Hi, 35 year old teacher seeking strong retirement advice

[Curious2077]

Hello,
My name is Tim. I am a 35 year old teacher who's head is spinning about how to set up the best possible retirement for myself? I am really hoping your experience and knowledge will steer me in the right direction? Here is what I have going for myself so far and some personal goals I have that I think should be factored in:
-I have a 403b worth $25,000 w/ Vanguard ($22,000 Wellington Fund, 3K in Target date Retirement Fund)
-I am debt free (I just paid off my $95,ooo house)
-I have no car payment (car is getting older however, it is a 1999).
-I am single (strong chance I may be married in next 1.5 years)
-I have zero children (but will immediately try to have kids if I marry)
-I have 25k in the bank which I have been saving for a down payment on a new house if I get married. House will cost app $220k and she will pay for half. She makes same salary as me.
-Annual gross income is 53k and will not rise anytime soon (our teacher contract is terrible and I put in 11 hour stress filled days daily...but anyway)
-I plan on retiring at 55 if I can swing it. I will have a pension but will be penalized for retiring early. Unfortunately I dislike my job but don't think switching careers after contributing into teacher pension for 9.5 years is smart.

Recently met w/ financial planner from Swarthmore Finance and he wants me to:
-Roll over my 403b into a Roth IRA with him
-Obtain some type of Life insurance
I am reading different things online about annuities and different Roths and other things I can do but I am very confused. I do think a Roth IRA is a good idea but not sure about life insurance? Should I even do a Roth with him?? Should I just do a mutual fund w/ Vanguard instead? Can anyone offer solid advice? Thank you so much, it is most appreciative!!
Sincerely,
Tim

[stoutboy]

Run, don't walk, away from this guy. You can certainly set yourself up with a Roth from Vanguard much cheaper than this guy will. I would question whether you will benefit from a Roth as opposed to a TIRA. Given the fact that your income will not grow all that much, and that you will have a reduced pension, you may be better off realizing the tax benefits from a TIRA. You'll have to crunch the numbers and decide. For more detailed advice, I suggest you visit:

Bogleheads • View forum - Investing - Help with Personal Investments

and pose your question there. You can get some really good advice from those folks. Good luck!

Quote:

Originally Posted by Curious2077 Hello, My name is Tim. I am a 35 year old teacher who's head is spinning about how to set up the best possible retirement for myself? I am really hoping your experience and knowledge will steer me in the right direction? Here is what I have going for myself so far and some personal goals I have that I think should be factored in: -I have a 403b worth $25,000 w/ Vanguard ($22,000 Wellington Fund, 3K in Target date Retirement Fund) -I am debt free (I just paid off my $95,ooo house) -I have no car payment (car is getting older however, it is a 1999). -I am single (strong chance I may be married in next 1.5 years) -I have zero children (but will immediately try to have kids if I marry) -I have 25k in the bank which I have been saving for a down payment on a new house if I get married. House will cost app $220k and she will pay for half. She makes same salary as me. -Annual gross income is 53k and will not rise anytime soon (our teacher contract is terrible and I put in 11 hour stress filled days daily...but anyway) -I plan on retiring at 55 if I can swing it. I will have a pension but will be penalized for retiring early. Unfortunately I dislike my job but don't think switching careers after contributing into teacher pension for 9.5 years is smart. Recently met w/ financial planner from Swarthmore Finance and he wants me to: -Roll over my 403b into a Roth IRA with him -Obtain some type of Life insurance I am reading different things online about annuities and different Roths and other things I can do but I am very confused. I do think a Roth IRA is a good idea but not sure about life insurance? Should I even do a Roth with him?? Should I just do a mutual fund w/ Vanguard instead? Can anyone offer solid advice? Thank you so much, it is most appreciative!! Sincerely, Tim

[ERD50]

In addition to post from stoutboy, if a Roth is advantageous for your situation, can't you do one within your 403B? My wife works for a local municipality, and we chose a Roth for her 403B.

