAA Magazine

In This Section

MONEY


INVEST

auto

home

Ready to Rock?

Enter USAA’s Garage Band Playoff — our annual battle-of-thebands contest — and you could win $4,000, a professional photo shoot and a chance to be featured in USAA Magazine. We’re looking for original songs from unsigned, amateur musicians on either of these topics: » Cars, driving and the freedom of the open road » Home and what it means to you USAA’s judges will review and select the best songs to compete for listeners’ votes in a series of online, head-to-head matchups starting in February. To get started, go to garagebandplayoff.com and fill out the online entry form. Deadline is Jan. 16, 2011. Solo artists or at least one band member must be a USAA member to enter. No purchase necessary to enter or win. See official rules at garagebandplayoff.com.

Photography by Brooke Slezak/Getty Images

Use this Quick Response, or QR, code to find out more about the contest and listen to songs from last year’s contestants via your mobile device. How? Visit your app store and download a QR code reader such as QR App for ® iPhone , Barcode Scanner for Android™ or ScanLife for BlackBerry®. Install the reader on your smart phone, launch the reader, and hold your phone over the black-and-white box above to scan it.

Jan. 16, 2011, is the deadline to enter your song for a chance to win $4,000 and be featured in USAA Magazine. To enter, go to garagebandplayoff.com. Sponsored by USAA’s Auto CircleTM and Home CircleTM

Talk To Us | TWITTER® | FACEBOOK® | E-MAIL | call | WRITE | For more details, go to Page 26. usaa.com


the

FroNT money invest auto home

The Right Plastic All credit cards are not created equal. If you’re in the military, be sure to find one that fits your lifestyle. When it comes to choosing a credit card, service members should consider their particular needs — and whether they may be eligible for certain benefits. Here’s what to look for before filling out that application.

» Reduced rates: Federal law requires lenders to cap interest rates at 6 percent on debts acquired prior to active duty. This applies to those in the reserves called to active duty, or to those entering active-duty service. But some credit cards, including USAA’s, go well beyond, offering even lower rates for up to one year to all those deployed.

USAA takes it further still, refunding all interest charges accrued during deployment in a qualified military campaign. » Permanent Change of Station perks: Look for reduced interest rates for charges made when you relocate for a military assignment. » Fewer foreign fees: Using just any card overseas can trigger foreign-transaction

fees. So consider a card that waives or reimburses these charges for deployed service members. » Tech tools: When you’re in the military, accessing your account on a computer isn’t always possible. That’s why some cards now offer mobile applications and

text alerts to help you track your balance and keep up with payments. » Skilled support: If you have questions or problems, you don’t have time for shoddy service from your card issuer. Choose a card from a company you trust to be there (and be helpful) when you call.

Visit usaa.com for details on the USAA Active Military MasterCard®, USAA Military Affiliate Cards or USAA American Express® card. See additional legal information on Page 30.

Wrap up your Holiday Shopping. Find something for everyone on your

Time to SIGN UP! From now through Dec. 31, 2010: Annual Election Period for Medicare Part D. If you’re 65 or older and are without prescription coverage, sign up. Visit medicare.gov for more details, or call us at 800-515-8687. 6 usaa magazine WINTER 2010

Part D

800-531-USAA (8722)

Photography by RUDYANTO WIJAYA/Veer

gift list at USAA MemberShop®. Get up to 20 percent in rewards for online purchases at more than 500 retailers. Visit usaa.com/membershop.

Get Up to Speed Health care costs getting ahead of you? Take action.

1

Check your bills carefully. As many as eight out of 10 hospital bills contain errors, according to Medical Billing Advocates of America. So be sure to keep track of every test, procedure and medication. If you find a mistake on a bill, send a certified letter asking for a correction, as well as a copy of your documentation — and send a copy to your insurer.

to fund an HSA for medical expenses. You can roll over unused funds from year to year, and your money is exempt from taxes. Some restrictions apply. Learn more at ustreas.gov. Find out about flexible, affordable health insurance options provided by Assurant Health1 at usaa.com/healthinsurance.

2

Get fit. Exercise and maintain a healthy weight to reduce your number of doctor visits. If you smoke, quit. Ask USAA about getting a discount off your health insurance premium for maintaining a healthy lifestyle.v

3

Illustration by Visuals unlimited/getty images

Consider a health savings account. If you have a highdeductible health plan, you’re eligible

Availability of products and features varies by state. However, none of these products are available in Massachusetts, New Jersey, New York or Vermont. See additional legal information on Page 30.

v

usaa.com



Last Chance to Split the Tax Ending Dec. 31: a special one-time Roth IRA conversion deal.

When opportunity knocks, be sure to listen. For 2010 only, consider a unique offer that lets you delay taxes normally paid when converting a traditional IRA to a Roth IRA. If you act on or before Dec. 31, you can push off the tax bill by splitting your conversion income in half and reporting it on your 2011 and 2012 returns. Keep in mind, taxes could be higher by the time you pay your tax bill in full. Prior to 2010 and starting again in 2011, taxes on this type of conversion will be assessed for the tax year in which you convert your IRA funds. Why pay taxes for the privilege of owning a Roth IRA? » It might be your only way to have one. You can make regular contributions to a Roth only if your income is below IRS limits. » Qualified withdrawals are tax-free. That also means they won’t affect the taxability of your Social Security benefits. » No required distributions during the account owner’s lifetime. Uncle Sam makes you tap your traditional IRA every year after you turn 701/2, but Roths can be left to grow — for yourself or your beneficiaries. Is a Roth conversion the right move for you? Use our Roth IRA Conversion Calculator. Go to usaa.com and search Roth Conversion.

Fi

na

l

Da y

Conversions from a traditional IRA to a Roth are subject to ordinary income taxes. Please consult with your tax advisor regarding your particular situation. Withdrawal of earnings made before age 591/2 may be subject to a 10 percent federal penalty and ordinary income taxes. Other restrictions may apply.


Gift of a Lifetime

Grandparents can substantially help their grandchildren with college costs by making them beneficiaries of 529 college savings plans. Withdrawals for qualified expenses are tax-free, and, if you own the account, there’s minimal impact on federal financial aid calculations. The USAA College Savings Plan was recently highly ranked.v v

Consider the investment objectives, risks, charges and expenses of the USAA 529 College Savings Plan (Plan) carefully before investing. Call 800-292-8825 to request a Plan Description and Participation Agreement containing this and other information about the Plan. Read it carefully before investing. If you or the beneficiary are not residents of the State of Nevada, consider before investing whether your or the beneficiary’s home state offers a 529 plan that provides its taxpayers with state tax and other benefits not available through this Plan. Please consult your tax advisor. vv Ranked No. 1 out of 51 direct-sold 529 plans for its one-year performance, No. 1 out of 45 direct-sold 529 plans for the three-year period and ranked No. 3 out of 38 for five-year performance by savingforcollege.com. The savingforcollege.com plan quarterly rankings were based on the composite performance score of seven unique asset allocation categories of the 529 plan for the one-year, three-year and five-year periods ending June 30, 2010. For more details on the ranking methodology, visit savingforcollege.com.

