USAA Magazine Fall 2006

ceo messageBest values,exclusive offers,and low pricesYou’ll find them on usaa.comRobert G. Davis,Chairman and Chief Executive OfficerUSAA atyourserviceDoingbusiness onusaa.com is easy,convenient,safer, and moresecure thanconductingyour financialbusiness throughthe U.S. mail.See legal disclosureson page 34.In today’s fast-paced world, consumerswant what they need, when theyneed it — delivered to wherever theyhappen to be.Thanks to our continuously improving Website, USAA delivers.Doing business on usaa.com is easy,convenient, safer, and more secure thanconducting your financial business through theU.S. mail. And usaa.com is where you will findour very best values, including:■ A $50 “Online Driver Discount” in most states —and even in some foreign countries — formembers who obtain quotes and purchasetheir auto insurance online.■ Our lowest interest rates on auto loans.■ Our highest-earning CDs.■ A $100 credit toward closing costs on homemortgage loan applications completed online.■ Reduced brokerage commissions foronline trades.More and more members are choosing the ease,convenience, and low prices of usaa.com, whichis good for them and good for the association. Themore members use usaa.com, the more efficientwe become, allowing us to pass along greatercost savings to you in the form of lower pricesand better rates.What can you do online?Almost any business you can transact by phonecan be handled online. Here’s just a partial list ofall the things you can do on usaa.com:■ View all your USAA accounts and transactionsin one convenient location.■ Get a free financial assessment. Free!■ Purchase banking and insurance products:Open a checking or savings account, get acredit card, buy an auto insurance policy, applyfor a mortgage or home equity line of credit,obtain renters insurance, get an auto loan, buyCDs and annuities, open a brokerage account,and buy and sell mutual funds and stocks.■ Transfer money between accounts quickly andeasily. Deposit checks using your computer anda scanner with USAA Deposit@Home SM .■ Pay your USAA bills, and any other bills, withUSAA Web BillPay ® ; and communicate withUSAA representatives via e-mail.■ Service your accounts and policies. Addor remove vehicles on your auto insurancepolicy, order proof of auto insurance ID cards,file insurance claims, and set up automaticpayments or withdrawals.■ Sign up to receive your statements, policies, andbills electronically, and securely store some ofyour USAA documents for up to seven years.■ Receive your choice of electronic alerts. Forexample, you can request alerts that let youknow when your available credit or checkingaccount balance drops below a self-determinedamount, when a large account withdrawalor credit card charge has been made, or if apayment has been posted.Best values, exclusive offers, low pricesSave money, conduct business 24 hours a day,and relax knowing that your transactions aresafe, secure, and private. Not near a computer?No problem — check your account balances andmake trades directly from your mobile device atmobile.usaa.com.And remember: If you get stuck or needadvice, you can still call USAA’s best-in-classmember service advisors for guidance.Sincerely,Robert G. DavisChairman and Chief Executive OfficerUSAA.COM WINTER 2007 USAA MAGAZINE3

USAAA MEMBER’S GUIDE TO FINANCIAL SECURITYWINTER 2007 • VOLUME 43 • NUMBER 4Don’t Get Taken fora Ride 14Avoid making money missteps like thesecharacters. If it’s too late, discover how torecover. By Steve BucciWarranties: Are TheyWorth It? 17Pricing, fine print, and more. Get the factsbefore settling on a protection plan for yournext purchase. By Mark HenricksSafety ’Net 20Today’s Internet weaves an awfully tangledweb. Follow these tips to protect your familyonline. By Preston Gralla14 Don’t let a suddendrop in the stockmarket terrify you.Learn how to keepyour cool duringmarket volatility, andget other money dosand don’ts.Spend Right inRetirement 22Financial experts explain how to tap yourfunds to make the most of your hard-earnedmoney. By Kerry HannonPayback 24Considering a renovation? This triparound the house shows how to get thegreatest return. By Janice Rosenberg22 Your retirementsavings may be stashedin different places, but,altogether, the moneystacks up. Make sure youspend it the wisest way.10 The Stuarts find themselves near retirementwith little savings. USAA helps them get a plan.4COVER PHOTO: C.J. BURTONUSAA MAGAZINE WINTER 2007 USAA.COM

A MEMBER’S GUIDE TO FINANCIAL SECURITYUSAAMAGAZINEIn Every IssueOn theCoverSmart moves— learn howto make them.Don’t Get Taken for a Ride 14Mail Call 6Members offer an ideafor healthy living and findinspiration in one patriot’svolunteer service.FYI 7Learn the secrets behindfree credit reports plusnaming beneficiaries.Financial Makeover 10See how one couple isplaying catch-up to savefor the future.Retirement Coach 12Get answers toretirement questionsand see how much youshould be saving.Member Savings 27USAA helps membersthrough all stages of life.USAA.COMYOUR LIFE: easier.Visit the all-new usaa.com todayYou’ll love the new usaa.com, which debuted earlierthis fall. The improved design, navigation, andfeatures help you plan for your financial futurebetter than before. And, of course, it makes onlinetransactions a snap. If youhaven’t toured the newsite, you’ll discover threeeasy-to-use sections:My Accounts — Givesinstant access to all ofyour USAA accounts andrelated transactions on onepage after you log on.Products and Services —Provides links to productinformation and USAAservices, as well as preapprovedoffers availableto you.Advice and Planning —Links to tools related tomanaging debt, investing,and preparing for retirement,plus articles andvideos from USAA experts.Now, doing business withUSAA online is simplerand smarter than ever.DIDYOUKNOW?YOU CAN:MAKE PAYMENTS.MOVE MONEY.REQUEST AUTOID CARDS.RESET YOURPIN.Member Snapshot 36Hear from an astronautwho ran the BostonMarathon — in space.CHECK OUT THE ADVICE & PLANNING SECTIONand visit Retirement Planning to use the helpful OnlineRetirement Advisor tool.USAAUSAA Magazine is published quarterlyby USAA as an informational and educationalservice to members. Material in thismagazine may not be reproduced, stored ina retrieval system, or transmitted in anyform or by any means (electronic, mechanical,photocopy, or otherwise) without permissionfrom the publisher. The post officedoes not forward copies from incorrectaddresses. Copyright© 2007 by USAA.All rights reserved.EXECUTIVE EDITOR: Sarah PlasterMANAGING EDITOR:Jennifer Chappell SmithCONTRIBUTORS: Nancy McAllister,Dennis McCafferty, Brian P.McGlincheyPRODUCTION ANDCIRCULATION MANAGER:Lisa SeversonVICE PRESIDENT,MEMBER COMMUNICATIONS:Rhonda CrawfordDESIGNED BY: McMurry, 1010 E.Missouri Ave., Phoenix, AZ 85014PUBLISHED BY: USAA, 9800Fredericksburg Road, SanAntonio, TX 78288-3533;(800) 531-8646 (magazine businessonly). For information aboutUSAA’s products and services,see page 27 or log on to usaa.com.For information about reprintingmaterial from USAA Magazine,please write to Lisa Severson atthe address above. Requests mustbe in writing.MISSION: USAA’s mission is tofacilitate the financial securityof its members, associates, andtheir families through provisionof a full range of highly competitivefinancial products andservices; in so doing, USAA seeksto be the provider of choice forthe military community.USAA products and services areavailable only in those jurisdictionswhere USAA is authorized by locallaw to promote and sell them.USAA ALSO PUBLISHES: usaa.commagazine for USAA membersbeginning their financial journey,U Magazine for members who areelementary and middle-school age,U-TURN for young teen members,and U.25 for young adults.USAA with the eagle is a registeredservice mark of USAA.USAA.COM WINTER 2007 USAA MAGAZINE5

mail callA vitaminsupplementa day … USAA M AGAZI N E FA LL 2007 USAA.COM USAA.COM FALL 2007 USAA M AGA Z I NE In “Invest in your Health” (Fall 2007), you talked aboutmaking right choices now to reap dividends later. One ofthe quotes was that you should “take advantage of as manypreventive measures as you can, and enjoy life, too.” Unfortunately,you did not include high-quality nutritional supplements in your listof steps to improve your health.Since you report that only 3 percent of Americanadults follow all four of the healthy lifestyle choicesrecommended by the American Heart Association —maintain a healthy weight, don’t smoke, eat fivefruits and vegetables a day, and exercise regularly — itmakes sense that most Americans could do more tobe proactive with their health.The American Medical Association now encouragesall adults to supplement daily with a multiplevitamin, according to Nutrisearch Comparative Guideto Nutritional Supplements by Lyle MacWilliam.■ Raymond and Suzanne Valadez, Driftwood, TexasPHOTOGRAPH BY ANTHONY B. WOOD6Send your feedbackVisit usaa.com/magazines and click “Contact Us.” Or,mail letters to USAA Magazine, Mail Call, E-1-E, 9800Fredericksburg Road, San Antonio, TX 78288-3533.Please include a daytime phone number.All or part of your letter may be printed in an upcoming issue. It may be edited forclarity and length. • The opinions expressed here are those of individual membersand not necessarily of USAA. If you have comments regarding an individual claim orconcerns that do not pertain to items in the magazine, please refer to usaa.com for acomprehensive list of contact numbers.Above and beyondI was inspired after reading the article on retired Col.Bernhard (“At your service,” Fall 2007), a retired doctorwho has volunteered for four overseas deploymentsthrough the “Boots-on-the-Ground” Army National Guardrotation policy for physicians and dentists.He is truly an American hero, and we need more peoplejust like him! Thank you for your service, Col. Bernhard.■ Tessa Burns, Gulf Breeze, Fla.USAA MAGAZINE WINTER 2007 USAA.COM

