25-Year-Old Teacher, My Road to Early Retirement... On Track?

[SteelNate7]

Hello,
I hope this post finds you well. I have several questions regarding my situation and would love help as I begin my FIRE journey. Thank you so much for taking the time to read my posting.

About Me: I am a 25-year-old finishing my first year of teaching. I am very fond of the FIRE movement as I have always been the type to budget, save, and invest my income. When I turned 18 years old, I opened my Roth IRA and shortly after that, I reached the ability to max it out every year since. I am very passionate about finances and reaching my FIRE # and living my best life in the future.

Goal of Post: My goal of this posting is to ask several questions as I am new to the movement and know that the education field throws a few wretches in a plan of this caliber due to the yearly income revenue not being the greatest. I hope my questions can help me plan for the next 10-15 years in this profession as I truly enjoy teaching as well as coaching high school football.

Financial Information:

Income: $41k (Was $38.1k last school year)
+ $5,000 supplemental contract for coaching
= $46,000 or so before taxes
Debt: $21.1k Student Loan Debt - Currently Paused per Gov
Loan Breakdown -
Loan 1: $3,475 - 4.450%
Loan 2: $3,000 - 5.05%
Loan 3: $1,136 - 4.530%
Loan 4: $6,000 - 2.750%
Loan 5: $5,500 - 3.730%
Loan 6: $2,000 - 3.730%
No other debt than this. Car is paid off and is in great condition.
Tax Filing: Single
Tax Rate: 12%. It will change to 22% due to increase in income.

Expenses:
Car: Paid Off
Phone Bill: $380 A Year (Mint Mobile)
Food: $100 (Month)
Gas: $100-$125 (Month)
^ I live at home and do not pay a lot and I am fortunate. I am using this time to save up for a future home as I put the money in a high yield savings account each month. I hope to buy a house in the next 3 years or less.
I also have used this time to build my Roth IRA account and overall portfolio.

CASH:
Starter Emergency Fund: $1,000
House Savings Bucket: $3,000 (I put $410 each month into this fund as my goal is to save up for a home very shortly)
Fully Funded 6 Month Emergency Fund: $1.5k (Not there yet. Slowly building this up)

Investments:
Roth IRA: $33k
- S&P 500 Index Fund
- 30 Shares of Amazon Stock
Taxable: $5.3k
- S&P 500 Index Fund - When I max out my Roth for the year, I put any extra in the taxable account so my money is always working.
State Teachers Retirement (STRS): $7.6k
*Important Note on the STRS: It is 14% taken out of my paycheck every two weeks and then they match 11.09% so it is 25% total. The 11.09% is VESTED.
Some individuals believe that I am investing way too much at my age. Maxing out a Roth each year and having 25% being invested through my job technically is a good amount of money.

FIRE # - $1.5 million or $60k a year

Questions:

1. Given all of the information above and my age of 25, do I realistically have a shot at retiring early and reaching my fire number? I only ask this because in the coming years I need to purchase a home and stop living at home with my parents, prompting my expenses to increase significantly.

2. I currently am making $46k a year with my teaching job and supplemental contract with coaching, to reach the FIRE #, the suggestion is to increase your yearly income. What suggestions do you have and is that necessary right now since I did start this journey with investing very early?

3. The students loans... what do you suggest I do with these? I am not hopeful that they will be forgiven, so as soon as the announcement for better or for worse happens by the government, I plan on paying these off as soon as possible. Is this a good idea? Any suggestions?

4. Any advice you may have to better my financial situation?

Thank you so much for reading my long post and responding back. Have a great week.

 

[aaronc879]

$46K/yr income does not put you in the 22% bracket. The 22% bracket starts at $44,726 in taxable income but the first $13,850 is not taxable due to standard deduction so you would have to make $58,576 to reach the 22% bracket.

I wouldn't worry about increasing your income by getting another job. I guess you could make a little extra in the Summer when you are not teaching. Can you get higher pay if you get your Master's? That might be a good way to spend you Summers for the next few years.

Is the retirement paid out in monthly payments like a pension or is it an account like a 401K?

 

[SteelNate7]

$46K/yr income does not put you in the 22% bracket. The 22% bracket starts at $44,726 in taxable income but the first $13,850 is not taxable due to standard deduction so you would have to make $58,576 to reach the 22% bracket.

I wouldn't worry about increasing your income by getting another job. I guess you could make a little extra in the Summer when you are not teaching. Can you get higher pay if you get your Master's? That might be a good way to spend you Summers for the next few years.

