Author Topic: Help me figure out retirement planning  (Read 1478 times)

clarkai

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Help me figure out retirement planning
« on: August 17, 2016, 05:28:40 PM »
I'm going to admit upfront that I'm feeling a little overwhelmed- I've never done this before, so I'm guessing this will be an easy, straightforward answer, I just don't know it yet. I just started a new job, and as a teacher, we have some options for retirement. Basically, I want to know if I should use the plans provided (there is no matching) or do the minimum required and dump my savings in a vanguard mutual fund. I also am not in a rush to retire; I just want to be smart with my money so I don't have to worry about it.

There are two plans available to me; the first is a 401(a) and the other is a 403(b).

For the 401(a), we are required to put in 5% of our income, but we may choose to put in up to 15%. Once we choose, we're stuck there for life, unless we change districts, which I do not intend to do. As far as I can see, these are the key points of the 401(a):

- is defined benefit plan with a defined contribution component. When I retire, I will receive a monthly defined benefit, and the results of the defined contribution component.
- Investment Options:
Option A: 5% all ages
Option B: 5% up to age 35; 6% ages 35 through 44; or 7.5% age 45 and older
Option C: 6% up to age 35; 7.5% ages 35 through 44; or 8.5% age 45 and older
Option D: 7% all ages
Option E: 10% all ages
Option F: 15% all ages
- I can choose to "Build and Monitor Funds" from:
     - Emerging Market Equity Index
     - U.S. Small Cap Value Equity Index
     - Global Equity Index
     - U.S. Large Cap Equity Index
     - Socially Responsible Balanced
     - Washington State Bond Fund
     - Short Term Investment Fund
- Or, I can use the Washington State Investment Board (WSIB) Investment Program, and have my money  invested in the WSIB’s Total Allocation Portfolio (TAP). - http://www.drs.wa.gov/member/faq/fundfactsheets/Plan3/tap_063011.pdf
- retirement at 65, can retire at 55 with reduced benefit.

For the 403(b):

403(b)
- I can change my contribution each year
- limit is $18,000 for 2016, but I'm pretty sure that's not relevant for me right now.
- providers: http://osd.wednet.edu/media/osd/payroll/2016%20Authorized%20Investment%20Providers%20403b.pdf
- I can't withdraw until 59.5

Other factors:
- I still have school loans to pay off (~$40K), at about 5% interest, and I feel like I should be paying those off as quickly as possible. (I can get up to $5000 of that forgiven after 5 years of teaching, but I don't want to hold on to it that long if I can help it)
- In super frugal (ie, I have no furniture that isn't free, no car, no internet, etc) mode, I can have about $600 dollars left over each month (with the assumption that 10% of my income is going to retirement). This is with bare minimums spent on everything.
- I'm not in a rush to retire; but I recognize that that may not last. My personal goal is to we such a good teacher that I enjoy my job so much that I don't want to retire.


Questions:

- Is the 401(a) better than Vanguard for some reason? Or should I just do the minimum required and plug the rest into a mutual fund?

- Is the fact that the 403(b) is pre-tax important enough that I should just plug in as much as I can, even though I can't take it out until I'm 59.5?

- Right now, (ignoring the possibility of outside investments) I'm not seeing why I should put more than 5% in the 401(a), and everything else that I can into the 403(b). Am I missing something?

Any help, or even just giving me links to read, is appreciated.

MDM

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Re: Help me figure out retirement planning
« Reply #1 on: August 17, 2016, 09:01:21 PM »
I'm going to admit upfront that I'm feeling a little overwhelmed- I've never done this before, so I'm guessing this will be an easy, straightforward answer, I just don't know it yet. I just started a new job, and as a teacher, we have some options for retirement. Basically, I want to know if I should use the plans provided (there is no matching) or do the minimum required and dump my savings in a vanguard mutual fund. I also am not in a rush to retire; I just want to be smart with my money so I don't have to worry about it.
Good attitude!  We (and you) need to know more about those investment choices, particularly the fees charged for each, before venturing specific answers.

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- Is the 401(a) better than Vanguard for some reason? Or should I just do the minimum required and plug the rest into a mutual fund?
The 401a, similar to the 403b, provides tax-deferred investment.  In general you should fill your tax-advantaged space - either tax-deferred (e.g., traditional 401a, 401k, 403b, IRA, etc.) or future-tax-free (e.g., Roth 401a, 401k, 403b, IRA, etc.) - before doing fully taxable investments.

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- Is the fact that the 403(b) is pre-tax important enough that I should just plug in as much as I can, even though I can't take it out until I'm 59.5?
Probably.  See To 401k or not to 401k? That is the question. and http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

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- Right now, (ignoring the possibility of outside investments) I'm not seeing why I should put more than 5% in the 401(a), and everything else that I can into the 403(b). Am I missing something?
Probably - see below. ;)

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Any help, or even just giving me links to read, is appreciated.
clarkai, you ask good questions!

This isn't wildly complicated, but it will probably take at least a few hours to wrap your head around the basics.  Here are some links:

Chances are good that reading the linked information will
 - answer some of your questions
 - not answer all of them
 - cause you to have more questions.

Take a look, let us know what old and new questions are unanswered, and folks will likely be helpful.  Good luck!

clarkai

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Re: Help me figure out retirement planning
« Reply #2 on: August 17, 2016, 10:12:48 PM »
Thank you! I'll read those and edit my post tomorrow with more info and questions.