All Part of the Bargain
Brent Orr and his wife and son have things pretty good. That comes with one huge trade-off, though, which the Orrs hate to talk about--let alone plan for.
(MONEY Magazine) – Brent and Erin Orr lead a pleasant and comfortable middle-class life. Usually.
They live in a cozy three-bedroom house in Apex, N.C., a suburb of Raleigh. Every morning Brent, 36, gets up and helps Erin, 38, dress and feed their two-year-old son Ian. Then Brent drives to work. Most days he sits at a desk and does paperwork. Most nights he gets home for dinner by 6:30.
But sometimes Brent Orr goes to war. Orr is a full-time captain in the North Carolina Army National Guard and an Apache helicopter pilot. He's seen combat in Afghanistan, where he earned a Bronze Star for service and an Air Medal for achievement. He expects to be deployed again, possibly to Iraq. Orr is determinedly modest about his decorations and prefers to talk about his unit's achievements rather than his own. With the same determination, he and Erin avoid, as much as they can, the subject of what could have happened on his last deployment. Or what might happen on the next.
"We don't talk about the danger involved much," Brent says. Erin agrees: "You can't dwell on it, because you have to function. You can't dwell on stuff like that. You can't. You can't."
"Stuff like that," though, is at the heart of the bargain the Orrs have made. In exchange for their nice suburban existence, Brent periodically risks his life. "I'm sure we wouldn't have this standard of living if I hadn't joined up," he says.
Financially, the Orrs are doing well. They have a combined income, most of it Brent's salary, of $117,000. Erin works as a bookkeeper at an insurance company for lawyers. They have three cars and a health-club membership, and they enjoy the occasional dinner out. They also own two houses: the $255,000 three-bedroom they moved into in December and their old $134,000 town house, which they hope to rent out for more income.
They have all the typical concerns of a young family. They must keep their expenses in check and save for their son's education. They also need to pay attention to their retirement investments--perhaps extra attention, since military families are frequent targets of dubious investment schemes, some of them peddled by former service people. And they must also deal emotionally and financially with the real possibility that Brent could be killed or seriously injured.
Nobody likes to think about that, of course. But military families have to face up to the implications of their own mortality more directly than the rest of us. For Brent and Erin Orr, it's just another part of the bargain.
Both Brent and Erin were military brats. His dad was a Marine who fought in Vietnam; hers, an officer in the Coast Guard. At college Brent majored in criminal justice. When he enrolled in ROTC, he says, he mainly wanted the chance to do outdoorsy things like rappelling. Eventually, though, he found that military life suited him.
He met Erin when both worked at a Wilmington, N.C.-area T.J. Maxx. They married in September 1995. For a while, Brent went back and forth between full- and part-time National Guard service. In 1999 he shifted permanently to full time.
They began working to secure their long-term financial future in 1997, when Brent started investing $1,200 a year in a variable universal life insurance policy, a combination insurance and investment vehicle sold by a company called Western Reserve Life. In 2000, Brent began investing in the military's thrift savings plan, a 401(k) equivalent. Right now he's putting in $200 a month. He's also paying $16.25 a month for the service's life insurance program, which offers $250,000 in coverage.
Just before his deployment to Afghanistan in 2003, Brent also opened four accounts--two Roth IRAs, an account for Ian's college, and a taxable mutual fund account--via a "systematic investment plan" with First Command, a financial services company that caters to military personnel and uses retired officers as salespeople. The plan commits Brent to investing set amounts over a period of years. Meanwhile, Erin has been putting $200 a month of her salary into the 401(k) offered by her employer.
In all, the family has about $81,800 saved, most of it for retirement, including $9,000 in cash for emergencies. Brent hopes to retire from the service once he hits the 20-year mark, 12 years from now. The size of his pension will be determined according to a formula based on his highest salary while in the service. The military also offers medical coverage for retirees. Brent says he'll still work--maybe for his dad, who owns a security company. Both he and Erin hope they'll be able to buy a boat, travel, and put Ian and perhaps a second child through college.