Investment and insurance products are not deposits, not insured by FDIC or any government agency, not guaranteed by the Bank. Investment and certain insurance products may lose value. 800-531-USAA (8722)

Illustration by Neil Webb/Ikon Images/Getty Images; photography by Image Source/getty images

the

Annuities: Managing Your Dough In retirement planning, annuities might be the least understood financial tools around, but they can be useful for many people. Fortunately, they’re not that complicated. In fact, they can be summed up with three words: guaranteed retirement income. Annuities let you convert savings into a stream of income that can be guaranteed to last your entire life. “At a time when people are living longer, fewer employers are offering traditional pensions, and the Social Security system is under financial stress, annuities are more relevant than ever,” says June Walbert, a Certified Financial PlannerTM practitioner with USAA. There are two ways to use annuities: » Plan for the future. Put away money now and turn it into dependable income later. Annuity dollars offer tax deferral for now: You won’t owe taxes on earnings until you withdraw them. Withdrawals before age 591/2 are subject to tax penalties. » Create income right away. If you’re about to retire or are already there, consider an annuity that immediately turns part of your money into a “personal pension,” so you can receive additional guaranteed retirement income that pays as long as either you or your spouse is living. To learn more, go to usaa.com and search Annuity.

Annuities: Two Steps to a More Secure Retirement

retirement Then, turn it into income. Create a retirement “paycheck” that can be guaranteed to last as long as you do.

$

Photography by Jeffrey Coolidge/getty images; illustration by peter and maria hoey

Cut through the confusion to see if they’re right for you.

today

Gu

ara

nte e

First, build up retirement savings. You won’t owe any taxes on your annuity’s earnings until you take them out.

df or

Lif e

The fixed annuity guarantee against principal loss depends on the claims paying ability of the insurance company. Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan. There are costs associated with annuities, including surrender fees and early withdrawal penalties. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial PlannerTM in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. usaa.com


FroNT money invest Auto home

Get Your Car to the ER — STAT!

If you notice any of these symptoms while you’re behind the wheel, don’t procrastinate. The price you’ll pay for delay is steep. symptom

diagnosis

cost of repair

cost of neglect

Steam rising from under the hood

A radiator hose is likely leaking engine coolant. Low coolant causes overheating. Continuing to drive can damage engine and transmission.

$75-$100 for new hose and coolant

$8,000 to replace engine; $1,000-$3,000 to rebuild transmission

$75-$150 to replace belt

$1,500-$3,000 for valve job or major engine repair

High-pitched One or more belts squeal from could be slipping. engine

Screeching or scraping sounds when braking

You probably need new brake pads and shoes. If you wait to hear the crunch of metal on metal, you’re doing major damage.

$100-$200 to replace brake pads, shoes and other brake parts

$500-$1,500 to replace brakes and braking system

Smoke emitting from tailpipe

White smoke is usually the result of a failed engine head gasket. Black smoke could indicate worn piston rings.

$1,000-$2,000 if damage is minimal

$1,000-$3,000 to rebuild engine

Better Traction According to a road test by Car and Driver, a car traveling 30 mph on snow with winter tires can come to a complete stop 10 feet before the same car equipped with all-season tires. In many cases, the cost difference between these tire types is nominal. So if you live in a snowy climate, winter tires might be the right choice for your vehicle. stop 10 feet sooner

HEADED TO THE car lot?

Be prepared for the salesperson to ask if you want an extended auto warranty. Do you need it? That depends. One key factor to consider is how long you plan to keep the car. “If you plan to drive the car until the wheels fall off, an extended warranty might be right for you,” says Steve Thompson, vice president of USAA consumer product management. “But if you know you’ll sell the vehicle before the original warranty ends, then it might be an unnecessary expense.” For details on USAA’s auto warranty program, visit usaa.com and search EVP.

with winter tires

without winter tires 10 usaa magazine Winter 2010

800-531-USAA (8722)

illustrations by harry campbell; CSA Images/Archive/Getty Images

the

A Hard Bargain Made Easier When Mars and Venus buy a Mercury — or any new set of wheels — they approach shopping a little differently. But all of us can learn to drive a great deal. Women pay an average of $1,200 more than men for a vehicle, according to auto expert Lauren Fix, aka The Car Coach®. But a recent survey commissioned by USAA shows that men are more likely than women to believe they paid too much for a car. The survey, conducted in 2010, found that women who said they didn’t like negotiating gave two top reasons: They felt intimidated, and they didn’t feel confident about the process. Two-thirds of the men who said they don’t or aren’t likely to negotiate reported it’s because they prefer upfront pricing. So, how can women level the playing field? How can men know they got a good deal? Learn as much as you can beforehand about the car you want and its value. And always have an alternative in mind. Identify another dealer who has the car you want or another car you like just as much. You can skip negotiating altogether by using a service like USAA’s Auto CircleTM at autocircle.com, which offers no-haggle, guaranteed pricing on new and used cars. It lets you research, find and finance a new car online or with your mobile device — without ever having to set foot on a car lot. If you still want to brush up on your bargaining skills, Linda C. Babcock, an economics professor at Carnegie Mellon University and co-author of Women Don’t Ask: Negotiation and the Gender Divide, offers these common-sense tips for anyone about to step onto a car lot or drive any other kind of hard bargain:

TK illustration by coherent images

» Pinpoint the person who’s calling the shots; deal with that person if possible. » Point out what you’re bringing to the table: ready to buy today, good credit, etc. » Remember that it’s OK to walk away. Don’t be pressured into a deal. You may get a call later with a better offer. Shopping for your next new car? Car shopping? Remember: WithWith USAA, USAA, negotiation is no problem. negotiation is no problem. VisitVisit autocircle.com to get a low price before autocircle.com to get a low, no-haggle you with you a dealer. pricetalk before talk with a dealer. See additional legal information about Auto Circle on Page 30. usaa.com


the


Great Gift? Make Sure It’s Covered

Be Warm, Keep Safe

Using a space heater this winter? The

After the holidays, find out if that special present needs extra insurance.

Department of

Gifts have sentimental value, but they also carry a real price tag. They may well be worth insuring. Determining what type of insurance you need depends on the item, its value and coverage options. » Take a closer look at your homeowners or renters insurance policy. While standard policies cover household goods, they only insure items for losses due to covered perils such as fire, theft, hail or wind damage. And, of course, you’ll need to meet your deductible before the insurance kicks in. Most homeowners policies also have coverage limits, meaning they will only pay up to a certain amount for personal valuables. » Because homeowners insurance doesn’t cover every type of loss, consider the advantages of Valuable Personal Property insurance. A VPP policy has no deductible and is designed to cover expensive items (anything worth $100 or more). Gifts such as furs, jewelry, cameras, musical instruments, stamps, coins and fine art are covered with VPP insurance. For example, jewelry has limited coverage on your homeowners or renters policy, but if you were to lose your engagement ring during a night out, you’d need a separate VPP policy to cover the item in that scenario.

