Seeking advice from Early-retire Educators and Others

[Stillwater007]

Hello everyone and Happy NYE,

I am relatively new to this site and have found it helpful so far!

I am a public school counselor in Texas and will be eligible to retire and receive a pension 5 years from now. I do have 30k in an tIRA and 9 months in savings, but after following wise advice, I am in position to be able to save and invest about 40% of my gross pay. Aside from a modest mortgage, I have no debt.

For educators on here who were able to retire early, what savings/investment strategies have you done to make early and current retirement achievable?

What are your thoughts on 403b and 457s which my District offers (Vanguard is an option)?

And did you do a ROTH or Traditional? This one is tough for me to determine because I am near the top of my tax bracket and when I retire, I will be in the same bracket, but near the bottom.

I appreciate the advice from educators and others that have knowledge regarding Educators.

Thank you and may everyone have a better New Year!

 

[pb4uski]

If you expect to be in the same tax bracket once you retire, go with the Roth.

As to whether 403b or 457b is preferable that is more complicated but might be a moot issue for you if you retire in the year that you turn 55 or later and have penalty free access to money under the rule of 55.

Also see this article... I presume that your 457b is a governmental 457b.

https://www.whitecoatinvestor.com/should-you-use-your-457b/

 

[Montecfo]

Hi Stillwater007,

My wife was a counselor in Texas for a few years but we have been in Virginia for quite a few years now.

So you get Teacher Retirement correct? But not Social Security? Some of these they have scaled back but hopefully you got in early enough that pension is decent.

We used 403b even though her investment options then were not attractive in her district-it was all insurance products. Sounds like you have some better options.

Sounds like Roth vs Traditional IRA may not matter too much. Could fund a bit of each possibly or go Roth to avoid future tax, tax hikes and RMDs.

Are you able to qualify for group health insurance through the schools? That's a nice benefit which can save some money.

Wish you all the best, and welcome to the board!

 

[Stillwater007]

If you expect to be in the same tax bracket once you retire, go with the Roth.

As to whether 403b or 457b is preferable that is more complicated but might be a moot issue for you if you retire in the year that you turn 55 or later and have penalty free access to money under the rule of 55.

Also see this article... I presume that your 457b is a governmental 457b.

https://www.whitecoatinvestor.com/should-you-use-your-457b/

Hello pb4uski! I do believe it is Governmental, but I will research to make sure. I didn't know there was two types which makes a difference. And right now, I am leaning to a ROTH. Thanks!

 

[Stillwater007]

Hi Stillwater007,

My wife was a counselor in Texas for a few years but we have been in Virginia for quite a few years now.

So you get Teacher Retirement correct? But not Social Security? Some of these they have scaled back but hopefully you got in early enough that pension is decent.

We used 403b even though her investment options then were not attractive in her district-it was all insurance products. Sounds like you have some better options.

Sounds like Roth vs Traditional IRA may not matter too much. Could fund a bit of each possibly or go Roth to avoid future tax, tax hikes and RMDs.

Are you able to qualify for group health insurance through the schools? That's a nice benefit which can save some money.

Wish you all the best, and welcome to the board!

Hello! Yes, I started in Education back in 96' so I was able to meet a Tier that is beneficial to me compared to the more recent Tiers which sadly, is tougher on teachers.
And because I educate in Texas, I only will receive a Pension, no Social Security despite working and putting into SS prior to teaching for 8 years. So I'm hoping to use my investments as a way to supplement my expenses but not entirely be 100% dependent on them.
I am in a group insurance so the rates are fairly friendly.

The other thing I have discovered with the 403b(Roth) and 457 is that my District has a third party who handles the transfer of money from my paycheck into say, Vanguard. Is this normal? And is it worth the likely fees that the 3rd party incurs?

 

[Stillwater007]

I just looked up the third party for my District and it appears their fee for the Plan is $1.50 a month or $18 a year. Not too bad?

