Author Topic: Teacher Jumping into an IRA  (Read 1152 times)

evanthes

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Teacher Jumping into an IRA
« on: April 09, 2018, 07:32:57 PM »
I recently rolled over an old 401k that I let sit idle for six years and moved to Vanguard. The fund has about 42k in it now.  I have it in an IRA, but am yet to allocate Funds. I've been reading Millionaire Teacher and he talks about picking an American Index, Foreign Index and a Bond Index. I'm a teacher and will have a pension when I retire, so I think I will forgo the bonds because I have stability in my pension(does that make sense?).
About me:

Iím 33, wife is 30, We have two kids (2 and 5) we are both teachers in a middle school, been teaching for 6 years. We both will have a pension on top of our investments, the size of it obviously depends on how long we teach. I think realistically I would like to retire early by age 50 or so.

We have a house that we have over 100k in equity in. We are looking to sell possibly this summer to capture some of that and pay off our 50k in student loan debt and move closer to work(we are 35 minutes away).

I think that because I have a teacher retirement pension, I have a high risk tolerance for my investments. I teach in MA so we wonít be disbanding teacher unions like WI anytime soon. I was thinking I should have a mix of international, domestic and bond indexes, but Iím wondering if I could just do stocks? I hate how naive that sounds, so I guess thats part of my question for you all. Does that make sense?

Other assets: We have two great cars that are paid off. Honda van and a Toyota Corolla. We drive the van everywhere and might sell the corolla for cash since we rarely use it, since we commute together.

So with that information Iím asking if it makes sense to allocate:

Option 1:

20k in VTSAX
10k in VTIAX (international)
10k in VBTLX (Bonds)

OR Option 2:

25k in VTSAX
15k in VTIAX (international)

OR

If you have suggestions I would love to hear them. As a teacher, I love learning and this is an exciting new venture. Thanks for taking the time to provide feedback.

MDM

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Re: Teacher Jumping into an IRA
« Reply #1 on: April 09, 2018, 08:01:52 PM »
evanthes, welcome to the forum.

Both of those allocations are defensible.

See Three-fund portfolio - Bogleheads for more.

Radagast

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Re: Teacher Jumping into an IRA
« Reply #2 on: April 09, 2018, 08:39:58 PM »
+1 Either is reasonable. If you have pensions and short term spending money, then perhaps a 10% allocation to longer term bonds just so you have something to rebalance if feel like you are doing something, otherwise not necessary.

Vanguard Lifestrategy Growth and the farthest away target date fund are also very excellent choices to make just one decision and be done with it. If you aren't into rebalancing, I actually recommend these most.

evanthes

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Re: Teacher Jumping into an IRA
« Reply #3 on: April 10, 2018, 07:30:13 AM »
+1 Either is reasonable. If you have pensions and short term spending money, then perhaps a 10% allocation to longer term bonds just so you have something to rebalance if feel like you are doing something, otherwise not necessary.

Vanguard Lifestrategy Growth and the farthest away target date fund are also very excellent choices to make just one decision and be done with it. If you aren't into rebalancing, I actually recommend these most.

Thanks for your suggestions. I hadn't thought about picking a farthest date retirement fund, I might do that and VTSAX to get going and once I see how things pan out pick a direction with my future contributions.

Glad to be in MMM community. Thank you both for your help!

dmac680chi

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Re: Teacher Jumping into an IRA
« Reply #4 on: April 11, 2018, 08:37:05 PM »
Check out the blog Millionaire Educator, Ed is awesome and always willing to lend a hand.


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MustacheAndaHalf

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Re: Teacher Jumping into an IRA
« Reply #5 on: April 12, 2018, 10:23:29 PM »
All of Vanguard's Target Date funds have low expense ratios (0.15%), and you could use a target date 2040 fund if your retirement is about 20 years away.  You can save a little on the expense ratio by picking the same funds and managing it yourself.

Even if you don't, it's worth noting both Vanguard and Fidelity's target date funds allocate 10% to bonds.  So your option (1) looks too high (25%) and option (2) a bit low (0% bonds).

I wouldn't necessarily limit yourself to your work's retirement plan plus IRA.  You can also buy VTSAX outside any retirement plan.  It has 1.8% dividends right now which are typically taxed at the 15% qualified dividend rate.  So with $10,000 invested you'd get $180 in taxable dividends and pay $27/year in tax (0.27%).  All in all, that means you can invest in a taxable account but still pay not too much in tax.  It might help you a lot in your quest for an earlier retirement.
« Last Edit: April 12, 2018, 10:25:03 PM by MustacheAndaHalf »