Author Topic: Case study: will we have to teach forever?  (Read 1280 times)

takemewest

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Case study: will we have to teach forever?
« on: December 17, 2018, 07:40:26 PM »
Will we have to teach forever?

Life Situation:
DINK teachers (both 34), married filing jointly in the western U.S. Haven't posted in a while because we spent a good deal of time soul-searching about our jobs, current location, etc. We decided this summer to stay put (although I took a new job teaching at a different school), and so we plan to be here for the foreseeable future. That means our budget can now (FINALLY) go on auto-pilot, and I want to make the most of it!

Gross Salary/Wages: Spouse: $41,00, Me: $44,000
Total: $85,000

Pretax deductions (total monthly for both of us combined):
Retirement (8%, no employer match) =728
Union membership: $110
Dental/vision: $85
Medical: $0 (fully paid by employers)

Other Ordinary Income
Me: Approx $3k-5k per year freelancing (curriculum, writing, workshops, etc)
Spouse: Approx $3k per year stipend additional teacher duties
*not included in AGI below since this varies, but we tend to spend it on summer travel and house projects/needs when we get it

Taxes (total monthly for both us combined):
State + local: $187
Federal: $360
FICA: $102 (state employees here don't pay into SS)

Adjusted Gross Income: $68,000
Monthly combined take home pay: $5660 (approx)



Current monthly expenses:
This is a relatively new budget below. The last few months (really since May) included lots of stupid spending while we figured out where we wanted to be in life/careers, etc. We coped by eating out and taking a big trip. I know. So we came up with this new budget finally and have been trying to stick to it the last two months after many life decisions were made. So, this is the budget I'd love your feedback on!
mortgage   $1250 (P&I= $1,084, T&I= $166)
internet   $70
Relative's 529   $100
cell phones   $170 (two lines, two phones, stupidly high, rural area, working to lower)
utilities   $250 (water $25, Electric $60, Gas $60, Internet $60, balance is yearly irrigation water bill prorated monthly)
orkin   $35 (rural critters, wasp problems)
gym   $60
insurance $208 (auto + cancer--bad family genes)   
gas   $125
groceries   $650
Student loan  $500 (our only debt, no interest, family loan, with last payment planned for May 2019!!)
eating out/entertainment   $150
amazon, netflix, hulu    $175 (cat food, some supplements, and our subscriptions)
TOTAL current monthly expenses $3783

Assets:
2015 Subaru, paid in full: est. $20,000 private party sale
2002 honda civic paid in full: est. $3,000 private party sale
House: estimated market value $260,000 with $198,000 loan remaining on mortgage

Savings+Retirement
Emergency fund: $10,000 (we won't go below this)
Roth IRA (spouse): $96,000
IRA (mine): $5,200
TSP: $39,000 (from prior federal job, can't contribute anymore)
#1 Old 401k: $10,661 (job many moons ago but was too young to know what to do when I left)
#2 Old 401k: $26,600 (most recent job I left last spring)
Spouse old 401k: $12,152
TOTAL: $199,613

Liabilities:
Mortgage: $197,000 balance 30 year loan. Original loan amount: $210,500. 3.75%

Specific Question(s): We obviously have room in our budget to save so much more! We have about $1,900 leftover each month after our expenses, and we're trying to decide the right places to put our money. Our employer offers secondary 401k type plans, but with no match and limited funds selection, I'm not inclined to go that route, but I'm not great at figuring out the tax advantage.

Here's what we're thinking of doing with that money, and where we'd especially love input:
Keep maxing out Roth IRA: $458 per month
Start maxing out traditional IRA: $458 per month
New car fund: $300 per month (our older car has been a lemon since day 1, and I'm sick of sinking cash into it)
Travel: $300 per month (we have summers off as teachers, and we like to travel a lot. Open to face punches here)
Investment: $350 (set aside the rest of our balance so we can invest in index funds eventually)

We're open to any and all suggestions. We don't plan on having kids, and while we both love teaching and have decided to stay in the profession for a while,  I can't see us being "lifers" and actually getting state retirement off it by spending 25-30 years in the profession. It's just too exhausting. So I don't want us to plan on our state defined contribution plan actually sustaining us. Unless you do the full 25 years (probably 28-30 by the time we could retire), you get a pittance.

Do you think there's any chance we can retire from teaching in 15 years, assuming we follow the plan above? And do our allocations look ok for the cash we have on hand to invest/save?
« Last Edit: December 18, 2018, 06:59:58 AM by takemewest »

nsmall

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Re: Case study: will we have to teach forever?
« Reply #1 on: December 18, 2018, 12:16:19 AM »
I am a teacher too.  I am new here and new to the ideas here.