 

[Backpacker]

DW is retired educator. I would encourage you to dig deep into how the pension is calculated. DW formula took highest 3 years pay, averaged that and used a factor, and multiplied by years of service. She was able to pick up a ton of extra assignments in her last 3 years and boosted pension amount substantially. Think class advisor, sports coach, summer school, etc.

 

[Al in Ohio]

Being mostly debt free doesn’t include “having a modest mortgage“. Mostly debt free starts with having no mortgage. Successful early retirees pay their mortgages off before FIRE.

 

[pb4uski]

... Successful early retirees pay their mortgages off before FIRE.

Al, you're painting with a pretty wide brush there... and a warped brush as well...there are literally hundreds of successful early retirees here on this forum that FIREd without a paid off mortgage (including yours truly)... there is no particular magic to having a paid off mortgage.

You're making one-size-fits-all statement in a situational world.

Let's say retiree 1 has a $2m portfolio and no mortgage and retiree 2 has a $2.5m portfolio and a 15 year, 2.5% $500k mortgage... which retiree is more successful? I don't see much difference.... in fact, one could argue that Retiree 2 is better positioned.

FIRECalc for Retiree 1 $40k spend, $2.0m portfolio, 30 years:

FIRECalc looked at the 120 possible 30 year periods in the available data, starting with a portfolio of $2,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 120 cycles. The lowest and highest portfolio balance at the end of your retirement was $2,000,000 to $14,981,250, with an average at the end of $7,016,541. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%

FIRECalc for Retiree 2... same as Retiree 1 but with $40k a year of mortgage payment for the first 15 years ($40k/yr fixed off-chart spending starting in 2020 offset by a $40k fixed pension starting in 2035):

FIRECalc looked at the 120 possible 30 year periods in the available data, starting with a portfolio of $2,500,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 120 cycles. The lowest and highest portfolio balance at the end of your retirement was $2,500,000 to $16,367,423, with an average at the end of $7,644,112. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

 

[travelover]

My wife was an educator in Michigan and the investment options in her 403(b) were terrible and the shyster of an "advisor" had her in some ridiculous annuity when I met her. It sounds like you have some better options with Vanguard as a choice if you go with the 403(b). My only advice would be to be sure you understand the total expenses associated with any investments.

Re Social Security, is there a way to pick up credits with a part time job to qualify for a minimal payout?

 

[Telly]

DW is retired educator. I would encourage you to dig deep into how the pension is calculated. DW formula took highest 3 years pay, averaged that and used a factor, and multiplied by years of service. She was able to pick up a ton of extra assignments in her last 3 years and boosted pension amount substantially. Think class advisor, sports coach, summer school, etc.

The Texas TRS pension is a pretty simple calculation. For Tier 1 people, it's the average of the 3 highest years salary, and the factor to multiply by is .023 per year of service.
Tier 2 is the same, but uses a 5 year salary average. The lower Tiers get into additional requirements such as minimum age, etc. etc.

Many of the 403b plans are pretty bad. Annuity salesmen prowl the halls looking for easy victims of "you'll get guaranteed payments, it's just like a salary, month after month!"

Working at another job to complete 40 quarters into SS just ends up with the SS benefit being WEP'd to chicken feed. Always a sore point among school personnel, but WEP, and it's sister, GPO, prevents people with governmental pensions from pulling $$ out of SS as if they were poor people. The percentage out vs. the dollars in, before the first bend point of SS issue.

 

[Stillwater007]

The Texas TRS pension is a pretty simple calculation. For Tier 1 people, it's the average of the 3 highest years salary, and the factor to multiply by is .023 per year of service.
Tier 2 is the same, but uses a 5 year salary average. The lower Tiers get into additional requirements such as minimum age, etc. etc.

Many of the 403b plans are pretty bad. Annuity salesmen prowl the halls looking for easy victims of "you'll get guaranteed payments, it's just like a salary, month after month!"

