Help with Retirement Investment for Teacher

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Help with Retirement Investment for Teacher

Post by TeacherInCa » Mon Mar 19, 2018 8:48 pm

Hello, Boglehead friends!

I am a newbie to investing. I have made a lot of mistakes in the past, and taking action to improve my financial future by reading blogs and lurking on these boards. Please evaluate my financial situation below and let me know if my goal of accumulating 1 million at retirement is possible. Thanks in advance!

Age/Salary: 45 year-old teacher in California. $96K/year. Single, no children.

Retirement: Will retire in 17 years (age 62) with a CalStrs pension of $85K/year in today’s dollars, and 2% increase (of $85K) each year. Will also receive $400/month lifetime annuity payments (from CalStrs supplemental account).

Roth IRA at Vanguard: I have Target Retirement Fund 2040…should I move up to the more aggressive 2050/60…or another fund? Current balance is 70K, maxed yearly.

Roth 403b at Voya (CalStrs Pension 2): I also contribute $500/mo., and plan to max it out (18K yearly) in 3 years when I pay-off my mortgage. Balance is 6K, currently 100% in Vanguard Total Stock Market Index (VSMPX). Other VG offerings are: Developing Markets Index, Emerging Markets Index, Institutional Index, Mid-Cap Index, Small-Cap Index, REIT Index, Inflation-Protected Securities, Short-term Bond Index, and Total Bond Index. Any allocation recommendations, or stick with 100% VSMPX? Also, what is the difference between Total Stock Market Index (VSMPX) and Institutional Index (VIIIX)? Both have same expense ratio. Both funds seem similar…why would I choose one over the other, or choose both? Same question regarding the difference between Developing Markets Index vs. Emerging Markets Index?

Debt/Expenses: Mortgage 90K (current home value 500K). I know most will say it’s a bad idea to pay it off, but I like the free-and-clear peace of mind. Plan is to get rid of the mortgage within 3 years, then max out the Roth 403b yearly. Basic utilities and other living expenses total no more than 1K/mo.

Retirement Goal: Live in a better part of SoCal, where equivalent homes cost 2X more. Not likely to move elsewhere since I want to stay close to family. However, if I have at least 1 million at retirement and sell my current house, I could purchase something nice. I know the property tax will be higher, and there will be other expenses, such as medical insurance premiums. Is my financial goal of accumulating 1 million at retirement realistic?

APB
Posts: 112
Joined: Mon Apr 25, 2016 8:24 pm
Location: NYC

Re: Help with Retirement Investment for Teacher

Post by APB » Mon Mar 19, 2018 9:41 pm

Welcome!

First off, I'd direct you to the guide to asking portfolio questions: viewtopic.php?t=6212

With clearer inputs, you'll get better answers. :) Regardless, will quickly address my opinions on some of your questions:

1) How aggressive should your investing be?

Given that you do not have dependents, and you will retire with a $85K pension, you likely have the capacity to take on more risk, but that's a personal question.

2) What types of things should you invest in?

I'd recommend you read up on the three-fund portfolio. You'll notice that Target Retirement 2040 is made up of similar funds: https://www.bogleheads.org/wiki/Three-fund_portfolio

3) Is my financial goal of accumulating 1 million at retirement realistic?

Probably, but that depends on a variety of assumptions, including savings rate. I've done some simple math below.

Your present net worth = 500K - 90K + 70K + 6K = $486K
$1000K - $486K = $514K gap
$514k gap / 17 years = $30K / year, can you save that?

My guess is that you can, based on salary, no dependents, and living in a nearly paid off house. On top of that, your investments will also likely grow, providing further tail winds.

You actually have a better financial position than you might think. Because you have:

1) Nearly paid off house
2) Extreme job security as a teacher
3) Participated in forced savings via exceptionally generous teacher's pension

Best of luck on your journey! :sharebeer
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Mon Mar 19, 2018 9:53 pm

Thank you, APB, for your input and links! Will definitely read up. :thumbsup

krow36
Posts: 1774
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Help with Retirement Investment for Teacher

