Author Topic: Investing Advice - Future Teacher Pension  (Read 641 times)

fundyswm

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Investing Advice - Future Teacher Pension
« on: December 19, 2019, 08:27:25 PM »
Hello!

I suppose my situation isn't that complicated, but it is somewhat unique because of my future pension as a teacher. My main question is whether I should open up a second Vanguard Roth IRA (for my wife) or open up a different type of retirement account?

Relevant personal information:

- I am 28 and my wife is 26. We are both high school teachers in the Midwest.

- Our annual pre-tax income is currently around $100k.

- We file taxes jointly

- No kids (will probably have one in ~2 years)

Relevant financial information:

- We are forced to pay into our state's teacher pension plan, which is known as one of the best in the Midwest. Our school district takes out 14.5% of our monthly pre-tax income and matches it and that goes into our state's teacher pension fund. The plan's eligibility requirements are basically set for teachers to be eligible for retirement between the ages of 52-54. If my wife and I have perfect lives and never quit teaching, we are on pace to retire at 53 and 52, respectively. Once we retire, our monthly benefit amount is roughly 80% of the average of our highest three paying years. For example, if I made $60k each of my last three years and those were my highest-paid years, my annual retirement benefit would be $48k per year. That would obviously also be taxed at income tax rates at that time. Remember, my wife and I are both in this system, so we would get an annual total of $96k pre-tax in the above example. A lot of retiring teachers don't realize this benefit will be subject to income tax, so many have to continue working after teacher retirement. This has led me to seek out supplemental investing options.

- We are currently renting an apartment and plan on doing so for another few years.

- We have $24k in ally savings accounts ($12k for emergency fund, $8k for future down payment on a house, $4k in general savings). We are currently contributing about $1,400 a month total towards these accounts.

- I currently have $7k in a Vanguard Roth IRA in my name that is all invested in the 2055 Target Retirement fund. I am just recently (since October) contributing $500 a month to my Roth, so from now on I am officially maxing it out.

- We are paying $1,300 a month towards our student loans. Thanks to teacher loan forgiveness, we should be student debt free in 2 years.

- We are forced to have the health insurance our district provides, which is very much not a HDHP, so an HSA is not possible. It's not great insurance, but the district pays our premiums and we're pretty healthy, so it's fine for our needs.

Back to the main issue:

I want another retirement/investing account additionally to my current Roth IRA. Because of our pension program, my wife and I will retire around the age of 53. I know I can withdraw IRA contributions before the age of 59 1/2, but I'd prefer an additional retirement account that can be a little more accessible before that.

The companies that our school district suggests for retirement accounts all have 403(b) options and some have 457 plans. I have done a lot of (internet) research and have come to the conclusion that 403(b) plans seem to be.... bad for the most part? This has caused me to focus in on a 457. Another advantage of 457 would be that it would lower my taxable income with pre-tax contributions, which would diversify my investing accounts with one being Traditional (457) and one being Roth (Vanguard Roth IRA). I have only received fund information for a few of the companies that offer 457's through the district. These companies I have information on tend to offer funds with expense ratios around 1.2-1.5% (not great). A couple of them offer a single Vanguard fund, Vanguard Windsor II Fund Investor Shares (VWNFX), which has an expense ratio of 0.33%.

So given my information and what I'm looking for, which of the following accounts would you guys suggest to supplement my teacher pension and Roth IRA?

457

Open a second Roth IRA (under wife's name)

Taxable investment account

403(b)

Thanks for any advice!!

degrom7

  • Stubble
  • **
  • Posts: 141
  • Location: NY
Re: Investing Advice - Future Teacher Pension
« Reply #1 on: December 19, 2019, 08:42:58 PM »
If you have extra money outside of your expenses and emergency fund, go for it. Fund an IRA. In a perfect world, both of you will be teaching until 52 to 54, but know that youíre young and things can change. You might burn out earlier than that or admin might change and want to remove you when youíre older and thus, an ďexpensiveĒ teacher to keep on payroll. This will derail your plans if you donít have a backup.

Iím a teacher a few years older than you. Once I reach 20 years, I can retire and get $60k a year for my pension. I max out my 403b, 457, and IRA so I wonít need to depend on my pension in case I donít work as long as I plan to. Good luck!


Sent from my iPhone using Tapatalk

Yearofsue

  • 5 O'Clock Shadow
  • *
  • Posts: 42
  • Location: Southern CA
Re: Investing Advice - Future Teacher Pension
« Reply #2 on: December 20, 2019, 01:54:39 AM »
Based on our familyís experience with our school district offerings - I recommend funding a Roth IRA for your wife, then the 457, then the 403b. It may not be applicable in your state but I always like to let the younger teachers know in my state, teachers can apply for/take a leave of absence once every 7 years. Good luck, sounds like you have a great start!

MDM

  • Senior Mustachian
  • ********
  • Posts: 10157
Re: Investing Advice - Future Teacher Pension
« Reply #3 on: December 20, 2019, 04:38:07 PM »
Suggestions in the Investment Order sticky will apply to most.  How do they look to you?