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Hello, artist learning about ER.
Old 02-06-2004, 10:44 AM   #1
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Hello, artist learning about ER.


Hi,

Im an artist whose frustrated by the need to be working on jobs I dont like. I am learning all I can about saving for early ER. I am 32, and no kids. So I figure I can save a good amount. What I dont understand is if I want to retire early why should I put my money in an IRA? I will not be able to withdraw until 59. Any advice? I have not invested yet as I am still learning, reading, etc. Also, I am a softmore in college studying art and feel that this is a bad investment...the only way it could pay me back is if i become a certified teacher. Id rather save money, pay off my loans, and buy a modest house. Any ideas? Thanks!
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Re: Hello, artist learning about ER.
Old 02-06-2004, 11:20 AM   #2
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Re: Hello, artist learning about ER.

I saw where Harrison Ford kept his union card (carpenter) while he became a '15 yr overnight sucess' (his words) - also I think his 'woodshop' in Jackson Hole is now his hobby. I.e. follow your bliss but have a way to put bread on the table. In a low tax bracket, try to Roth some - even if it's only a small amount - time, notiming.
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Re: Hello, artist learning about ER.
Old 02-06-2004, 11:41 AM   #3
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Re: Hello, artist learning about ER.

Hi artsygal,

It is possible to take money out of an IRA without penalty before age 59 1/2. There is information about that at the Retire Early web page:

http://www.retireearlyhomepage.com/wdraw59.html

In my opinion, education is still a very good investment. It will likely enable one to earn far more and to get employment with better working conditions. There are exceptions, of course. While I'm no expert in art, I would think that you might consider getting a degree in a field that will enable you to earn decent money in something you can tolerate, while continuing your art work on the side with the idea of leaving the job as soon as you can afford to do so. It's tough making it as an artist; I've known people who tried. But I'd certainly be getting an education in something if I were you.
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Re: Hello, artist learning about ER.
Old 02-06-2004, 12:36 PM   #4
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Re: Hello, artist learning about ER.

Quote:
What I dont understand is if I want to retire early why should I put my money in an IRA? I will not be able to withdraw until 59. Any advice?
Even laying aside the 72t rule that Bob_Smith pointed you to, there is another reason IRA would make sense to me. Let's say part of your money is taxed at 25% today and after you begin to draw the IRA money all of your income is in the 15% bracket or below (a reasonable scenario). The 10% penalty you suffer from early withdrwal (again, if you were to forgo the 72t) would be equal to the difference in the tax brackets. And, you would have two added advantages: 1) The untaxed money you were able to save can be invested and compounded over time and 2) You would have the flexibility of not pulling all your IRA money out such that some can be withdran after 59 1/2 and not penalized.
Hope that's not too confusing.
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Re: Hello, artist learning about ER.
Old 02-06-2004, 01:13 PM   #5
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Re: Hello, artist learning about ER.

You better have a load of talent! A 32 year old still in school who sees teaching as the only way to make a degree in art pay for itself is in real trouble as far as early retirement.

Teaching in any state's public schools will never pay enough to keep ahead of middle class cost of living for a family. Perhaps your wife can work to increase the family's cash flow and savings rate.

I began teaching at 21 retired at age 53 ... 27 years of service plus my age to equal the majic number of 80. This qualifed me to receive a defined benefit pension of 2.25% x those 27years x the ave. of my last 3 years. Without a COLA ! Any increase of benefits takes an act of the state legislature.

This amounted to about $27,000/year. The state retirement system allows me to join the retiree medical insurance program which includes prescription drug benefits at a cost of $550/mo. The schood district I worked for was only one of ten in the state that was in social security. I am now 4 years out from collecting SS.

Friends of mine still working who started teaching at your age are scraping by to save enough money in 403 B accounts to retire by 60 something and do worry about it because teaching public school at that age is very tough.

I was lucky enough to invest the capital gains from my parents home that I inherited provide the necessary third leg of retirement funding.

You may in want to rethink your degree plan ...
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Re: Hello, artist learning about ER.
Old 02-06-2004, 01:26 PM   #6
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Re: Hello, artist learning about ER.

Ooops, I didn't snap to your gender-revealing user name. Sorry about the reference to wife. The friends I mentioned who are so worried about retirement from teaching are single. It seems that married teachers have a better chance at sucessful timely retirement.

Sorry to sound so discouraging, but you still have time to make career decisions that could lead to early retirement. I just don't see how a career in public teaching started later in life, will do that.
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Re: Hello, artist learning about ER.
Old 02-06-2004, 01:51 PM   #7
 
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Re: Hello, artist learning about ER.

Quote:
This amounted to about $27,000/year. The state retirement system allows me to join the retiree medical insurance program which includes prescription drug benefits at a cost of $550/mo.
If you are in the regular job market of the U.S. you can pretty much forget about pensions and any medical coverage at all. You have to do it on your own. I am not a teacher, but it looks pretty good from here.