BabetteMaxwellFPHOTOGRAPH BY JOSHUA CARPENTERMatters of the(military) heartThree USAA members help militaryspouses deal with deployments,relocations, raising kids solo, and moreBabette Maxwell, founder and editor ofMilitary Spouse magazine, understandsthe stresses of military life. A militaryspouse herself, she makes sure the magazine weighsin on the struggles, but adds a dash of star power tothe publication when she can. She’ll ring up countrysinger Toby Keith or actor Gary Sinise to chat abouttheir trip to entertain troops in Iraq, for instance. Shebalances lighthearted stories about pampering yourselfwith no-holds-barred features, such as an articleabout spouses with mates stationed in Baghdad.THE ROSTEREnjoy these fall events, all sponsored by USAA.For more, visit usaa.com/events.“People ask, ‘What’s so different aboutbeing a military spouse?’ I say, ‘When wemeet, we know what we’ve been through,’”Mrs. Maxwell says. “No military spouseis a stranger.”With the same sensibility, Tara Crooksoperates Army Wife Talk Radio, a weeklyInternet broadcast. “We’ll talk about manytopics,” Mrs. Crooks says, “from relationshipsto deployments and anything in between.”Stemming from the show’s success, Mrs.Crooks and military spouse Starlett “Star”Henderson formed Field Problems, aimedat empowering and supporting military families.Known as Crooks & Henderson, the duocan be found online and in print as part of theMilitary Times, or at speaking engagementsdubbed Field Exercises.Mrs. Henderson’shusband, David, has deployedto Iraq twice andBosnia once. Mrs. Crooks’husband, Kevin, is servinghis second deployment inIraq. Mrs. Maxwell’s husband, alsonamed David, flies fighter jets. Themultimedia outlets this trio hascreated underscore that strugglesassociated with war and militarylife aren’t limited to the battlefield.“We’ve experienced exactlywhat our spouse listeners haveexperienced,” Mrs. Hendersonsays. “That’s why we can connectso well with what they’re feeling.”PHOTOGRAPH BY LYNDA GREENYIStar Henderson (left) and Tara CrooksDECEMBER 1DECEMBER 29JANUARY 12Army-Navy Football GameBaltimoreAlamo BowlSan AntonioMilitary Appreciation Night —San Antonio SpursSan AntonioEND-OF-YEAR TAX TIPIf you’re age 70 1 ⁄2 or older, 2007 presents a one-timetax-planning gem: This is the last time you can take up to$100,000 from your IRA and give it to charity — withoutpaying taxes on the gift. You can’t deduct the sum onyour 2007 tax return, but it will come out of your IRAcompletely tax-free. Your donation also will satisfy yourrequired minimum distribution for the year.USAA.COM WINTER 2007 USAA MAGAZINE 7

Avoid beneficiarymistakesCruise intoretirementPHOTOGRAPH BY XXXXXXXXXXXXRetirement plans come in many forms, including IRAs, 401(k)s, 403(b)s,and the federal government’s Thrift Savings Plan. Each allows you to namea beneficiary who will receive your assets when you die. Avoid thesecommon and costly errors:Naming your estate as your beneficiary. Instead, name individuals.The tax code provides named beneficiaries with more tax-friendly choicesthan when they receive your IRA through the probate process.Failing to keep your designation current. Review and update yourbeneficiaries each time you experience a major life event such as marriage,the birth or adoption of a child, divorce, retirement, or the deathof a beneficiary.Naming minor children without also appointing a custodian. Minorscan’t own investments outright. They need an adult to serve as thecustodian until they reach the age of majority.60%of motorcycle fatalitiesoccur at nightwhen motorcycles are harder to see.— National Highway Traffic SafetyAdministrationHELMET PHOTO COURTESY OF AKUMA HELMETSSheddingnew light onmotorcyclesafetyKeeping a low profile may helpyou survive some situations, butnot motorcyclists, especially atnight. The latest National HighwayTraffic Safety Administrationstudy shows a 5.1 percentincrease in motorcycle deaths,while motor vehicle fatalitiesoverall dropped 2 percent. Untilrecently, reflective decalsand bright clothing providedthe best way tostand out after sunset.Today, helmet manufacturersare incorporatinghigh-visibility lightsinto their products to makeriders shine.Tell us in 100 words or less the bestpiece of advice you ever received aboutsaving for your future. Whether from afriend, family member, or financial advisor,what tip helped you get started onyour nest egg?First prize: A $5,000 gift certificate fora cruise from Explore Cruise Travel, plusa USAA Financial Planning ServicesRetirement Plan valued at $795.Second prize: A diamond pendant, valuedat more than $1,000, from the USAADiamonds and Jewelry collection, anda USAA Financial Planning ServicesRetirement Plan valued at $795.Three runner-up prizes: Each runnerupreceives a USAA Financial PlanningServices Retirement Plan valued at$795 each.How to enter: To submit your entry,log on to usaa.com and enterkeyword WinACruise. No entriesaccepted via regular mail.Deadline: Jan. 11, 2008.Winners will be announced in the Spring2008 issue of USAA Magazine.See additional legal disclosures on page 34.No purchase necessary to enter or win.To see official rules, log on to usaa.com and enterkeyword WinACruise.USAA Financial Planning Services® refers to financialplanning services and financial advice provided by USAAFinancial Planning Services Insurance Agency, Inc. (knownas USAA Financial Insurance Agency in California), aregistered investment advisor and insurance agency, andits wholly owned subsidiary.USAA.COM WINTER 2007 USAA MAGAZINE 9

financial makeoverTill deathdo we workRaiding their retirement accounts has leftthese empty-nesters with little nest eggand a big need for expert adviceAfter many costly moveszeroed out their retirementaccounts, Matthew and LindaStuart now have a five-stepplan to leave the workforce infinancial comfort.Matthew and Linda Stuart havemoved five times over the courseof his structural engineering career.Their latest — and priciest — relocation tookthem to Hamilton, N.J., near Philadelphia.One possession got broken repeatedly duringthe moves — their retirement savings. Mr. Stuarthas cashed out of his employer savings plans tocover the cost of transitioning to their new homeevery time. Each cash-out has been a quadrupleblowto the couple’s finances: taxes, prematuredistribution penalties, market losses, and fewerdollars growing for the future. Today, the couple’sonly retirement asset is a small monthly pensionfrom a previous employer.These USAA members and empty-nesters,now in their early 50s, have resigned themselvesto many more years ofemployment. Mrs. Stuart,who works in food serviceat a nearby highschool, may work until70. Mr. Stuart? “Until Idrop dead,” he says. Thetwo should have lots ofcompany — accordingto the Census Bureau,23 percent of peoplebetween 65 and 74 arestill in the labor force.Despite Mr. Stuart’swork-forever intentions,the couple realizesthe need to planfor a day when hehas to stop, and welcomedthe opportunityto receive expertadvice from USAACERTIFIED FINANCIALPLANNER TM practitionerJ.J. Montanaro.Prepare for emergencies.The Stuartshave a creative, butunreliable, approachto preparing for financialemergencies —they regularly acceptcredit card offers featuring0 percent introductory rates, put unexpectedexpenses on the cards, and then paythem off over the following months.Mr. Montanaro, however, recommendsthe Stuarts set up an automatic transfer fromchecking to savings to build an emergencyfund equal to three to six months of theirregular expenses. “Their current approachdepends on a credit card marketing strategythat could go away at any time,” Mr. Montanarosays, “and an emergency fund can also helpthem avoid those counterproductive raids ontheir retirement accounts.”Be more aggressive with 401(k) investments.Mr. Stuart recently enrolled in his company’s401(k) plan. Wary of repeating losses incurredwhen he cashed out of previous plans, he allocatedjust 20 percent of his money to stocks,PHOTOGRAPHY BY JIM JUDKIS10USAA MAGAZINE WINTER 2007 USAA.COM

etirement coachQuestions loom as you near retirement, butScott Burns offers insight and advice that willhelp you plan for your futureRetirementon the horizonBY SCOTT BURNSScott BurnsPlease see importantlegal disclosures onpage 34.Taken from the ScottBurns column datedAug. 2, 2007, and Aug. 9,2007, by Scott Burns© 2007 Distributed byUNIVERSAL PRESS SYNDICATE.Reprinted with permission.All rights reserved.How to estimate your future SocialSecurity benefitI am 56. I retired after 30 years of teachingat the age of 52. I plan to take SocialSecurity at age 62. My understandingis that for the 10 years I will have been retiredand have not contributed to Social Security, thebenefit I will get will be decreased a small percenteach of those 10 years. A friend told me thatsomething has changed and that my amountwill be based on the average of my 30 years ofsalaries and not my last five highest years. Andthere will be no yearly decrease for each of those10 years I have not been working. Is this correct?— V.B., by e-mailYour Social Security benefit is basedon your earnings record, up to a maximumof 35 years. If you work morethan 35 years, the calculation is based on thehighest 35 years of earnings. If you work lessthan 35 years, the no-earnings years will countas zero and will lower your average and, hence,your benefit.If you visit the Social Security Web site, youwill find that it offers three calculators to helpyou figure out what your benefit is likely to be.The link you want to use is ssa.gov/planners/calculators.htm and the calculator you shoulduse is No. 2, the Online Calculator. It will ask youto select when you want to start benefits and toinput your earnings record. Then it will estimateyour future benefit. You’ll find your completeearnings history on the annual statement you receivein the mail each year from Social Security.Given the importance of Social Security forall but the wealthiest people, I think one of thebest “investments” you can make is to take thetime to become familiar with this very usefuland well-managed Web site, ssa.gov.PHOTOGRAPH BY GETTY IMAGES12USAA MAGAZINE WINTER 2007 USAA.COM