Working at another job to complete 40 quarters into SS just ends up with the SS benefit being WEP'd to chicken feed. Always a sore point among school personnel, but WEP, and it's sister, GPO, prevents people with governmental pensions from pulling $$ out of SS as if they were poor people. The percentage out vs. the dollars in, before the first bend point of SS issue.

Telly is correct. It's the average of the last 5 years. As far as the 403b & 457 goes, here's a link to the 3rd party that handles the transactions:
https://tcgservices.com/documents/#/search-forms/katisd

On the surface, the 403b seems to have fairly reasonable fees while the 457 has a thick stack of fees fatter than a Triple Decker Cheeseburger.
Someone had mentioned taking advantage of taxes to offset the fees but I think I make too much to qualify.
Anyways, looking at the fine-writing, does anyone have an issue with this 3rd party service?

 

[Badger]

For educators on here who were able to retire early, what savings/investment strategies have you done to make early and current retirement achievable?


Both my wife and I retired from teaching. We got married 20 years before we retired and began a serious effort to plan for retirement a few years later. Neither of us wanted to live on lentils and rice the rest of our lives. We started by making a second mortgage payment on the principle (we live in a modest home) while contributing to 403b. Once the mortgage was paid off in 5 years we took the money from the mortgage payments and made maximum contributions to 403b and to Roth IRA for both of us. When possible we would take any additional money that was left after living expenses and put it into a savings account.

What are your thoughts on 403b and 457s which my District offers (Vanguard is an option)?


While teaching we only had annuities offered for 403b except for one. They would have 'churned" the money so instead we put it into their MM account and every few months had it moved to either TRPrice or Vanguard IRA to be invested in MF(I forget which one). I would use Vanguard since it is offered.


And did you do a ROTH or Traditional? This one is tough for me to determine because I am near the top of my tax bracket and when I retire, I will be in the same bracket, but near the bottom.


We contributed to both. I doubt you have employer matching with an educational system. Most don't so I would max out the Roth first and then contribute as much as possible to the 403b in Vanguard. This will lower your tax bracket position. Eventually when you get to RMD age and have to take from your tIRA (403b) the combination of pension, SS, AND tIRA could take you into a higher bracket. It will be nice to have split your contributions to have a large portion in the Roth at that time so your RMD will be a lesser amount.



I appreciate the advice from educators and others that have knowledge regarding Educators.

Thank you and may everyone have a better New Year!

Cheers!

 

[Stillwater007]

I feel fortunate to receive so much sage advice on here.

As far as how much and where I should allocate the money I would like to invest, that's a little hard to figure out.

I can currently save around $2200 a month which I would like to invest. That's about 45% of my monthly gross.
$2200 a month comes to 26,400 which is just a tad over a combines 403b and IRA.

When I start receiving my pension in 6 or 7 years, it will be about 30% less. If the tax code remains relatively the same, I would need to take out over 30k+ annually in retirement to put me in the next tax bracket. I won't need to do that. I'm thinking more like 4-6k annually.
While it seems like a 403b will be the way to go, I would hate to see my kids having to pay taxes on it if and when I kick the bucket. A ROTH seems so much friendlier to everyone.
1. I could max a 403b Roth and then max a tIRA which would contribute towards my current 30k tIRA.
2. Max the 403b and then max a ROTH IRA.
3. Max the 403b and allocate 50/50 into a ROTH and a Traditional.
4. Max a 403bROTH and allocate 50/50 into a Roth and Traditional.

One idea I though of is having enough in a Traditional to last me 10 years and then start tapping into the ROTH if I need to. If that's a good idea, I won't need to put too much more into the tIRA.

 

[Yian]

Hello everyone and Happy NYE,

I am relatively new to this site and have found it helpful so far!

I am a public school counselor in Texas and will be eligible to retire and receive a pension 5 years from now. I do have 30k in an tIRA and 9 months in savings, but after following wise advice, I am in position to be able to save and invest about 40% of my gross pay. Aside from a modest mortgage, I have no debt.

For educators on here who were able to retire early, what savings/investment strategies have you done to make early and current retirement achievable?