Energy recommends using only models that bear the Underwriters Laboratories® product safety label (look for the

UL mark). For added protection, the U.S. Consumer Product Safety Commission says to keep heaters at least

To make sure you have the right coverage, log on to usaa.com for more information and a quote. Or contact a USAA representative with your questions.

burner

flow sensor

fan

cold water in

gas

Next time you need a water heater, look for an Energy Star® label, which means you can reduce your waterheating bills by as much as 55 percent, according to estimates by the Department of Energy. You may also want to consider buying a tankless water heater. This can cost two to three times more than a conventional model and may require some new plumbing, but it can last 20 years and achieve energy savings of 30 to 50 percent, according to the DOE. Water heaters account for 25 percent of home energy use, so do your homework before you buy. 800-531-USAA (8722)

Illustration by Harry Campbell

heat exchanger

valve


mable items.

IN HOT WATER?

How does a tankless water heater work?

hot water out

3 feet from flam-

Know Your Values

When considering homeowners insurance, don’t be misled by market value.

Illustration by wasco

Same House, Different address A 2,750-square-foot house built in the 1920s Desirable Area

Modest Neighborhood

Market Value

Market Value

$300,000

$125,000

Rebuilding Cost

$275,000*

usaa.com

Rebuilding Cost

$275,000*

*Assuming $100/sq. ft. construction costs

» How it works: Just because this home may have a current market value of $125,000 in a certain location doesn’t mean it could be rebuilt for that amount. In today’s housing climate, market value — the price a house sells for — has declined across much of the U.S., but home rebuilding costs have risen 2.3 percent in the past year, according to Marshall & Swift/Boeckh, a leader in rebuilding cost estimation. If this home were destroyed outright, a homeowners insurance policy would need to provide $275,000 to restore or rebuild the home with new materials. » Do you have enough coverage? USAA is reaching out to 1.3 million members with homeowners insurance to double-check, through home evaluation questionnaires by mail and phone from Marshall & Swift/Boeckh. Feeling proactive? Call USAA at 800-531-8722 to go over your policy. And don’t forget to review your coverage anytime you spend more than $25,000 on renovations — or 5 percent of your home’s rebuilding cost, whichever is less.


Read more from Jean Chatzky and learn about the Debt Diet online at jeanchatzky.com.

Resolution Solutions

Research reveals that most of us don’t stick to our New Year’s resolutions, but a new strategy can spell success.

14

usaa magazine WINTER 2010

Photography By David Yellen

By Jean Chatzky 800-531-USAA (8722)

Expert Advice

If you’re planning to make a New Year’s resolution, chances are pretty good it will have something to do with either your weight (and shedding it) or your money (and saving it).

During the past few years, survey after survey has ranked

these resolutions No. 2 and No. 1. Or sometimes No. 1 and No. 2. And yet, despite the fact that these are things we clearly want, 88 percent of people fail to keep their resolutions, according to a 2007 study conducted by Richard Wiseman, a British psychologist and author of The Luck Factor. Well, I’m no nutritionist. But, for this issue, I decided to explore how you can make financial resolutions you can actually stick to. Interestingly, many of the same tactics that can help you maintain your diet-and-exercise resolutions are the ones that can help you reach your financial goals. Apply the techniques that follow and you may find you can actually succeed at both.

» You need a goal — and benchmarks. A 2008 study on savings habits from researchers at Rice University and Old Dominion University asked some participants to plan how much they could save monthly and others how much they could save over the next year. At the beginning of the experiment, both groups estimated they could save about the same amount of money. But over time, the month-to-month savers built up much more money. Why? Monthly goals are smaller, so you can hit your marks more frequently and feel satisfied that you’re making progress. With yearly goals, the numbers are so large they look unattainable, and you don’t get the satisfaction reward until the very end. The lesson: No matter how much you’re trying to save (or how much debt you’re tackling), break your big goal into smaller benchmarks. Then track and reward yourself for making progress along the way. » Buddy up with your spouse (or a friend). Maintaining any resolution is easier if you aren’t going it alone. Research shows that self-control is catching. Surround yourself with people trying to master the same behaviors that you are — spending less, eating less — and you all reap the rewards. Team up with your spouse and it could be great for your marriage. Jeffrey Dew, a faculty fellow at the National Marriage Project and a professor at Utah State University, studied the impact of money on marriages. He found that when couples rack up debt, they become less happy and more likely to divorce. Couples who pay down debt and accumulate assets, on the other hand, usaa.com

have more stable marriages. Also, be sure you talk about what you’re doing — feeling that your spouse has a good handle on the finances makes for a more secure relationship.

» Take advantage of today’s environment. Spending money has always been enjoyable, but saving it is work. (That’s why on a down day many of us have treated ourselves to some “retail therapy.”) Now the tide seems to be turning. Recently, Deloitte and Harrison Group surveyed 2,000 consumers and learned that four out of five say that they find saving money “fun.” So much fun, in fact, that 93 percent say they won’t return to their profligate ways even after the economy improves. The lesson? Go on a savings spree. Do the small stuff the survey found so effective: using loyalty cards regularly, trying private-label products and waiting for sales before buying. Do the medium-size stuff by cutting your monthly bills with the help of billshrink.com, which can help you save on cable TV, cell phone service and the like. And right now — before interest rates rise, as they eventually will — consider making some big moves that can save you bigtime. For example, you should consider refinancing your mortgage at a lower fixed rate if you have a rate in the mid-5 percent range or above, or you could lock down any debt on a home equity loan at a low fixed rate. A year or so from now, you’ll be happy you did.

» Do one thing at a time. Finally, although you may very well want to tackle that last $1,000 in debt and those last 10 pounds, don’t try to do both at once, advises Princeton University’s Sam Wang, co-author of Welcome to Your Brain: Why You Lose Your Car Keys but Never Forget How to Drive and Other Puzzles of Everyday Life. Why? Because willpower is a limited resource. Your brain, he explains, can only be expected to focus intently on one goal at a time. So pick your battle, win it, and then move on to the next. » Get a head start putting your finances in order with USAA® Money Manager on usaa.com. USAA Money Manager is not an investment advisory service of USAA. WINTER 2010 usaa magazine 15

seeking direction


By Brian McGlinchey

16 usaa magazine WINTER 2010

» Illustrations by Justine Beckett

800-531-USAA (8722)

Sound Investments

How should you invest in a volatile market? And what if you can’t invest? You’re bound to find yourself in one of the following three scenarios. Whether you’re flush with cash, completely strapped or somewhere in between, read on for tips you can use right now.

Sitting on Cash

Does this scenario sound like you?