COLLEGE-FUND FANATICSJim and Nancy Park are 30-somethings who put asideeverything they can afford from the diner they ownto build up their twin daughters’ college fund. Suchsacrifice makes them feel good, but are they bowingto misguided traditions at the expense of their ownfinancial security?Think again: Scholarships, grants, summer jobs,and, yes, student loans likely will come into playbefore this couple drops off the twins in fall 2020.“The Parks may be saddled with some destructivemoney beliefs,” says Dr. Brad Klontz, clinical psychologistand co-author of The Financial Wisdomof Ebenezer Scrooge. “Somewhere they got themessage that to be good parents they have to payfor their adult children’s education, even if theycan’t afford it. By not saving for retirement, theymay burden the twins with taking care of financiallydestitute parents.”Action items for the Parks:■ Question assumptions about paying for all of achild’s college tuition.OVERLY HAPPYHOMEOWNERS■ Consider the twins’ educational needs whendetermining life insurance coverage amounts.■ Target retirement needs with an investmentaccount such as an IRA and incorporate thekids’ education through vehicles like a 529 plan.OVERLY HAPPY HOMEOWNERSBob and Liz Casagrande rule the roost at their new,4,500-square-foot mini-palace. In their mid-40s,they have three children ages 8 to 14. This is theirthird home in 10 years; it’s really their only investment.As real estate players, they’ve neglected tobuild a college, retirement, or emergency fund. Theyplan to make further “investments,” such as kitchenupgrades. “We can put money into this place andtake equity loans when we need cash,” Bob says.Think again: “The math doesn’t work,” says JebBashaw, investment principal at a Houston firm.“Using your home as a primary investment vehiclehistorically has yielded 3 to 4 percent a year andin some markets 0 percent, while a diversified marketportfolio may potentially earn 10 percent overtime. In today’s market, an investment that you can’tquickly convert to cash, like a granite countertop,doesn’t make sense.”Action items for the Casagrandes:■ Diversify by investing in high-quality mutualfunds.■ Get investment exposure outside the U.S., notjust American companies that do businessUSAA.COMWINTER 2007 USAA MAGAZINE15

overseas. Of course, investing overseas involves additionalrisks they should consider.■ Stay in the market for the long haul. No one can time it.ON AUTOPILOT“Steady” Eddy and Constance de Glacier met in the AirForce and now both work as commercial pilots. Fortwo decades these 40-somethings’ financial strategy hasbeen on automatic pilot. Same employer, same home,and same savings plan.Think again: “With this 20-year-old flight plan, thede Glaciers are headed for a crash landing,” says MarcyPerson, a financial advisor from St. Petersburg, Fla.“They need to redirect their plan. They should estimateincome needs and diversify investments to managevolatility, seeking to achieve the results they need.”Action items for the de Glaciers:■ Estimate retirement income needs.■ Fully fund 401(k)s and IRAs.■ Use an investment mix of equity and bond mutualfunds or managed accounts, annuities, exchange tradedfunds, and a money market fund for short-term needs —with their goals and retirement time frame in mind.SINGLE WITHOUT SAVINGSSuzy Spendalot, 36, doesn’t think she needs a savingsaccount or an emergency fund. A self-supporting, singleprofessional, she considers her job secure. Withoutdependents, except for Big Al, the cat, she feels littlepressure to save. She plans to rely on credit cards if anemergency comes up. Ms. Spendalot pays extra on hermortgage and spends the rest on new outfits and greatshoes. “I’ll save later,” she quips, sipping her latte.Think again: An unfunded disability or layoff couldcurdle the milk in Ms. Spendalot’s latte. “The cornerstoneof any financial plan is an emergency fund,” says ElizabethLewin, co-author of Making Bread: The Ultimate FinancialGuide for Women Who Need Dough. “I suggest sheredirect her extra mortgage payments to a high-interestsavings account and build up four to six months of livingexpenses. She should also understand that the chancesof disability are far greater than a premature death. Whowould pay the bills if she had no income?”Action items for Ms. Spendalot:■ Open a high-yield money market fund or savingsaccount, and regularly contribute to it.■ Next, consider short-term CDs.■ Buy disability income insurance.■ If she’s still single in her mid-40s, consider long-termcareinsurance for her senior years.DEALING WITHMARKET JITTERSFEELING UPAND DOWNErnest St. Angst rides an emotional roller coasterover his investments. When the market tumbles, this45-year-old panics and sells. When the market hits a high,he jumps back in.Unless he substitutes a well-crafted spending, savings, andinvestment plan in which he has confidence, his financial futurewill be like a free-fall ride at an amusement park. It will end in thesame place it started — the bottom. Mr. St. Angst should look athis investments over the long term, keeping emotions in check. Or,he could shift the burden he feels by opening a managed account,where an expert can ride the market waves for him.Luis Beattie of nonprofit credit counseling agency MoneyManagement International recommends that any credibleand complete financial plan begin with a disciplined budget.“Consumers need to honestly assess their situation and createa realistic spending, savings, and debt-reduction plan thatresults in financial stability,” he says. Then they can developa plan that uses free cash flow to build assets for each stage oflife. Confidence in a plan and a planner will reduce knee-jerkreactions to market volatility.16USAA MAGAZINE WINTER 2007 USAA.COM

WARRANTIES:ARE THEY WORTH IT?ILLUSTRATIONS BY MARCI ROTHBY MARK HENRICKSIF you’re wonderingwhether to sign up forthat extended warrantyon your favorite newgadget or gizmo, we’llhelp you make aninformed decisionUSAA.COM WINTER 2007 USAA MAGAZINE 17

CHECK TOSEE IF YOURHOMEOWNERSINSURANCEPOLICY COVERSYOUR PERSONALCOMPUTERSFROM DAMAGE,INCLUDINGPOWERSURGES.After the unwrappingfrenzy this holidayseason, amid tornpaper and ribbons, you’lllikely find fliers urging you tobuy an extended service plancovering any future repairs.If you don’t see one, you or the gift-giver probablyfielded such an offer when shopping.It’s no fun to contemplate catastrophe befallinga gift given or received. Say you’re giving anew TV to elderly parents or a laptop to a collegeboundteen. You might want to prepay a fixedprice for future repairs so your loved ones, oryou, don’t face costly repairs or replacements.Plenty of consumers pay for that peaceof mind. The industry generatesan estimated $16 billion in annualpremiums for extended service plans,according to Warranty Week editorEric Arnum. But are they a good deal?Depends on what they cover and on whomyou ask.DIFFERING OPINIONSConsumer advocates tend to disapproveof all or almost all extended warranties.“I don’t think there’s anything good aboutthem that outweighs their costs,”says Robert Krughoff, presidentof Consumers’ CHECKBOOK, a nonprofitmagazine and Web site. The2007 Citizen Action Handbook publishedby the U.S. government’s Federal CitizenInformation Center warns, “Extended warrantiesor service contracts are rarely worthwhat you pay for them.”The problem, critics say, is that plans areoverpriced and usually not necessary. Manyproducts have long lives. Flat-panel TVs shouldlast an average of 20 years, according to thetechnology information site CNET.com, whiledryers and refrigerators last about 13 years,and microwave ovens, nine years, accordingto the National Associationof Home Builders.Most items that break do soshortly after purchase, while stillcovered by the manufacturer’swarranty that comes free with purchase. If youpay with a major credit card, some card issuerswill double the period of the manufacturer’swarranty; check terms and conditions of yourcard agreement to see if it offers this perk.Selling the plans leads to big profits, generatingmost or even all the annual net income ofsome large consumer electronics retail chains,while representing a small fraction of overallsales, according to BusinessWeek. That suggeststhat they are indeed richly priced.“Extended service plans are not accuratelyrepresented in the media,” counters Rob DiRocco,a vice president at N.E.W. Customer Service Cos.,one of the largest providers of the extendedwarranties sold by retailers. “Consumers, onthe other hand, appreciate the convenienceand peace of mind that extended service plansprovide, especially when there is a problemwith their product.” The plans offer valuableconvenience to consumers concerned about thepossible cost and hassle of getting a complexproduct repaired, he says. Extended serviceplans run for longer periods than manufacturers’warranties, up to several years. And theymay cover things, such as damagefrom power surges, that manufacturers’warranties do not.“Some plans also cover maintenancecosts,” Mr. DiRocco says.International travelers like extendedservice plans, he adds, because theycover products outside the United States,unlike most manufacturers’ warranties.WHAT TO CONSIDER1. Do you need it? Extended warranties onlykick in after manufacturers’ warranties expire —usually after the first months or years, duringwhich a product is most likely to break. That’sone reason extended plans are said to pay outas little as 20 percent of premiums collected,according to Norman Fong of shopping siteTechBargains.com.N.E.W. Customer Service says it covers 150million American consumers and handles claimsfrom 15 million a year. That suggests 90 percentdon’t use their plans every year. Mr. DiRocco saysthat’s not accurate, but he declined to providethis proprietary information.2. Are you getting the best price? Mr. Krughoffrecommends shopping around for an extendedwarranty just as you do the product, adding thePHOTOGRAPH BY XXXXXXXXXX18USAA MAGAZINE WINTER 2007 USAA.COM

