35 year old teacher seeking solid retirement planning advice

Curious2077April 7, 2012

Hi, 35 year old teacher seeking strong retirement advice



My name is Tim. I am a 35 year old teacher who's head is spinning about how to set up the best possible retirement for myself? I am really hoping your experience and knowledge will steer me in the right direction? Here is what I have going for myself so far and some personal goals I have that I think should be factored in:

-I have a 403b worth $25,000 w/ Vanguard ($22,000 Wellington Fund, 3K in Target date Retirement Fund)

-I am debt free (I just paid off my $95,ooo house)

-I have no car payment (car is getting older however, it is a 1999).

-I am single (strong chance I may be married in next 1.5 years)

-I have zero children (but will immediately try to have kids if I marry)

-I have 25k in the bank which I have been saving for a down payment on a new house if I get married. House will cost app $220k and she will pay for half. She makes same salary as me.

-Annual gross income is 53k and will not rise anytime soon.

-I plan on retiring at 55 if I can swing it. I will have a pension but will be penalized for retiring early. Unfortunately I dislike my job but don't think switching careers after contributing into teacher pension for 9.5 years is smart.

Recently met w/ financial planner from Swarthmore Finance and he wants me to:

-Roll over my 403b into a Roth IRA with him

-Obtain some type of Life insurance

I am reading different things online about annuities and different Roths and other things I can do but I am very confused. I do think a Roth IRA is a good idea but not sure about life insurance? Should I even do a Roth with him?? Should I just do a mutual fund w/ Vanguard instead? Can anyone offer solid advice? Thank you so much, it is most appreciative!!



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Hi, Tim
There are people on these boards who are qualified to give the kind of advice you are seeking; they will likely respond in a few days. You may need to see a certified financial advisor - the kind who just charges a flat fee. But wait and see what responses/advice you get here.

Congratulations on paying off your mortgage. That is terrific. What we did was live on one salary and banked the other. Most went for retirement, but some was saved for things like replacing the car (no car payments) and home improvements (new roof, etc.) Since you plan on having children, you will want to save for retirement and for college. Living below your means is always a good idea. Make sure your future wife is of the same mind-set.

I think that what you have already accomplished at your age is awesome.

    Bookmark   April 7, 2012 at 3:25PM
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Tim, also check the Household Finance forum. The Retirement forum moves pretty slowly.

    Bookmark   April 7, 2012 at 4:42PM
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Congratulations on doing so well at your age! Your reward is a whole new set of problems (but honest, they're good problems to have)!

This is long, but you did ask for advice, LOL. It's a complex subject.

First: Is this advisor a fiduciary? If not, stop talking to him and find one who is. Check out the Garrett Planning Network for CFPs who work on an hourly basis. You'll want at least two names, and you MUST research them. The first free meeting is just to see if you two think you can work together as a team.

Get references from each CFP of clients who are in similar situations to yours, and call those people up. Don't take a lot of their time; ask what the CFP's greatest strength and biggest weakness is. All references should have used the CFP's service for at least 5 yrs or longer.

This is your money and your future. You want someone who can give solid advice as you go through life-changing events. Birth, death, marriage, divorce, and job change are important touchpoints that will mean big changes in your financial situation.

You do NOT want a "yes man". You want a sounding board, someone who will honestly tell you if you're going off the track. You want a neutral third party for when you and your spouse don't agree (which will happen, guaranteed) on some future touchy issue.

You will need a new car at some point, as you have said. Especially with kids! All the new safety features will be a whole lot more important to you, as a parent. Plus, once they're out of the child carriers, suddenly you're schlepping around half the Pee-Wee softball team. New or used are the only options, so figure out how much you can afford and start saving for that, too.

Don't focus on early retirement. You don't make a lot and unless you're super-lucky to have bright talented children (meaning full scholarships and no graduate costs), they're a 20-yr drain on your finances. It takes a LOT of money to raise kids and still take early retirement. The ones I've known who did it are multi-millionaires, who earned more in their 40's during the boomtimes than they had thought possible.

The average middle-class Joe and Jane are lucky to be keeping their heads above water in their late fifties, right now. I'm a retired middle-income Boomer and out of all the people we know, we're the only ones on a modest income who managed to retire early and are living comfortably. All our older family and middle-class friends are still working.