What are your thoughts on 403b and 457s which my District offers (Vanguard is an option)?

And did you do a ROTH or Traditional? This one is tough for me to determine because I am near the top of my tax bracket and when I retire, I will be in the same bracket, but near the bottom.

I appreciate the advice from educators and others that have knowledge regarding Educators.

Thank you and may everyone have a better New Year!

As an educator, (now retired), I maxed my 403b during the last 10 years of work, and I also maxed a Roth Ira, at Fidelity. When I retired, I rolled over my 403b to a Rollover Ira at Fidelity. Then I invested the money in a few ETFs that have .05, or less, in fees (such as Itot..) and I have done pretty well. During the last 2 years I have been moving some of the rollover ira money to my Roth, (and paying taxes), so that my daughter doesn't have to take out all the Rollover Ira in a few years... Maxing out the 403b was a great decision as I feel pretty secure now since my pension, and a tiny amount from social security ( the WEP law doesn't allow pension retirees to draw the full amount in my state), covers all my financial needs! So, I will only take RMD's when I turn 72, and that IRA money will last beyond my lifetime, and will cover inflation, etc. for the next 30+ years.
However, I feel pretty lucky that I was able to get Medicare coverage, and that has been a big help, as my pension medical coverage is secondary to the Medicare!

 

[Yian]

I feel fortunate to receive so much sage advice on here.

As far as how much and where I should allocate the money I would like to invest, that's a little hard to figure out.

I can currently save around $2200 a month which I would like to invest. That's about 45% of my monthly gross.
$2200 a month comes to 26,400 which is just a tad over a combines 403b and IRA.

When I start receiving my pension in 6 or 7 years, it will be about 30% less. If the tax code remains relatively the same, I would need to take out over 30k+ annually in retirement to put me in the next tax bracket. I won't need to do that. I'm thinking more like 4-6k annually.
While it seems like a 403b will be the way to go, I would hate to see my kids having to pay taxes on it if and when I kick the bucket. A ROTH seems so much friendlier to everyone.
1. I could max a 403b Roth and then max a tIRA which would contribute towards my current 30k tIRA.
2. Max the 403b and then max a ROTH IRA.
3. Max the 403b and allocate 50/50 into a ROTH and a Traditional.
4. Max a 403bROTH and allocate 50/50 into a Roth and Traditional.

One idea I though of is having enough in a Traditional to last me 10 years and then start tapping into the ROTH if I need to. If that's a good idea, I won't need to put too much more into the tIRA.

Take option 2! Don't worry about having too much money in the 403....You should have enough to cover the rest of your life -- which means 30+ years after retirement! And don't worry too much about your kids and their taxes as you can gradually rollover some of 403/rollover Ira to a Roth Ira, if you want to pay the taxes as you roll it over!
Your focus should be on having enough money so as not to ever have to ask your kids for financial assistance!

 

[Stillwater007]

As an educator, (now retired), I maxed my 403b during the last 10 years of work, and I also maxed a Roth Ira, at Fidelity. When I retired, I rolled over my 403b to a Rollover Ira at Fidelity. Then I invested the money in a few ETFs that have .05, or less, in fees (such as Itot..) and I have done pretty well. During the last 2 years I have been moving some of the rollover ira money to my Roth, (and paying taxes), so that my daughter doesn't have to take out all the Rollover Ira in a few years... Maxing out the 403b was a great decision as I feel pretty secure now since my pension, and a tiny amount from social security ( the WEP law doesn't allow pension retirees to draw the full amount in my state), covers all my financial needs! So, I will only take RMD's when I turn 72, and that IRA money will last beyond my lifetime, and will cover inflation, etc. for the next 30+ years.
However, I feel pretty lucky that I was able to get Medicare coverage, and that has been a big help, as my pension medical coverage is secondary to the Medicare!

Congrats on retirement fellow Educator! I'm cautiously optimistic that my pension alone will cover most, if not all my expenses in Retirement. And I heard pension medical coverage is mediocre at best. Thanks for some insight into what you did!

