COLA isn't just for shopping

  • Published
  • By Kimberly Henne
AVIANO AIR BASE, Italy --  So, you've done well. You listened to the counselors at the Airman and Family Readiness Center. You paid off all your credit cards. You've eliminated your debt. You saved enough in your emergency fund. You are investing in the Thrift Savings Plan for your retirement. You've visited the IRS website and have adjusted your tax exemptions so that you do not get a large tax refund check each year. You've even started saving for your down payment on your 'forever' house. Now what?

If you haven't done all of these, stop by the A&FRC and they can tell you how to accomplish all your financial goals. If you have done all these steps, let's consider your options. You are living in Europe. You could spend it all on shopping and traveling. After all, isn't that what your Cost of Living Allowance  is for--shopping? You could start an education fund for your children. Or you could attend an investing class offered by the A&FRC and learn about ways to save even more for retirement. Have you ever heard of a Roth IRA? Can you tell the difference between a mutual fund and a certificate of deposit? Do you know what Bears and Bulls have to do with investing money in today's economy? The A&FRC is ready to help answer these questions, but I'll whet your whistle with just a few simplistic answers.

A Roth Individual Retirement Account is another vehicle for saving for retirement. It is money that is taxed initially, but grows tax-free until you withdraw it. The current annual limit is $5000 for a Roth IRA. That means you are taxed on the initial $5000, but not on the $50,000 it can grow to upon retirement when you withdraw the money. So, the question is--do you want to be taxed on $5,000 or $50,000?

Should you save for your child's education? That depends. There isn't a simple answer for that one. My initial opinion is No. Not until you completely max out your own retirement savings, and that of your spouse, up to the current federal level of $16,500 per year for your 401(k) AND $5000 for your IRA. Why, you ask? Because when your child is old enough to go to college, there will be various funding options available to him or her, through student loans, parent loans, financial aid, scholarships, etc. What funding options will you have for your retirement besides what you save, your military retirement pay; and maybe social security? Will it be enough to fund the lifestyle you want to have? There are many options for funding your child's education, including loans. There are very few options for funding your retirement while you are retired.

So, are you encouraged and ready to take a class offered by the A&FRC? Are you ready to do something with some of that COLA? I'm not saying don't enjoy living in Europe. Just be smart about the extra money you are receiving. After all, COLA isn't just for shopping. February 21-28 is Military Saves week. Make your pledge to Start Small. Think Big at www.militarysaves.org.

For more information or to talk with a financial counselor, contact the A&FRC at DSN: 632-5407 or 0434-30-5407.