“I just got back from a deployment to Afghanistan. Between tax breaks and having nothing to spend my money on while I was there, I’ve got $10,000 to put to work — but where?“

W

e all need cash, but it’s possible to have too much of a

good thing — and in plain economic terms, there’s no use having it just sit there. So how much is enough? The answer starts with understanding that cash is best used for short-term spending needs and emergencies. “Your cash stash should probably be equal to six to 12 months of your regular expenses,” says J.J. Montanaro, a Certified Financial PlannerTM practitioner with USAA. “If you’re holding much more than that, you might be sacrificing the opportunity for growth.” That’s especially true in this era of rock-bottom interest rates. “Getting the best return on your safe money takes a little more work these days,” says Montanaro. He recommends building a certificate of deposit “ladder” — a variety of CDs with staggered maturity dates — or considering a short-term bond fund, which invests in fixed-income securities with shorter maturity dates. This type of investment may be particularly effective in a volatile market. Once you’ve set aside the right amount of cash for you, think about putting the rest into longer-term investments, such as stock and bond mutual funds. In a roller-coaster market, this may sound like bad advice. But there is an edge you can use. Michael Kitces, a financial-planning industry commentator and co-author of Tools & Techniques of Retirement Income Planning, explains, “If you’ve left the market and have a willingness to move back in, do it slowly. If you try to do it all at once, you’ll become very sensitive to the timing of when Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Contact us at 800-531-8910 for a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing. usaa.com

you do it, and you’ll be anxious about whether you chose the best hour, day or month to do so.” Kitces recommends moving portions of your money back into the market over a period of three, six or even 12 months. Some investors attribute their nervousness to a fear that inflation may be lurking in the shadows if the economy really takes off. For those concerned about that, Kitces recommends diversifying portfolios with Treasury InflationProtected Securities, or TIPS, which are government bonds with special features to provide protection against inflation, as well as a small allocation to gold. Another option is a real-return fund, a carefully managed mutual fund designed to produce income that outpaces the rate of inflation. Another consideration for investing with borrowing rates so low is real estate. Enticing? Yes. Smart? Well, it depends. Since home prices in many areas are well below original value, investing directly in real estate holds several potential pitfalls. “If you don’t have enough money to buy the property with cash, that means taking on a mortgage, and investing with borrowed money is a riskier proposition,” says Kitces. Given the risk of not finding a tenant and the headaches of becoming a landlord, those with an interest in property may be better off investing in a mutual fund with real estate exposure. USAA offers a new Ultra Short-Term Bond Fund and a Real Return Fund. For information, visit usaa.com and search Ultra Short or Real Return.

Investment and insurance products are not deposits, not insured by FDIC or any government agency and not guaranteed by the Bank. Investment and certain insurance products may lose value. As interest rates rise, existing bond prices fall. Diversification does not guarantee a profit or prevent a loss. WINTER 2010 usaa magazine 17

Sound Investments

Holding pattern


“When the crisis hit, we just held on to our investments for dear life — and haven’t made any changes since.“

E

very investor needs to be reminded that there’s a fine line

between inactivity and neglect. “It’s important to recognize that inaction is still a decision about your portfolio — and not necessarily a good one,” says Kitces. “That doesn’t mean everyone needs to make a change, but you should take some time to review each position in your portfolio to see how it’s performing and if it’s consistent with a level of risk you’re comfortable with.” The rough stock market exposed what Kitces calls a “risk perception” problem. “A lot of people really weren’t that comfortable with the risk they were taking, but they convinced themselves — since the market had gone up for a few years — that risk only meant there was a question of how much it would continue to go up,” he says. USAA’s Montanaro suggests a practical approach. If your portfolio has been batted around by the whims of the market, create some stability by adding investments guaranteed not to falter, no matter the turmoil. Certificates of deposit will do the trick, and retirement-minded investors may find that guaranteed savings annuities offer better rates. “Beyond guaranteeing you won’t lose a cent, annuities offer a big tax break: Interest isn’t included in your income until you withdraw it,” says Montanaro.

In addition to teaching investors a painful lesson about risk, the market’s turbulence should also spark a resetting of expectations about investment returns. “With the economy and markets potentially facing a challenging and volatile future, it’s hardly safe to assume you’ll earn doubledigit returns over the coming years,” says Montanaro. Whether you’re saving for retirement, college tuition or another goal, lower returns may mean you need to save more to stay on target. If you’re not comfortable juggling your portfolio, you can, of course, find help. “We’ve seen renewed interest in people’s desire to work with a professional, such as a Certified Financial PlannerTM,” says Kitces. “Some people still want to control the decisions but like having a professional opinion before making a move. Others like the idea of delegating to an advisor the authority to make transactions on their behalf.” Looking for a pro’s insight? Speak to a USAA investment advisor or ask our professionals about creating a customized plan tailored to your situation. To get started, call 800-531-8910.

Investment and insurance products are not deposits, not insured by FDIC or any government agency and not guaranteed by the Bank. Investment and certain insurance products may lose value. Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan. There are costs associated with annuities, including surrender fees, early withdrawal penalties and mortality risk expenses. The fixed annuity guarantee is against principal loss and depends on the claims-paying ability of the issuer. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial PlannerTM in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

invest? 18 usaa magazine WINTER 2010

Here’s What the Numbers Say 800-531-USAA (8722)

Tackling Debt First


“My wife lost her job when her company downsized. Now that we’re down to just one income, our credit card balances are way up, and we’re struggling to find money to invest.”

I

nvesting for the future is important, but there are

times when you need to put the idea firmly in the back seat — especially if debt is a problem. In fact, paying off high-interest debt can be one of the best “investments” you’ll ever make. “If you make an extra payment on a credit card balance that has a 15 percent interest rate, that’s equivalent to earning a guaranteed 15 percent return on your money — a promise the stock market can’t match,” says Montanaro. If you have to retreat from investing, make sure you apply the right priorities. For example, many families are saving for two hefty goals — retirement and college. “If you have to put one on the back burner, it should definitely be college,” says Montanaro. While there are many other ways to pay for college — including scholarships, grants, loans and part-time work — retirement isn’t nearly as flexible. That said, your circumstances may even call for slashing your contributions to your 401(k), TSP or other employer retirement plan — but if you decide on that, there’s one caveat. “If your employer matches your contributions, try to contribute at least enough to get every ‘free’ dollar that’s on the table,” advises Montanaro. Unfortunately, getting into debt is far easier than getting out of it. If you’re struggling just to keep up, be open-minded

about what you can do to recover. Kitces advises people in heavy debt to consider selling the things responsible for their debt — especially cars. “Cars tend to be money demons in our society,” says Kitces. “There are a lot of used cars that will get you from home to work. You don’t have to do that in a $20,000 or $30,000 automobile.” Shorter-term sacrifices — such as disconnecting or reducing cable TV service, getting rid of a land line phone, or switching children from private to public schools — could be must-do steps to greater security or, in some cases, survival. However, don’t focus exclusively on cutting expenses. Think creatively about ways to generate more income. That could include renting out a room in your house, having a garage or yard sale, or even taking a second job. You may be able to accelerate your campaign against your debt by restructuring it. For example, shifting credit card balances to a home equity loan may lower your rate while also making your interest tax-deductible. For some of us, that’s a smart move. Borrowing from an employer retirement plan, such as a 401(k), rather than cashing it out may also be a good way to tackle other debts, but be careful — if you leave that employer without paying it back first, you’ll face taxes and penalties on whatever’s outstanding. »

USAA and its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. Withdrawals made before age 59 1/2 may be subject to a 10 percent federal penalty and ordinary income taxes.