If your family will be dependent on your income, you should get term insurance. A one million $ policy could provide a fairly safe $40,000 annual income replacement that should keep up with inflation. That is what your family might need, not some whole life policy that warps 'investments' with insurance. And I doubt you could afford a $1M whole life policy. If you rely on a spouse's income, they should have equiv ins.

Also, for good financial advice, you might want to stick with the numbers you gave w/o the subjective 'stress filled days' and 'terrible contract'. That will just elicit responses about the trade-offs of having holidays and summers off, adjusting that salary for the time off, and the fact that many of us had no contract at all. None of which will help you with your financial questions.

IDOL

Quote:

Illinois is an "employment at-will" state, meaning that an employer or employee may terminate the relationship at any time, without any reason or cause.

We don't know what you mean by 'terrible'. Does that mean you have been asked to take a pay cut, like so many in the private sector? Or something else? Numbers would help.

-ERD50

[Midpack]

Welcome aboard. I'd also hold off on a financial advisor for now.

Learning everything you need to know piecemeal (reading from here and there online) could lead to some misunderstanding, you know that as a teacher. Once you have a good foundation, you can branch out from there if you're so inclined, but you only need the basics to invest successfully.

I'd recommend you read a comprehensive book on the subject of investing and/or retirement planning to get the big picture. Taking random information for here may serve you well, may also be a disaster - how will you know which is which?. There are more (get rich quick) bad books than good ones, there are other good ones but I'd recommend:

Bogleheads on Investing
Bogleheads on Retirement
The Four Pillars of Investing or
any of Jack Bogle's Books

Or if you want something really hands off, maybe:
The Coffeehouse Investor or any of the "lazy portfolio" approaches (Scott Burns Couch Potato for example).

After some reading, if you still think you want an advisor, so be it. There are a lot of sharks among the seemingly friendly financial advisors though, another reason to learn some basics on your own. Best of luck...

[Curious2077]

Thanks ERD50 and Stout,
In response to ERD, I agree I should not have posted about my dislike for my occupation or contract. To explain, our teachers contract is by far worse then any school districts around and we do more work/hours then they do. How do I know? Because I have friends in neighboring districts. I should not have let my emotions get involved. As far as "can't I do one within my 403b"? From what I understand, a 403b gets taxed when withdrawing come retirement where as a Roth IRA gets taxed now. I thought diversifying would be my best bet meaning have both? I do have $ taken out of my paycheck for 403b however I believe if I start a Roth IRA it would be taken from my bank account which I am fine with. I am definitely up for more detailed advice if anyone has some?

[seraphim]

There's a .pdf book online for free. Put things into basic language for me.

http://www.investorsolutions.com/upl...egies_21st.pdf

Lamen's language, humorous and very informative for a beginnger.

[stoutboy]

Still don't see why you're fixated on a Roth. I think in your case you may be better off with the current tax benefits of a traditional IRA. ERD has a point about term life, but only if you end up having kids. Otherwise, you don't really need it. You may want to consider long-term care insurance though.

Quote:

Originally Posted by Curious2077 Thanks ERD50 and Stout, In response to ERD, I agree I should not have posted about my dislike for my occupation or contract. To explain, our teachers contract is by far worse then any school districts around and we do more work/hours then they do. How do I know? Because I have friends in neighboring districts. I should not have let my emotions get involved. As far as "can't I do one within my 403b"? From what I understand, a 403b gets taxed when withdrawing come retirement where as a Roth IRA gets taxed now. I thought diversifying would be my best bet meaning have both? I do have $ taken out of my paycheck for 403b however I believe if I start a Roth IRA it would be taken from my bank account which I am fine with. I am definitely up for more detailed advice if anyone has some?

[ERD50]

Quote:

Originally Posted by stoutboy Still don't see why you're fixated on a Roth. I think in your case you may be better off with the current tax benefits of a traditional IRA. ERD has a point about term life, but only if you end up having kids. Otherwise, you don't really need it. You may want to consider long-term care insurance though.