Post by krow36 » Mon Mar 19, 2018 10:18 pm

TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm
Roth IRA at Vanguard: I have Target Retirement Fund 2040…should I move up to the more aggressive 2050/60…or another fund? Current balance is 70K, maxed yearly.
I think the 2040 TR fund at 85% stocks, 15% bonds is very aggressive. You might consider picking a TR fund with an asset allocation of 70/30. It's a personal decision that no one can make for you. If your stock funds dropped 50% in value, would you sell?
Roth 403b at Voya (CalStrs Pension 2): I also contribute $500/mo., and plan to max it out (18K yearly) in 3 years when I pay-off my mortgage. Balance is 6K, currently 100% in Vanguard Total Stock Market Index (VSMPX). Other VG offerings are: Developing Markets Index, Emerging Markets Index, Institutional Index, Mid-Cap Index, Small-Cap Index, REIT Index, Inflation-Protected Securities, Short-term Bond Index, and Total Bond Index. Any allocation recommendations, or stick with 100% VSMPX? Also, what is the difference between Total Stock Market Index (VSMPX) and Institutional Index (VIIIX)? Both have same expense ratio. Both funds seem similar…why would I choose one over the other, or choose both? Same question regarding the difference between Developing Markets Index vs. Emerging Markets Index?
Institutional Index is a S&P 500 Index fund, in other words a large cap fund. The Total Stock Mkt fund includes the S&P 500 stocks but also includes mid and small cap stocks. TSM covers all domestic stocks, based on capitalization (total value of their stocks).

You could also contribute to a CalSTRS Pension2 457 plan, saving another 18.5k. Have you considered it?

User avatar
mhadden1
Posts: 330
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Help with Retirement Investment for Teacher

Post by mhadden1 » Mon Mar 19, 2018 10:29 pm

TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm
Retirement: Will retire in 17 years (age 62) with a CalStrs pension of $85K/year in today’s dollars, and 2% increase (of $85K) each year. Will also receive $400/month lifetime annuity payments (from CalStrs supplemental account).
In my part of the forest, a person can live very comfortably on this excellent pension. I know that SoCal has higher living costs, particularly housing, but I assume that even there the pension provides a nice income floor. With most or all expenses covered by the pension, and with retirement goals to reach for, I would be comfortable choosing an aggressive asset allocation. In fact I might well choose (dare I say it) 100% equities for retirement accounts. OTOH an AA of 80/20 has only slightly less expected returns and quite a lot less volatility. Definitely room for different opinions, but for me the great pension is the clincher.

I know nothing about the details of California pensions - probably any qualms should be reflected in the AA choice. Also the AA can be adjusted if something changes about the pension track.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

advice789
Posts: 61
Joined: Mon Jan 30, 2017 1:47 am

Re: Help with Retirement Investment for Teacher

Post by advice789 » Mon Mar 19, 2018 10:44 pm

APB has provided you solid advice to your questions 1 and 2. A couple of other thoughts

A) Your mention a pension. As this is government funded, you may want to diversify your investments away from the related Govt. This implies lower or no government bonds from the state or insurance company that will fund your pension. Diversity your risk

B) You mention your pension will increas 2% a year. If your pension plan provides for increases based on the CPI, that is useful to maintain your family's purchasing power.. If your pension plan does not increase by the CPI and instead, 2% a year, that is useful but there is a risk that inflation maybe more than 2%. Say inflation is 6% a year vs 2% a year in your retirement.. Then, your purchasing power will decline. Doing a quick match check, over 10 years, the 85k pension would see a 32% reduction in purchasing power at 6% inflation vs 2% infation. Over the last number of years, inflation has been very low. Difficult to know future inlation. Investment that provide for inflation protection has value. Others will have a better view of investment that perform for inflation protection.

Overall, you are within striking distance of your goals. Am sure many would like to be in your position. For me, wish i had your medical pension.

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Mon Mar 19, 2018 10:53 pm

krow36 wrote:
Mon Mar 19, 2018 10:18 pm
If your stock funds dropped 50% in value, would you sell?
Nope! I'd buy more. :D
You could also contribute to a CalSTRS Pension2 457 plan, saving another 18.5k. Have you considered it?
Yes, I've considered that, if there is a Roth option. Will definitely look into it after maxing out my Roth 403b. Thank you! :happy

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Mon Mar 19, 2018 11:00 pm

mhadden1 wrote:
Mon Mar 19, 2018 10:29 pm
I would be comfortable choosing an aggressive asset allocation. In fact I might well choose (dare I say it) 100% equities for retirement accounts. OTOH an AA of 80/20 has only slightly less expected returns and quite a lot less volatility. Definitely room for different opinions, but for me the great pension is the clincher.
I agree! My Roth 403b is 100% VG Total Stock Market Index. My Roth IRA is 85/15. Thank you for your input. :)