I have a similar mortgage situation.  I owe 138k, its 3.75%, paid off 175k so far.

I just decided to STOP paying the 5k a month extra I was using to pay the home off early and now I am "all in" on the 403b and 457 plans and at the same time funding a ROTH for my wife and myself.  I have a high teaching salary and other income (rentals) so any money left over goes into a taxable vanguard brokerage account.

I am in no way saying thats what you should do, but those are my goals for the next 5.5 years. 

You need to figure out the best tax savings investment for your family in my opinion, see if you have reasonable low fee 457's and 403b's and begin monthly investing.  Wishing you the best!

reeshau

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Re: Case study: will we have to teach forever?
« Reply #2 on: December 18, 2018, 03:40:11 AM »
First, congratulations on finding your direction!  I don't think it's at all bad to take time to really think deeply on your direction before you get serious on your details; more power to those who can, but you could easily find you were going faster in the wrong direction.  (I do wonder if you need to update your user name, though--seems to imply there is more travel to go!)

A couple of points:

1) You talk about both Roth and Traditional IRA's.  Beware that your annual contribution limit applies to both together, not each individually.  If your investment plan accounts for IRA's for both of you, then $5,500 + $5,500 is OK.  But if it is only yours (only one account of each type is listed in assets) then you are over-contributing, and subject to penalties.  (The good news is that the limit increases to $6,000 in 2019)

Further on this topic, you each can have Roths, even if your wife is contributing to a 401(k).

2) In regards to your employer plan, limited choices aren't bad.  Limited, expensive choices are.  If there are index options available, then your employer's plan is a way to get around the limit in point 1, above.  A 401(k) contribution is not counted to IRA limits, so that's exactly how you double up.

3) I think you are under-utilizing your side hustles in planning.  This is 10% of your real gross earnings.  While it is variable, you should have designated places for it to go.  And, you actually do:  you list a sinking fund for travel already in your budget.  You are missing a sinking fund for house repairs, but I would do that, too, and then bring in your variable pay into the same budget.  Otherwise, you have an implied budget line item of "Misc: $500" which would be your 3rd highest category.  Why not manage it?

Also, can you accelerate this side hustle?  If you focus on it, this could be a powerful level to pull FI ahead.

takemewest

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Re: Case study: will we have to teach forever?
« Reply #3 on: December 18, 2018, 07:01:45 AM »
  I have a high teaching salary and other income (rentals) so any money left over goes into a taxable vanguard brokerage account.

This is amazing! What was your path to getting into rentals? I feel dubious we could save enough to really comfortably get into that market, and I'm not totally sure we'd want to, but I'm always interested. I do wonder whether in a few years we should move to a state with higher teacher salaries.

takemewest

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Re: Case study: will we have to teach forever?
« Reply #4 on: December 18, 2018, 07:07:33 AM »
First, congratulations on finding your direction!  I don't think it's at all bad to take time to really think deeply on your direction before you get serious on your details; more power to those who can, but you could easily find you were going faster in the wrong direction.  (I do wonder if you need to update your user name, though--seems to imply there is more travel to go!)
Good catch! I don't think we'll ever feel settled, but we finally feel content. So that's a big difference!

1) You talk about both Roth and Traditional IRA's.  Beware that your annual contribution limit applies to both together, not each individually.  If your investment plan accounts for IRA's for both of you, then $5,500 + $5,500 is OK.  But if it is only yours (only one account of each type is listed in assets) then you are over-contributing, and subject to penalties.  (The good news is that the limit increases to $6,000 in 2019)
I updated this in the case study--one is mine and one is my husband's, so we have room to consider growth or a Roth for me, too. That's a good idea.

I think you are under-utilizing your side hustles in planning.  This is 10% of your real gross earnings.  While it is variable, you should have designated places for it to go.  And, you actually do:  you list a sinking fund for travel already in your budget.  You are missing a sinking fund for house repairs, but I would do that, too, and then bring in your variable pay into the same budget.  Otherwise, you have an implied budget line item of "Misc: $500" which would be your 3rd highest category.  Why not manage it? 

Also, can you accelerate this side hustle?  If you focus on it, this could be a powerful level to pull FI ahead.
You're so right about this. Part of me actually really doesn't want to do these side hustles much longer. Teaching is so exhausting and time consuming during the school year ( we probably work 60 hour weeks sometimes) that I'm increasingly wary of not taking breaks during the summer.

