Author Topic: Teacher Couple Investing for Retirement at 55  (Read 3490 times)

BrendanP

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Teacher Couple Investing for Retirement at 55
« on: October 17, 2016, 07:03:44 PM »
Hi Everyone,

I'm somewhat new to MMM - discovered it over the summer, and spent many hours reading the postings and comments. I really enjoy the philosophy, however I'm not looking for early retirement per se, as my wife and both enjoy our careers teaching in NYC public schools and trying to improve society around us.

 What I am trying to do is to understand how to best take advantage of the investment opportunities available to us. I would appreciate any suggestions that people can offer us. 

Our major goal is to retire at age 55 in 20 years (likely teaching in NYC during that entire period). At that time we will be mortgage free and both able to receive pensions (NYS tax-free) - worth roughly 50% of our final salaries which would be about 60K each.  We also will be eligible for SS in the future.


Investments:.

Roth IRA - Currently funding both with 11K per year

TDA-403b - funding with about 25K of 36K per year total.
The money can be split between 5 different options-one of which is a 7% fixed rate. Also no NYS/NYC taxes when disbursed (we plan on retiring in NY)

457 - literally just found out about this option this past week.  We can put in up to 36K per year between us. Unsure of plan availability yet.

Additional Thoughts:
-Unfortunately we cannot afford to max out all 3 of these accounts as that would be around 50% of our income which is too much.
-Concerned about the time between age 55 and age 59.5 when we can get Roth IRA disbursements.
-Slightly concerned that in the future they could reduce our pension benefits, so I don't want to have to rely on them too much.

Thanks in advance!

pbkmaine

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Re: Teacher Couple Investing for Retirement at 55
« Reply #1 on: October 17, 2016, 09:02:00 PM »
The TDA, if I remember correctly, has extraordinarily low expenses for its funds, plus that sweet 7% fixed. Fully fund that and the Roth. Check the TDA plan document for rules on age 55 distributions.

lhamo

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Re: Teacher Couple Investing for Retirement at 55
« Reply #2 on: October 17, 2016, 09:41:19 PM »
Remember you can withdraw your Roth contributions at any time.  That could help you bridge the gap between 55 and 59.5, if you have one -- as pbkm mentioned, check your plan because many retirement plans allow you to start withdrawals penalty free at age 55 if you "separate from service" in that year.  My DH is only 58, but his plan allows him penalty free withdrawals already because he retired at 57.

The 457 is also an excellent place to stash any money you might need for that bridge period.  You can typically withdraw from 457s any time -- just have to pay income tax on the withdrawals.  Personally I would probably put more money there than in the 403b, just because of that added flexibility. It is all well and good to say you want to teach for 20 years in a big urban school district.  Actually doing it is another thing.  Even if you are in a great school now, principals change and the climate can deteriorate quickly.  I hope you are able to stay -- NYC needs good, dedicated teachers.  But the 457 would give you another pot of cash to access if you decided you needed a career change, or if you wanted to retire a bit earlier.   

pbkmaine

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Re: Teacher Couple Investing for Retirement at 55
« Reply #3 on: October 17, 2016, 09:50:55 PM »
What are the fund options on the 457?

lhamo

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Re: Teacher Couple Investing for Retirement at 55
« Reply #4 on: October 17, 2016, 10:02:24 PM »

MDM

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Re: Teacher Couple Investing for Retirement at 55
« Reply #5 on: October 18, 2016, 01:16:06 AM »
...both able to receive pensions (NYS tax-free) - worth roughly 50% of our final salaries which would be about 60K each.
Is $60K each what you expect for pensions, or what you expect for final salaries?  Is that in today's dollars or future dollars?  Can you defer the pensions in return for a higher annual amount or do you simply start drawing a fixed amount upon retirement?

Reason for asking is so you could estimate your marginal tax rate for at least the first several years after retirement, based on how much you choose to convert from traditional to Roth accounts.  If you could convert all or most at marginal rates lower than you save by contributing now, you should put as much into traditional (403b, IRA, and 457) as possible.

If you will be making "too much" via your pensions ;) then Roth now may be better.

BrendanP

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Re: Teacher Couple Investing for Retirement at 55
« Reply #6 on: October 18, 2016, 04:46:37 AM »
Thanks everyone for the input-it is very helpful.

Is this the plan NYC teachers are on?

http://www1.nyc.gov/assets/olr/downloads/pdf/deferred/sumguide.pdf



What are the fund options on the 457?

I believe this is it. Awesome. I requested paper literature but was having trouble finding it electronically
I'm just seeing this for the first time, but which fund(s) would you suggest?


...both able to receive pensions (NYS tax-free) - worth roughly 50% of our final salaries which would be about 60K each.
Is $60K each what you expect for pensions, or what you expect for final salaries?  Is that in today's dollars or future dollars?  Can you defer the pensions in return for a higher annual amount or do you simply start drawing a fixed amount upon retirement?