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Mon Mar 19, 2018 11:26 pm

advice789 wrote:
Mon Mar 19, 2018 10:44 pm
A) Your mention a pension. As this is government funded, you may want to diversify your investments away from the related Govt. This implies lower or no government bonds from the state or insurance company that will fund your pension. Diversity your risk
Interesting thought. I am not experienced in investing to choose individual stocks and bonds, so I opted for all-in-one diversified funds in my retirement accounts, though I do not know if they hold any govt bonds.
B) You mention your pension will increas 2% a year. If your pension plan provides for increases based on the CPI, that is useful to maintain your family's purchasing power.. If your pension plan does not increase by the CPI and instead, 2% a year, that is useful but there is a risk that inflation maybe more than 2%. Say inflation is 6% a year vs 2% a year in your retirement.. Then, your purchasing power will decline. Doing a quick match check, over 10 years, the 85k pension would see a 32% reduction in purchasing power at 6% inflation vs 2% infation. Over the last number of years, inflation has been very low. Difficult to know future inlation. Investment that provide for inflation protection has value. Others will have a better view of investment that perform for inflation protection.
No, the 2% increase is not based on the CPI. But, I did find this from the CalStrs website" The purchasing power protection program is a supplemental benefit paid quarterly if the value of the initial pension amount falls below 85 percent of value, as measured by the California Consumer Price Index once the 2 percent annual benefit adjustment is added to the member’s pension."

User avatar
CyclingDuo
Posts: 1590
Joined: Fri Jan 06, 2017 9:07 am

Re: Help with Retirement Investment for Teacher

Post by CyclingDuo » Tue Mar 20, 2018 12:32 am

TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm
I am a newbie to investing. I have made a lot of mistakes in the past, and taking action to improve my financial future by reading blogs and lurking on these boards. Please evaluate my financial situation below and let me know if my goal of accumulating 1 million at retirement is possible. Thanks in advance!
It's absolutely doable based on your salary, no children, and current expenses you listed.

This chart fits you more than the second one below it, because the assumption is you would amass the $1M by age 63 (you mentioned retiring at age 62). It assumes a 8% return which is perhaps a tad aggressive. The second chart assumes 6% rate of return which might be more realistic when asset allocation is factored into the equation.

$2321.68 per month (could divide the monthly amount between your 403b and the rest in a 457b and or Roth IRA) would get you to a $1M balance by retirement.

Image

This chart shows if you were starting with $0, and how much you would have to invest every month at a reasonable 6% rate of return based on your age to reach $1M by retirement. I believe it is assuming retirement would be at 65, hence the lower monthly amount.

$2153.54 per month (could divide the monthly amount between your 403b and the rest in a 457b and or Roth IRA).

Image
http://www.businessinsider.com/compound ... ent-2014-3

In both cases, once you hit age 50, you are allowed to put $24.5K a year into your 403b compared to under age 50 where the limit is now $18.5K. If you have a 457b plan as well, you could max that out in addition to the 403b. This would allow you to sock away $37K now ($18.5K in your 403b and $18.5K in your 457b). That would certainly be better than the amounts listed in both of the above charts for age 45 to help you achieve your goals. If it was traditional 403b and 457b (as opposed to the Roth 403b you mention), it would lower your current taxes. You could also contribute an additional $5500 into a Roth IRA (goes up to $6500 once you hit age 50).

In short - plenty of ways for you to amass your $1M in the next 17 years using your 403b, a 457b, and a Roth IRA.

TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm
Age/Salary: 45 year-old teacher in California. $96K/year. Single, no children.

Retirement: Will retire in 17 years (age 62) with a CalStrs pension of $85K/year in today’s dollars, and 2% increase (of $85K) each year. Will also receive $400/month lifetime annuity payments (from CalStrs supplemental account).

Roth IRA at Vanguard: I have Target Retirement Fund 2040…should I move up to the more aggressive 2050/60…or another fund? Current balance is 70K, maxed yearly.

