A financial planner helps a young Seattle police officer figure out how to make ends meet when he takes over ownership of a condo by himself.
To the casual observer, it may seem like Scott Hatzenbuehler prefers life on the edge.
A couple of years ago, the 32-year-old left a tech job with a cellphone company to become a Seattle police officer, patrolling the lively streets of Capitol Hill during the night shift. It was a cut in pay but a boost in job satisfaction.
“I always say that my best day there is still worse than my worst day here as a cop,” Hatzenbuehler says.
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In his down time, Hatzenbuehler travels with friends — sometimes opting for the peace of a Mexican beach, but just as happy, if not happier, to explore such unconventional destinations as Armenia and Turkey. Recently, an introductory ride on a motorcycle got him thinking it’d be fun if he could ditch his 9-year-old Jeep Cherokee and get a bike.
But when it comes to finances, Hatzenbuehler’s primary goal is to feel a sense of security. “It is difficult to be barely at the median income in the city and try to live here,” he said. “I always think about people who have families, who are dealing with the issues I have or the same amount of money, but I have one mouth to feed, I don’t have three.”
Hatzenbuehler, the son of a Naval officer, grew up living in rented base housing and says, as a result, homeownership is something he’s always wanted.
Unable to afford it on his own, he and his twin brother, Eric, bought a two-bedroom condo — with essentially no down payment — for about $233,000 a couple of years ago.
Half of that mortgage ($728 of $1,456 a month) and about $11,000 in student loans (a monthly payment of about $154) from his Washington State University days represent all of Scott’s debt, which was manageable with his $5,138 monthly salary.
But now, circumstances have changed. His brother is ready to cash out and move out, and Hatzenbuehler really wants to live on his own. He called his credit union about renting out the condo as an investment and buying a place for himself, but says he was basically told: “Good luck with that, we’re not giving anybody loans.”
Hatzenbuehler says it was the first time that the economic conditions hit home.
“I feel like normal people who work hard are [considered] risky,” he says.
The police officer has already set aside $10,000 to reimburse his brother for his share of a kitchen remodel and upgrades to the condo. Lately, he’s been trying to live as if he were paying both halves of the mortgage.
He’s swinging it so far, but he wants to ensure that he can do it without having to seek a lot of overtime work.
“I’m willing to do overtime for the extras, but I don’t want to have to do it,” Hatzenbuehler says. “That starts you down a road that, one, it’s hard to turn back on, and two, it’s exhausting anyway on top of shift work and the type of work we do.”
Kim Miller, a financial adviser with Sweetwater Investments in Redmond and a member of the Financial Planning Association — Puget Sound Chapter, recently created a financial plan tailored to Hatzenbuehler’s goals: living alone, continuing to remodel the condo and planning for retirement, preferably at 53, when he is eligible for a full pension from the police force.
“In a perfect world, you’d be able to sell the condo for enough to pay off the mortgage, cover the costs of selling and get your improvement money back with perhaps a modest 5 percent return,” Miller told Hatzenbuehler.
But given the downturn in housing values, Miller said, selling now is out of the question.
So to determine if Hatzenbuehler could afford to pay his entire mortgage and still be on track to retire at 53, Miller projected his cash flow for the next several years.
Though Hatzenbuehler never used a budget, Miller says one of his strengths is that he knows where all of his money is going.
“Most people don’t,” Miller says. “(He) has an allowance he gives himself for miscellaneous things beyond bills — like gas, haircuts and coffee — but most people don’t see that as money going out and they wonder where it went.”
Factoring in overtime
Initially, Miller found that without overtime, Hatzenbuehler would only have about $50 left over each month after expenses and covering the entire mortgage on his condo — a tight squeeze.
Fortunately for Hatzenbuehler, Miller told him, he has a “silver bullet” in the Seattle Police Department’s pay scale: a 5.5 percent cost-of-living increase that kicks in next month.
In June, Hatzenbuehler will move up a step on the salary scale, getting an additional 4.5 percent increase. This pattern will continue until the contract expires at the end of 2010, effectively giving Hatzenbuehler a raise every six months for the next two years.
So, though Hatzenbuehler may need to work overtime in the short run, Miller says he’ll have a bit more wiggle room next year, when he can work on his other short-term goals. With the $13,500 he has in the bank, Hatzenbuehler plans to use $10,000 to “cash out” his brother. For the remaining $3,500, Miller says Hatzenbuehler has three options for reaching his goals:
• Tackle other condo improvements, such as painting, carpeting and adding molding. Given the state of the real-estate market, Miller advises caution in putting more cash than is absolutely necessary into a property that may only be at break-even value, in case he considers selling in the near future.
• Put the money on his student loan, which would shorten the life of the loan by nearly three years, from 88 to 55 months. Getting this loan paid off, Miller says, reduces his monthly break-even point “by a not insignificant amount.”
• Keep it to put toward a replacement vehicle, something Hatzenbuehler thinks he’ll need in the next few years.
Hatzenbuehler says that seeing his future cash flow mapped out made him realize that although he was a conservative spender before, he now has to be more conscious of where he puts his dollars.
“I’m choosing differently,” he said. “I’m not denying myself the ability to live alone, I’m denying myself the ability to see, what, [comedian] Kathy Griffin at the Paramount for $50. It’s making those kind of choices.”
As for retirement, Miller says Hatzenbuehler has made a good start with about $29,000 in his 401(k) from his previous job and about $3,000 in the city of Seattle’s deferred-compensation 457 plan.
But Miller suggested that Hatzenbuehler increase his 457 contribution from $60 a paycheck to $110 — the maximum amount the city will match — a change Hatzenbuehler says he plans to initiate in January.
Miller says the really good news for the police officer is that the Washington State Law Enforcement Officers’ and Fire Fighters’ Plan 2 (LOEFF II), Hatzenbuehler’s pension plan, is indexed annually for inflation up to 3 percent.
With LOEFF II, if he were to retire at 53, Miller estimates that Hatzenbuehler’s monthly pension benefit would be $5,393. That amount would increase if he delayed retirement.
As he is able, Miller suggests that Hatzenbuehler open and fund a Roth IRA to diversify his sources of retirement income and diversify the impact of future taxes on retirement income.
Another strong recommendation from Miller: Given his high-risk occupation, Hatzenbuehler needs his legal documents — like a will, health-care directives and powers of attorney — drawn up and put into effect.
Otherwise, Miller says Hatzenbuehler is on track.
“I told him, what you need to do is keep working and keep breathing and everything is going to work out,” Miller said “He just needs to keep paying attention, and he’s not the sort of person who’ll stop.”
As for Hatzenbuehler, the financial plan has left him with peace of mind.
“I like my place. I’m quite happy to keep it and stay and finish it,” he said.
“I feel lucky just to have a home, considering right now, people are losing theirs. To be able to do this? I’m pretty lucky.”