Most of the time, the Orrs feel they're on the right track. But they have some doubts. For instance, Brent knows something's not right about his Western Reserve Life variable universal life policy. He's been putting $1,200 a year into it for eight years, but its cash value right now is a mere $5,800. Brent says, "I wanted something with cash value. The problem is, I invested in a very high-growth fund, which didn't do well." And its $150,000 death benefit won't pay out in full if he dies while flying.
The Orrs also have a bad feeling about their First Command accounts. For the first year of their investment, a full 50% of the Orrs' contributions went toward sales fees. (As is usual with systematic plans, there were no sales fees in subsequent years as long as the Orrs didn't change the amount they contributed.) "I feel like I've been gouged," Brent says. He's not the only one. Last December the SEC and the NASD announced that First Command would pay $12 million to settle claims that it had misled investors about its fees. Thousands of former customers will split $4 million of the settlement. The rest will go to investor education for military families. First Command also announced that it would stop selling systematic plans.
The Orrs' investments are clearly a problem (see the box below). Consider too that they have very little equity in their two homes (barely 12% in the town house, and none in the new home) and that they are thinking about a second child, and the outlook begins to look a bit shaky.
To figure out how to reach their goals, the Orrs consult with David L. Blain, a C.F.A. and financial planner in New Bern, N.C. who works with many military families. Blain, like Orr, is a combat veteran. He spent 10 years in the Army and served in the first Gulf War.
Blain says the Orrs are doing most of the right things. But he worries that, like many military families, they are not doing enough to prepare for "stuff like that." His advice falls into three categories.
Blain tells the Orrs that they just don't have enough insurance to protect the family if something happens to either one of them.
The couple should increase their life insurance coverage to at least $500,000 for Brent, including the $250,000 military policy he already has, and $262,000 for Erin. Blain recommends term life insurance, which will run the Orrs about $60 a month. Because most policies won't pay out if Brent should die in combat, Blain advises looking into policies available from companies that cater to service people, such as USAA.
As for disability coverage, if Brent is permanently disabled in combat, the military will pay him a portion of his salary, depending on the severity of his injury, for life. For Erin, Blain urges her to find out what disability coverage her employer offers.
Blain also thinks the Orrs have not paid enough attention to their wills. Erin doesn't have one, and Brent's needs to be updated. Both need to write living wills and to establish medical powers of attorney designating someone to make health-care decisions for them if necessary. They should also establish a durable power of attorney for Erin and make sure that she is the beneficiary of all of Brent's accounts and insurance policies.
Blain urges the Orrs to increase their emergency reserves to about $35,000, equal to about 3½ months' wages. He recommends keeping a third of that in cash and the rest in short-term bonds. Blain also thinks that they ought to sell the town house and use the profits--at least $16,000, Brent thinks--to add to their cash reserves. Blain also advises Brent to make the maximum monthly contribution to his military retirement account. (He can save up to 10 % of his salary).
Estimating that North Carolina's state universities will cost $28,000 a year by the time Ian is ready, Blain suggests that the Orrs save more for their son's education. He proposes putting away $250 every month in a college investment account.
Dump Pricey Investments
Blain advises the Orrs to get out of their First Command accounts. Any number of mutual fund companies could offer them good performance at a better price.
As for the variable universal life policy, Blain says the Orrs will probably want to get rid of that too, which would mean absorbing their investment losses (about $3,800) and paying a surrender charge (roughly $1,400). Another option is to hold on to it for a few more years (during which time surrender charges will go down) but reduce their contributions.
Following their meeting with Blain, Brent and Erin Orr are rethinking some of their plans. Brent tried to max out his military retirement contributions the very next day--only to learn he had to wait until April. He says he's getting rid of the Western Reserve Life policy and closing the First Command accounts. Both Brent and Erin say they're looking into term life insurance policies. They also may sell the town house.
They remain confident that the bargain they've struck with the military is a good one. A few weeks after their meeting with Blain, though, the Orrs were photographed for this story. Watching Ian and Brent, in uniform, Erin thought of the day her husband left for Afghanistan. She walked away to compose herself. Then she came back. Smiling.
Where They Stand
They're saving, but some of their investments have come with big fees.