Roth 403b at Voya (CalStrs Pension 2): I also contribute $500/mo., and plan to max it out (18K yearly) in 3 years when I pay-off my mortgage. Balance is 6K, currently 100% in Vanguard Total Stock Market Index (VSMPX). Other VG offerings are: Developing Markets Index, Emerging Markets Index, Institutional Index, Mid-Cap Index, Small-Cap Index, REIT Index, Inflation-Protected Securities, Short-term Bond Index, and Total Bond Index. Any allocation recommendations, or stick with 100% VSMPX? Also, what is the difference between Total Stock Market Index (VSMPX) and Institutional Index (VIIIX)? Both have same expense ratio. Both funds seem similar…why would I choose one over the other, or choose both?
VIIIX is the S&P 500. Both are good, but the Total Stock Market is more diversified including mid and small caps.

We bolded out the interesting funds - to us - if you wanted to go a typical Boglehead's favorite asset allocation.

https://www.bogleheads.org/wiki/Three-fund_portfolio

Since you don't have the Total International Stock Market Index, a combination of Developing and Emerging Markets would have to be used to approximate it. It wouldn't be the same as Total International Stock Market Index, but it would cover about 82% of it which is not too bad.

https://www.bogleheads.org/wiki/Approxi ... ock_market

We underlined the REIT fund as well which is a part of the Core Four Fund that Rick Ferri has discussed on the forums and at the Boglehead conferences in years past. Scroll down on the Lazy Porfolios page to see the Core Four that includes the REIT fund.

https://www.bogleheads.org/wiki/Lazy_portfolios

TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm

Debt/Expenses: Mortgage 90K (current home value 500K). I know most will say it’s a bad idea to pay it off, but I like the free-and-clear peace of mind. Plan is to get rid of the mortgage within 3 years, then max out the Roth 403b yearly. Basic utilities and other living expenses total no more than 1K/mo.
The mortgage is probably at a low interest rate. Plenty of time to be free and clear for that, but you're running out of time to get money working for you in the invested portion of your plan. The more you sock away now in the 403b/457b/Roth IRA, the more power of time and compounding will be on your side to hit that $1M goal. We'd opt for getting at least $18.5K into your 403b this year rather than paying off your mortgage. (you quoted $18k, but the maximum contribution per plan went up $500 for 2018). In fact, we'd go nuclear and max out the 403b, put some more in a 457b, and max out your Roth IRA.
TeacherInCa wrote:
Mon Mar 19, 2018 8:48 pm
Retirement Goal: Live in a better part of SoCal, where equivalent homes cost 2X more. Not likely to move elsewhere since I want to stay close to family. However, if I have at least 1 million at retirement and sell my current house, I could purchase something nice. I know the property tax will be higher, and there will be other expenses, such as medical insurance premiums. Is my financial goal of accumulating 1 million at retirement realistic?
You'll have Medicare at 65, so your premiums would be for the gap years between age 62 and 65.
Last edited by CyclingDuo on Tue Mar 20, 2018 1:00 am, edited 1 time in total.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

duuuuuude
Posts: 36
Joined: Mon Dec 12, 2016 11:42 pm

Re: Help with Retirement Investment for Teacher

Post by duuuuuude » Tue Mar 20, 2018 12:50 am

Fellow CA Teacher here as well...

This is something that's a little nit-picky, but see if your Third Party Administrator has Vanguard as direct 403b provider. If Vanguard is on that list, your District should have a Plan ID number so you can open up a Vanguard account directly with Vanguard (via Newport Group now).

That would save you the 0.25% administrative feel Pension2/Voya charges you on top of the expense ratio. And you have access to all the Vanguard funds, not just what Pension2/Voya offers. So your current Total Market expense ratio would be 0.04% instead of 0.29%.

Over time, that 0.25% can affect your overall goals as well.

gotester2000
Posts: 504
Joined: Sun Nov 12, 2017 1:59 am

Re: Help with Retirement Investment for Teacher

Post by gotester2000 » Tue Mar 20, 2018 6:00 am

OP,

You have -

Defined job with good pay
Defined benefit pension with 2% increase
Paid off home - nearly
Single - no children

- Why would you be conservative in investments?
You can be 100% in total stock index till retirement. You can also think of crypto - 5%.

