Money Snapshot: A Foreign Service Officer Shares Her Thoughts on Financial Planning with a Pension

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For today’s Money Snapshot, we’re talking salary, net worth, debt, and more with reader L in the D.C. metro area, who works as a foreign service officer. She noted, “As a foreign service officer, I move every one to four years for work, and while I’m currently in Washington, most of my career thus far has been overseas. When I’m overseas, my housing is provided, so I have no local rent/mortgage expenses, and limited utilities (just cell phone, internet, cable, etc.). When I’m assigned to Washington, I’m completely responsible for all living expenses. I intend to rent out my condo here in Washington when I go overseas next, and that income should more than cover the monthly expenses and upkeep for it.

“My salary is set off of U.S. government pay scales, but overseas assignments may include hardship pay, danger pay, and/or language incentive pay, so my income could increase as much as 70% overseas, though most posts won’t include such a large jump. Cost of living and expenses can vary considerably from post to post, and there are often significant startup costs with each move, because the work clothing, vehicle, etc. that are appropriate and practical in Ulaanbaatar might not be appropriate and practical in Lilongwe.”

We got a few requests from readers to launch our own “money diary” series, so we’ve asked willing readers to fill out a form with lots of details about debt, spending, saving, and more! If you’d like to fill out the form and be considered for a future personal money snapshot, please click here to submit your response! You can see a PDF of the questions if you want to review them ahead of time. See others in the Personal Money Snapshot series here.

Please remember that this is is a real person who has feelings and isn’t gaining anything from this, unlike your usual friendly (soul-deadened, thick-skinned, cold-hearted, money-grubbing) blogger — so please be kind with any comments. Thank you! — Kat

Name: L
Location: Washington, D.C., metro area (HCOL)
Age: 40
Occupation: Foreign service officer
Income: $115,000
Net worth: $900,000
Net worth when started working: 22, after graduating college. Approximately $80,000 net worth, mainly from my parents transferring 100 shares each of two companies to me as an infant (total gift at the time, approx. $1,500). Over 22ish years, that had grown to approximately $80,000.
Living situation: Single; own a condo

Debt

What does your debt picture look like?
Only debt is my mortgage ($360,000). I was lucky enough to graduate from both college and my M.A. debt-free due to a combination of parental support (approx. $15,000/year toward part of tuition and room and board during undergrad; $10,000/year during my two-year M.A.), scholarships (undergrad approx. $3,000/year; grad approx. $4,000/year), attending lower-cost, in-state universities (undergrad tuition before scholarships averaged approx. $5,500/year; grad tuition before scholarships averaged approx. $8,000/year) in low-cost-of-living cities, and some part-time work both during summers and school semesters, etc. I do have credit cards but pay them off in full each month.

My parents were very financially literate and taught me from an early age to avoid most forms of debt when possible. With their help to get me launched from school without a lot of debt, and being financially responsible and reasonably, but not excessively frugal, I’ve managed to stay debt-free until I bought a condo last year.

How much money are you spending each month to pay down debt?
Mortgage payments are $2,100/mo.

How did you pay for school?
As previously mentioned, I was lucky enough to graduate from both college and my M.A. debt-free. My parents were very upfront about what they could afford for college, so I applied to schools accordingly. I understood theoretically that graduating college debt-free would be good, but I didn’t fully comprehend what that would mean in terms of freedom until I graduated and had the freedom to take some time to find the right fit and to take a nonprofit job without a big student loan payment hanging over my head and forcing certain choices.

Do you own or rent? How much do you pay monthly?
Own a condo, $2,100 mortgage, $520 condo fee, $100–150 in utilities — total about $2,750/month

Home debt: Share your theories and strategies with us.
When I first graduated college, while working after college, and in grad school, I rented. I spent the first 10 years in the Foreign Service posted overseas, where my housing was provided. When I returned to Washington, I rented for a year because I didn’t feel like I knew the area well enough to decide where I wanted to buy and I wasn’t comfortable buying a place sight unseen (though some of my colleagues have!).

My mortgage is a $375,000 30-year mortgage at 3.15%, and I’ve paid down about $15,000 of that so far. My parents provided some assistance with a down payment, and I’d saved quite a bit while posted overseas and not paying for housing, so put I put about 40% down. My goal was to keep my monthly mortgage payment and condo fees about the same as I was paying in rent, which I managed. It comes out to about half of my take-home pay, though my 401k contributions, some charitable giving, and some savings are already taken out before I get my paycheck.

I plan to rent the condo out while I’m overseas. Because my mortgage payments and condo fees come to a reasonable amount and rents are high in the D.C. metro area, I should be able to rent it out for enough to cover my monthly costs with some left over to put in a fund for repairs, maintenance, etc.

Have you paid off any major debt? 
Not yet, but chipping away at my mortgage.

Have you ever done anything noteworthy to avoid or lessen debt?
Not really, but as mentioned, I’m generally debt averse and some quirks of my work, like housing provided overseas, help with that.

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Savings, Investments & Retirement 

How much do you save each month or year in retirement vehicles like 401ks, Roth IRAs, and others?
$19,500–$25,000. I max out my 401k each year, and while overseas have also maxed out a Roth IRA.