In a recent study, USAA surveyed more than 16,000 members to see whether having a financial plan in place helped or hurt an investor’s overall portfolio returns. The results showed that, over a six-month period, members with a formal

usaa.com

financial plan were better positioned to improve their personal net worth and outperform the market. Among the key findings: » Members with a financial plan saw their assets grow by 17 percent, compared

with 3 percent for those without a plan. » Those without plans held more than 34 percent of their portfolios in cash, compared to 17 percent for those with plans, resulting in significant lost opportunities during market upswings.

WINTER 2010 usaa magazine 19

Under a Watchful Eye All too often, financial fraudsters set their sights on the military. Holly Petraeus and the Better Business Bureau teach service members how to guard against scams. By Jennifer Chappell Smith


»

Photography by David Yellen

800- 531-USAA (8722)

Scam defense

L

ong before Holly Petraeus began work at the Better Business Bureau in 2004, she and her husband, Gen. David Petraeus, now commander of U.S. armed forces in Afghanistan, fell into a financial snare. “We embodied the old military cliché of having to have the hot sports car,” she says, reminiscing about the red Jensen-Healey convertible they drove away in after her husband’s graduation from West Point in 1974. “It was one of those dream cars, but it also cost us a ton of money.” The proud owners and USAA members took the snazzy car to their post in Italy, where it spent long hours at the repair shop. “We’re in the ‘Do as I say, not as I do’ camp about that,” she admits, laughing. But today Petraeus is serious about protecting military families from financial missteps.

Images do not represent any endorsement, expressed or implied, by the Department of Defense, the Department of Homeland Security or any other United States government agency. usaa.com

WINTER 2010 usaa magazine 21

Scam defense

As director of BBB Military Line®, which offers consumer education for service members, Petraeus knows that military personnel aren’t just vulnerable to foolhardy decisions about cars. They’re also the targets of scammers who think their steady income and sense of duty will make it easy to rip them off. “Plus, the military has a culture that says you will pay your debts,” Petraeus says. Because Petraeus has been married to the general for 36 years, she knows the worry that finances can cause the troops. Her organization works with other nonprofits as part of the Department of Defense Financial Readiness Campaign. “Financial readiness supports mission readiness,” says David Julian, director of the department’s Office of Personal Finance. “Our military men and women shouldn’t be distracted by financial worries.” Since the potential for financial worries can be aggravated by falling victim to scams, the DOD is particularly concerned

HOW USAA HELPS PROTECT YOU Learn more at usaa.com under the Privacy & Security tab at the bottom of the home page.


“Education is the first line of defense.” — David Julian, director, Office of Personal Finance, DoD

about financial fraud as a detriment to the personal financial readiness of troops and families. If you’re in the military, you know about the scams. “You see that strip outside installations — the pawn shops, the tattoo parlors, the shady auto dealers,” Petraeus says. “I once heard those businesses described as bears lined up at a trout stream.” Then you face Internet scams, life insurance fraud and high-pressure tactics as you’re about to deploy. “Education is the first line of defense,” Julian says. “We can’t conceive of all the scams. We try to instill financial awareness and ability so that the military community understands

what a sound financial decision is and, frankly, so people can smell a rat.” The department gives BBB Military Line access to military installations in order to lead sessions on car buying, investing and more. “Our intent is to supplement what the military is already doing,” says Petraeus, who helped develop the curricula. Payday loans, known for interest rates up to 400 percent, were once a big threat to vulnerable service members. Now, thanks to the Military Lending Act, those interest rates are capped at 36 percent for the military. However, Julian warns, “when you cut off one avenue, scammers try to find another.” »

“We are focused and passionate about preventing and detecting fraud. It’s truly a mission,” says Gary McAlum, senior vice president and chief security officer at USAA. In addition to the superior technology that guards member transactions 24/7, McAlum points out that USAA offers:

» Account alerts.

» USAA Documents

» CreditCheck

Instantly receive an e-mail or a text message if there’s suspicious activity on your account.

Online. Reduce chances for identity theft by eliminating paper bills and account documents.

Monitoring from Experian®. USAA members receive low pricing for this credit monitoring service.

®

USAA does its part, but McAlum says protecting members is really a shared responsibility. “Personal computers and mobile devices are increasingly being targeted by cyber criminals,” he explains. “We ask members to protect their devices with the right security safeguards, which include regular virus scans and proper security configuration settings.”

800- 531-USAA (8722)

Defend Yourself Against Fraud

Holly Petraeus and Army Command Sgt. Maj. Rose Matthews, BBB Military Line® liaison, offer tips to spot and avoid scams.

photography BY david yellen; Car culture/getty images; Gregor Schuster/getty images; photosindia/getty images; Brand new images/getty images

autos

ONLINE BUSINESSES

MILITARYAFFILIATED

INVESTMENTS

usaa.com

HOW TO FIGHT BACK Common scams

HOW TO FIGHT BACK

Online and on the lot, unscrupulous auto dealers prey on service members who yearn for a new set of wheels. “Deployed military members dream about the car they’re going to buy with all that combat pay when they get home,” Petraeus says. “At one installation, there was a parade of hot new cars when an infantry unit came home. Later, there was a parade of tow trucks.” The drivers of those repossessed cars might not have been victims of a true scam, but they may have been victims of lenders who didn’t say, “This is really more than you can afford,” Petraeus says. Whether you’re fighting an actual scam or the urge to splurge, understand what you’re getting into.

• Beware of online scams. Fraudulent dealers may say the car is out of state. They may promise low prices and immediate shipping and require a wire transfer. Get an inspection and never pay by wire. • Recognize common schemes: the yo-yo, in which dealers sell you the car but later say the deal fell through after you put money down or gave them your trade-in; churning, when dealers sell you a car with high financing, repossess it when you can’t afford the payments and then resell the car; and the bait-and-switch, when dealers increase the interest rate at the last minute. • Read the contract. “A legitimate dealer will let you take the contract for legal review,” says Petraeus.

“Young people are so comfortable on the Internet that a sense of overconfidence applies to any dealings they have there,” Petraeus says. “But traps can catch people of any age.” Phishing scams, in which fraudsters imitate a legitimate website to steal personal information and money, are on the rise. “Once a scam site has run its course, they just take it down,” Petraeus says. “It’s like playing Whac-a-Mole® — hit one and another one pops up.”

• Even if an online business looks legit, check it out. “Some appear to feature the Better Business Bureau report on the business, but they link to a report they’ve written themselves,” Petraeus warns. • Look for phishing scam alerts on financial sites you use. • Don’t respond to e-mails that ask for personal information.

