A new house? A rental? Some land? And, maybe, another tour of duty?
Andrew and Katie Lafferty got married in April 2005. Three months later, he left for Iraq with the Army Reserve 220th Transportation Company out of Keene, N.H.
Now the master sergeant is back -- although maybe not for good -- and the two are trying to figure out the best way to pull their finances together.
One problem is that Andrew, 36, has lots of plans that get complicated if he gets called back to Iraq. He wants to buy a single-family house while keeping their current two-family for income. But Katie, 38, doesn't want to be left dealing with clogged sewers and late rent if Andrew is reactivated.
"I couldn't be less interested in being a landlord if he goes away for another year and a half," she said.
Then, too, the couple is in the process of buying land for a "family camp" in New Hampshire, a purchase that will eat up a good chunk of their savings. And there's talk of starting a family.
So the two -- both civil engineers for the town of Wakefield -- applied for a Boston Globe Money Makeover. "We are at a turning point in life," Andrew wrote in his application, saying he and Katie wanted some professional guidance in figuring out how to make it all work.
Andrew, who spent nine months and 28 days "hauling stuff all over Iraq," said his deployment wasn't an economic hardship. "I saved money while I was away," he said.
Not only was the money he earned in Iraq tax-free but there are also some special perks available to soldiers stationed overseas. For example, Andrew took advantage of a program that allowed him to earn 10 percent interest on up to $10,000.
"He was shifting money all over the place while he was in Iraq," said Katie, who had to quickly learn how to handle the family finances. They communicated by e-mail and webcam, which proved particularly helpful at tax time when Katie had to file the forms. Taking control of the finances also meant Katie had to ramp up her skills, which she says were non existent before.
Clearly the couple was doing lots of things right. Yet, when they sat down with fee-only Tewksbury financial planner Stephen P. Ahern there were some big holes in their planning. By focusing on the real estate issues, the Laffertys had given short shrift to some important matters like insurance, estate planning, and long-term retirement issues.
The Laffertys, for example, didn't have enough insurance. Andrew carries a $400,000 term life policy through the military, and each has $50,000 of coverage through work. But should one of them die, that's not enough for either to cover the mortgage and taxes on both the house and the land, much less a new single-family house. So, Ahern recommended boosting coverage to $750,000 each. But since Andrew might get sent back to Iraq, that extra insurance should include war coverage. Some planners say that even when insurers offer such coverage, they won't write policies for people once they get their orders.
Because the couple is buying land in New Hampshire, Ahern suggested that they create a revocable trust. "It is such a pain to deal with probate out of state," he said, noting they could also use the trust to hold other non retirement assets but not the house, which needs to be held in their names to qualify for the state's Homestead protection.
On the retirement front, Andrew and Katie are both part of the Wakefield Retirement System , a defined-benefit plan that Ahern described as "remarkable." And Andrew, who plans to retire from the Reserve after 20 years, will get $1,200 a month from his Army pension once he reaches age 62.
Nonetheless, Ahern recommended that the two fully fund their 457 retirement plans -- which are essentially municipal 401(k) plans -- since they have only about $120,000 of retirement savings outside of their pensions. When it came to real estate, the Laffertys needed to do some more homework. Their two-family house, bought for $330,000 back in 2003, is now producing about $10,000 a year in rent, but the mortgage and taxes cost $13,000. By renting out the space they currently occupy, the Laffertys could more than cover their annual costs, but then they would have to cover the mortgage on the new single-family home they've been hoping to buy.
Buying the New Hampshire property will take $100,000 out of their savings, and saddle them with an additional mortgage. And that doesn't include the cost of building a cottage there.
"Any time you can buy property and have it be cash-flow positive, that's good," Ahern said, telling the couple to review the numbers carefully. Still, he said, the couple needs to have contingency plans in case a pipe breaks or a tenant fails to pay the rent. "You don't want to bite off more than you can chew," Ahern cautioned. "You could get called up again."