 

[Stillwater007]

Take option 2! Don't worry about having too much money in the 403....You should have enough to cover the rest of your life -- which means 30+ years after retirement! And don't worry too much about your kids and their taxes as you can gradually rollover some of 403/rollover Ira to a Roth Ira, if you want to pay the taxes as you roll it over!
Your focus should be on having enough money so as not to ever have to ask your kids for financial assistance!

#2 seems to be in line with some things I have read, such as being close to retirement and being near the top of my bracket (22%) and then going down near the bottom of the same tax bracket at retirement. Mixing it up is good. Thanks Yian!

But can someone help make sense about taxes on retirement accounts for me please?

Would does it seem to me that you would pay more in taxes overall in a Traditional than in a ROTH, not just because of a different tax bracket, but because you are being taxed on BOTH the money invested AND the GROWTH??
In a ROTH, you are only being taxed on the money(pre-invest) going in. You don't get taxed on the GROWTH. If an investment sits there for 25+ years growing, that could result in ALOT of $$ being ultimately taxed.

But I know I'm missing something here, because everything I've read mainly focuses on mainly tax bracket before and after retirement. So I'm missing something here. What is it?

 

[Telly]

.....But can someone help make sense about taxes on retirement accounts for me please?

Would does it seem to me that you would pay more in taxes overall in a Traditional than in a ROTH, not just because of a different tax bracket, but because you are being taxed on BOTH the money invested AND the GROWTH??
In a ROTH, you are only being taxed on the money(pre-invest) going in. You don't get taxed on the GROWTH. If an investment sits there for 25+ years growing, that could result in ALOT of $$ being ultimately taxed.

But I know I'm missing something here, because everything I've read mainly focuses on mainly tax bracket before and after retirement. So I'm missing something here. What is it?

A T-IRA is usually funded with PRE tax $.

 

[Telly]

..... And I heard pension medical coverage is mediocre at best......

IF you have been paying into Medicare for at least the minimum time, you are eligible for TRS CARE at age 65. It is a Medicare Advantage (MA) plan that has a $500 deductible, no networks, and has a drug plan. As an MA plan, it looks pretty good. Of course, like any Medicare, you have to pay the monthly Part B premium ($148.50/month in 2021). The TRS CARE monthly premium for the retiree alone is $138 if I remember correctly. Expect it to increase some after the next TX legislative session, as it has been a constant $138 for a few years. But adding a spouse onto TRS CARE really jacks the premium $ up!

If you retire before turning 65, then your choices are ACA, or TRS ACTIVE CARE, which I assume you are on now. Until you turn 65. The people that are really up the creek are those who never paid into Medicare, I think they now stay on ACTIVE CARE forever.

 

[retire202052]

Just retired from TRS at age 52, in December. Can't really help you on your situation (too much reading for me now )

But you are smart to start planning now and zero in on your goal. It goes by fast. Good luck!

 

[Stillwater007]

Thank you for the advice!

As far as ROTH IRAs and 403b's, when is the deadline for each?

If I start contributing now, I BELIEVE I have BEFORE April Tax Day to contribute to 2020 ROTH IRA, then after the Tax Day contribute to 2021.

As far as the 403b, the Deadline is Dec 31, so I can only start contributing to 2021.

Is this correct?

Finally, with extra savings after maxing a 403b and a Roth IRA, is it wise to open up a regular brokerage account to put in extra savings? Or put it somewhere else?

Thank you.

 

[RobLJ]

I was in Texas Higher Ed and in the ORP (optional retirement 403b), not the pension annuity.
However, I used the Fidelity (Vanguard was also available), with a brokerage account subaccount which gave me access to more investments, including funds outside of Fidelity.

Vanguard and Fidelity are both relatively cheap 403b options; many of the others are comparatively expensive. For 10 years, I also made additional contributions beyond the standard 8% contribution, including during the '08 crash; those contributions paid off, although it took a few years to do so.