The military has collective purchasing power that garners great deals from legitimate businesses. “But because of that, you also will see businesses lure the military into scams,” Petraeus says. Fraudulent groups that are tucked into strip malls and pocket offices may offer “special military financing.” Or you may get a phone call from “the Armed Forces Loan Center,” which doesn’t even exist.

• Check military-affiliated groups with your installation’s family life center or legal services office, or inquire through your chain of command. • Verify the business’ status at bbb.org/military.

The longer you’ve been earning a steady income, the more you may be able to put toward retirement or investing. Scammers will try to get you with high front-end fees or bogus offers. “Studies show the most common victim of investment scams is a middle-aged, white-collar, highly educated male,” Petraeus says. “Why? They think they know what they’re doing.”

• Use the BrokerCheck® tool at finrafoundation.org to check up on a financial professional or firm. • Don’t be taken in by promises of returns that are too good to be true. • Take full advantage of your Thrift Savings Plan, and research other investment options. • Guard your military pension. Don’t fall for scams that claim you can draw on it early for a fee. WINTER 2010 usaa magazine 23

Member stories

The

Greatest Gift

The most meaningful presents don’t always come wrapped in ribbons and bows. We asked our 100,000 Facebook fans to tell us about the best gift they’ve ever received. Here are six stories of simple gifts that made lasting impressions.

Courage “My mother gave me the best gift of all

when she told me life was too short to fear anything. The day before she died, she told me, ‘You know, there really isn’t anything to be afraid of. I hate that I was so afraid of everything.’ My life changed that day, and I will forever be grateful.”

Michele Moore-Hirata member since 1984

integrity

Robert Gallimore

member since 2003

Hope “My late father, a Vietnam veteran and Bronze Star recipient, absolutely drilled the values of professionalism, integrity, honor, a strong work ethic and the need to turn to a higher power in my life. While I may not have appreciated it at the time, those values he taught so long ago have become guiding principles that have enabled me to enjoy the success I have achieved. Thanks, Dad.”


Danielle Bevilacqua McGinnis

member since 1986

“I need a kidney transplant, and three of my Facebook® friends, whom I haven’t seen in more than 20 years since high school, have volunteered to donate. If one of them actually is a match, it would be a gift that changes my life in a very big way.” 800-531-USAA (8722)

photography courtesy of usaa Members

Michele Moore-Hirata models one of her colorful Chemo Beanies. She creates and distributes these vibrant cotton hats as gifts to cancer patients. Visit fatthumb.com to learn more.

Capt. Jennifer Kready, U.S. Air Force Reserve, member since 2002, and her husband, Maj. Eric Kready, Army, member since 1999, in Portugal, December 2008.

Adventure “Our 2007 gift was printed

on 81/2 -by-11 paper. Our PCS [Permanent Change of Station] orders took me and my husband to a 16-nation NATO post in northwest Germany. This international gift included visiting 26 European countries, six close German friends, a kit full of British mates and more than 2,000 pictures.”

The Kreadys traveled to (from left to right) Prague, Paris, Berlin and Budapest while stationed in Europe.

service

Lt. Col. Diana Echols, U.S. Air Force Reserve member since 1988 usaa.com

history “My dad gave me the gift of service. He loved serving our country and passed that on to me and my brother. Both of us have had full Reserve careers. Dad died last year, and we buried him the day I made lieutenant colonel. I know he was smiling.”

Dorothy Huffmanparent

“My parents gave me my grandmother’s hope chest when I got married — I’m named after her and am told I look quite a bit like her. But she died before I was born, so I never met her and had only seen a few photos. In the hope chest, I found pictures of relatives I’d never seen before, scrapbooks, newspaper articles and cards from my grandfather.” »

member since 2007 WINTER 2010 usaa magazine 25

USAA digital

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on the go This icon indicates you can find more information online or via your mobile device.

Fast and easy Get quick access to your USAA account from Facebook. Get the app on USAA’s Facebook page at facebook.com/ usaa.

Check out a new app that lets you securely access your USAA accounts from your Facebook® page. You can bookmark or add the “My USAA” tab to your personal wall next to tabs for photos, info and other features. The app, which you can download from USAA’s Facebook page, is also a secure way to pay bills, transfer funds, get proof of insurance, and research products and services without having to log off Facebook. Qualified members can also use USAA Deposit@Home®*. You must qualify for USAA’s Deposit@Home® and Deposit@Mobile®; eligibility for USAA property and casualty insurance and credit qualification required.

*

New Retirement Tools Go to usaa.com and search Retirement Calculators.

As of Nov. 20, USAA will offer four online tools: two for members in savings mode, and two for those nearing retirement. If you’re still saving and want a snapshot to see how you’re doing, try the Retirement Savings Calculator. If you can take 20 minutes to supply a few more details, another version will suggest how to reach your goals. About to retire? Try the Transition Calculators. One estimates how long your retirement dollars are expected to last, and the other explores how to potentially generate retirement income from your various accounts.

peace of mind Plan ahead to help protect yourself and your property if natural disaster strikes. Visit the Disaster and Recovery Center at usaa.com.

Visit the Disaster and Recovery Center at usaa.com for advice on how to prepare for winter storms, earthquakes, floods, hurricanes, tornadoes and wildfires. Find out if you have the right coverage for these events, and learn what you should do to recover after a disaster.

Talk to Us

There are more ways than ever to tell us what’s on your mind.

Twitter®

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Call

Write

Twitter users can follow USAA at twitter.com/usaa.

Be our fan on Facebook. Log on to facebook.com/usaa.

E-mail us. Log on to our website at usaa.com and click Contact Us.

Call us. We’d love to hear your feedback. 800-531-8646

USAA Magazine, Mail Call, E-1-E, 9800 Fredericksburg Road, San Antonio, TX 78288-3533. Please include a daytime telephone number.


800-531-USAA (8722)

Photography by amana productions inc./Getty Images; Tyler Edwards/Getty images; Andy Anderson; John Burcham /Getty Images

Do you want a quick or detailed look? Your choice.

Exclusive Products and Services for USAA Members Only

USAA Magazine | Winter 2010

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Financial Planning

shopping & discounts

Auto Circle. Military Minded. Savings Focused. Auto Circle is a free, new online solution created to help you find, finance and insure your vehicle the easy way. Access Auto Circle anytime from your computer or iPhone — just by logging on to autocircle.com.

photography by IOFOTO/Veer Images

Here’s how it works: » Shop for your next car with access to research and consumer reviews all in one place. » The “USAA Preferred” designation helps you choose a car that provides the best overall value based on price, reliability, safety, fuel economy and insurance cost.2 » Select your vehicle and receive the Lowest Price Guarantee,3 along with names and locations of USAA Certified Dealers who will honor the price on your USAA Price Protection Certificate. » With Auto CircleTM, USAA members save an average of $4,508 off MSRP on a new vehicle.4 » We provide an instant answer on financing from your computer or iPhone®, and even wire money directly to your auto dealer. » With Auto Circle, you can add or substitute vehicles on your USAA auto insurance policy before you even leave the dealership. No hassles, no negotiating. No reason not to get behind the wheel of a new car. Discover why Auto Circle is the fastest, easiest and most con- venient way to find, finance and insure a vehicle.

