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Money Makeover: Pensions, savings put couple in good position for early retirement

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Debbie and Kent Ketter have a lot to feel good about financially, but they're still worried.

They have a six-figure income, government pensions for retirement and their children are mostly on their own, but, like a lot of couples, they are concerned about the stock market and what could go wrong with their plan.

Kent, 43, is in a high-risk occupation, serving for more than 20 years as an active-duty officer in the Illinois Army National Guard. Beyond worries about his safety, Kent's career is at a critical juncture, with several possible promotions in the coming years from his current rank of captain that could make a big difference in his pension income.

Debbie, 44, a first-grade teacher, frets about the declines in their stock-heavy portfolio. And both wonder if their dream of retiring at about 60 will pan out.

"I'm not bad off, but with today's markets, it's a challenge preserving what we have saved," Kent wrote in a letter requesting a Money Makeover.

Nonetheless, the Ketters are on track for a comfortable retirement at roughly 60, provided they stick to a retirement budget geared to Kent's actual length of service and rank when he leaves and they watch inflation closely, said Jim Ludwick, founder of MainStreet Financial Planning, a fee-only planning firm in Odenton, Md.

Because of their market losses, they could make some moves with their portfolio that may pay off, Ludwick said.

They could face a retirement that is decades long. That would be nearly impossible to finance without the couple's government pensions, which are guaranteed for life and carry annual inflation adjustments, said Ludwick, who spent 21 years in the Air Force.

"They're in a good spot because they are both beneficiaries of defined-benefit plans," he said.

On top of that, they've managed to save $134,400 for retirement in workplace retirement plans and Roth individual retirement accounts. They also have non-retirement savings worth $44,115.

How did they do it? The couple has never spent big on lavish vacations, for starters. Occasional trips to big-league ballparks and a modest vacation cabin not far from their home are their major splurges for entertainment. They also watch the daily outflow, spending just $2,700 a year on groceries, for example.

At $312,215, their net worth is more than two times their combined annual gross salaries of $140,400.

College costs for their two children (daughter, Rian, 19, and son, Kent Jr., 21) are minimal because both receive scholarships that cover the bulk of their expenses.

But the Ketters face some big decisions.

As early as next year, Kent could retire from the military with an annual pension worth about $41,000. If he stays with the service, is promoted a couple of times and retires in 2018, his annual pension would be about $93,106.

"I love what I'm doing and have gotten good assignments as an officer," said Kent, who works as an inspector general.

The job requires a lot of travel, which is usually dangerous. His longest tour of duty in Iraq lasted from June 2006 to October 2007, and he has served in Afghanistan. Of his 20 years of service, he has been deployed on missions for nearly five of them.

He has been considering a career in teaching that would allow the couple summers off together, but it would mean a big hit to the pension.

"The civilian job market is bleak now too," Kent said.

Sticking with his career at least another five years would likely give the couple enough income to maintain their current standard of living in retirement, Ludwick said. Making those promotions and holding off retirement until 2018 before starting a teaching career makes the picture that much rosier.

"Staying with the military is much more economically viable than going to civilian life," Ludwick said. "He should invest in himself by taking advantage of educational opportunities and new assignments."

The couple has $13,000 in investment losses in non-retirement accounts, and Ludwick suggested selling the stocks and mutual funds in those accounts, waiting 30 days to avoid the wash-sale rule -- which prevents taxpayers from claiming losses if they repurchase within that time frame -- then reinvesting in virtually the same portfolio.

He likes their asset allocation of about 60 percent U.S. stocks, 20 percent foreign stocks and 20 percent bonds. It's an aggressive portfolio, he said, but their pensions are essentially a bond position within the investments.

That allocation includes Debbie's recent decision to pull her retirement plan out of the stock market and into 100 percent fixed income because she was afraid the huge market routs would continue.

Ludwick said he wouldn't challenge that because the couple can stand a bit more fixed income in their portfolio.

But he urged them to continue making contributions to their retirement accounts, most of which are going into stocks.

"You are buying cheap now," Ludwick said.

All told, the couple is on track for the retirement they're dreaming of, he said.

"If he gets promoted two more times and makes it to 2018, it will be very easy to have retirement income beyond their projected needs," he said.

"If he retires sooner and works as a teacher they would still do fine, but they'd certainly have more money for travel and other things at the higher pension level."

Armed with Ludwick's evaluation, the Ketters said they'll probably strive for a middle ground, depending on Kent's promotion opportunities and the civilian job market.

Debbie will probably work as long as Kent does. "I really enjoy my job," she said of her teaching career, which she began 10 years ago after a stint in business. "When you work with kids, you're more in charge of your day, and I like that."

The couple said the makeover process gave them the opportunity to take greater control of their day-to-day finances by tallying their expenses much more closely than they had in the past. Balancing their income and outflow helped them figure out what they'll need in retirement -- and that they're on track to achieve it.

Copyright © 2014, The Baltimore Sun
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