Grt2bOutdoors
Posts: 18836
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with Retirement Investment for Teacher

Post by Grt2bOutdoors » Tue Mar 20, 2018 6:09 am

gotester2000 wrote:
Tue Mar 20, 2018 6:00 am
OP,

You have -

Defined job with good pay
Defined benefit pension with 2% increase
Paid off home - nearly
Single - no children

- Why would you be conservative in investments?
You can be 100% in total stock index till retirement. You can also think of crypto - 5%.
Why stop at crypto? Why not play the horses or take weekend haunts to Vegas. If OP is talking about “investing” why mention speculative things? OP should focus on the things he can control - rate of savings, buy widely diversified funds with low expenses and don’t waste your time or money are things with no tangible value. That 5% could be the difference between $1million or less.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

gotester2000
Posts: 504
Joined: Sun Nov 12, 2017 1:59 am

Re: Help with Retirement Investment for Teacher

Post by gotester2000 » Tue Mar 20, 2018 7:05 am

Grt2bOutdoors wrote:
Tue Mar 20, 2018 6:09 am
gotester2000 wrote:
Tue Mar 20, 2018 6:00 am
OP,

You have -

Defined job with good pay
Defined benefit pension with 2% increase
Paid off home - nearly
Single - no children

- Why would you be conservative in investments?
You can be 100% in total stock index till retirement. You can also think of crypto - 5%.
Why stop at crypto? Why not play the horses or take weekend haunts to Vegas. If OP is talking about “investing” why mention speculative things? OP should focus on the things he can control - rate of savings, buy widely diversified funds with low expenses and don’t waste your time or money are things with no tangible value. That 5% could be the difference between $1million or less.
I always wonder why people who can take more risk based on income and other parameters take less, while, those who should stick to investing in bonds take significantly more risk.

If crypto fails it will be 5% of allocation , but if does well ,which is highly probable - that difference could be life changing.

I am generally conservative , it is just the risk profile that made me think so.

Grt2bOutdoors
Posts: 18836
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with Retirement Investment for Teacher

Post by Grt2bOutdoors » Tue Mar 20, 2018 7:10 am

gotester2000 wrote:
Tue Mar 20, 2018 7:05 am
Grt2bOutdoors wrote:
Tue Mar 20, 2018 6:09 am
gotester2000 wrote:
Tue Mar 20, 2018 6:00 am
OP,

You have -

Defined job with good pay
Defined benefit pension with 2% increase
Paid off home - nearly
Single - no children

- Why would you be conservative in investments?
You can be 100% in total stock index till retirement. You can also think of crypto - 5%.
Why stop at crypto? Why not play the horses or take weekend haunts to Vegas. If OP is talking about “investing” why mention speculative things? OP should focus on the things he can control - rate of savings, buy widely diversified funds with low expenses and don’t waste your time or money are things with no tangible value. That 5% could be the difference between $1million or less.
I always wonder why people who can take more risk based on income and other parameters take less, while, those who should stick to investing in bonds take significantly more risk.

If crypto fails it will be 5% of allocation , but if does well ,which is highly probable - that difference could be life changing.

I am generally conservative , it is just the risk profile that made me think so.
Why 5%? Why not 1%? Long shot bets should not require or need allocations of 5% to be highly profitable. It is plain and simple greed which drives this speculative equation. Think of the riches! Only no one ever thinks of the alternative scenario.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

advice789
Posts: 61
Joined: Mon Jan 30, 2017 1:47 am

Re: Help with Retirement Investment for Teacher

Post by advice789 » Tue Mar 20, 2018 9:34 am

Positive to hear your pension has a purchasing power protection feature. Given feedback above from others, your pension and paid house allows you to take more risk.. A higher stock allocation offers upside with the downsides hedged by your pension and debt free home.

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Tue Mar 20, 2018 8:52 pm

CyclingDuo wrote:
Tue Mar 20, 2018 12:32 am
VIIIX is the S&P 500. Both are good, but the Total Stock Market is more diversified including mid and small caps.
Since you don't have the Total International Stock Market Index, a combination of Developing and Emerging Markets would have to be used to approximate it. It wouldn't be the same as Total International Stock Market Index, but it would cover about 82% of it which is not too bad.
CyclingDuo, thank you for the detailed reply and graph! :D I will stick with Total Stock Market Index (VSMPX) since it's more diversified than VIIIX. However, does Total Stock Market contain only US stocks or some international? If not, what do you think of this allocation: 70-80% VSMPX, and remaining 20-30% mix of Developing and Emerging Markets? I want to be aggressive, so not too sure about adding in Total Bond Index.
The mortgage is probably at a low interest rate. Plenty of time to be free and clear for that, but you're running out of time to get money working for you in the invested portion of your plan. The more you sock away now in the 403b/457b/Roth IRA, the more power of time and compounding will be on your side to hit that $1M goal.
I absolutely agree with you. Just hate debt hanging over my shoulders. :annoyed It will take me 3 years to pay off the mortgage, so it would be interesting to plug in the numbers and see the outcome and effect of this 3-year period.