Try it out at autocircle.com or call 888-604-AUTO (2886).

See important legal information about Auto Circle on Page 30.

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Member Savings Knowing more begins now.

Investing

How Can You Give the Gift of a Lifetime? A 529 plan from USAA could be the correct answer. saving for a child’s — or grandchild’s — college education, look to USAA. Consider the 529 plan, a tax-deferred savings plan that helps families save for future college costs. USAA has the No. 1-performing 529 plan over a oneyear period and the No. 1-performing 529 plan over a three-year period, as ranked by savingforcollege.com, an objective source of information on college savings plans.v » The advantages of a 529 plan add up: You can open an account with just $250, and you can set up automatic monthly contributions of as little as $50. You pay no federal income tax if the •

•

money is spent on qualified education costs.5 Select from seven portfolio choices. Plus, as the parent or grandparent, you keep control of the account. Because it’s considered a parental asset, the 529 plan will have minimal financialaid implications. Link with Upromise®, a college savings service, and get even more: » You can give your USAA 529 College Savings Plan an extra boost by linking your account with Upromise Rewards®. This free service gives a percentage of your qualified spending back to your child’s savings plan when you: shop at hundreds of online retailers. choose from among 8,000 •

•

• •

designated restaurants. buy one of thousands of grocery or drugstore items. » Upromise’s gifting program, Ugift®, makes it easy for family and friends to contribute to your child’s college education: Create invitations for friends and family so they can give to your child’s USAA 529 College Savings Plan account for special occasions. You can print out invitations or create e-mail invitations to send online. Contributions can be as little as $15. Contributions are free of gift taxes. •

•

• •

Learn more about 529 college saving plans at usaa.com, or call 800-531-USAA.

Consider the investment objectives, risks, charges and expenses of the USAA 529 College Savings Plan (Plan) carefully before investing. Call 800-292-8825 to request a Plan Description and Participation Agreement containing this and other information about the Plan. Read it carefully before investing. If you or the beneficiary are not residents of the State of Nevada, consider before investing whether your or the beneficiary’s home state offers a 529 plan that provides its taxpayers with state tax and other benefits not available through this Plan. Please consult your tax advisor.

Interests in the USAA College Savings Plan (Plan) are municipal fund securities issued by the Nevada College Savings Trust Fund (Trust). The value of an investment in the Plan will vary with market conditions. The Plan is administered by the Board of Trustees of the College Savings Plans of Nevada (Board), which is chaired by the Nevada State Treasurer. USAA Investment Management Company provides investment management services to the Portfolios, together with its affiliate, USAA Financial Advisors Inc., and markets and provides related services with respect to the Plan. Upromise Investments Inc., serves as the Program Manager as well as effects participant transactions in the Plan. Interests in the Plan are not guaranteed by the Trust, the Plan, the State of Nevada, the Board or any other governmental entities, or any USAA or Upromise entities, and you could lose money.

Investing in securities products involves risk, including possible loss of principal.

Systematic investment plans do not assure a profit or protect against loss in declining markets.

Ranked No. 1 out of 51 direct-sold 529 plans for its one-year performance, No. 1 out of 45 direct-sold 529 plans for the three-year period and ranked No. 3 out of 38 for five-year performance by savingforcollege.com. The savingforcollege.com plan quarterly rankings were based on the composite performance score of seven unique asset allocation categories of the 529 plan for the one-year, three-year and five-year periods ending June 30, 2010. For more details on the ranking methodology, visit savingforcollege.com.

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28 usaa magazine Winter 2010

To qualify for the special gift tax exclusion, a gift tax return must be filed to treat the gift as though it were made in equal payments over the five years. To avoid the gift tax, you should make no additional gifts to the beneficiary during those five years. See additional legal information on Page 30. 800-531-USAA (8722)

photography by Don Farrall/getty images

When it comes to the challenges of

investing

Planning for Retirement

Retire with an asset that grows in value — guaranteed. A common concern for many of our members is running out of money during retirement. If you’re looking for peace of mind, consider a USAA Guaranteed Savings Annuity. Our savings annuities grow in value every day, guaranteed, and are designed to help you reach your retirement goals faster because you earn interest on your money and interest on the interest, and pay no taxes until you begin receiving income from the annuity or withdraw the money. » Guaranteed savings annuities are for retirement money that you do not want to subject to undue risk: You will not lose the money you put in. Value is guaranteed to increase daily — your interest rate won’t go below a guaranteed minimum. In addition to earning interest on your money and interest on the interest, taxes are deferred until you take the money out.6 There are no contribution limits for annuities not held in an IRA or other retirement plans.7 You can put in a single lump sum or build the guaranteed value by automatically transferring money from a checking or savings account each month. These guarantees are backed by our life insurance companies, which receive the highest financial strength ratings from A.M. Best and Standard & Poor’s.8 • •

•

•

photography by andy anderson; Ariel Skelley/getty images

•

USAA Member Services

insurance

» Auto Insurance » Home and Property Insurance » Life Insurance » Annuities » Medicare Solutions » Long-Term Care Insurance » Major Medical Insurance » Insurance for Other Needs banking

» Checking » Savings » Certificates of Deposit (CDs) » Credit Cards » MoversAdvantage® » Mortgage » Home Equity Products » Car Buying Service » Auto Loans investments

» Mutual Funds » Brokerage Services » College Savings Options » Personal Asset Management » IRAs » Market News & Research Financial planning

Call 800-634-8722 or visit our Online Retirement Center at usaa.com/retirement.

» Personal Financial Plans » Wealth Management shopping & discounts

The fixed annuity guarantee against principal loss depends on the claims-paying ability of the insurance company. Annuities do not provide any tax-deferral advantage over other types of investments within a qualified plan. There are costs associated with annuities, including surrender fees, early withdrawal penalties and mortality risk expenses. Investment and insurance products are not deposits, not insured by FDIC or any government agency and not guaranteed by the Bank. Investment and certain insurance products may lose value.

» Diamonds & Jewelry » Cruise & Travel Services » Rental Cars » Flowers » USAA MemberShop® » Home Security 800-531-USAA (8722)

See additional legal information on Page 30. usaa.com

Winter 2010 usaa magazine 29

Legal disclosures

Investments/Insurance: Not FDIC Insured • Not Bank Issued, Guaranteed or Underwritten • May Lose Value The preceding articles should not be considered tax, legal or estate-planning advice. Consult your tax, legal or estate-planning professional regarding your specific situation.

The USAA Educational Foundation The USAA Educational Foundation, a nonprofit organization, has the resources to help make your life more manageable. Building and Maintaining Good Credit

(#536)

Making Money Work for You

(#523)

Annuities

(#525)

Individual Retirement Accounts

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Internet Safety for Teens

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Internet Safety for Adults

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(#589)

Suicide Prevention

(#581)

To order free publications, just call 800-531-6196 or visit usaaedfoundation.org. Have your USAA number and publication number ready when you call. The USAA Educational Foundation does not endorse or promote any commercial products or services.