How much money do you allocate to other tax-savvy investments/accounts like HSAs, 529s, FSAs, and others?
None

How much do you save outside of retirement accounts?
While overseas, I’ve been able to invest anywhere from $100–$500/mo. in index funds. I’m not able to do that while in Washington, but I do have $100/biweekly paycheck put into a savings account. I’ve done all of this through auto-debit or auto-deposit to automate the thinking.

Talk to us about investments. 
I’ve mostly done my own financial planning, with decent results. When I was about 30, I did talk with an advisor through my bank and acted on some of his recommendations. They weren’t awful decisions, but I later realized the fees on the index funds he recommended were higher than they needed to be and that I didn’t need to invest in so many different funds. I’ve since come around to the Bogleheads philosophy of low-cost index funds and primarily invest in Vanguard and Schwab index funds when I invest in Roth IRAs and non-retirement funds.

As a federal employee, I also have a Thrift Savings Plan (like a 401k) that I contribute to. I have my contributions split between three different funds in that plan. The costs are very low and I get a 4% match from my employer. I’ve always contributed the minimum to get the matching, but initially didn’t contribute more, fearing locking up too much in retirement funds when I might want to access the money before retirement or if I retire early. That was probably not the smartest decision as I likely lost out on dividend gains in low-cost funds, but I did still save a lot, so wasn’t the worst decision either.

Do you have an end goal for saving or are you just saving for a rainy day?
Right now, I’m focusing on building back my emergency fund after dipping into it a bit after buying my condo to do some things like replace older appliances, etc. My situation is a bit different than many, in that I will be eligible for a defined pension plan when I reach 50. So, my retirement savings are only part of my retirement financial planning.

When did you start saving seriously? How has your savings strategy changed over the years?
I started saving seriously once I had a job after college. Even in my nonprofit job that paid $28,000/year in 2005, I managed to save $8,000. Initially, I was not the smartest in that I saved in a savings account rather than contributing to a 401k or Roth IRA, but fortunately I’ve been disciplined in my saving from a young age.

I’ve actually relaxed a bit in the last couple of years as my income has increased, I’ve gotten a larger nest egg built up, and have gotten more confident that I’ll stick with the Foreign Service at least until I’m retirement eligible. I can see that I’m on a good track to have more than sufficient retirement savings, and knowing that I’ll have a pension to depend on for at least base expenses after I retire is incredibly freeing.

What’s the #1 thing you’re doing to save money, limit spending, or live frugally?
Honestly, the main thing is having savings and retirement contributions automatically withheld, deposited, or debited, which removes the temptation to spend that money, since I never see it in my checking account.

Have you ever made a big money move or investment with savings in mind, such as rolling over an older IRA into a Roth IRA or superfunding a 529?|
I think buying my condo would fit this description. I bought it as much as an investment to rent out while overseas as to live in while in the D.C. area. I’m hopeful that building up enough equity with renters paying that for several years here will enable me to pay cash for a property in a lower-cost area after retirement.

Do you have an estate plan in place? A trust? 
I have a will and have listed Transfer on Death beneficiaries for as many accounts as possible to make things as easy as possible when I pass away.

How much do you have in cash that’s available today?
$18,000, though I suppose I could sell non-retirement investments, which would come to about $300,000.

How much do you have in cash that’s available in a week? 
$0

How much is in your “emergency fund,” and did you include it in the previous question?
$18,000 right now. I’d like to get it back up to about $30,000. I keep it in savings and checking accounts and I did include it in the previous question.

How much do you have in retirement savings?
$300,000

How much do you have in long-term investments and savings (CDs, index funds, stocks) that are not behind a retirement wall?
$300,000

If property values (home, car) are included in your net worth, how much are those worth?
Condo is valued at about $690,000, and I owe about $360,000 on it.

Spending 

How much do you spend on the following categories on a monthly basis?

Groceries: $300
Restaurants, bars, takeout, and delivery: $200
Clothing and accessories: $0–$500
Transportation: $50–$100
Rent/living expenses: $2,700
Entertainment: $100
Other major expenses: $750/yr. in pet care, $50/mo. on gym, $7,500/yr. in charitable donations, $1,500/yr. in pension contributions, $350/yr. in union dues
Health care – premiums and other costs: $2,500/yr. on health, dental, and vision insurance premiums;

What’s your spending range for these things? What’s your average?

Vacations – Range: Varies considerably. By virtue of being an FSO, I can often stay with friends posted in awesome places and/or use hotel and/or airline points to cover costs, and other times I splurge on nice hotels in places that are expensive to get to. So, I’d say anywhere from $500 to $5,000. The number of vacations varies depending on the circumstances. In some posts, I’ve taken a lot of shorter trips, going somewhere nearly monthly, and in others I’ve only taken two or three years but for longer.
Vacations – Average: $1,000

Charity – Range of donations: I donate anywhere from $250–$1000 per charity.
Charity – Average donation or giving amount: $7,500/year

Individual items of clothing – Range: $20–$200, depending on the item
Individual items of clothing – Average: $100 for most work clothing items, less for casual clothing

Apartment or house – Range: $450–$2,700/mo.
Apartment or house – Current main residence: $2,000

Car or other vehicle – Range: $15,000–$32,000
Car or other vehicle – Last purchase/current main vehicle: $32,000

Fill in the blank on this question: I could save _____ if I stopped ______, but I don’t because _______.
I could save $750/yr. on general pet care, potentially thousands on moving pets internationally, and a ton of headaches if I didn’t have pets, but I don’t consider rehoming them or not adopting new pets when current ones pass away, because they’re such an integral part of my life and make the constant moving to new places a bit more manageable.