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Tue Mar 20, 2018 8:59 pm

duuuuuude wrote:
Tue Mar 20, 2018 12:50 am
Fellow CA Teacher here as well...

This is something that's a little nit-picky, but see if your Third Party Administrator has Vanguard as direct 403b provider. If Vanguard is on that list, your District should have a Plan ID number so you can open up a Vanguard account directly with Vanguard (via Newport Group now).

That would save you the 0.25% administrative feel Pension2/Voya charges you on top of the expense ratio. And you have access to all the Vanguard funds, not just what Pension2/Voya offers. So your current Total Market expense ratio would be 0.04% instead of 0.29%.

Over time, that 0.25% can affect your overall goals as well.
Yes, I can invest directly with VG/Newport, however, there is no Roth option. Also, for now, Voya's 0.25% admin fee is cheaper on my small balance of 6K than Newport's $60/yr.

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Tue Mar 20, 2018 9:00 pm

gotester2000 wrote:
Tue Mar 20, 2018 6:00 am
OP,

You can also think of crypto - 5%.
Vegas is more fun! :wink:

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Tue Mar 20, 2018 9:11 pm

gotester2000 wrote:
Tue Mar 20, 2018 7:05 am
I always wonder why people who can take more risk based on income and other parameters take less,
Because we're afraid to lose money. :shock:
...while, those who should stick to investing in bonds take significantly more risk.
Because we're trying to make-up for the earlier years we lost being too conservative or not investing at all. :oops: LOL

Ron Ronnerson
Posts: 896
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Help with Retirement Investment for Teacher

Post by Ron Ronnerson » Tue Mar 20, 2018 9:45 pm

I’m a teacher in the Bay Area. My salary is about the same as yours. I’m one year younger and am 18 years away from retirement. My CalSTRS pension should look similar to yours (right around $85k if I retire at age 61.5 and select the 100% option for my wife so that she continues to receive my full pension if I predecease her). Since some of my numbers are similar to yours, I though I’d let you know what I do in case it’s helpful as a point of comparison. I’ll leave out my wife’s retirement contributions (she’s not a teacher) so you can get more of an apples-to-apples comparison.

I’ve been doing the following in recent years:
Contribute 10.25% toward CalSTRS pension
Then max out a Roth IRA account near the start of the year
Next, put the max in a CalSTRS Pension 2 457b account
Finally, put just enough in a CalSTRS Pension 2 403b account to come down to a lower tax bracket (last year I put $5k in there to come down into the 15% bracket)

Asset Allocation is: 50% Total U.S. Stock Market, 30% Total International Stock Market, and 20% Total U.S. Bond Market.

My plan is to increase bonds to 25% at age 45, go to 30% at age 50, 35% at age 55, and 40% at 60 and then stay there.

Our home is worth $800k and we still owe $368k. We have a 30 year-loan at 3.25% fixed. It will be paid off in 2042 and we’re in no hurry to pay it off earlier. Of course, we have a much larger balance remaining than you do and that does factor into it. If you’d like to have $1M at retirement, I really would try to put as much as I could into retirement accounts as early as possible so that compounding can do its thing.

I’m curious how you got your CalSTRS supplemental account large enough that it will pay out $400 a month. My balance in the supplemental account hasn’t changed much in the past decade. Do you teach summer school regularly or do some sort of extra duty?

All the best,
Ron

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Tue Mar 20, 2018 10:28 pm

Ron Ronnerson wrote:
Tue Mar 20, 2018 9:45 pm
I’m curious how you got your CalSTRS supplemental account large enough that it will pay out $400 a month. My balance in the supplemental account hasn’t changed much in the past decade. Do you teach summer school regularly or do some sort of extra duty?
Yes, I performed a lot of extra duty. For a few years, I received money back from the supplemental account because it exceeded the contribution rate (not sure how that works) :? . The $400/mo. is based on CalStrs "projected balance" with interest only at age 60. The balance will be higher because I will continue to perform extra duty until retirement.

gotester2000
Posts: 504
Joined: Sun Nov 12, 2017 1:59 am

Re: Help with Retirement Investment for Teacher

Post by gotester2000 » Tue Mar 20, 2018 11:42 pm

TeacherInCa wrote:
Tue Mar 20, 2018 9:11 pm
gotester2000 wrote:
Tue Mar 20, 2018 7:05 am
I always wonder why people who can take more risk based on income and other parameters take less,
Because we're afraid to lose money. :shock:
...while, those who should stick to investing in bonds take significantly more risk.
Because we're trying to make-up for the earlier years we lost being too conservative or not investing at all. :oops: LOL
Ok - no crypto if you dont like :D

Being too conservative actually loses you money - a lot of it in long term.