PHOTOGRAPH BY XXXXXXXXXXXXprice and warranty costs together asyou go. Especially since some discountstores began selling discountedwarranties last year, service plancosts vary widely.3. Is the price reasonablecompared with the productcost? Some service plans areso expensive relative to theprice of the item they’re coveringthat you’d be better offtaking your chances and simplybuying a new item if it breaks. One retailercharges $40 for a four-year service plan ona $150 digital camera. Although the plancovers some things that the free, one-yearmanufacturer’s warranty doesn’t, many wouldprefer not to shell out the extra cash.4. Read the fine print. Mr. DiRocco saysto check to see that the warranty is backed byinsurance that will pay the cost even if the companybacking it has financial problems. Mr. Krughoffrecommends looking for options that allow you touse third-party repair services. Some large retailersinsist you use their in-house technicians, he says,but the quality may not be as good as you’d like.A FEW MORE FACTORSThe past few years, consumers cautious about buyingcostly new products such as flat-panel TVs have spurredgrowth in sales of extended service plans. That trendmay be leveling off as service plans come under increasingscrutiny and buyers feel more comfortable layingdown cash for formerly cutting-edge gadgets.Mr. DiRocco says plans are adding new features,such as coverage against accidental breakage, whichincrease their value. In a related trend, manufacturersare offering shorter warranties. Apple Inc., for instance,provides only 90 days of free support and a year ofrepair coverage on its computers’ basic warranties.Consumers baffled about high-tech devices appreciatehaving 24-hour, toll-free tech support provided byextended plans, Mr. DiRocco notes.So decide what guaranteed service youwant, whether a warranty is likely to deliverit, and how much you’re willing topay for it — before you’re standing atthe cash register or deciding whetherto mail in a check with that flier.And, hey, if you don’t buy thewarranty and the worst happens,just put it on your wishlist for next year.REBATESREVEALEDWhen USAA member Kristen Hensley bought a new cellphone for $350, mentally she only paid $250. That’s becausethe product came with a rebate offer of $100. “I wouldn’thave bought it without it,” the Galveston, Texas, universityemployee says of the hefty rebate.Buyers of products from toothpaste to pickup trucks cashnearly $500 million in rebates annually, according to thePromotion Marketing Association, a New York trade group.An unknown and possibly larger value in rebates goesunredeemed, or the rebates are never even requested.But shoppers who take the trouble pay less for their purchases.According to shopping site TechBargains.com,here’s how to do rebates right:1. See that the item works properly first. Manyrebates require removing the Universal ProductCode, but retailers are reluctant to give refundson products missing the code.2. Follow the offer rules to the letter. If youare supposed to send the original receipt,don’t send a copy. Mail the properly completedpacket before the deadline.3. Check the progress of your request.Call the number or visit the Web siteon the rebate form in a week or two. Ifyour request hasn’t been received, askabout resubmitting.4. Check again. Follow up if you haven’treceived payment within the specifiedtime, usually eight to 12 weeks. Keepcopies of everything you send in caseyou have to resubmit.Rebates can be a hassle. Butthey usually work. “It’s worth it,”Ms. Hensley says. “It just took mefive minutes, and I got $100.”USAA.COM WINTER 2007 USAA MAGAZINE19

SAFETY’NETYour home computer is your window tothe world. But hackers bent on mischiefcan crawl in if you don’t protect itBY PRESTON GRALLAUPDATE YOUR OPERATING SYSTEMAND SOFTWARE OFTEN. Makers frequentlyupdate their software to close holesthat hackers find. That’s why it’s importantto make sure your software is updated withthe latest security fixes. The easiest way todo that is to turn on the auto-update featurein your operating system and any other softwarethat offers the auto-update feature.You can also go to the maker’s Web site anddownload new fixes.RUN ANTIVIRUS, ANTI-SPYWARE,AND FIREWALL SOFTWARE. Make sureto use all three kinds. Some software companies,such as McAfee and Symantec, makefull-blown suites with all three types. But youcan get individual ones, as well, from companiessuch as Sunbelt Software. There are alsoplenty of free ones, such as Microsoft WindowsDefender anti-spyware, the Windows Firewall,the ZoneAlarm firewall, avast! antivirus, andAd-Aware anti-spyware. Choose only one antivirusand one firewall program. Having more thanone of each on your system can cause problems.You can, however, run multiple anti-spywareprograms without difficulty.BEWARE OF PHISHING EXPEDITIONS.These are perhaps the most lucrative scamson the Internet and occur when your logininformation for a financial site is stolen. Ithappens when perpetrators send you a link inan e-mail pretending to be a legitimate financialinstitution. Never click an e-mail link and thengive out your personal information. Instead,launch your browser separately from the e-mail,head to the site yourself, and then log in. USAAwill never ask for personal information in ane-mail. We’ll ask for this information only afteryou have logged in to our secure site.WATCH OUT FOR MODERNPHARMERS. In a pharming attack, you typein the address of a Web site in your browser,but the browser is hijacked and sent to a scamsite. To protect against this, look at the addressof a financial Web site — it should start https://,instead of http://. The “s” means secure. If youhave a device called a router, which creates ahome network, change its password from thedefault password it comes with; pharmers oftenhack the default password as a way to launchpharming attacks.AVOID SUSPICIOUS E-MAILATTACHMENTS AND LINKS. Never openan attachment or follow a link from a stranger.And don’t even trust friends — nasty softwarecan disguise an e-mail as coming from someoneyou know. If friends send you a file or linkyou didn’t ask for, confirm they sent it to you.20USAA MAGAZINE WINTER 2007 USAA.COM

For specifics on spyware, antivirus software, and firewall protection,visit Privacy & Security on usaa.com.USE PARENTAL CONTROLS. Childrenor grandchildren can easily get into troubleonline by accidentally coming across inappropriatesites. Use parental control software,such as Net Nanny, to make sure they staysafe online. If you use Windows Vista, use itsbuilt-in parental controls.PROTECT YOUR HOME NETWORK.If a hacker breaks into your home network, he’llget free rein to all of the PCs in your house. Usethe encryption built into your router and PCs sothat no one can break in. You can also use afiltering feature that will only allow certaincomputers to connect to your network.USE CAUTION IN PUBLIC PLACES.It’s easy to log on wirelessly to free “hotspots” at cafes, hotels, and airports — andit’s also easy to get hacked at them. Turnoff file sharing, make sure your firewallis turned on, and watch out for “shouldersurfers” — people who peer over yourshoulder to try to steal your passwords.AVOID INSTANT MESSAGINGVIRUSES. Viruses and malicious softwarecan be spread via instant messaging. Don’taccept file transfers in your instant messagingsoftware, and turn off the file transfer featurecompletely. Before clicking a link, make surea friend really sent it to you.KILL SPAM. Unsolicited e-mails are morethan an annoyance. They are often used todeliver malicious software, and their linksoften lead to scam sites. E-mail software, suchas Outlook, includes spam-killing features,but consider using extra protection as well.Symantec, McAfee, and Cloudmark all makeanti-spam software. For more on guardingagainst spam, see the tips on page 8.BLOCK POP-UPS. If you’ve ever clickedon a pop-up window when you visit a Website, you’ve endangered your computer. Why?Because pop-ups can be used to downloadmalicious software to your PC or Mac. Better yet,block pop-ups before they launch. Make sure thatyour pop-up blocker in browsers such as InternetExplorer or Firefox is turned on.GUARD YOUR PASSWORDS AND PINS.Keep them in a safe place, and never share themwith anyone. Never save that information inyour browser, either: Anyone with access to yourcomputer will be able to log on as you.LOCKDOWNAntivirus software. Scansa computer and kills any viruses it finds; works asan active shield, stopping viruses from infectingyour computer in the first place; scans incominge-mail for viruses and deletes dangerous ones beforethey get to your inbox.Anti-spyware software. Shields your computer fromspyware, which is software that gets loaded onto your computer withoutyou knowing it and sends info about your online activity to others.Software firewall. Stops others from connecting to yourcomputer without your knowledge; prevents malicious software planted onyour PC from making an outbound connection to a hacker.An up-to-date browser. Ensures that you have the latestsecurity patches and latest version of browsers, such as Firefox and InternetExplorer; enables you to use the browser’s latest built-in security features, suchas anti-phishing toolbars and pop-up blockers.Security suites. Includes antivirus and anti-spyware software,a firewall, and sometimes other software such as a personal privacy protector.The upside? They’re all-in-one. The downside? They can bog down your PC.Hardware firewall for home network routers.Performs similarly to a software firewall, except it’s built right into your routerand provides an extra level of security. If you have a hardware firewall, though,you should still use your software firewall.Laptop lock. Ensures that if your laptop is stolen, no one can use it;ranges from a lock that secures the laptop to a desk to methods that encrypt yourentire hard drive.USAA.COM WINTER 2007 USAA MAGAZINE 21