If you own, how much did your home (permanent residence) cost?
$675,000

Have any large medical expenses (including nursing homes) for yourself or others played a role in your financial picture?
I’m very fortunate that my parents have saved wisely for their retirement, including potential nursing home care. So far, I’ve been reasonably healthy, but the fact that I’m single is one of many factors in my decision to stay in government service. The excellent health coverage (including in retirement), good job security, and many leave options are reassuring, as I have no one else to fall back on if I lose my job or get so sick I can’t work for long periods of time.

At any point in your life to date, has inheritance played a role in your money situation?
My parents did contribute to my down payment on a condo as a sort of advance on my inheritance from them. That enabled me to move to buy a place that I have really enjoyed living in and that will be a good rental property. While nothing is certain and there’s no way to know when this may come to pass, I am likely to inherit another substantial sum when they eventually pass away, which is an extra layer of security in my retirement planning.

How has your family provided financial support in your adult life, if any? (Or, do you provide support to them?)As As mentioned, they paid a significant part of my college expenses and part of my down payment on my condo.

I also moved back in with them for a few months after I graduated college but before I had a job lined up, and again after leaving my first job and before starting grad school. Both times, that enabled me to not run through my savings and/or incur debt.

Money Strategy 

Do you have a general money strategy?
I’m generally a saver, and my mother has even told me I need to be less uptight with my money. I try to focus my spending more on experiences and less on stuff (especially since I have to move said stuff every few years :P ).

Time vs. money — do you spend money to save time (e.g., cleaning service)? Do you donate your time instead of money? What else does this phrase mean to you?
As my income and workload have both increased, I’ve become more willing to pay for things that save me time. There’s something to be said for firing a money gun at a problem to make it go away (within reason, of course).

What are your favorite resources for personal finance?
Bogleheads books and websites

What advice would you give your younger self about personal finance?
I would have contributed more to my 401k plans earlier instead of leaving it in savings accounts.

L shared some additional thoughts at the end of her Money Snapshot submission:

One thing I’ve referenced but not fully explained is how my job and the fact that I’ll almost certainly have a defined benefit pension plan affect my financial decisions and planning, so I’d like to do that here, as it explains some of my thinking and could be useful to others considering government careers.

First, as a federal employee, my employment is very secure. While temporary hiccups like government shutdowns are possible, I’m highly unlikely to lose my job, which affects how I weigh risks with certain investments, potentially dipping into emergency fund savings, etc.

Second, the defined benefit pension is a game changer for how I look at retirement. Since I joined the Foreign Service before I turned 30, I can retire with a pension and health insurance when I turn 50. I don’t necessarily have to retire then, and can keep working if I want, but will face mandatory retirement at age 65. The pension will be based on a percentage of an average of my highest three earning years. The first 20 years will be credited at 1.7% of that number, and each additional year of service will be 1% of that high three average. So, 25 years of service would be 1.720 + 15 = 39%. If my high three average is $130,000 (a conservative estimate) and I serve 25 years, then that means my annual pension would be $50,700. As a single person, that’s enough to live on in a low cost of living area without working or tapping into any investments. If I want to retire in a higher cost of living area, I may need to work or to tap into retirement or other investments, but I’ll have a lot more freedom to pick and choose what I do, work part-time or for a lower-paying nonprofit, etc. So, the pension gives me a real sense of security in my retirement, frees me up to pursue other options earlier in my retirement if I want, and gives me a better sense of security that I’ll be able to cover nursing home and other expenses as I age.

Third, various overseas allowances make a real difference in my ability to save and prepare for retirement. By completing multiple overseas assignments early in my career, I’ve been able to contribute more to retirement and other investment accounts than I otherwise would have been able to do.

Fourth, being able to rent out my primary residence in the D.C. area while I’m overseas will let others contribute to my equity in my home. Due to the number of federal employees, contractors, etc., the job and real estate market in D.C. is less risky than in many places, so my home here will almost certainly appreciate significantly over the at least 10–15 years I’ll own it. The rental market is also strong, so I shouldn’t have trouble renting it out when I go overseas for more than what my monthly expenses are, plus even some to save for repairs/maintenance. Also, by locking in a mortgage, my housing costs while I’m posted here in the D.C. area will increase far less over time than if I were renting, as rents in this area will almost certainly increase far faster than my monthly condo fee will.

So, for those considering government careers, do run all the numbers, not just salary, when comparing options. The salaries are often lower than in the private sector, but the other benefits may make a government career more financially competitive than it appears at first blush.

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