Right, I can't say whether he should or should not do a ROTH, that takes some investigation and a crystal ball guesstimate of future income & tax rates. We are doing them now because ~ 1/2 my portfolio is an TIRA and 401 rollovers to TIRA, and my tax rate is very low right now due to edu credits and child deductions. It's a tax liability diversification process for me.

Back to OP. If you decide on a Roth for one or both of you, at least for my DW's case, we just set up the 403B as a 403B ROTH. Those deductions are taxed. If you set it up as a 403B Traditional, then they are not taxed. It may vary by state/municipality, but we had the choice.

Also to the OP - feel free to complain all you want. I was just trying to warn you that it will be like dangling raw steak in front of lions. Some of us may not be able to resist comparing complaints. If you want to go there, that's your business, just come prepared with a flameproof suit!

And you might want to google "The Four Yorkshiremen" for practice ("you think you had it bad....".

-ERD50

[Curious2077]

Stout, I think a Roth IRA is good for me as I personally believe the tax rates will be higher come retirement time. Remember, I am able to use my 403b to lower my gross taxable income. Should I hold off on any term life insurance until I have kids? I am pretty sure I wil have kids its just a matter of when? As far as long term care insurance, are you speaking of insurance that covers assisted living/nursing home type of costs?

[EvrClrx311]

There are a few other differences between IRA and ROTH, but it usually boils down to one simple question...

Is the inflation adjusted yearly income you're hoping to retire on going to be higher or lower than your income now? (Notice I said hoping and not wanting... not easy to distinguish between this far out from retirement - so be careful)

chances are... if you really don't like your job and are stretching for ER asap, you will be willing to cut costs to get out early (like taking the early pension penalty, as you said). Nothing at all wrong with that, but it means you'd probably be living on lower income in retirement just to get out. In that case, a ROTH doesn't make sense... why pay higher taxes now when you could pay less later?

If, however, you envision growing this ROTH account to a fairly large sum that when added to your pension will exceed what you're currently making - then a ROTH makes sense (again, of course that is what everyone wants, but will it actually happen on your specific timescale?). This usually involves working until you are FI... not just waiting until you have enough to cut and run from the job you can't wait to get out of.

As midpack mentioned above, be careful taking advice in bits and pieces from multiple sources. This post being a prefect example... as you can see that I'm more of the mindset that ROTH is not the way to go base on what I've heard so far (though that could just be because I'm missing something... or life could change along the way: ie, getting married could change things entirely)...

It also can't hurt to have a little bit in both pots... to hedge against higher taxes. I would just be careful making a jump entirely to ROTH.

I second the advice to pick up some books... best investment you can make this early on is to become a student of your own financial situation.

[BigE]

Welcome Curious. Sounds like you are off to a good start. I would ditto the above recommendations on immediately ceasing any further contact with the Swarthmore advisor. Be warned, you may be pestered and subject to comments made to make you feel guilty. You will find that the overwhelming majority of persons on this site are making their own financial plans and decisions and that for the most part, this is not quantum physics level stuff.

Re. ROTH vs TIRA, I don't hoard tuna or guns, but I strongly think that having some retirement funds in a ROTH account is good planning in the case of significant rising taxes or for inhertance purposes.

Re. kids. I have three wonderful kids and I love being a parent. We love parenting so much, we signed up for a third tour of duty at age 40 and adopted a girl (our third child). But be warned, like a bad case of Herpes, they are the "gift that keeps on giving"....you will need to allow for significant expenses, to include college funds.
Midpacks's list of books are awesome. Good luck.