Page 7 Page 28 1 Assurant Health is the brand name 5 Tax-free earnings and withdrawals for products underwritten and issued are for qualified educational expenses. Other withdrawals are by Time Insurance Company. subject to income tax and an additional 10 percent penalty on earnings. Pages 11, 27 The availability of tax or other beneAuto Circle Information fits may be contingent on meeting Participation in the Auto Circle™ other requirements. Upromise is an program is free. Products may optional service offered by Upromise have costs, fees, availability, and Inc. and is a separate service from membership eligibility restrictions. the USAA College Savings Plan — Insurance provided by United specific terms and conditions apply. Services Automobile Association Participating companies, contribution and its insurance affiliates, levels, terms and conditions subject San Antonio, Texas. Bank products to change without notice. Transfers provided by USAA Federal to your USAA College Savings Plan Savings Bank, Member FDIC. account are subject to the minimum Some products and services subsequent contribution amount of provided by third parties, each $50. Upromise and the Upromise responsible for their product’s logo are registered trademarks of performance. 2 USAA Preferred vehicles represent Upromise Inc. © 2001-2010. All rights reserved. vehicles which are determined to be a good financial value using a Page 29 USAA developed proprietary 6 There are costs associated with statistical model. The model annuities, including surrender fees, relates MSRP to vehicle features early withdrawal penalties and mor(engine type, drive train, electronic tality risk expenses. stability control, anti-lock brakes, 7 Annuities do not provide any taxnumber of airbags, transmission, deferral advantage over other types of body additions, curb weight, investments within a qualified plan. horsepower to curb weight, height 8 A++ (Superior) from A.M. Best Co., and vehicle class), fuel economy, highest of 16 possible ratings; AAA insurance cost, additional warranty (Extremely Strong) from Standard & cost, depreciation, popularity, Poor’s, highest of 21 possible ratings. special USAA member discounts Company ratings represent an opinprovided by dealers or manufacturion of financial strength and the comers and IIHS top safety pick pany’s ability to meet ongoing to determine the value. USAA obligations to policyholders. Preferred vehicles are those vehicles that rank in the top 40 Member percent for each vehicle class AND The term “member” does not convey obtain “Good/Acceptable” crash test legal, ownership or eligibility rights. ratings from IIHS. In providing this Ownership rights are limited to eligianalysis USAA does not consider ble policyholders of United Services factors other than those disclosed Automobile Association. in determining USAA Preferred vehicles. Texas laws state that Eligibility only a dealer can provide your Membership eligibility restrictions vehicle price. The participating apply to purchase of property and dealer’s price may be higher or lower casualty insurance. Eligibility may than the USAA Price — you may change based on factors such as negotiate directly with the dealer. marital status, rank or military status. 3 USAA Car Buying Service and Rates and benefits may vary due to Lowest Price Guarantee provided eligibility. Contact us to update your by Zag.com Inc. To get the Lowest records. Children of USAA members Price Guarantee, you must choose are eligible to purchase auto or propa dealer with a Lowest Price erty insurance if their eligible parent Guarantee icon. If you see a lower purchases USAA auto and property advertised price up to three days insurance. Purchase of a non-propafter you buy, you’ll be covered. erty and casualty insurance product, Applies to new vehicles purchased or an insurance policy offered directly from a Low Price Certified through USAA General Agency, does Dealer or any USAA Certified not establish eligibility for or memDealer on the USAA Car Buying bership in USAA property and casuService. Visit usaa.com for complete alty insurance companies. guarantee terms and conditions. Guarantee is not available in Texas. USAA Companies 4 Savings based on the monthly aver- USAA means United Services Autoage of actual new vehicle member mobile Association and its affiliates. prices compared to MSRP for the time period of 12/1/2009 to Property and casualty insurance provided by United Services Auto5/31/2010. The savings calculation mobile Association, USAA Casualty does not include the savings from Insurance Company, USAA General the USAA exclusive manufacturer Indemnity Company, Garrison incentives.

Property and Casualty Insurance Company, USAA County Mutual Insurance Company, USAA Texas Lloyds Company, San Antonio, Texas, and USAA Ltd. (Europe). Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. USAA Brokerage Services is a division of USAA Financial Advisors Inc., a registered broker dealer. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency Inc. (known as USAA Financial Insurance Agency in California), a registered investment advisor and insurance agency, and its wholly owned subsidiary, USAA Financial Advisors Inc., a registered broker dealer. Trust Services offered by USAA Federal Savings Bank. Credit cards provided by USAA Savings Bank, other bank products provided by USAA Federal Savings Bank, both Member FDIC. Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, Texas, and in N.Y. by USAA Life Insurance Company of New York, Highland Falls, N.Y. Each company has sole financial responsibility for its own products. Other Product-Related Disclosures Property and Casualty Insurance Product or service requirements, price and features can depend on the member’s choices as well as laws and the product or service contracts, which may vary by location. We encourage you to read your USAA policies and contracts carefully. Underwriting restrictions apply. Important Information on Consumer Report Accuracy If you believe we provided inaccurate property and casualty or life insurance information about you to a consumer reporting agency, contact us at USAA, P.O. Box 34973, San Antonio, TX 78256-3743. Investments Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. All USAA and non-USAA products, brand names, logos and company names are trademarks or registered trademarks of their respective owners. © 2010 USAA 800-531-USAA (8722)

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MEMBER SNAPSHOT

»

Right on the Money Gilbert and Jacki Cisneros, USAA members since 1994

Go to usaa.com and search Lottery to watch the video “Time to Retire the Splash.”

When Gilbert Cisneros answered the phone at 2:30 a.m., he didn’t expect his wife, Jacki, to be calling from her morning shift at a Los Angeles TV station to ask him to check his Mega Millions lottery tickets. “Now?” he asked. “Yeah, go check your numbers,” she said. Her co-worker had mentioned that the winning ticket came from the barbecue restaurant where Gilbert had picked up dinner the night before. “I said, ‘You read me the winning numbers, and we’ll go from there,’” says Gilbert. “She read me the mega number first, which was an eight. She started reading the other numbers — yes, yes, yes. I was like, ‘I think we won.’ She started going crazy.” “It was a combination of crying and laughing,” Jacki adds. After ringing up his mother, Gilbert called USAA. “I’ve been with USAA since 1994, when I bought my first ‘ensign mobile,’ a Ford Ranger Splash,” says Gilbert, who served in the Navy for 10 years. “USAA has always been good by me, so it just seemed like the obvious choice.” With the winnings, the couple’s first move was a donation to the church they attend. “Also, education is very important to us,” Jacki says. “We’re going to set up a foundation to help with scholarship funds.” Gilbert drove his old Ranger to validate his ticket. “The Splash has been everywhere with me, across the country three times,” he says. “It may be time to retire the Splash.”

Photography By Dave Lauridsen

“You dream about winning, but it’s always just a dream. You never think it will be a reality.” —Jacki Cisneros 121817-1110