I'm afraid burnout will hit (it already did this last year after 10 years in, hence changing schools and finding a better teaching situation locally).  But you're right that they could really make the difference! We probably need to reallocate more intentionally to house repairs, too. Our roof wont' fix itself, and that is likely a need within 5 years.


Freedomin5

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Re: Case study: will we have to teach forever?
« Reply #5 on: December 18, 2018, 07:27:04 AM »
Both of you are American-licensed teachers. And DINKs. Have you considered teaching abroad for a couple years to build up your stash?

DH is a teacher at an international school in China, and salaries range from $40K to $100K. There is a huge demand for American/Canadian/British/Australian teachers. And you can basically stash your entire salary since the school covers housing (you will have your own decent apartment), round trip airfare home in the summer, expat health insurance, and pension plan. If both of you work, and say you earn the median salary of $70K per person, you can easily save over $100K per year, and still have enough to travel all over Asia. In three years, you could save over $300K. How long would you have to work with your current salaries and expenses to save up a stash of $300K?

The Fake Cheap

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Re: Case study: will we have to teach forever?
« Reply #6 on: December 18, 2018, 07:31:05 AM »
Sorry for not adding much but I just want to mention that if you have a spouse that is on board, that alone is going to get both of you a long way toward FI, especially with the very good start you have. 

MDM

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Re: Case study: will we have to teach forever?
« Reply #7 on: December 18, 2018, 08:01:17 AM »
Do you think there's any chance we can retire from teaching in 15 years, assuming we follow the plan above? And do our allocations look ok for the cash we have on hand to invest/save?
What do you get using the simple "Time to FI" calculation in the case study spreadsheet, and/or more sophisticated tools such as those described in Best and/or Recommended Retirement Calculator - Bogleheads.org?

Boofinator

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Re: Case study: will we have to teach forever?
« Reply #8 on: December 18, 2018, 08:34:02 AM »
Some recommendations from my point of view:

As mentioned, both of you have individual IRA contribution limits (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits). You can choose Roth, Traditional, or both. I'm of the opinion most Mustachians will pay little to no takes in retirement, so Traditional is the way to go, as long as you are under the deduction limit (https://www.irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work). If you aren't sure whether you fall under the deduction limit, you can always contribute to the Traditional, and if needed recharacterize when you do your taxes (https://www.irs.gov/retirement-plans/ira-faqs-recharacterization-of-ira-contributions).

Check your IRA's, old 401k's, and TSP to see what you're invested in. You have a relatively long investment timeline, so you want to be heavy in equities. As is almost always the advice around these parts, look for low-cost (low expense ratio) index funds. You should have good options in the TSP; as far as the old 401k's, it may make sense to roll them over into an IRA (I use and recommend Vanguard, though there are other low cost options available).

I am a big proponent of maxing out all tax-advantaged space. As a Mustachian who will be paying little-to-no taxes when cashing them out, you are essentially getting your stocks at a huge discount equal to your combined federal and state income tax rates (that's the tax advantage you were asking about). The only downside is that sometimes you are stuck with shitty expensive choices: if that's the case, hold your nose but as soon as you move to a new job roll it over to an IRA.

You probably won't have much money left over if you max tax-advantaged space; what you do have left over, I'd recommend putting into equities as well. There are some tax savings tips you can use should prices drop (see "tax loss harvesting"), and chances are that money will grow significantly greater over time than if you had put it in a "safer" investment.

Finally, there's quite a bit of fat in your budget. Consider line by line what brings you happiness versus the sense of happiness you achieve through financial freedom. The two that jump out at me are $650 monthly groceries for two, and $175 monthly Amazon / Netflix / Hulu.

One more thing which you may have already considered: You need at least 40 quarters of contributions to SS in order to collect when you're older. I don't know if any of your side hustles are contributing, but I'd consider trying to at least get 40 quarters before you reach SS age, as the payout will be huge for people in your situation (very low overall contributions).

takemewest

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Re: Case study: will we have to teach forever?
« Reply #9 on: December 18, 2018, 10:07:30 AM »
Sorry for not adding much but I just want to mention that if you have a spouse that is on board, that alone is going to get both of you a long way toward FI, especially with the very good start you have.

Thanks! He is on board, so we're lucky in that regard. But I know we have a lot to learn.

takemewest

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Re: Case study: will we have to teach forever?
« Reply #10 on: December 18, 2018, 10:08:44 AM »
Both of you are American-licensed teachers. And DINKs. Have you considered teaching abroad for a couple years to build up your stash?