Is the retirement paid out in monthly payments like a pension or is it an account like a 401K?

Response:

Thank you for responding and teaching me about the 22% tax bracket as that is very useful information to know. I did not know that about the standard deduction. I should be good then for a good while until I do get my master's degree and pay increases.

I planned on starting my master's degree very shortly and yes the master's will increase my pay by a good amount of money.

Finally, the State Teachers Retirement system is a pension.

 

[Gumby]

Since you are a teacher in Ohio, you do not pay into Social Security, so you won't get it unless you work summers doing something else. And then your social security will be reduced by the Windfall Elimination Provision (WEP) See https://www.ssa.gov/benefits/retirement/planner/wep.html
Also, if you marry, your spousal or survivor benefit will be reduced and could be eliminated by the Government Pension Offset (GPO) https://www.ssa.gov/benefits/retirement/planner/gpo-calc.html

I would make sure you understand these two rules in detail when making your retirement plans.

 

[SteelNate7]

Since you are a teacher in Ohio, you do not pay into Social Security, so you won't get it unless you work summers doing something else. And then your social security will be reduced by the Windfall Elimination Provision (WEP) See https://www.ssa.gov/benefits/retirement/planner/wep.html
Also, if you marry, your spousal or survivor benefit will be reduced and could be eliminated by the Government Pension Offset (GPO) https://www.ssa.gov/benefits/retirement/planner/gpo-calc.html

I would make sure you understand these two rules in detail when making your retirement plans.

Response:

Thank you so much. I am very glad I made this post because I am now learning a lot of things that I have not even thought of currently that will affect me as I get older.

Appreciate the links and information. I will take the time to read these in detail.

 

[ModestNestEgg]

I am a public employee too (though not a teacher), so I can relate your situation of not being paid a huge salary, but also having the benefit of a pension. I would make sure to understand how that's calculated and stay abreast of how solvent it is in your state. If you're wanting to teach for 10-15 more years and you're only 25 now, the pension would not be available to you for a long time even if you are vested. It varies from state to state, but someone isn't usually eligible to receive the pension until they are in their 50's. Even if someone becomes vested, they would have to wait for a deferred pension if they leave before they are eligible to retire, at least eligible from a pension standpoint.

I think you're way ahead of the vast majority of people, especially with starting a Roth at 18! You are using an excellent opportunity to build up some investments and savings by living at home.

If it were me, I would suggest having a more robust emergency fund in a high interest savings account. $1,000 is more than many people have, so it's a good start, but personally, I would feel more comfortable with having at least several months worth of salary tucked aside. I hope this won't be the case, but you never know when you may end up with unexpected medical expenses, or a home repair once you buy a home that suits you. You wouldn't want to find yourself in a position where you'd need to take money out of your Roth IRA, even though technically, you can deduct the contributions and be okay. You still wouldn't want to for a long time.

I would see what happens with interest rates on high interest savings accounts and at what point they dip significantly below the interest rates on your loans, it would start making financial sense to pay those down more quickly. But now, you can probably obtain a higher interest rate than the average of those loans in a high interest savings or CD at least for the short-term.

This would depend on your insurance and what the deductible is, but you may want to see if your plan is considered a "High Deductible Health Plan". If so, you could start a Health Savings Account. These are wonderful due to the triple tax advantage (Lowering your taxable income by the annual amount you contribute, no taxes on earnings, no taxes on withdrawals). If you can do this for longer-term health care expenses that are years into the future, it can be a good idea to invest at least some of the proceeds. I have a Fidelity HSA, with a large percentage invested into a stock index fund, and I've been happy with it.

https://www.irs.gov/publications/p9...individual,under Other health coverage, later.

 

[captain3d]

I never bought a house for myself to live in but I did buy property for renting out. I rent where I live and get income from what I own.

I am not recommending this but say it as a reminder to look at all angles of your decisions. Maybe the normal plan is not the best for you. Maybe other ideas work out better.

 

[youbet]

4. Any advice you may have to better my financial situation?

(1)Get to your Masters + 35 ASAP. Attack this with urgency. The incremental salary increases from completing graduate hours will far, far outweigh the benefit of working summer or part time jobs both while you're working and while you're collecting your pension.

(2) Put as much as you can into your 403b or Roth IRA early.

 

[Gumby]

I would listen to youbet. The young wife got her masters before she started teaching and then quickly got her 6th and 7th year (that's what they call extra graduate courses here in Connecticut) after she started. It made a real difference in her pay. Also, by being canny about the courses she chose, she was able to obtain certification in four additional subject areas, which gave her greater job security at a time when they were laying off teachers. It also allowed her to change assignments three times, which helped her avoid burnout in a 30 year career.

