Author Topic: Case Study: First Year Teacher  (Read 2296 times)

dodgerblue

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Case Study: First Year Teacher
« on: December 19, 2016, 04:42:50 PM »
Life Situation:Single filer, 2 exemptions. No dependents. California.

Gross Salary/Wages: $5446/mo, on a ten month schedule (teacher)

Pre-tax deductions: $4.66/mo for vision and dental, free Kaiser health
calPERS (pension) contribution of ~$500/mo (due to various payroll snafus I haven't had the same deposit each month)

Other Ordinary Income:
$2500 one time coaching stipend
~$6,000 for summer side gig (lifeguard)


Adjusted Gross Income: ~$4000/mo (again, for 10 months, the summer months are closer to $2k/mo)

Taxes: Per the spreadsheet on the sticky, $820/mo

Current expenses:
Rent: $350 (live with high school roommates)
Gas: $70 (drive a 2006 Prius 8 miles round trip to school)
Food: $100
Climbing gym membership: $28
Keeping girlfriend happy: $120
Teacher union dues: $108
Credential clearing program dues: $214 ($1500 total for year one, $1000 for year two)

Assets:
Checking account has $3500 in it.
I have $8700 in a "summer saver" account offered via my credit union that earns 3%. I have put the maximum $2k/month into this account. It flushes out into my checking account after 10 months.

Liabilities:

Loans:               Original Principal   Original Length   Current Principal   Years remaining   Rate   Excel PMT
Student Loan   $83       $995    $7,500    10   $3,500    4   5.90%   $82.89
Student Loan   $58       $697    $5,500    10   $5,500    10   4.90%   $58.07
Used car loan   $149       $1,785    $5,000    3   $5,000    3   4.49%   $148.71

I've made payments totaling $4000 on the highest interest student loan.

EDIT: I'll also be on the hook for a tuition payment of about $2400 next summer (2017) to finish a Masters, that will result in an immediate, perpetual salary stipend of $1900/yr

Specific Question(s): I am financially illiterate, which is good since one of the classes they gave me to teach as a first year teacher is Beginning Personal Finance. I want to start supplementing my pension contributions. What is the best way to do this?

Specifically, what should I be doing with the money in my summer saver? Keep it there? Pay down my student loans faster? Dump it into an IRA? My credit union offers 403b and I believe 457. Should I max out a retirement account before Jan 1st?

Thank you!

EDIT: I'm 27, kind of got a late start to the world of adult-ing.

« Last Edit: December 19, 2016, 04:49:02 PM by dodgerblue »

westtoeast

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Re: Case Study: First Year Teacher
« Reply #1 on: December 19, 2016, 08:13:14 PM »
Hello! I'm a third year teacher who just got started with MMM stuff last spring. Looks like you are doing really well-- I'm in awe of your cheap rent, especially since you are in Cali. Also, awesome job on the food spending. I'm wondering where all your extra money goes each month? Your expenses are so low and you earn so much extra in summer that you must have a fair amount to work with each month.

I'm sure other more experienced folks on here will have good specific advice for you, but here is my crack at it: Crush your loans using your "summer saver" money (only if you are positive you will have the lifeguard gig again) and then finish them off with your extra money each month... UNLESS you are on track for any type of teacher forgiveness program (I believe any teacher in a low income school can get 5000 in forgiveness after 5 years of service, and 17500 if you teach science/math/SPED). Then look into funding a Roth IRA. I like this option because there is always the option of withdrawing your contributions without penalty. This allows you to keep a bit less around for an emergency fund (although you should still have a few months of expenses in there).

Other teachers on here have said positive things about the 457 plans, so I would also look into that.

doggyfizzle

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Re: Case Study: First Year Teacher
« Reply #2 on: December 19, 2016, 09:29:16 PM »
Are you in the PERS or STRS retirement system?  I ask because the PERS formulas are typically much more generous and many PERS plans allow for Social Security participation, which can impact retirement planning.  I'd start contributing to any tax-deferred plan available through work (457 or equivalent) and start dumping some of your cash savings into a taxable brokerage account.  Does your school district have any student loan repayment options?  From what I understand, some in Ca do, which could be helpful in kicking out those student loans.

dodgerblue

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Re: Case Study: First Year Teacher
« Reply #3 on: December 19, 2016, 09:53:11 PM »
Are you in the PERS or STRS retirement system?  I ask because the PERS formulas are typically much more generous and many PERS plans allow for Social Security participation, which can impact retirement planning.  I'd start contributing to any tax-deferred plan available through work (457 or equivalent) and start dumping some of your cash savings into a taxable brokerage account.  Does your school district have any student loan repayment options?  From what I understand, some in Ca do, which could be helpful in kicking out those student loans.
I misspoke. I'm in the STRS system. I contribute to PERS through the summer gig though, since I lifeguard for the State Parks. There is apparently some way to merge service years if I can work 1000 hours in a single year at the beach. It will probably be a few years before I have enough seniority to pull that off though, cuz it takes some serious hustle and supervisors pulling some strings to get in 1000 hours.

