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.