DH is a teacher at an international school in China, and salaries range from $40K to $100K. There is a huge demand for American/Canadian/British/Australian teachers. And you can basically stash your entire salary since the school covers housing (you will have your own decent apartment), round trip airfare home in the summer, expat health insurance, and pension plan. If both of you work, and say you earn the median salary of $70K per person, you can easily save over $100K per year, and still have enough to travel all over Asia. In three years, you could save over $300K. How long would you have to work with your current salaries and expenses to save up a stash of $300K?

It would take three times that long to save $300k here with our current salaries, if even that quickly. My one (admittedly naive) thought about teaching in China is not wanting to be in a place with poor air quality. I have major allergies and sometimes exercise-induced asthma, so that has always deterred me. I'll have to look into it more!

takemewest

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Re: Case study: will we have to teach forever?
« Reply #11 on: December 18, 2018, 10:10:51 AM »

Finally, there's quite a bit of fat in your budget. Consider line by line what brings you happiness versus the sense of happiness you achieve through financial freedom. The two that jump out at me are $650 monthly groceries for two, and $175 monthly Amazon / Netflix / Hulu.

One more thing which you may have already considered: You need at least 40 quarters of contributions to SS in order to collect when you're older. I don't know if any of your side hustles are contributing, but I'd consider trying to at least get 40 quarters before you reach SS age, as the payout will be huge for people in your situation (very low overall contributions).
The grocery thing kills me. You're so right. Honestly. I feel like we meal plan and shop, but we do pay a penny for organic, local and non-waste-generating items. I know we can get this down to $400, so we're working on that.

If we stay in our current state for most of our teaching careers, we won't have hardly any SS to draw on except what we earned in prior states/jobs before moving here three years ago. So that's definitely a consideration for us.

takemewest

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Re: Case study: will we have to teach forever?
« Reply #12 on: December 18, 2018, 10:16:19 AM »
Some of this advice is dickish, some of it is worth considering, and some is both...
Nah, I value candidness. Not dickish at all. Might not agree with everything, but that's OK.

Stop paying union dues, as you're likely getting back less than you're putting in. For some people, paying union dues is analogous to religious tithing.  If that's the case, disregard advice.
We will never not pay union dues as teachers. The legal protection is worth its weight in gold for students and parents who want to sue. You'd be surprised how often the threat is made for things like "You didn't give little Johnny fair treatment" when little Johnny was throwing the c-word around the classroom and you sent him to the office.

This subscription category is just absurd. I mean, yes, they might all be subscriptions, but geez... why don't you throw in a purchase category while you're at it because that would be equally obtuse. I suggest you redo these categories.
We will look at this again. Netflix is $14, Hulu is $8. Our cat food costs about $100 a month (I know, but they are our fur-kids, old, with many medical issues. We get free vet care thanks to a family vet). Then we pay about $45 per month for the two supplements we use most often. Doesn't seem to excessive to me, and maybe broken out like that it doesn't look as bad either?


Thank you for pushing on the 457 plans. I honestly need to read more about that, and it's on my list for the holiday break now!


takemewest

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Re: Case study: will we have to teach forever?
« Reply #13 on: December 18, 2018, 11:15:49 AM »
Quote
We will look at this again. Netflix is $14, Hulu is $8. Our cat food costs about $100 a month (I know, but they are our fur-kids, old, with many medical issues. We get free vet care thanks to a family vet). Then we pay about $45 per month for the two supplements we use most often. Doesn't seem to excessive to me, and maybe broken out like that it doesn't look as bad either?

Sorry, I don't mean the expenditures within the "subscriptions" category are silly; I mean I don't think you should have a category called "subscriptions".  The fact that these expenses are paid for via monthly automated payments is incidental and trivial, so I don't know why you would categorize those on an incidental/trivial basis. 

Put Netflix and Hulu in the "entertainment" category; and since your cats are like children, put the cat food in the "Food" category. 

Am I being petty?  Absolutely.  But your subscription category is just driving me nuts :)

Ha, that makes more sense! I put it like that because it's the ONLY thing we allow ourselves to use credit cards for right now, so it's always a line item for us to remember to pay off each month.

Dee18

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Re: Case study: will we have to teach forever?
« Reply #14 on: December 18, 2018, 11:22:50 AM »
I spent a semester teaching at the university in Xiamen, China, just across from Taiwan. My daughter attended a fabulous international school.  She was in 5th grade, but I know the school went through high school.  The air quality was good in Xiamen because itís right on the ocean, although it wasnít quite as good right at the school because of some manufacturing. You can easily google air quality and the name of a city in China and find out what it is now.  We loved living there. 

