Hi everyone!
I've edited for length and clarity. I think the first post was just too much info!
First, a little background: my wife and I are 28 years old, have been married for 4 years (but together for 10), and have dealt with our share of setbacks. Between us we've paid back $20k in student loans, had two jobs, lost one job, etc. We were both in education, but my wife is pursuing a change of careers at the moment, and will finish her graduate degree in about 10 months with zero debt. We've learned a very important lesson about work: no job is worth it if it makes you miserable. We didn’t realize how blessed we were to have shed that job until a month or two later. We have about 150k left on our 4.875% mortgage, but no other debt.
As a teacher, retirement options and savings are a little different than for some other people. Given what I have available to me, I am curious what would be the best option for us in the long run. FI excites us, but we are uncertain about RE.
I have a defined benefit plan, to which 14% of my pay goes every year. The benefits have been reduced drastically since I started teaching 5 years ago, but it boils down to this:
Earliest eligibility to retire with benefits is age 52, 30 years experience, for a 33% benefit
Earliest non-reduced benefit is age 60, 38 years experience, for a 83.6% benefit
This is calculated as:
AVERAGE (of top five years pay) X percentage = yearly benefit (paid out monthly)
Based on our current contract, which is by no means a guarantee, that would work out to about $112,000 as the average. For those interested, our current contract keeps “steps” (raises based on experience) in place and includes 2% percent on base (essentially inflation). Our previous contract froze all steps (no raises), had no increase on base, and took more from our paychecks for health insurance. I am optimistic that those types of shoddy negotiations won’t return, but there is a slight trend toward the privatization of public education, which could cause many changes.
The age 52 would mean $36,960 per year
The age 60 would mean $93,632 per year
There is an account withdrawal option that works like this:
Withdraw at any age, any time after 5 years in, you get:
All contributions
50% Match of all contributions
6% annually compounded interest on all contributions
6% annually compounded interest on match of contributions
(interest rate subject to change at any time without notice)
Generally speaking, it is best to roll this into an IRA because of potential penalties, unless you are of retirement age.
I am also eligible for either a 403(b) or a roth 403(b) and a 457 plan.There is no employer match for any of these options. This is where things get a little confusing for me, and why I’m writing looking for opinions, thoughts, and advice.
This year, I will contribute to a traditional IRA to lower our taxes and increase our refund (and reinvest). We currently fall into the 15% tax bracket, married filing jointly. We have our emergency fund well stocked, enough cash to cover tuition for the remainder of my wife’s degree, and feel comfortable maxing out at least one of our IRAs. There is some concern of one of our cars dying in the near future, but we certainly have no plans of buying new or financing something.
In the future, and especially once my wife is full time employed, we want to start contributing more to our other options, 403(b), 457, etc. I have read many posts discussing the “order” in which to contribute, but I am curious about the tradeoffs between the various plans.
The 403(b) options open to us are managed by TSA Consulting Group, which offers: (removed for length)
Roth 403(b)
Metropolitan Life Insurance Company
Looking through the Fidelity 403(b) options, there seem to be some decent fund options, with FSTVX having an expense ratio of 0.045. This seems most similar to VTSAX, which I think would be my top choice of Vanguard funds for an IRA.
I could also contribute to a 457 plan, administered by Ohio Public Employees Deferred Compensation Program. This plan seems to offer the most flexibility in access to funds, once I have separated from service. There is no age component here that I can tell, so this could be very beneficial should we decide to retire early. The fees worry me more with this account. There is an annual fee of 0.0014 or 0.14% (with a cap of $55 per quarter) plus the expense ratio. (fund list removed for length) Out of the options, I feel like the Vanguard Institutional Index looked pretty solid, with a low 0.02% expense ratio and fund that seems to try to match the S&P 500.
Our goal, once we are both fully employed, it to put away at least $30,000 a year (which would likely be close to my wife’s full income). We are tentatively looking at starting a family within the next several years, but we want to get ourselves on even more secure financial footing before then.
Any thoughts, suggestions, criticisms, advice, etc. on the best way to proceed? Should we go 403(b) and 457? 457 first, then 403(b) if enough? Skip those and go for the IRA first? Any comments are greatly appreciated!