User avatar
CyclingDuo
Posts: 1590
Joined: Fri Jan 06, 2017 9:07 am

Re: Help with Retirement Investment for Teacher

Post by CyclingDuo » Wed Mar 21, 2018 12:35 am

TeacherInCa wrote:
Tue Mar 20, 2018 8:52 pm
CyclingDuo, thank you for the detailed reply and graph! :D I will stick with Total Stock Market Index (VSMPX) since it's more diversified than VIIIX. However, does Total Stock Market contain only US stocks or some international? If not, what do you think of this allocation: 70-80% VSMPX, and remaining 20-30% mix of Developing and Emerging Markets? I want to be aggressive, so not too sure about adding in Total Bond Index.
TSM is all US stocks. Keep in mind that a hefty percentage of the US large caps in that index fund garner a good portion of their business overseas. That being said, whether you go 70/30 or 80/20 for the equity portion between US/International - the ratio will have close to similar results. I understand - especially with your pension - why you are skeptical on the Total Bond Index. Think of the bond percentage (probably only 15-20% at your age) to act as a ballast. As a guide, if you look at the Vanguard Target Fund 2040 (the one designed for your age), it currently holds 15% in bonds. In your case, if the equity markets tank due to a recession, you could rebalance using the bonds to increase your equity percentage when the stocks are on sale. Then rebalance when stocks climb back up to your desired asset allocation. 85/15 or 80/20 equity/bond would still be an aggressive portfolio. Ask those of us who were invested and lived through the 2000-02, and 2007-09 bear market recessions what it feels like to have an aggressive portfolio suffer a 50-57% haircut. :beer

https://www.yardeni.com/pub/sp500corrbear.pdf

TeacherInCa wrote:
Tue Mar 20, 2018 8:52 pm
I absolutely agree with you. Just hate debt hanging over my shoulders. :annoyed It will take me 3 years to pay off the mortgage, so it would be interesting to plug in the numbers and see the outcome and effect of this 3-year period.
https://www.investor.gov/additional-res ... calculator

Going with a 7% historical return...

If you start saving a total of $2321 a month now every month in your 457/403/Roth IRA with an annual 7% return, you have the potential to accumulate $89,541 in three years. That's too short of a time frame to rely on return rates which is why I say potential to accumulate. Better to use longer terms to smooth the market swoons out. Waiting to start after three more years shortens your accumulation phase to only 14 years meaning you would have to invest $3175 a month to reach the same goal at retirement that the $2321 would provide if you started now. In other words, it would cost you $854 dollars a month more based on the 7% return and when you start time frame.

Home as investment? Outside of it being a nice roof over your head, always think of it as....

https://www.usatoday.com/story/money/co ... 340516002/
"Everywhere is within walking distance if you have the time." ~ Steven Wright

TeacherInCa
Posts: 14
Joined: Thu Jun 22, 2017 9:15 am

Re: Help with Retirement Investment for Teacher

Post by TeacherInCa » Wed Mar 21, 2018 6:04 pm

CyclingDuo wrote:
Wed Mar 21, 2018 12:35 am
if the equity markets tank due to a recession, you could rebalance using the bonds to increase your equity percentage when the stocks are on sale. Then rebalance when stocks climb back up to your desired asset allocation. 85/15 or 80/20 equity/bond would still be an aggressive portfolio. Ask those of us who were invested and lived through the 2000-02, and 2007-09 bear market recessions what it feels like to have an aggressive portfolio suffer a 50-57% haircut. :beer
As a newbie to investing, the idea of rebalancing using bonds in a down market never crossed my mind! Thank you! Will be allocating 80% TSM Index, and 20% Bond Index.
Waiting to start after three more years shortens your accumulation phase to only 14 years meaning you would have to invest $3175 a month to reach the same goal at retirement that the $2321 would provide if you started now. In other words, it would cost you $854 dollars a month more based on the 7% return and when you start time frame.
Great argument for not paying off the mortgage early! Was hoping a 3-year wait would not make such a significant difference :annoyed

Post Reply