Reason for asking is so you could estimate your marginal tax rate for at least the first several years after retirement, based on how much you choose to convert from traditional to Roth accounts.  If you could convert all or most at marginal rates lower than you save by contributing now, you should put as much into traditional (403b, IRA, and 457) as possible.

If you will be making "too much" via your pensions ;) then Roth now may be better.


Our FAS would be about $120K each (although I expect they would give us some sort of raise in the next 20 years - ::fingers crossed:: )
I'm unaware of any sort of pension deferral but I'll look into that.


Remember you can withdraw your Roth contributions at any time.  That could help you bridge the gap between 55 and 59.5, if you have one -- as pbkm mentioned, check your plan because many retirement plans allow you to start withdrawals penalty free at age 55 if you "separate from service" in that year.  My DH is only 58, but his plan allows him penalty free withdrawals already because he retired at 57.

The 457 is also an excellent place to stash any money you might need for that bridge period.  You can typically withdraw from 457s any time -- just have to pay income tax on the withdrawals.  Personally I would probably put more money there than in the 403b, just because of that added flexibility. It is all well and good to say you want to teach for 20 years in a big urban school district.  Actually doing it is another thing.  Even if you are in a great school now, principals change and the climate can deteriorate quickly.  I hope you are able to stay -- NYC needs good, dedicated teachers.  But the 457 would give you another pot of cash to access if you decided you needed a career change, or if you wanted to retire a bit earlier.   

My wife is in the 55 yrs old/ 25 years working plan and I am in 55/27 plan - she could quit teaching for a few years and then get the pension at 55. I would have to teach from now until I'm 55 to earn the full pension. 
Yes, there's definitely challenges in a big urban district, but the positive is that there are enough schools to move around if conditions change. Also the pension and TDA are through NYS so I'm not sure how that would affect a move to another district.

pbkmaine

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Re: Teacher Couple Investing for Retirement at 55
« Reply #7 on: October 18, 2016, 07:21:45 AM »
Fund suggestion for the 457: one of the target date funds. They only cost 1/5 of one percent per year (20 basis points), and someone takes care of the asset allocation for you. For the 403(b), a split between the fixed account (it's very hard to beat that 7% return) and the equity fund, in whatever percentage helps you sleep at night. Maybe 70% equity, 30% fixed?

BrendanP

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Re: Teacher Couple Investing for Retirement at 55
« Reply #8 on: October 19, 2016, 04:32:29 AM »
I was just spending some time looking at the 403b fees. Would these fees be considered low for this sort of plan, or average?
They seem much higher than most fees for the 457 plan:

"Administrative expenses for the Passport Funds (except the Fixed Return Fund) are set at 0.18% and are reflected in the unit value
of each fund.

In addition, each fund (except the Fixed Return Fund) also bears investment management and custodial fees, which are reflected in
the unit value of each fund. The average annual fee for each fund for the fiscal year ending June 30, 2016 is listed below:

 Diversified Equity Fund: 0.175%
 Bond Fund: 0.136%
 International Equity Fund: 0.306%
 Inflation Protection Fund: 0.887% (Includes 0.80% in investment management fees charged by the underlying mutual fund.)
 Socially Responsive Equity Fund: 0.510%"


pbkmaine

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Teacher Couple Investing for Retirement at 55
« Reply #9 on: October 20, 2016, 05:53:33 PM »
It's 18 basis points PLUS fund fees? You are right. That's expensive. The Fixed, Diversified Equity and Bond Funds are your best bets.
« Last Edit: October 20, 2016, 06:02:56 PM by pbkmaine »

aerofreaky`

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Re: Teacher Couple Investing for Retirement at 55
« Reply #10 on: November 05, 2016, 08:28:52 AM »
I've been working to max out the TDA (pre tax) in the 7% fixed and the 457 ROTH to the max with the Equity Index, Mid Cap Index, and some International. The Equity Index has the lowest cost of any of the choices in the 457, so I try to look at my investments globally to achieve the right mix. Since the International and other offerings are partially actively managed (many with lower than index returns for several benchmark periods) I avoid them.

I sure wish the TDA could be ROTH, but clearly that isn't possible. I too am in the 25/55 program, but don't actually want/think it will be possible to make it that long. I've been religious about saving in ROTH vehicles so I can access funds without penalty when I leave to support myself for the first many years.

The 457 has a "investor directed" account you can access though TD Ameritrade. It looks as though this is a way to access lower cost (index) funds for International or other asset classes, but there are restrictions. I've set up the account, but haven't diverted any funds at this point. The NYS 457 is actually a much better beast than the NYC one, but as a NYC teacher I can't access it. They have less fees and less restrictions on the "investor directed" options.

If you're having a hard time filling the buckets and have after tax funds, I would consider living off of these funds as you load your accounts to the max. I was able to do this last year and had some pay periods with literally change as my NET pay.






powskier

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Re: Teacher Couple Investing for Retirement at 55
« Reply #11 on: November 05, 2016, 02:19:42 PM »
Wow, you are going to receive 60k each as your pensions with mortgage finished?
Sure fund the rest but it looks to me like you should have nothing to worry about unless you spend more than 120k year........