 

[Chuckanut]

Since you are a teacher in Ohio, you do not pay into Social Security, so you won't get it unless you work summers doing something else. And then your social security will be reduced by the Windfall Elimination Provision (WEP) See https://www.ssa.gov/benefits/retirement/planner/wep.html
Also, if you marry, your spousal or survivor benefit will be reduced and could be eliminated by the Government Pension Offset (GPO) https://www.ssa.gov/benefits/retirement/planner/gpo-calc.html

I would make sure you understand these two rules in detail when making your retirement plans.

+1

I worked as a teacher in a state that fully participated in SS. And I am very glad I did. I get my pension and every bit of my SS since I paid into it for nearly 40 years. My state pension system is reasonably well funded, though not perfect. SS is fully COLA'd. My pension is COLA-lite, so I have lost some ground the past few years. You have decades to go before you collect on your pension and anything can happen between today and that time. Please be careful. Any money you might save by not being in SS should be invested for the long term. Period.

Also do you have good disability insurance? Nothing can wipe out a retirement plan like an extended or permanent disability. Unless you have dependents who would suffer if you perish, you don't need life insurance.

Most importantly, enjoy life while you are younger and healthier. It is all to common to hear of people in their 60s, 70s and sometimes their 50's who retire, get hammered by some sickness, and have to live the rest of their lives in a much more limited way. But, from what I have seen, I think you younger folks already know that.

 

[pacergal]

You are doing well at an early age, congratulations!

I suggest you make sure you understand all of the nuances of your pension (when you are vested, age to reach for payout and/or early payout, payout options and amounts, etc)

How will a future mortgage and potential family life changes affect your budget?
Do you know what your loan repayments will be and does it make sense to pay more on them now while you are living at home?
Do you also work during the summer for extra income?

Save early, save often, but as others have said, do allow some fun in your budget, too. Especially while younger.

 

[SteelNate7]

(1)Get to your Masters + 35 ASAP. Attack this with urgency. The incremental salary increases from completing graduate hours will far, far outweigh the benefit of working summer or part time jobs both while you're working and while you're collecting your pension.

(2) Put as much as you can into your 403b or Roth IRA early.

Thank you for the advice. The only thing I am not a fan of is our school's 403(b) as it has high expense ratio fees and I have looked into other venders and I could not find one that just did a simple S&P 500 Index Fund.

Any advice on this?

 

[SteelNate7]

You are doing well at an early age, congratulations!

I suggest you make sure you understand all of the nuances of your pension (when you are vested, age to reach for payout and/or early payout, payout options and amounts, etc)

How will a future mortgage and potential family life changes affect your budget?
Do you know what your loan repayments will be and does it make sense to pay more on them now while you are living at home?
Do you also work during the summer for extra income?

Save early, save often, but as others have said, do allow some fun in your budget, too. Especially while younger.

Hi,
These are all great questions and I am very appreciative of your response to my post. The first thing is I am going to schedule a time to really delve into the STRS of Ohio and how everything works. This is an area that I am not too sure of and I want and should know more about.

My loan repayments will be roughly $250 a month or so when they start back up.

I work during the summer as a football coach and get a supplemental contract of $6,000 or so dollars pre-tax.

I hope this helps you and I thank you again for your help!

 

[friar1610]

Thank you for the advice. The only thing I am not a fan of is our school's 403(b) as it has high expense ratio fees and I have looked into other venders and I could not find one that just did a simple S&P 500 Index Fund.

Any advice on this?

Not a teacher. But i have a vague memory of reading/listening to a podcast about some teachers in some states being able to use a 457 plan as an alternative to a teachers’ 403B plan. In the case I vaguely remember, the 457 had much lower fees. Maybe someone more knowledgeable than I am can provide details.

Also, here is a web site that may be of interest to you: 403bwise.org

Good luck.

 

[Gumby]

Not a teacher. But i have a vague memory of reading/listening to a podcast about some teachers in some states being able to use a 457 plan as an alternative to a teachers’ 403B plan. In the case I vaguely remember, the 457 had much lower fees. Maybe someone more knowledgeable than I am can provide details.

Also, here is a web site that may be of interest to you: 403bwise.org

Good luck.