[ronocnikral]

Quote:

Originally Posted by EvrClrx311 There are a few other differences between IRA and ROTH, but it usually boils down to one simple question... Is the inflation adjusted yearly income you're hoping to retire on going to be higher or lower than your income now? (Notice I said hoping and not wanting... not easy to distinguish between this far out from retirement - so be careful)

Actually it is more complicated, it has to do with tax rates at contribution vs at distribution. If your "inflation adjusted yearly income" is less than it is now, but your taxes go up, then you have fewer after tax dollars if you went the way of the roth. and Vice versa. If taxes are the same, it makes little difference. So, you really need a good crystal ball to tell you what taxes are going to be in the future and what your incomes will be in the future. It is good to have both traditional and Roth funds for someone in this situation. I wouldn't do a huge conversion of everything right now, but I would rather just ramp up my roth contributions. But that is me.

I would add to midpack's list of book, " A Random walk down wall street." It's excellent. Also, to reiterate what William Bernstein wrote on his website a decade or two ago, "Expect your study to take as much time as a college course." Or something to that effect. But, it takes time and study to learn this "simple" stuff.

Skip the insurance right now unless someone depends on your income. Even if you get married, if your spouse doesn't depend on your income, don't insure. But the minute someone will depend on it, get it. And disability insurance.

I wouldn't make any moves until you have spent some time to educate yourself. All of this is, of course, my opinion.

[EvrClrx311]

I agree that it is smart to cover yourself on both ends, but no one can say one way or another where taxes will go in the future.

Some will say that historically speaking, taxes are as low as we've seen them and they can only go up from here (look at Europe, and our debt)... while others will say that if you look at the trend of taxes over the last 100 years, they are headed down and so why would any reasonable person assume they won't continue heading down

both completely conflicting.

It is unwise, IMO, to assume taxes will be grossly higher or even lower in the future... odds are they will be different than today but its anyone guess as to which direction they'll end up. Using today's rate as a baseline for the future seems to be the only reasonable thing for planning purposes.

[ShortInSeattle]

Hi there.

I'm 33 so hello to another child of the 70's!

I've been getting up to speed on the same types of questions, so I'll throw in my 2 cents.

Here is the general order DH and I did things:
1) finish college and get stable employment. (you did!)
2) pay off student loans and don't take on any consumer debt. (check!)
3) get married to a wonderful person who shares my values and good financial habits (your timeline may vary)
4) save 6mo of expenses in an emergency fund. (now up to 12 months as I'm self employed.)
5) put at least 15% of income into a tax advantaged retirement account right away, and get employer match. (our saving rate is much higher now, closer to 50%)
6) buy a home that is less than you can afford, close to work, with minimal maintenance.
7) over time, learn more about investing and tweak your portfolio. (we started as beginners with standard 401(k) mutual funds, have since switched to low cost indexes)
8) Work hard, enjoy life, and let your money pile up. We have a long way to go till we retire early at 50/53, so we're mostly on autopilot and focusing on health and having fun. I frequent this group cause saving/investing/planning is a fun hobby for me.

I'll also mention that retirement calculators are important. One you know what year you want to retire and how Much annual income you'll need, you can see if your savings rate is sufficient. It's just math.

To add your reading list, I'll suggest the millionaire next door and your money or your life.

SIS

[Gumby]

Quote:

Originally Posted by Curious2077 Roll over my 403b into a Roth IRA with him

Perhaps someone with greater knowledge than I will weigh in, but I'm wondering if this is even possible. I am not aware that you can do a 403b rollover while you are still working for that employer. And even if you could, it seems like it would be a taxable distribution and would also incur a 10% early distribution penalty. I agree with others that tax rates now are about as low as you're ever going to see. That being the case, I would start contributing to a Roth IRA this year, and if you need to cut back 403b contributions to accomplish this, I would. You can call Vanguard and they will set up the Roth for you. You could fund once per year (that's what I do) or send them monthly checks.

Note that this assumes you get no matching contribution on the 403b (and I'll bet you don't). If you do, fund the 403b enough to get the match, then fund the Roth.