The retired school teachers that I hang out with are all in pretty good shape. One, a retired Principal has a 70K+ pension with COLA plus medical expenses. His biggest problem is where to take his next vacation.

Another friend of mine who was a 'regular joe' teacher gets a 46K pension plus cola and Health Insurance. This to me looks like the last chance of a pension in the U.S.

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Re: Hello, artist learning about ER.
Old 02-06-2004, 04:39 PM   #8
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Re: Hello, artist learning about ER.

One may need to investigate a career in teaching a bit more carefully. The 5 year attrition rate for new teachers is a little known stat that might upset most people. I once truthfully said to another teacher that I had observed 1100 teaching years of service on the campus in my first 15 years and only remembered 3 retirement parties. I taught sixth grade science in the best middle school in the highest income neighborhood in Ausin, Texas for many years and taught the same in an eastside minority hispanic school for several years. The common wisdom amongst many veteran teachers was that too many students thought they were little lawyers, and too many parents had an 'agenda' that you should respond to as they expected.

A principal is on call 24/7 in many communities both large and small. He/She answers to the following competing constituancies ... other administrators in the building, teachers, parents, students, support staff, custodians, teacher aids, special - ed., cafeteria personel, PTA, the superintendent, the schoolboard, teacher unions and other community groups. These groups are often in conflict and you are the referee. God help him if he makes a bad call. He is responsible for over a dozen budgets... there was not enough money on the planet to get me to do that. The seemingly greater amount of pay is diluted by the fact that he will work an extra month by contract each year than a teacher.

Your principal friend and 'regular joe' teacher likely did not retire early with those benefits and they did not start at ages 32 - 35.

Teaching is a long road for only those with the knack of balancing all of the above plus discipline, lesson preparation, and tons of paperwork each week.

The financial rewards are less than they seem. Most teachers decide that summer time off and paid holidays are more important than money, setting aside more altrustic considerations. After a ten month teaching year often 50+ hours per week on campus and more hours grading papers at home, the teacher is well advised to avoid working with children during summers if he/she expects to put in 30 years.

The reason I traveled to Mexico each summer from here (see earlier posts) was to live cheaper during the summers. I could travel for $10/day back in the 70s which was a lot cheaper than paying for air conditioning, cable TV, food and smokes.

Yes, teaching may be one of the last jobs with a defined benefit plan and that does look good. But ER takes more than that.

I suppose you may have figured out why I am so happy in retirement.
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Re: Hello, artist learning about ER.
Old 02-06-2004, 05:43 PM   #9
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Re: Hello, artist learning about ER.

Artsygal - I personally like real estate investments and suggest you get that house as soon as possible and rent the other rooms so you can free up your cash. At 32, it's time to take a serious look and plot your course because you need time on your side for ER. Also, my thought re:work you don't like...it's kind of the law of the land. I have had lots of no brainer jobs in order to supplement/create income....and I hated every one of them UNTIL I changed my perspective. Rather than something I was forced to do, I considered it a vehicle to my goal...I know mental games, semantics, whatever but it worked. I used the job rather than the job using me because I got the $$$ at the end of the week...pooling all that $$$ got me to the next level, and the next, etc. Good luck. A last thought....a good friend of mine is an artist and a teacher. She currently teaches 4th gr. but provides art lessons on week-ends and during the summer for $$$. this way she stays connected, is fulfilled by nurturing creativity in children and enjoys the $$. Homeschoolers here contract for art lessons for a group of kids and it's lucrative.
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Re: Hello, artist learning about ER.
Old 02-07-2004, 03:02 AM   #10
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Re: Hello, artist learning about ER.

Whether or not you work in the area that you studied in, any college degree will benefit you in the future to a certain extent. However, the right way to choose a college degree is to figure out what type of good paying work you think you would be good at and then find out what degree you need to get your foot in the door. So you may want to do some research on jobs and align your degree with what will bring you a good income in the future. As a sophmore, you still have time to shift to an income producing degree.

You do need to invest in both tax deferred (401k) and normal investments if you want to be flexible with early retirement. The normal investments can bridge you until the tax deferred investments, SS and other pensions kick in. The ratio of tax-deferred to normal investments that you should make today is going to depend on your living expenses, how many years you expect to bridge, and how much you expect from SS and other pensions. At age 32, I would probably start with a 50/50 ratio (tax deferred to non-tax deferred investements) and then over time keep working through your long term planning to see if that ratio still works. At first, the key is to get started with a good income, low cost living, and saving. When you are set up to keep a constant stream of savings going, then you can start trying to optimize your investment strategy.

It is hard to find a job that one likes. There are always days when it would be nicer to stay at home, and days when work is intolerable. You might as well choose a job that pays good money. Sometimes the only way to stick it out is to look at how much you are able to save for your future freedom each month. Thats about all that keeps me going, if I couldn't save a big chunk of my pay, I would be desperate. I'm glad to have found this board to be reminded that there is light at the end of the tunnel.
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