moved their family to Italy recently for a three-year assignment. He is a scientist in the U.S. military. She is home schooling their four children, ages 1 to 6.
With 15 years’ service,
38 years old, is now considering what he might do in five years when he will be eligible for a pension worth one-half of his base pay, currently $108,000. He’s open to staying in the military, taking a different government job or heading to the private sector. But he’d like to be able to retire at 55 or 60, and help his children with college costs, business endeavors or eventually purchasing a home.
The couple has $363,000 in retirement accounts in aggressive growth-oriented funds, some $30,000 in precious metals and $24,000 in cash, mostly in an emergency savings account. They own a home in California with $1.7 million in equity and a mortgage of $724,000 with a 3% interest rate. They are currently renting the home out for $4,500 a month which covers the mortgage, taxes and insurance.
On top of his base pay, Matt Montgomery is receiving tax-free military benefits such as housing, utilities and cost-of-living allowances, which, all told, add up to about $165,000 a year. A part-time helper assists with the children. The couple has found life in Italy overall to be more expensive than back home.
Matt Montgomery maximizes retirement contributions, more than $20,000 a year. When the Montgomerys return to the states, they plan to send their children to private school, which they estimate will cost a combined $20,000 a year. They have life-insurance policies: $500,000 for him and $100,000 for her.
Matt Montgomery is “well-positioned” to pursue whatever he wants in a post-military career, says
a certified financial planner and co-founder of Redeployment Wealth in Virginia Beach, Va. Eighty percent of the firm’s clients are military families.
Allen recommends the couple shore up their already strong position—first by purchasing term-life-insurance policies with bigger payouts. With up to 20 years of future income to protect, Matt Montgomery should have $1 million to $2 million in coverage to protect his family’s current standard of living. Because of Lynné Montgomery‘s work on behalf of the children and running the household, her coverage should be $500,000 to $1 million.
Allen agrees with the couple’s aggressive stance in their investment portfolio, as the military pension will provide significant fixed income to balance out risk.
Matt Montgomery might want to assign his GI Bill education benefits to his wife and children. The GI Bill provides for in-state tuition and substantial housing over 36 months, or a typical four-year undergraduate program. But those months can be divided among family members, with the dollar amounts to be determined as needed. This educational benefit also covers vocational programs, entrepreneurship training and more.
To cover earlier education costs as well as to pay for any gaps in tuition expenses left by the military benefit, Allen also recommends a 529 college-savings account for each child, since these accounts can be used to cover tuition from kindergarten through high school. And, the beneficiary can convert up to $35,0000 to a Roth IRA, subject to Roth contribution limits, and only if the account has been open at least 15 years. So the family might be able to use educationally oriented savings plans regardless of whether the children choose college.
Allen says that as long as the family is able to live on the father’s earnings without touching their investment portfolio, Matt Montgomery should have a lot of freedom in choosing his next job.
Demetria Gallegos is a news editor for The Wall Street Journal in New York. Email her at [email protected]