NYC Teachers - Help us maximize our retirement

[BrendanP]

Life Situation:

DINK - Married Filing Jointly. Live in  NYC
My wife and I are both NYC public school teachers (8 and 12 years, respectively)

Gross Salary/Wages:

Approx 215K includes 2 teacher salaries and a Teaching Fellowship

Individual amounts of each Pre-tax deductions

Me: 403B (7% fixed Rate): $86K       - Fund Max at 19K a year
DW: 403B (7% fixed Rate): $92.5K   - Fund  Max at 19K a year
Me: 457 (Equity Index Fund-matches S&P500): $2.6K  - Fund   4.5K a year
DW: 457 ( Equity Index Fund-matches S&P500): $2.6K -  Fund  4.5K a year

Me: Roth IRA Vangard 2040 Target Date: 36K  - Fund Max at $6K a year
DW: Roth IRA Fidelity 2040 Target Date: 58K -Fund  Max at $6K a year


Taxes:

FICA: 15K

Fed: 23.5K
NY State:  10.8K
NYC:  5.6K
Total Fed/State/City: 53.8K

Current expenses:

Our total expenses are ~83K

This includes food, entertainment, HOA fees, Mortgage, Car Expenses, dining out, Insurance, Utilities, transportation, union dues, etc.

I'm not very interested in lowering our expenses but rather maximizing our investments:

Assets:
Me: 403B (7% fixed Rate): $86K       
DW: 403B (7% fixed Rate): $92.5K   
Me: 457 (Equity Index Fund-Matches S&P500): $2.6K 
DW: 457 ( Equity Index Fund-Matches S&P500): $2.6K

Me: Roth IRA 2040 Vangard Target Date: 36K 
DW: Roth IRA 2040 Fidelity Target Date: 58K

12-month CDs at 2.6% ~75K

Cash: ~50K
Used Car: ~5K

Liabilities:

We pay our credit card debt off each month and don't carry any balances
Our only debt is our mortgage.

Mortgage : We owe $280K and the plan is to pay it off in approx 11 years. Monthly payment is $2012, but we also pay an extra $500/month towards this.

Specific Question(s):

As teachers we both have advantages of 403Bs, 457s, as well as Pension and Social Security when we retire. However, I worry that our pensions won't be as expected when we get to the time for retirement.
Also, I'm looking for advice on how to maximize our other investments in case we're unable to teach the years needed to get the 50% pension.

My wife plans to work 12 more years as a teacher. Then she can work an easier (much lower paying) job for 5 years, and begin receiving her pension at age 55 (25/55 program). Her pension will be approx 50% of her salary or 60K.

I would need to work straight through until the age of 55 (18 more years) at which point I could draw a similar pension (27/55 program).

Questions:
1)Does it make more sense to invest more in the 457 to live off of before we draw our pensions?

2)Should we putting more into the Roth 401K option instead of the pretax 457?

3)Someone suggested that rather putting money in CDs, we invest in dividend funds in a taxable account and have them taxed at the 15% rate (qualified dividends).

4) For the Roth IRAs - should we ditch the target date funds and go fully equities since we have the pensions and the 7% fixed return? I'm concerned that we're too conservative.

Thanks in advance

[fell-like-rain]

Could you talk more about the 7% fixed rate situation in your 403(b)? How is this set up- is there an underlying investment in equities or mutual funds, and a government entity manages this and guarantees the return? If there’s little/no risk of losing your capital and low risk of the whole fund structure falling apart, then it would make sense to consider these like high-quality bonds for the purposes of asset allocation.

[BrendanP]

Could you talk more about the 7% fixed rate situation in your 403(b)? How is this set up- is there an underlying investment in equities or mutual funds, and a government entity manages this and guarantees the return? If there’s little/no risk of losing your capital and low risk of the whole fund structure falling apart, then it would make sense to consider these like high-quality bonds for the purposes of asset allocation.

It's guaranteed as far as I know...unless they change the rate again. Previously it was 8.25%

https://www.trsnyc.org/memberportal/Investments/FixedReturnFund

[LifeHappens]

12-month CDs at 2.6% ~75K
Cash: ~50K

That's a lot of cash. Well over 1 year's worth of expenses. Are you holding this much for any particular reason?

[BrendanP]

12-month CDs at 2.6% ~75K
Cash: ~50K

That's a lot of cash. Well over 1 year's worth of expenses. Are you holding this much for any particular reason?

not particularly.
We don't need to keep so much in cash, but am uncomfortable with putting everything into retirement funds.

[LifeHappens]

12-month CDs at 2.6% ~75K
Cash: ~50K

That's a lot of cash. Well over 1 year's worth of expenses. Are you holding this much for any particular reason?

not particularly.
We don't need to keep so much in cash, but am uncomfortable with putting everything into retirement funds.

Two good places to start are the Investment Order thread https://forum.mrmoneymustache.com/investor-alley/investment-order/ and the How to Withdraw Funds thread https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

I'm guessing you are uncomfortable putting more into retirement funds because you feel like you can't access that money, but that isn't really true. NY is a very high tax state so the more you can save into pre-tax accounts the better your return on investment is going to be.

Think of it this way. If your effective tax rate is 25%, every dollar you save into pre-tax accounts has a minimum 25% return. That's tough to beat anywhere else.

[achvfi]

I agree with @LifeHappens. Tax savings for you can be 30 to 40% return.

Keep whatever you are comfortable in a high yield savings and CDs and move rest of your cash and CDs to taxable investments.

Going forward aim to max out all tax advantage accounts - Being teachers you have both 401k and 457. Take advantage of those to max for both if possible. Max your roth IRAs, that can be the roth portion of investments.   

76k in 401k and 457
12k in roth IRA
7k in HSA if you have it.
Rest in Taxable.

[zygote]

I'm also in NYC. Not a teacher, but in a job with access to the TRS. I ended up choosing to go with the TIAA-CREF system instead, but am somewhat familiar with the 403b and 457 options.

What's the rate on your mortgage? I would seriously consider stopping all additional contributions and put that money into your 457 pre-tax instead. Unless the TRS caps the amount, you should each be able to put up to $19k. If I'm reading your post right, you're only putting $4.5k right now. Assuming you have a standard 4ish percent mortgage, you will get a much better return on that money if you put it somewhere  pretax and have exposure in the market over the term of your mortgage. 

Plus with the 457, there's no early withdrawal penalty as long as you've left your job by the time you withdraw. Even if you don't think you can max it out every year long term, you have such a big cash buffer you could play catch up and max it out for 2019 and 2020. Then you can spend down your cash savings if your take home pay doesn't cover everything.