SpendRightin RetirementWhich money to touch first inretirement? Learn the smart wayto spend your savingsQuick listBY KERRY HANNONHere’s the general order fortapping retirement savings.First: Taxable funds, such asCDs, money market accounts,government bonds, and pensionsNext: Tax-deferred accounts,such as traditional IRAs and401(k) plans (don’t forget to takethe required minimum distributionsstarting at age 70 1 /2)Last: Roth IRAs and Roth IRA401(k) plansInvestors typically have their money in variousaccounts. Tax-deferred savings — suchas IRAs, 401(k) plans, and annuities. Taxableinvestment accounts — such as CDs, bonds,and other securities. You’ve got Social Securityearnings coming your way, and, if you’re lucky,perhaps a pension. To get the most from your savings,after taxes, you need to know which accountsto tap first and which to leave until last.“Individual situations,and tax consequences, canlead to different ‘best’ pathsfor different retirees,” saysPeg Downey, a Marylandfinancial planner, “butthere are some standardguidelines to follow.”Taxable accounts. Mostpeople should draw onmoney from taxable assetsbefore dipping into taxprotectedaccounts such astraditional IRAs, 401(k)s, andother qualified plans, saysfinancial advisor and attorney Gary Schatsky,president of ObjectiveAdvice.com. “Thisway your money can continue to growand compound tax-deferred until 70½,when, by law, you must take some ofthe money,” he says.Savvy investors in lower tax brackets,such as the 15 percent tax bracket, may electto take distributions prior to 70½ that put theirincome level at the top of their tax bracket.Thus, they pay tax now, but at what may bea lower rate than they would payin the future. They also preservesome of their taxable portfolio.■ Interest from bank CDs,bonds, and money marketfunds is taxed at ordinaryincome rates. Long-term capitalgains on profits from the sale of assetsyou’ve held for at least a year aretaxed generally at 15 percent, or5 percent for those in the lowest two taxbrackets. Most stock dividends also aretaxed at 15 percent. Keep in mind that forany dividends, interest, or capital-gains22USAA MAGAZINE WINTER 2007 USAA.COM

PHOTOGRAPH BY XXXXXXXXXXXXpayouts, taxes are due on the tax returnsprepared for the year you receive them.■ U.S. government bonds are free from statetaxes. Municipal bonds are free from federaltax and state taxes, too, if you live in a statethat issued them.■ Pension and annuity payments from qualifiedretirement plans are fully taxable. Somestates exempt certain types of pensions, suchas military or government pensions, from stateincome taxes. Others allow a portion of anytype of pension income to escape state incometaxes. Check with your tax advisor.Tax-deferred accounts. Ideally, you want tobenefit from tax deferral for as long as possible.Once you reach age 70½, however, there is aminimum withdrawal schedule, based on yourlife expectancy, from traditional IRAs and 401(k)or 403(b) plans. The schedule is designed toensure that you make a concerted effort to drainthe account so the government can collect taxeson the money before you die.To figure how much you need to take out,check the tables on the IRS Web site www.irs.gov/pub/irs-pdf/p590.pdf, or consult a tax advisor.You’re taxed at ordinary income tax rateson the amount you withdraw. If you don’twithdraw the required amount each year,the IRS will assess you with a 50 percentpenalty of the minimum withdrawaldue. Missing required minimum distributionsis perhaps the single biggestmistake for IRA owners.Once you determine your requiredminimum distribution, you can take themoney from any traditional IRA accountsyou own. You can take the full requiredamount from one IRA to satisfy the calculatedrequirement for each of your IRAs. But you stillhave to take additional required minimum distributionsfrom qualified plans such as a 401(k).In other words, an IRA distribution can’t beincreased to satisfy the required distributionof a 401(k) or other tax-deferred plan. Ifyou roll your existing 401(k) into an IRA,however, you can avoid taking two distributions;taking one from the IRA willsuffice. Bottom line: The rollover helpsyou keep more of your money.When you request your required minimumdistribution, you might want toconsider having it automatically investedin shares of stock or mutual funds,instead of cash. Although you will stillWhen to takeSocial SecurityThe age at which you can collect full Social Securitybenefits is gradually rising from age 65 to 67in order to keep pace with increases in longevity.You can take Social Security benefits as earlyas age 62, but your checks will be reduced by upto 30 percent for the rest of your life. Plus, if youtake on a part-time retirement job, there’s a capon earnings until you reach the normal retirementage. If you exceed this cap — $12,960 in 2007 —then your Social Security benefits will be reduced.For more, see ssa.gov/retirechartred.htm.Or, you can wait to take Social Security. If youare willing to bet that you are going to live a longtime, you can delay benefits until age 70. Yourbenefits will increase by up to 8 percentevery year you delay. For more,visit usaa.com/magazines andread “Delayed Gratification” byfinancial columnist Scott Burns.pay taxes, you can keep it invested and,hopefully, appreciating over time, explainsfinancial planner Mary Malgoire.Annuities. If you have an annuity and wantto draw on it to cover living expenses, planto take the payout as a continual stream of regularpayments throughout retirement. Thoughyou’ll be offered the options of withdrawing thepayout in a lump sum or in a series of unscheduledwithdrawals, you’d have to pay ordinaryincome tax immediately on all of the earnings.Receiving a lump sum could result in a large taxbill, so consider it carefully. In many situations,it’s better to pay taxes in stages, leaving the restof your money in the account to potentially growtax-deferred.Roth IRAs and Roth IRA 401(k) plans. TheIRS already taxed the contributions you madeto these accounts. So once you retire and decideto withdraw these funds, you won’t owe taxeson the earnings — provided you’re at least 59½years old and have held the account for at leastfive years. You don’t have to take any minimumdistributions from these, even after age 70½. “Let’em ride,” Mr. Schatsky counsels. “This should bethe last account you tap. You want to keep thattax-free growth working.”USAA.COM WINTER 2007 USAA MAGAZINE23

PaybackRenovations can make a big differenceAFTERBY JANICE ROSENBERGin how fast you sell your home and howmuch return on investment you getThe renovation of this kitcheninvolved replacing old cabinetswith black, glass-front cabinetry,painting walls a vibrant red,changing countertops, installingnew, stainless-steel appliances,and creating a decorative, glasstile backsplash.A total renovation isn’t always necessary. For more,visit usaa.com/magazines and click “Quick Fix.”PHOTOGRAPHY BY ROGER TEEL24USAA MAGAZINE WINTER 2007 USAA.COM

You may be yearning to add ascreened porch, but will it help resale value?What about a master bath? A new deck? Beforeyou hire a contractor to help increase the valueof your home, find out which renovations aremost likely to pay you back.“If you’re going to stay for less than five years,be budget conscious about what you’re doing,”says Everett Collier of the National Associationof the Remodeling Industry. “But if you’re goingto stay for more than five years, think about whatwill make you happy.”KITCHENSTypically, kitchens cost the mostof all rooms to remodel, but you’llalso enjoy a big gain in sales price— as much as 80 percent of whatyou spend on a major, midrangeremodeling job, according to theRemodeling magazine Cost vs.Value Report 2006.If resale is your top priority, gofor broad appeal.■ When replacing or adding cabinets,use lighter woods and nothingtoo contemporary.■ Stick with features and finishescommon to your neighborhoodand to the kind of house it is. Don’tput granite countertops in a starterhome, for instance.■ Ask local salespeople what sells best.■ Change out cracked and stained countertops,but not always with pricey granite. Less expensiveoptions include ceramic tile and concrete.■ Select up-to-date appliances. If you’re on a budget,visit retailers that sell secondhand appliancesor those almost as good as new.If your taste runs more contemporary and you’relonging for pendant lighting and zinc countertops,that’s OK, but plan to enjoy the room beforethe house goes onPaybackKITCHENNational average for a minor,midrange kitchen remodel:$17,928Recouped cost:85.2 %of the costBATHROOMNational average for amidrange bathroom remodel:$12,918Recouped cost:84.9 %of the costthe market. Then hope that someone with yoursense of style shows up.Keep in mind that if the kitchen is shabbyto begin with, any upgrades will help impresspotential buyers.BATHROOMSA major redo with new flooring, pedestal sinks,designer tubs, and showers with multiple showerheads can cost as much as $40,000, says GregoryA. Miedema of the National Association of HomeBuilders. “It’s the higher-end optionslike granite, frameless glass showerdoors, and basin vessel sinks thatadd to the cost,” he says. A midrangebathroom remodel costs $12,918.However much you spend, upgradingthe bath garners rewardsat resale. Recoup 84.9 percent for amidrange job, and in some regionseven more — in the Pacific Northwest,for instance, up to 103.2 percent, accordingto the Remodeling report.A few quick fixes include:■ painting cabinet doors and updatinghardware.■ adding stylish new faucets.■ reglazing worn tub and tiles.■ replacing older fluorescent lightingfixtures. “Lighting changes canmake a big difference in buyers’reactions,” says Pat V. Combs, presidentof the National Association of Realtors.As for a bathroom addition, if yours is the onlyhome on the market in your neighborhood withjust one or one-and-a-half baths, you’re at a deficit.If you live in a really good school zone likely toattract families, adding a bathroom makes sense,says Louise Farrar-Wegener of the InternationalInterior Design Association. Plus, you’ll like havingit until you move.MASTER SUITEA spacious master suite with a sitting nook,a changing area, and a closet that has organizersin place can make buyers swoon. Andthe master bath is a real selling point. “Insome ways, if that’s done well it’s almost asThis stuck-in-the-’80s kitchen started outdowdy. The new homeowner made upgradesshe could live with for a few years, removingwallpaper, adding a new sink, and raising theceiling. Then came the total transformation.BEFOREUSAA.COM WINTER 2007 USAA MAGAZINE 25