If you don't like your job, network aggressively. Whether you do it through hobbies, PTA, part-time or volunteer work, you need good contacts to make a career change easier. LinkedIn should be your best friend, but personal follow-up still counts. Put the work in, it'll be worth it.

If nothing else, find out if there are any other county jobs that use the same pension plan you currently have, and if transfers are possible. A lot of plans allow employees to switch employers who use the same pension fund managers. Your pension is then pro-rated between employers.

Set your expectations realistically. It's almost a sure thing both Social Security and Medicare ages will be increased (pushed out) for your generation. They'll be there, but you do not want to be in retirement with a growing family but without any insurance protection. Medical insurance is not cheap -- most people have no idea what it really costs on the open market. For a family with two kids, an HMO in our area would charge $1400/month, not including co-pays or prescriptions.

A Roth is a great idea. Does your employer offer 403b Roths? Many do, and if yours doesn't, shoot off an email to HR and the pension manager that it would be a great option for employees. Remember that a Roth has very low limits compared to the 403/401 plans! You're limited to $5K/yr with an increase to $6K after age 50. The limit for your 403/401 is 4x higher -- a HUGE difference.

The rule is, fund a Roth first, then fund your 403/401 to the maximum possible. Pay the lowest fees you can find. Vanguard's an excellent company, but they have a lot of funds and some are better than others. There are analysts who cover only Vanguard funds; you can Google for them and read what they say.

With such a low balance, keeping your money in just a couple of funds is smart. Wait until you've got a six-figure balance before you start a traditional allocation of five or six market sectors.

Once you formalize a relationship (on the way to marriage), make sure you have a long talk about money and finances. With your income and plans, it's important you both be "on the same page" and honest with one another. What do you splurge on (and everybody splurges on something)? How much monthly does that cost?

You don't want to take the fun out of budgeting. You just need to know where it's going. That means using Quicken, or Mint, or some other budgeting tool. Get into the routine and make it easier on yourselves.

You need an emergency fund. Cars, house, kids are all 'black holes' at regular intervals. Figure out how much you can manage, and keep it funded by automatic monthly transfers from your checking.

Make sure both of you are saving for retirement, and both of you are sensibly allocated for your age and situation. SmartMoney, the print arm of the WSJournal, has suggested portfolios by age/circumstances, and you can find them on their website. Other financial magazines, like Money, do the same. Check 'em all out and you'll see a general pattern to follow.

Frankly, it's been shown that a portfolio of 80% stocks/20% bonds doesn't perform that much better over 20 years than a 60% stocks/40% bonds allocation. What makes the difference is the fees you pay for the funds you choose, and the market sector allocation (different types of funds) you're chosen for your investments.

If you are both working, you BOTH need life insurance, unless one of you can pay all the bills if the other spouse dies. Level term life is cheap, assuming you're in reasonable health. The advantage of life insurance is that it's one of the very few tax-free benefits available to anyone. My DH gets three-quarters of a million tax-free if I die in the next ten years, which makes up for my not having much in the way of retirement savings.

Sound like a lot of $$$? It isn't, actually. On a 5% draw that's $30K annually for about 25 yrs. At our ages that's just about the rest of our average life expectancy. And in 25 yrs, that $30K will only be worth what $15K is now.

Forget annuities. You don't need them if you have a pension, even if it carries an early retirement penalty. Any advisor that knows you have a defined benefit pension employment but pushes an annuity, is a crook. Annuities have high commissions and big management fees, and are suitable only in specific instances. You don't fit those parameters.


    Bookmark   April 7, 2012 at 7:53PM
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"Annuities have high commissions and big management fees."

That is not true of fixed, lump sum annuities. There are no management fees. They have a role in many people's retirement portfolios because they provide the owner with a certain monthly income stream for either a fixed period of years or for an entire lifetime. But you are right about the OP -- he doesn't need that because he'll be getting both pension and SS benefits. And, yes, he and everyone else should avoid any other kind of annuity, and especially variable annuities.

    Bookmark   April 11, 2012 at 7:17PM
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Judging from the sound of this "advisor" the OP was talking to, I highly doubt the annuity being pushed was a fixed lump sum annuity!