Slow&Steady

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Re: Case study: will we have to teach forever?
« Reply #15 on: December 18, 2018, 11:39:11 AM »
Current monthly expenses:
mortgage   $1250 (P&I= $1,084, T&I= $166)
internet   $70
Relative's 529   $100
cell phones   $170 (two lines, two phones, stupidly high, rural area, working to lower)
utilities   $250 (water $25, Electric $60, Gas $60, Internet $60, balance is yearly irrigation water bill prorated monthly)
orkin   $35 (rural critters, wasp problems)
gym   $60
insurance $208 (auto + cancer--bad family genes)   
gas   $125
groceries   $650
Student loan  $500 (our only debt, no interest, family loan, with last payment planned for May 2019!!)
eating out/entertainment   $150
amazon, netflix, hulu    $175 (cat food, some supplements, and our subscriptions)
TOTAL current monthly expenses $3783

Specific Question(s): We obviously have room in our budget to save so much more! We have about $1,900 leftover each month after our expenses, and we're trying to decide the right places to put our money. Our employer offers secondary 401k type plans, but with no match and limited funds selection, I'm not inclined to go that route, but I'm not great at figuring out the tax advantage.

Here's what we're thinking of doing with that money, and where we'd especially love input:
Keep maxing out Roth IRA: $458 per month
Start maxing out traditional IRA: $458 per month
New car fund: $300 per month (our older car has been a lemon since day 1, and I'm sick of sinking cash into it)
Travel: $300 per month (we have summers off as teachers, and we like to travel a lot. Open to face punches here)
Investment: $350 (set aside the rest of our balance so we can invest in index funds eventually)

We're open to any and all suggestions. We don't plan on having kids, and while we both love teaching and have decided to stay in the profession for a while,  I can't see us being "lifers" and actually getting state retirement off it by spending 25-30 years in the profession. It's just too exhausting. So I don't want us to plan on our state defined contribution plan actually sustaining us. Unless you do the full 25 years (probably 28-30 by the time we could retire), you get a pittance.

Do you think there's any chance we can retire from teaching in 15 years, assuming we follow the plan above? And do our allocations look ok for the cash we have on hand to invest/save?

I budget for "unexpected/non-monthly" expenses every month, obviously that doesn't work for everyone but you asked internet strangers for opinions, so here are mine.

You have internet listed twice?
Your budget doesn't include things like auto maintenance, home maintenance, buying things for your classrooms, clothes, gifts, travel, household goods (furniture/lawn mower/hose/curtain/new dishes), etc.  You mentioned that you have spent a lot of money/time on fixing the 1 car and that you like to travel.  If your budget is not realistic to your life it will fail (usually miserably).

I believe that you should look up @arebelspy in this community for inspiration on if a DINK teacher couple can retire within 15 years.

Freedomin5

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Re: Case study: will we have to teach forever?
« Reply #16 on: December 18, 2018, 03:48:26 PM »
Both of you are American-licensed teachers. And DINKs. Have you considered teaching abroad for a couple years to build up your stash?

DH is a teacher at an international school in China, and salaries range from $40K to $100K. There is a huge demand for American/Canadian/British/Australian teachers. And you can basically stash your entire salary since the school covers housing (you will have your own decent apartment), round trip airfare home in the summer, expat health insurance, and pension plan. If both of you work, and say you earn the median salary of $70K per person, you can easily save over $100K per year, and still have enough to travel all over Asia. In three years, you could save over $300K. How long would you have to work with your current salaries and expenses to save up a stash of $300K?

It would take three times that long to save $300k here with our current salaries, if even that quickly. My one (admittedly naive) thought about teaching in China is not wanting to be in a place with poor air quality. I have major allergies and sometimes exercise-induced asthma, so that has always deterred me. I'll have to look into it more!

Use www.aqicn.org to check air quality. China is a large country and itís not covered in a thick blanket of smog 365 days a year. Stay away from Beijing and Shanghai if you want good air quality. Xiamen, Kunming, Guangzhou, Shenzhen...are all large cities with decent international schools and good air quality. Kunming (Yunnan province) is particularly beautiful and is known as the city of eternal spring because temperatures are always in the nice, balmy 70s.

You could also choose to go to Japan, Korea, Hong Kong, Taiwan, Thailand, Singapore, etc. All countries with better air quality and good international schools with decent pay and the same benefits (housing, airfare, health insurance, etc.). Plus I heard from a few of my international teacher friends who have taught in various countries that at least one of the international schools in Thailand is right on a gorgeous beach.