Checklist forbuyersBesides renovations, other factors affectresale value and what it costs to insure ahome. The Insurance Information Institutereminds buyers that where it is, how it’sconstructed, and the kind of shape it’s incan send your insurance rates up or down.The III says to consider:■ Construction: Near the Atlanticor Gulf coasts, consider a brick home, moreresistant to hurricanes, and invest in hurricaneshutters. In a seismically active region,look for newer homes built to current code, orolder homes bolted to foundations. They arebetter able to withstand earthquakes.■ Age: Older homes sometimes havefeatures such as plaster walls and woodenfloors that could be costly to replace. Suchspecial features may raise insurance cost.An older home updated to comply withcurrent building codes typically is less expensiveto insure than an older home thatis not up-to-date.■ Location, location,location: Homes near the coast costmore to insure because the risk of hurricane,wind, or water damage is greater.You also need to think about the threat offloods or earthquakes. You will need separateinsurance for these risks and it can becostly. Flood damage is only covered by aNational Flood Insurance policy, which ismore affordable than you might think.■ Condition of the roof andhome: Considering a fixer-upper? Youmay pay more for insurance until clearimprovements are made. Note the roofcondition. A new roof in good repair willbe attractive to insurers and can save youmoney and aggravation. Fire-proof andhail-proof roofs give extra protection.■ Plumbing, heating,electrical systems: These systemscan wear out, become unsafe with age, orbecome dated as safer technologies areintroduced. Recent upgrades make yourhome safer and less likely to suffer fire orwater damage. For more, visit iii.org.important as the kitchen,” says AleneWorkman of the American Society ofInterior Designers.There, buyers expectdouble sink vanities. Steamshowers, rain-head showers,and multihead showershave gained popularity.Designer Sharon McCormicksays that rather than theonce-popular whirlpoolbathtubs, her clients whowant bubbles are choosingquieter hot-air tubs. “Themaster bathroom is becomingmore relaxing, serene, spalike,and romantic rather than therapeutic,”Ms. McCormick says.Without big bucks, plush towels, candles,and new cabinet pulls can make themaster bath seem inviting and updated.AROUND THE HOUSEOutdoor deck: If right for your climate,outdoor living areas make great investments.You can recoup more than 75 percentof the cost. To dress up an existing,weathered deck, restain it for minimalcost, says Dean Herriges of the NationalAssociation of the Remodeling Industry.Power-wash synthetic decks or cleanthem according to the manufacturer’sdirections. “Buyers are looking for theleast amount of work they’ll have to do,so if these things are done, it adds value,”Mr. Herriges says.Attics and basements: The atticmight transform into an extra bedroom,PaybackMASTER SUITENational average for amaster suite addition:$94,331Recouped cost:72.6 %of the costan office, or a playroom. “Especially in olderhouses, look into it,” Ms. Farrar-Wegenersays. “Get it as cleaned out aspossible. Put in good lightingso people can see thepotential.” Basements, too,have potential for more livingspace, Ms. McCormicksays. But she says not tospend a lot on them. Buyersoften expect this part of thehouse to be unfinished, so it’snot necessary to spruce it upjust to sell the home.WHERE TO RECONSIDERNot all additions add value. A midrangesunroom addition can average $49,551,with a potential for recouping the cost ofonly 66.3 percent. Home office remodelscost on average $20,057, recouping only63.4 percent of their cost.Look at neighborhood trends. “It doesn’tmake sense to put in a media room whenno one else in the area is doing that,” Ms.Farrar-Wegener says. “Yours isn’t a neighborhoodwhere people will look for thosekinds of amenities.”BOTTOM LINE“People want to envision living in yourhome,” Ms. McCormick says. “If you letthings go and get out of date, the impressionwill be that you’ve left other things, likethe roof and furnace, unattended, too.”Source for all average cost figures: Remodeling2006 Cost vs. Value Report, Remodeling magazine,remodelingmagazine.comIf you upgrade your home, you need to upgrade your insurancecoverage, too. Renovations can up the cost of what it would taketo rebuild, so make sure you have enough coverage.26USAA MAGAZINE WINTER 2007 USAA.COM

Retirement Q&A Page 30member savingsExclusive Products and Services for USAA Members OnlyReady forRetirementAfter taking the free Financial Assessment onusaa.com, Lewis Sharp found he wanted moreexpert advice from USAA. Soon he was workingwith a USAA CERTIFIED FINANCIAL PLANNER practitionerto develop a comprehensive RetirementPlan for him and his wife, Jonelle. USAA recommendedthe Sharps:■ Build an emergency fund■ Increase insurance coverage to protecttheir net worth■ Develop an estate planI’ve gotten a very comprehensivefinancial plan to put into effect.As far as the cost, I feel that it’sbeen well worth the money.— Lewis M. Sharp III,USAA member since 1965■ Reallocate investmentsA former Army captain and pharmacist whoplans to retire in a year or two, Mr. Sharp nowhas the confidence he’ll make that goal.PHOTOGRAPH BY TADD MYERSPlan for Your FutureFor more on USAA Retirement Plans and other waysthat USAA can help with planning for your future, visitRetirement Planning on usaa.com. Log on and enterkeyword USAARetire.The ABCs ofYouth BankingSee page 32Identity Theft:Are You Coveredif the UnthinkableHappens?Page 28AttentionTurn Year-EndHomeowners: Car Deals intoBorrow Smarter, All-Year SavingsFaster, CheaperPage 28 Page 29What to Dowith Your MoneyRight NowPage 31USAA.COM WINTER 2007 USAA MAGAZINE 27

YOUR LIFE: easier.USAA.COMPaying Too Muchfor TooLittle Coverage?WELCOME TO PEACE-OF-MIND PROTECTIONATTENTIONHOMEOWNERS:BorrowSmarter,Faster,Cheaper, EasierVARIABLEONLINE RATES ASLOW AS6.80 %annual percentagerate 4The money you need — in less than 21 days.A USAA Home Equity Line of Credit is oneof the cheapest ways for homeowners toborrow money. Our “rate lock” feature letsyou lock in a fixed rate. And you’ll get —■ Low closing costs■ No annual or prepayment fees■ Plus interest paid may be 100% taxdeductibleYOU’RE PROTECTED THEFT • FIRE • DAMAGEProtect your home andeverything in it easierHOMEOWNERS INSURANCEGet more coverage for your money. USAA memberslike you can protect personal property up to 75%of the insured value of your home. That means if you havea $100,000 policy, your furniture, electronics, appliances, andother personal belongings are covered up to $75,000.Includesup to$5,000identity theftcoverage 1QUOTE, BUY, SAVE THE EASY WAY ON USAA.COM —keyword USAAHomeowners.Affordableprotection for aslittle as$4PERMONTH 2VALUABLE PERSONAL PROPERTY INSURANCENo deductibles — for the things you treasure most.Valuable personal property insurance goes beyondyour homeowners or renters policy to broaden limitedcoverage on jewelry, cameras, and more. No appraisalsneeded for jewelry valued at up to $10,000, 3 and 100%replacement cost coverage, up to the insured amount.FIND OUT MORELog on to usaa.com and enter keyword USAAValuables.Home Improvements • VacationCollege Tuition • Debt ConsolidationFinance Second HomeApply in Minutes onusaa.comEnter keyword USAAHomeEquity.28USAA MAGAZINE WINTER 2007 USAA.COM

YOUR NEXT CAR: easier.USAA.COMBuy a New Car Now!For Year-End Deals — and All-Year SavingsThinking of buying a new car? Now may be the best time. Dealers offer big year-end incentivesand discounts. And with our member-only, no-hassle car buying service, low-rate auto loan,and discounted auto insurance — your savings really add up!Get a Great Price on Your Next CarWith the USAA Car Buying Service on usaa.com, you get memberonly,discounted pricing on new and used vehicles and a no-hassleexperience. With research tools to help you find your ideal car,review technical and safety information, calculate payments, anddetermine the value of your trade-in, usaa.com is the place to go.Low Auto Insurance Rates withUnbeatable Service■ Switch now and save up to $600 a year5■ 5 minutes is all it takes to get a quote and openyour policy online and save $50 6■ Do it all from your PC or Mac — from printing yourID cards to paying your premium■ Pay your way — you can pay monthly with noadditional fees 7Visit Us for BigSavings Before YouBuy That CarRates aslow as4.94 %annual percentagerate 8■ Rates as low as 4.94% annual percentage rate forqualified members who apply online and sign up forautomatic payments■ Up to 100% financing with no down payment8■ Flexible terms and payment options■ Sign for your loan online — no need to leave your homeYOUR NEXT CAR: easier.Find, finance, and insure your next car at usaa.com.Click and drive — keyword USAACarBuying.USAA.COM WINTER 2007 USAA MAGAZINE 29