What it might have been is an Advanced Life Deferred annuity, which does have fees and commissions. A better product, but still not a good fit for the OP.

    Bookmark   April 12, 2012 at 6:59PM
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Here at least teachers are not covered by social security. My advice is to put as much aside as possible until you reach 40 then use the amount to build upon.

If possible try to work the quarters necessary for both of you to obtain min SS. Which would cover medicare coverage. Forget about annuities for now. The more baskets you have the better your chances for a nice time after retirement. But do your research and do not listen to your friends to find the best baskets for yourself.

    Bookmark   April 21, 2012 at 11:30PM
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I wrote a couple of posts on this forum a while ago, where I made some reference to annuities.

There was another asking how safe annuities are where I had something to say, as well.

You may find some good ideas on "Household Finance" and "Money Saving Tips" as well.

ole joyful

    Bookmark   December 12, 2013 at 5:12PM
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From my experience, rental passive income is great for retirement. There was and perhaps still is an opportunity to purchase houses on the cheap in US and get positive cashflow from them. We nearly invested in that and perhaps should have but we live in Singapore so was concerned about the distance problem.

    Bookmark   January 9, 2014 at 8:24PM
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>>rental passive income is great for retirement. There was and perhaps still is an opportunity to purchase houses on the cheap in US and get positive cashflow from them.>>

It is, but the OP has a very long way to go before retiring. Unless you are a handy DIYer, investment properties can be a considerable drain on your cash flow and more importantly, your time. In the US that means having an emergency fund SPECIFICALLY FOR the rental property(ies), of 4-8 months of overhead. That can be a very sizable sum, especially with such historically low interest rates being paid on accounts.

We know a good number of people who do have or have tried to invest in rental properties. The only ones who "stick" are three types:
- DIYers who can carve out the time to do unexpected repairs (being self-employed and setting your own hours helps immensely; most corporate employers look askance on the excuse of "I can't attend this client meeting, I have to go fix the tenant's DW today".
- Those with enough money to hire a management firm
- Those who are slum landlords or one small step above them, where rents are maximized and overhead is minimized (deferred maintenance, "gray labor" repairs without permits, etc.).

There is no free ride to financial security. RE in most areas appreciates, on average, 3%/yr or less, except for 'investor bubbles'. Believe me, ole joyful, me, and many others on this board have done a lot better than that with market investments over a 20-yr period.

We have a new neighbor moving in next door. They bought the largest home in the neighborhood for a bargain price after it went into foreclosure. They also inherited a crapload full of problems, including the theft of all appliances and rip-out of all copper plumbing within 24 hrs of the previous tenants moving out. Totally pro jobs (separately done by different burglars, we think).

They have owned this house for almost two years and are still not moved in. It has been undergoing repairs continually ever since they bought it. Pace has been slow because they're being frugal and paying cash, doing most but not all the work themselves.

No matter what a good deal they got, they are paying a $288K mortgage plus $3K/yr property taxes for a home they're not living in yet. It'll be worth a lot more money someday soon - this is a super-expensive area and we're one of the last "bargains" around - but in time and energy, as well as $$$, this very nice couple is definitely 'paying their dues.'

    Bookmark   January 12, 2014 at 1:54PM
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Hi again Tim,

You're fortunate - and wise - to have put together a substantial asset at your age.

As it is, you may well marry at just under 40, and are looking forward to children that will be in their teens when you're crowding 60 ... and perhaps attending probably costly, barring heavy scholarships, college after that.

I remember several years ago of an old(?) fellow in his 60s, living somewhere in Central America, quite inexpensively, with a possibly fairly recently-acquired wife, and a small child, telling how great life was. And I was thinking ... "Oh, Lord: to have to cope with a teen ... at age approaching 80??"!

Have you noticed how our perspectives vary as we move from age to age?

Also our definition of "middle aged"?

ole joyful

    Bookmark   January 24, 2014 at 5:28PM
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Hello ... curious 2077 ...

... are you here ... there ...

... somewhere?

(Did s/he not like something that we said)??

ole joyful

    Bookmark   February 4, 2014 at 7:16PM
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