[Curious2077]

Wow, you guys/girls are great and are really helping me to start to undertand this stuff and are helping to form some more questions!
-Are you all in agreement that I should not allow the guy from Swarthmore Financial to manage my Roth IRA if I decide to go that route? (I decided to keep my 403b by the way, meaning I won't roll it into a Roth IRA.
-Shortin Seattle mentioned low cost index funds. Do they fall under a "Roth IRA"? I think Im set on at least starting a ROTH IRA, now I could use advice on what funds or indexes to put my $ into? Should I phone Vanguard and ask about Roth IRA mutual funds? Should I ask about index funds? And shortin Seattle, what investment co are you with, im curious?Thanks so much everyone, I look forward to your continued advice!

[target2019]

Quote:

Originally Posted by Curious2077 Wow, you guys/girls are great and are really helping me to start to undertand this stuff and are helping to form some more questions! -Are you all in agreement that I should not allow the guy from Swarthmore Financial to manage my Roth IRA if I decide to go that route? (I decided to keep my 403b by the way, meaning I won't roll it into a Roth IRA. -Shortin Seattle mentioned low cost index funds. Do they fall under a "Roth IRA"? I think Im set on at least starting a ROTH IRA, now I could use advice on what funds or indexes to put my $ into? Should I phone Vanguard and ask about Roth IRA mutual funds? Should I ask about index funds? And shortin Seattle, what investment co are you with, im curious?Thanks so much everyone, I look forward to your continued advice!

Swarthmore advisor is all about himself. Don't go near that recommendation. Keep the 403(b) where it is unless you find strategic reason to move it. Keep contributing to it.

[Gumby]

Quote:

Originally Posted by Curious2077 Wow, you guys/girls are great and are really helping me to start to undertand this stuff and are helping to form some more questions! -Are you all in agreement that I should not allow the guy from Swarthmore Financial to manage my Roth IRA if I decide to go that route? (I decided to keep my 403b by the way, meaning I won't roll it into a Roth IRA. -Shortin Seattle mentioned low cost index funds. Do they fall under a "Roth IRA"? I think Im set on at least starting a ROTH IRA, now I could use advice on what funds or indexes to put my $ into? Should I phone Vanguard and ask about Roth IRA mutual funds? Should I ask about index funds? And shortin Seattle, what investment co are you with, im curious?Thanks so much everyone, I look forward to your continued advice!

Go to this site https://personal.vanguard.com/us/home?fromPage=portal
and you will be able to learn almost anything about Vanguard that you could possibly want to know. The short answer is that once you set up the Roth with them, you can invest in any fund that Vanguard offers (subject to the minumum contribution amounts, if any). In my opinion, you can't go wrong with Wellington (about 65/35 stocks/bonds) or Wellesley (about 40/60 stocks/bonds). Since you're relatively young, I'd go with the former.

[meekie]

If you dislike your job that much, and your income isn't going to grow, and retiring at 55 is still going to limit your pension, is giving up 9.5 years of your pension really that big of a deal? Would you get anything out of it if you switch jobs now?
I think spending another 20 years in a job you dislike is really depressing. But I'm also coming from a POV that I really hate parts of my job right now, but at least I'm only looking at 5 or so more years.

We're close in age, and after losing a friend my age, I've realized that life is short, and sometimes is worth it to step back and really take a look at your goals.

Good Luck

[Surewhitey]

After reading all the comments, I tend to agree most with ShortinSeattle on general advice.

I also question whether you can rollover the 403b while still working for your employer. If you can, the Roth can give you flexibility down the road as you can withdraw the initial deposit after 5 years without penalty. Also if you do, be sure to do a direct rollover with the check made to the financial institution so you don't have to pay the taxes from the distribution.

I don’t mind Vanguard, but personally prefer ETrade for managing my money...

Fyi, you can invest in anything in a Roth, but index funds are safe to start. You really need to understand investing prior to doing anything...

Ditto on ditching the advisor as he wants to help to make his own living...

If the rollover IS allowed, you will have to pay your highest tax on the withdrawn amount added to your AGI. I think it would be 15% up to $66k-ISH, then 25%(I think)...

All this off the top of my head, so fact check anything you read here.