YOUR RETIREMENT: easier.Your EasyRetirementAnswer CenterUSAA HELPS YOU UNDERSTAND IRASAND HOW THEY COULD BENEFIT YOUWithout the proper tools and guidance, planning for retirement canbe confusing. Let USAA simplify the process and identify solutions foryour traditional IRA, Roth IRA, or retirement plan rollover. Our advisors are oncall to help you invest your IRA with any of these USAA financial products:AnnuitiesWith a guaranteed savingsannuity, you reach yourretirement goals faster:■ Tax-deferred TripleCompounding earns youinterest on your money,interest on your interest,and interest on the taxesyou would have paid■ Guaranteed growth withno market risk■ No annual limit on yourcontributionLOCK IN YOUR RATEON USAA.COM —keyword USAAannuities.GuaranteedSavingsAnnuityFor yourpeace of mindSuper-Low Fees 10More of yourmoney workingfor youMutual FundsAdvice for the long haul,no matter how little or howmuch you have to invest:■ LOW PRICE — All fundsare no-load, so all of yourmoney is invested■ SERVICE — Ask any question,get straightforwardanswers■ FLEXIBLE — Invest as littleas $20 a month in somefunds — or as much asyou like 9GET A RECOMMENDATIONON USAA.COM —keywordUSAAMutualFunds.Certificates ofDepositYour USAA membershipearns you higher interest:■ One of the highest ratesin the nation■ Guaranteed growthfor your savings— there’s norisk since it isFDIC-insured■ Consider anadjustablerateCD witha lower initialrate. If rates rise,you can request aone-time adjustment — upto 2% maximum — duringyour termLOCK IN YOUR RATEON USAA.COM —keyword USAACDs.USAA’s OnlineRetirement AdvisorTake 5 minutes to set your goals,find ways to achieve them,and help manage yourfinancial future4-Yearat 5.01 %annual percentage yieldwhen youopen online 11Consider the investment objectives, risks, charges, and expenses of the USAA mutual funds carefully beforeinvesting. Contact us at (800) 531-8181 for a prospectus containing this and other information about thefunds from USAA Investment Management Company, Distributor. Read it carefully before investing.Investments/Insurance: Not FDIC Insured • Not Bank Guaranteed • May Lose ValueAn annuity is an insurance contract sold by an insurance company designed to provide an income, usually afterretirement, that cannot be outlived. Extended Guarantee Annuity: AEG37641ST 05-01 (varies by state); in NY,NEG38001NY 05-01. Restrictions apply to the availability of certain products.“Can I reach myretirement goalsfaster with amix of financialproducts?”“What are my optionsfor guaranteedretirement income?”30USAA MAGAZINE WINTER 2007 USAA.COM

USAA.COM“Which mutual funds are rightfor us and match our goals?”USAA BROKERAGEThe resources you needto trade the way youwant — easierPRICE■ Online or automated phonetrades as low as $5.95 12■ No account feesGet 25FREETradesfor opening anaccountonline 14SPEED / RELIABILITY■ Ranked No. 1 in execution speed, reliability, and overall customersatisfaction by the American Association of Individual Investors 13TOOLS / RESEARCH■ Track investments with free e-mail alerts and online tools■ Get free buy/sell/hold recommendations from Standard & Poor’s®■ Access free independent research with MarketWatch®OPEN A BROKERAGE ACCOUNTTODAY ON USAA.COM —keyword USAABrokerage.“What Should I Be Doingwith My Money Right Now?”Preservation of CapitalConservative“How can I get answersabout my IRA rollover?”Moderately ConservativeModerateModerately Aggressive“What about protecting myassets in the event of illnessor disability?”Look to USAA and LookForward to RetirementRetire here: usaa.com/retirement.-10-5AggressiveVery AggressiveINTRODUCING THE USAA PORTFOLIO PLANNERHow much do you hope to grow your money over time? And howmuch risk are you willing to take on? Log on to usaa.com andreceive tailored recommendations of USAA investment productssuitable for your specific investment goals.LEARN MORE ON USAA.COM —keyword USAAPortfolioPlanner.5 10 15 20 25 30ANNUAL RETURNS (%)WINTER 2007USAA MAGAZINE31

YOUR BANKING: easier.Help Your KidsBuild GoodFinancial Habitsat Any AgeWhether your child is preschool or premed, there’sa USAA banking tool that’s right for your family.Our range of accounts makes it easy for you to bank withus — and easy to teach important money managementskills that will last a lifetime.Youth SavingsHelp teach your child the value of a dollarand how to save.■ No monthly service fee and no minimum balance■ Free optional ATM card for both you and your child■ Free ATM access anywhere15■ One of the highest interest rates in the nationOPEN TODAY ON USAA.COM —keyword USAAKidBanking.Prepaid Card — Great for AllowanceYou set the spending limits on this reloadable card that your childcan use anywhere Debit MasterCard® is accepted, including online.■ Great tool to help kids budget or prioritize spending■ No charge to set up the card, and no monthly or annual fee■ Transfer money to the card instantly online■ Safer than cash — you are never liable for a stolen card orunauthorized purchasesOPEN TODAY ON USAA.COM —keyword USAAKidBanking.“I didn’t want my daughter to lose her checkbook. To avoidthis and teach responsibility, I got her a USAA Prepaid Card.”— Kelli Dawson, USAA member since 199732USAA MAGAZINE WINTER 2007 USAA.COM

USAA.COMFind the PerfectBanking Productfor Your ChildLog on to usaa.com now and usekeyword USAAKidBanking.Teen CheckingYour teen will learn how to checkbalances online, transfer funds betweenchecking and savings, and more — allunder your watchful eye as a jointaccount holder.■ Your teen can use any ATM in the worldfor free and we’ll refund the fees 15MY.USAA.COM —CREATED EXCLUSIVELY FOR TEENS■ No monthly service fee and nominimum balance*■ Free online banking, 24/7 atmy.usaa.com■ NEW! Free USAADeposit@Home SM : Make fast, easy, and secure deposits anytime byscanning your checks from your PC or Mac 16College Credit CardCollege students can learn to manage their credit gradually, starting with a$500 limit during the freshman year and eventually reaching $2,500 in thesenior year.■ 0% interest during the first six months on purchases, balance transfers, and conveniencechecks. The 0% rate remains until balances are paid off as long as the bill is paid on time 17■ After the first six months, a low variable rate (currently 11.65% annual percentagerate) applies■ When your student pays off the balance, he or she builds good credit■ They can do it all online: Check balances and available credit, transfer funds, downloadmonthly statements, and pay billsManage your money from anywhere,anytime at usaa.comUSAA FREE CHECKINGUse any bank’s ATM in the worldfor FREE — we’ll refund the fees 15USAA SAVINGS ACCOUNTAmong the highest rates in the U.S.— the more you save, the higher therate goes, the more you earn.YOUR BANKING: easier.Log on to usaa.com and enterkeyword USAAEasyBank.Banking just doesn’t get any easier. Both the USAA Free Checking and Savingsaccounts feature:■ No monthly service fees and no minimum balances*■ Free USAA Deposit@HomeSMlets you make fast, easy, and secure check deposits24/7 by scanning your checks from your PC or Mac 16■ Free USAA Web BillPay®, plus the ability to move money, check balances, anddownload statements*Minimum initial deposit of $25USAA.COM WINTER 2007 USAA MAGAZINE 33