In Connecticut, teachers can have both. The young wife did. I recall the year they first started the 457 in addition to the 403b. It was close to the end of the year so she could put all of her remaining pay for the year in it without hitting the limit for that year. Her payroll department would not, however, allow her to get $0 paychecks. She had to get at least $5 per check. Well, during that period, one of her students for some reason asked "Mrs. Gumby, how much do teachers get paid?" She said, "I'll show you my paycheck". The student was shocked to see that she got $5 for teaching. I wonder what the girl told her parents?

 

[MC Rider]

In Connecticut, teachers can have both. The young wife did. I recall the year they first started the 457 in addition to the 403b. It was close to the end of the year so she could put all of her remaining pay for the year in it without hitting the limit for that year. Her payroll department would not, however, allow her to get $0 paychecks. She had to get at least $5 per check. Well, during that period, one of her students for some reason asked "Mrs. Gumby, how much do teachers get paid?" She said, "I'll show you my paycheck". The student was shocked to see that she got $5 for teaching. I wonder what the girl told her parents?

Funny, but misleading.


Kudos to the OP for even thinking about retiring at such a young age. I figured I wold have to work until I die when I was 25.

 

[Exchme]

Make sure you are in a 457b, not a 403b, check out ohio457.org. 403b plans are annuities that often have poor returns, high fees and lock-in periods where you can't get your money back easily. 457b plans offer funds more like a 401k. There happens to be a thread about this over at bogleheads.org (another great site) on the subject.
https://www.bogleheads.org/forum/viewtopic.php?p=7279473#p7279473

 

[Gumby]

Make sure you are in a 457b, not a 403b, check out ohio457.org. 403b plans are annuities that often have poor returns, high fees and lock-in periods where you can't get your money back easily. 457b plans offer funds more like a 401k. There happens to be a thread about this over at bogleheads.org (another great site) on the subject.
https://www.bogleheads.org/forum/viewtopic.php?p=7279473#p7279473

That is not universally true. The young wife's 403b was and is self-directed at Vanguard, and she can invest in anything Vanguard offers. Her 457, which was through MetLife, was and is much less flexible by comparison. We are planning to convert her 457 to a tIRA this year just because of that.

 

[Irishgirlyc58]

I worked in local government- not teaching but I have several teachers in my family.

As someone mentioned learn the details of your pension. It will benefit you greatly. When I talk to my family member who is getting closer to retirement she had no idea about how it worked. That was a few years ago, she knows now.

The other advice is after a few years of teaching look at administration positions. That’s where the money typically is.
None of the teachers in my family want to do this because they love teaching and the kids.
But keep an open mind. You might be a good fit for principal or other administration positions.
Remember- if you can’t beat them join them.

 

[stepford]

Don't
Have
Kids

 

[Jenna]

I think you would like Mr Money Mustache's blog. This article was life changing for me. The shockingly simple math behind early retirement. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

 

[Chuckanut]

My district also offered a 457 Deferred Comp plan along with the usual 403b garbage, high-fee, ripoff plans sold by insurance companies and certain investment houses.



The 457 plans offered low-cost index funds from outfits like Fidelity, as well as a state sponsored S&P fund that had lower costs than the similar Vanguard plan. I jumped on that. When I retired I moved the funds to an IRA, and then started living happily ever after.

 

[SnowballCamper]

As others have said, know the pension rules. Since you're after early retirement, the thing to plan for is how to access retirement funds before you're 59.5 years old, and before the pension is available. The usual tax deferred IRA accounts, and Roth IRA are harder to get to before traditional retirement age (without penalties or the rigid rules of a 72t plan). With your current relatively low tax bracket, a regular taxable brokerage account is a great place to save retirement funds to cover the years from retirement up to 59.5 and/or pension availability.

 

[target2019]

Response:

Thank you so much. I am very glad I made this post because I am now learning a lot of things that I have not even thought of currently that will affect me as I get older.

Appreciate the links and information. I will take the time to read these in detail.

You're doing good things. Make hay while the sun shines...

By your statements I hear future M.B.A., and that is a great choice. Will you have additional loans when that happens?

The cheap loans, one way or another, will be replaced by home loan, future car loan (maybe), etc.

So, how is the present living arrangment? When you move out, your expenses will go way up. Life gets more complicated for sure, and I'm sure you've planned out moving and M.B.A. too.

Good Luck on your journey.

 

[FIYes]

Good advice here. As others have said…know what your pension does and does not do.

You are off to a great start. Congratulations on starting a Roth at a young age.

Now to retire in 10-15 years, you will need to plan how to fund that for the years before your pension kicks in and before you are 59.5. You might read some threads by Scabbler who put together a retirement plan before various sources of income became available.