My district doesn't have loan repayment to my knowledge.

My reading of the order of investments tab on the spreadsheet is that paying off my loans is a lower priority than putting money in an IRA or similar account, since the interest rates are within 3ish percent of the treasury note rate? Do I need to get this money put away there before the end of the year?

Thanks for your replies!

MDM

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Re: Case Study: First Year Teacher
« Reply #4 on: December 20, 2016, 03:42:31 PM »
My reading of the order of investments tab on the spreadsheet is that paying off my loans is a lower priority than putting money in an IRA or similar account, since the interest rates are within 3ish percent of the treasury note rate? Do I need to get this money put away there before the end of the year?
And you likely deduct SL interest - correct? - so your effective interest rate is that much lower.

You can fund IRAs for year n until the tax filing deadline in year n+1.  E.g., for a 2016 IRA you have until April 15, 2017 (or whatever the actual deadline is this time).

401k & 403b plans are on a strict calendar year.

Mother Fussbudget

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Re: Case Study: First Year Teacher
« Reply #5 on: December 20, 2016, 09:29:36 PM »
My credit union offers 403b and I believe 457. Should I max out a retirement account before Jan 1st?

My reading of the order of investments tab on the spreadsheet is that paying off my loans is a lower priority than putting money in an IRA or similar account, since the interest rates are within 3ish percent of the treasury note rate? Do I need to get this money put away there before the end of the year?

Welcome dodgerblue:
You've made a good start, and are doing the right research.  The spreadsheet 'order of investments' is exactly the place to look.  Doggiefizzle and MDM have given good advice, and answered your question.  But I'll be more direct: 
  • YES.  Open a 403b or 457 (preferably with your employer) before 12/31/2016.
  • NOTE:  If you can't pull the trigger on creating a 403b or 457 in the next two weeks, open a Roth IRA before (4/15/2017) with these post-tax dollars
  • Transfer your 'summer saver' balance into the tax-sheltered account in preference order:  403b/457, or Roth.
  • If you have >$10K, invest in the Vanguard Total Stock Market Index Fund Admiral shares(VTSAX).
  • If >$3K, invest in Vanguard Total Stock Market Index Fund (VTSMX - these are the same fund, Admiral shares are slightly cheaper long-term).
    • Start contributing to this tax-sheltered account regularly in 2017 - goal:  Max out your yearly contribution.
    [li]

    Mold those minds well, enjoy the water, use lots of sunscreen... and again... welcome! ;-)


dodgerblue

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Re: Case Study: First Year Teacher
« Reply #6 on: December 21, 2016, 10:18:56 AM »
And you likely deduct SL interest - correct? - so your effective interest rate is that much lower.

You can fund IRAs for year n until the tax filing deadline in year n+1.  E.g., for a 2016 IRA you have until April 15, 2017 (or whatever the actual deadline is this time).

401k & 403b plans are on a strict calendar year.

Thank you, MDM. This was helpful.

Welcome dodgerblue:
You've made a good start, and are doing the right research.  The spreadsheet 'order of investments' is exactly the place to look.  Doggiefizzle and MDM have given good advice, and answered your question.  But I'll be more direct: 
  • YES.  Open a 403b or 457 (preferably with your employer) before 12/31/2016.
  • NOTE:  If you can't pull the trigger on creating a 403b or 457 in the next two weeks, open a Roth IRA before (4/15/2017) with these post-tax dollars
  • Transfer your 'summer saver' balance into the tax-sheltered account in preference order:  403b/457, or Roth.
  • If you have >$10K, invest in the Vanguard Total Stock Market Index Fund Admiral shares(VTSAX).
  • If >$3K, invest in Vanguard Total Stock Market Index Fund (VTSMX - these are the same fund, Admiral shares are slightly cheaper long-term).
    • Start contributing to this tax-sheltered account regularly in 2017 - goal:  Max out your yearly contribution.
    [li]

    Mold those minds well, enjoy the water, use lots of sunscreen... and again... welcome! ;-)



Thanks for the kind welcome, and the information!

I have a follow up question (and I think possibly I know the answer already): where does saving for a mortgage down payment fall on the investment list? Is it under the umbrella of "Invest in a taxable account with any extra?" Which means if I'm maxing out a 403b and 457 account each year, saving for a down payment would begin only after saving that first $36k? If that's right, I could be living with my high school roommates (parents) for a while.

Thanks again for all your help!

MDM

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Re: Case Study: First Year Teacher
« Reply #7 on: December 21, 2016, 01:39:42 PM »
I have a follow up question (and I think possibly I know the answer already): where does saving for a mortgage down payment fall on the investment list?
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.