34THE USAAEDUCATIONALFOUNDATION SMThe USAA Educational Foundation,a nonprofit organization, has theresources to help make your lifemore manageable.Managing CreditAnd Debt #501Identity Theft #520Choosing A HealthyLifestyle #546Helping ChildrenDevelop Healthy Habits #547Safe On The Road #570Making Your HomeA Safer Place #531Selling A Home #519Planning For Retirement #508To order free publications, justcall (800) 292-8857 or visitusaaedfoundation.org. Have yourUSAA number and publicationnumber ready when you call.The USAA Educational Foundation does notendorse or promote any commercial productsor services.LEGAL DISCLOSURESInvestments/Insurance: Not FDIC Insured • Not Bank Guaranteed • May Lose ValueThe articles discussed should not bedeemed as tax, legal, or estate planningadvice. The law concerning tax and retirementplans is complex, penalties are severe,and the laws of your state may differ. Consultyour tax, legal, or estate planning professionalregarding your specific situation,including Roth IRA contribution limits andqualification for the tax-free earnings.Page 9No purchase necessary to enter or win.One entry per person. You must be 18 yearsof age to enter. USAA employees and theirfamilies are not eligible to enter. Prizes arenontransferable and no cash alternativeswill be offered. Taxes on prizes are theresponsibility of the winner. Odds of winningdepend on the number of entriesreceived and relative performance ofeach entrant. For a copy of the officialrules, download or print a copy of the rulesby logging on to usaa.com, enteringkeyword WinACruise, and clicking theofficial rules link. Judges’ decisions arefinal. Further conditions may apply. Voidwhere prohibited. Winner and entrants maybe featured in USAA Magazine and otherUSAA material, and on usaa.com.Page 11Certified Financial Planner Board of Standards,Inc. owns the certification marksCFP® and CERTIFIED FINANCIAL PLANNER inthe U.S., which it awards to individuals whosuccessfully complete the CFP Board’s initialand ongoing certification requirements.Page 281ID theft coverage not available in NC, NJ,NY, and AK. Coverage descriptions are briefand subject to the terms and conditions ofyour policy.2$4 a month provides $2,500 on scheduledjewelry. Rates may vary due to location.3Proof of ownership and value required inthe event of a claim.4Rate shown reflects a 0.25% discount foraccepting or applying online. Discount doesnot apply to line of credit lock rate. Line ofcredit rates are variable and are based onThe Wall Street Journal Prime Rate plus orminus a margin. As of 10/19/07, line ofcredit annual percentage rates range from6.80% to 9.76% based on the amount ofequity in your home, the loan amount, andyour credit history. The maximum annualpercentage rate that may be imposed is16%. Fees paid to third parties to open theline are estimated to range from $92 to$802.50 for a line amount of $50,000 withtypical circumstances, depending on cost ofevaluation, title work, and your state’srecording fees and mortgage taxes, if any.Property insurance is, and flood insurancemay be, required. Rates subject to change.Consult your tax advisor regarding thedeductibility of interest. Additional restrictionsapply to Texas home equity loans andlines. Offer not available in all locations.Page 295Annual savings based on countrywide surveyof new customers from 1/1/07 through3/31/07 and include a discount for onlinepurchase or quote. Actual savings may vary.Savings do not apply in NJ and MA.6Online discount not available in CA, FL,GA, HI, MA, ME, and NC. Discount is up to$30 in MO.7Restrictions may apply to installment paymentoptions.8To qualify for USAA’s best auto loan rate,you must have pristine credit, apply online,sign up for automatic payment, and eitherhave USAA auto insurance or sign up forautomatic payments from a USAA checkingaccount. Loans subject to credit andproperty approval. Auto loan rate is for aterm of 36 to 60 months and is available toqualifying borrowers when financing a2006, 2007, or 2008 auto loan. This offermay not be used to refinance an existingUSAA car loan. Rates shown effective as of10/10/07, and are subject to change withoutnotice. Obtaining insurance from USAAis optional, not required to receive credit,and can be acquired from other sources.Page 309Systematic investment plans do not assurea profit or protect against loss in decliningmarkets.10Mutual fund operating expenses apply andcontinue throughout the life of the fund.11Annual percentage yield effective10/10/07 and subject to change. $1,000minimum deposit. Penalty for early withdrawalmay reduce earnings.Page 3112Brokerage account holders who havesigned up to receive all investment accountconfirmations and account statementsonline and who trade stocks 25 or moretimes per quarter or who trade stocks 16 ormore times per quarter and have $50,000or more in eligible assets with USAA Investmentsqualify for $5.95 Internet or selfservicetelephone trades. Commissions arebased on stock trades executed in a rolling90-day period. Commission rate applies upto 1,000 shares. Eligible assets includethose held in USAA Private InvestmentManagement, USAA Strategic Fund Adviserand USAA College Savings Plan (529)accounts, and USAA mutual funds; non-USAA-managed assets held in USAA brokerageor asset management accounts(AMA) are not included in calculation ofeligible assets. Other restrictions mayapply. Commissions may change withoutnotice. For information and a commissionschedule, visit usaa.com.13The American Association of IndividualInvestors (AAII) is an independent nonprofitassociation whose purpose is to help itsmembers become effective managers oftheir own assets through programs of education,information, and research. The 2006survey, reported in the February 2007 issueof the AAII Journal, asked its members toidentify and then rate their discount brokersfor trade price, execution speed, reliability,and overall satisfaction. USAA was ranked#1 for overall satisfaction and #2 for tradeprice, execution speed, and reliability. In the2005 survey, USAA ranked #1 in all fourcategories. Fifty-six firms were covered inthe 2006 survey and the 10 most popularbrokers (those for whom 10 or more memberresponses were received) were rankedbased on member ratings. Go to aaii.com formore information.14Free trade offer expires 12/31/07. Offer noteligible for transaction fee mutual funds. Freetrades limited to domestic, NYSE-, AMEX-,or Nasdaq-listed securities, up to 1,000shares placed on the Internet or self-servicetelephone system. After 25 free trades or 30days, whichever comes first, account willrevert to gold or platinum fee schedule,depending on asset and activity levels. Offerlimited to one account per person. Valid forU.S. citizens or permanent residents. Voidwhere prohibited. Offer may be modified orterminated without notice prior to applicationand is not valid with any other offers.Other restrictions may apply. Commissionsmay change without notice. For informationand a commission schedule, visit usaa.com.Pages 32–3315Free ATMs: USAA does not charge a feefor the first 10 ATM withdrawals andrefunds up to $15 in other banks’ ATM feeseach month.16Parent must qualify and enroll for USAADeposit@Home; credit approval required.17For College Banking offer, variable annualpercentage rates on purchases and cashadvances are prime plus 3.9% (11.65% asof 10/12/07). There is a foreign transactioncharge of 1% and a cash advance fee of 3%(except for balance transfers, conveniencechecks, or funds deposited directly to aUSAA deposit account). Delinquency ratesapply if your account becomes two paymentspast due. We reserve the right tochange the terms of your account includingthe annual percentage rates.MemberThe term “member” generally refersto current USAA customers who are eligiblefor property and casualty insurance,and their spouses and children who arecurrent USAA customers. Use of the term“member” does not convey any legal,eligibility, or ownership rights. To be amember of the USAA property and casualtyinsurance group, individuals mustmeet certain eligibility requirements andpurchase a USAA property or casualtyinsurance group policy. Eligible parentmust purchase property and casualtyinsurance for eligibility to pass downto children. Ownership rights are limitedto policyholders of United Services AutomobileAssociation.USAA CompaniesUSAA means United Services AutomobileAssociation and its affiliates. Property andcasualty insurance provided by United ServicesAutomobile Association, USAA CasualtyInsurance Company, USAA GeneralIndemnity Company, Garrison Property andCasualty Insurance Company, USAACounty Mutual Insurance Company, USAATexas Lloyds Company, and USAA, Ltd.(Europe), San Antonio, and is available onlyto military members and their families whomeet certain membership eligibility criteria.To find out if you are eligible, contact USAA.Underwriting restrictions apply. Investmentproducts and services provided by USAAInvestment Management Company, a registeredbroker dealer. Life insurance andannuity products provided by USAA LifeInsurance Company, San Antonio. In NY, lifeinsurance and annuities provided by USAALife Insurance Company of New York, HighlandFalls, NY. Financial planning servicesprovided by USAA Financial Planning ServicesInsurance Agency, Inc. (known asUSAA Financial Insurance Agency in California),a registered investment advisor andinsurance agency. Financial advice providedby Financial Advice Center as a service ofUSAA Financial Planning Services InsuranceAgency, Inc. (known as USAA FinancialInsurance Agency in California), andUSAA Financial Advisors, Inc., a registeredbroker dealer. Credit cards provided byUSAA Savings Bank, other bank productsprovided by USAA Federal Savings Bank,both Member FDIC. Merchandise providedby USAA Merchandise Services Company.Alliance services provided through USAAAlliance Services, LP. © 2007 USAAUSAA MAGAZINE WINTER 2007 USAA.COMENT-2007-2429

BUILD AND BUY YOUR DREAM CAR AT usaa.com.Auto loans as low as 4.94 % APR.*• Shop for your next car with the new USAA Car Buying Service at usaa.com –select your favorite options and secure your Member Price.• Get up to 100% financing and a great rate as low as 4.94% APR.• Save up to $600 per year with USAA Auto Insurance.**»Get a credit decisionin minutes. Apply atusaa.com.*To qualify for USAA’s best auto loan rate, you must have pristine credit, apply online, sign up for automatic payment and either have USAA auto insurance or sign up for automatic payments from a USAA checking account. Loans subject to creditand property approval. Auto loan rate is for a term of 36 to 60 months and is available to qualifying borrowers when financing a 2006, 2007 or 2008 auto loan. This offer may not be used to refinance an existing USAA car loan. Rates shown effectiveas of October 8, 2007, and are subject to change without notice.**Annual savings based on countrywide survey of new customers from 1/1/07 through 3/31/07 and includes a discount for online purchase or quote. Actual savings may vary. Savings do not apply in NJ and MA. Online discount not available in CA,FL, GA, HI, MA, ME and NC. Discount is up to $30 in MO.Automobile insurance provided by United Services Automobile Association, USAA Casualty Insurance Company, USAA General Indemnity Company, Garrison Property and Casualty Insurance Company, USAA County Mutual Insurance Company, USAALimited (Europe). San Antonio, TX. Banking products provided by USAA Federal Savings Bank, Member FDIC.All new cars arranged for sale are subject to price and availability from the selling franchised new-car dealer. Car buying service available for new car/truck purchases; lowest possible price not guaranteed. Not available in all locations.© USAA 2007. All rights reserved. 1640:28453 PNC-2007-2762

member snapshotSuni Williams completed thisyear’s Boston Marathon inside theInternational Space Station — sansthe gravitational pull that runnersfeel on Earth. Her time? 4:25.SuniWilliamsUSAA member since 1986Pardon Suni Williams if shequalified for the Boston Marathonbut didn’t show up atthe start line. This NASA astronautand U.S. Navy commander ran themarathon anyway — in space.“Everyone comes out for it,whether you run it or not,” saysthe New England native. Sheran the race in high school as a“bandit,” someone who runswithout qualifying or registering.Then she qualifiedin 1996 and againthis year. ButNASA had tappedher to join Expedition14 aboardthe InternationalSpace Station.On April 16,the race startedabout four hoursbefore the crew’swake-up call.She got up early and ran justover 26 miles on a space stationtreadmill in four hours and25 minutes. “I wouldn’t say itwas easier or more difficult,”Mrs. Williams says. “But it surewas different. I needed to bestrapped into a harness helddown by bungee cords to keepme from floating away.”INTERVIEW AND PHOTOGRAPHY COURTESY OF NASA JOHNSON SPACE CENTER61425-1007USAA Magazine9800 Fredericksburg RoadSan Antonio, Texas 78288PRSRT STDU.S. POSTAGEPAIDUSAA