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403(b) Contribution Limit Increases to $19,000 for 2019

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Does anyone on this board max out their 403b contributions?  If so, how?  Spouse with higher income? Side job?  LCOL area & small budget?

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My wife assures me that we did max out my 403b but not hers, back in the late '70s, '80s and early '90s. We retired in '92. Other factors:

kids or not? (not)

working spouse with lower income? (yes)

home owners or renters? (renters, still)

lots of extra credits that increased my salary from the start (yes)

enough years teaching that salary increased until it was maxed at 15 yrs (yes)

frugal life style (yes)

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10 hours ago, Imua808 said:

Does anyone on this board max out their 403b contributions?  If so, how?  Spouse with higher income? Side job?  LCOL area & small budget?

  1. Because of my lifestyle as a couple, my hubby and I had to live in expensive Los Angeles, and California. But I also LOVE California. 
  2. I never maxed out my 403(b) because I couldn't afford to. I don't remember if spouse maxes his out either. 
  3. Frugal, absolutely! For example, I never bought a new car (hubby bought one new) during our working years. Since retiring I bought two new 100% electric cars. To buy new cars would mean that I could not afford to invest in my 403(b). Car payments are hideous and so unnecessary. Here in California cars last many years because of the obvious, great climate. 
  4. Increase my salary ASAP by taking worthwhile workshops and earning extra credentials such as an administrative credential. 
  5. Made my money mostly from California real estate as landlords by renting out part of our primary house and a Palm Springs condo for many years. 
  6. Both of us worked until Dan, my late hubby retired at 59, and I was six years younger, I worked for 8 more years before retiring when I just turned 61. 
  7. GOOD LORD! NO KIDS! I love teaching other people's kids. Parenting is very expensive too, not just dollars but your time. When friends had a baby, they were gone forever, not everyone who had kids but some disappeared forever.  
  8. No side job, just a side passion of reforming the 403(b). I loved my free time during my working years, its valuable. The financial independence (FI and FIRE) community knows this 100%! As teachers, we have a little more time than most other professionals. And that was valuable for doing things that I like, going to school, getting more degrees, increasing my salary, and trying to reform the 403(b). If I tried to turn an activity I loved into a side job making money, the dynamic changed and the enjoyment plummeted. That's my experience, but I know that most other people love what they do and they get paid. That was not my experience, but that's me. For example, I would not like being a financial adviser, good grief, the very idea of managing somebody else's money! Heaven forbid. I just love sharing what I do and if others learn something, that's just wonderful. 

 

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I'm single and I max out my 403B and Roth IRA, but this is fairly recent.  In my early years of teaching I put most of my extra money into paying off my mortgage as quick as possible, which in retrospect probably wasn't the best financial decision.

 

 

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A teacher here in Orlando might make 40k. Let’s tabulate some rough expenses:

Housing- 13.2k

Rough Tax Estimate- 6k

Transportation- 3.6k

Food- 3.6k

Basic Utilities- 2.7k

That leaves us with 10.9k and we haven’t even budgeted anything for kids, pets, healthcare, clothes, vacations, entertainment, mundane expenses like toilet paper, mandatory pension contributions, and so forth. So I don’t see how this 40k hypothetical teacher could possibly max out their 403b.

My wife can max her 403b because I pay the majority share of our shared expenses. Plus she is an assistant principal.

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Yes  wife and me  eventually maxed out our 403bs (although in later years we went 457b with state plan)plus the catch up allowed but not at first. We gradually increased our  contributions and it wasn't until about 6-7 years before retirement that we went full throttle.  I don't believe you need to max it out from the get go, just make significant increases as you can year by year. Instead of  saving the full amount allowed, I put extra cash towards my mortgage and always deposited my tax refunds in Roth or taxable accounts. Having a wife or partner working with you towards your goals makes a big difference. Had my wife been a big spender I might not be where I am today financially. Having two educational pensions to live on makes a huge difference too. Also lets' not forget, investing in a superior low cost 403b option pays huge dividends over time. Its like putting extra money in the bank compared to giving it away to a commissioned agent. 

MNGopher ,

I am not sure   having worked to pay off your mortgage was a bad move. For years that was a big discussion as to which was a better move, "Should I make extra payments towards paying off my house or invest more in  the stock market ?" I am not sure which is the better choice actually. The fact you are doing both now or did both is smart in my opinion. Nothing worse than retiring with a mortgage in my opinion. i suggest doing both at the same time makes good sense because the stock market performance isn't always guaranteed but something totally paid off is  an absolute.

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Quick thoughts on carrying a mortgage:

Mortgage rates over the last few years have been only a bit higher than inflation. Obviously stocks over a 30 year window do much better than that.

People seem to like paying off their mortgage because it gives them the feeling of not having expenses. However, property taxes, insurance, HOA, etc are still significant. It’s a wealth tax that never disappears, mortgage or not.

Unless you’re going to be buying and selling houses every few years, then it is hard to financially justify paying off the mortgage instead of investing.

...the best justification I’ve read is that emotions aren’t logical and people are paying to rid themselves of the emotional weight a mortgage places on them. 

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While paying into your 403b retirement account is  certainly a better use of your cash than paying off your mortgage, ideally you want to max out your retirement savings AND accelerate your mortgage payments.  A good way to reduce interest payments(which is like a fee) is to make extra payments to pay off the principal sooner. That in itself is a saving method.  

Truth is most teachers probably can't max out their 403b in their early to middle working years if at all, so in many ways this discussion is a non starter.For those that can, go for it but keep in mind how much you end up paying in interest if you keep a mortgage to term. That is very frightening amount of money you just gave away in interest. Granted  though ,you do get a tax deduction on your mortgage interest.Still,  I say do both  because even though putting it all in a 403b instead might makes the most sense, ideally both should be worked on together even if it means putting a little less in your 403b to accomplish it. That may seem illogical from a historical and mathematical point of few but its what that  little financial advisor in my head tells me. It worked for me.

 

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I held my mortgage from 1995-2007.  It started out at 7.5% and I refinanced once at I think 6.25%  I never crunched the numbers exactly but I probably would have done slightly better in the stock market during that time period instead of paying extra on the mortgage.  I didn't have any low priced 403B options at that time though, so it's kind of a moot point.  I suppose I could have started a Roth account sooner.

During the last 10 years, with the bull market and lower mortgage interest rates it's clear investments would have given better returns than paying off the mortgage.  The next 10 years...who knows?

 

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One of the mistakes we made is not paying off the mortgage when we could during the hight of the tech bubble when our investments grew to 1.5 million in early 2000. Our mortgages were $72000.  Yeah, we also rationalized "why pay off the mortgage when our investments were making a lot more than the low-interest rate of our mortgages?" To decide now that you will never pay off your mortgage no matter is a mistake based on my experience. We do not know the future. Prepare for a huge growth in your investments at any time, and if you get a chance to pay all debts off earlier than you planned, pay them off. You will not regret it. It opens up other opportunities. Of course, the tech bubble was a rare event, but it did happen, and we kicked ourselves that we did not pay the mortgage off.

Eventually, we paid off both mortgages in 2004 when I was 56. But our investments were about half of 2000 high.  Still, it was a relief! We had a primary house in L.A. and a Palm Springs vacation condo (which we always rented out during the winter to "snowbirds").

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Sure I’d love to be able to predict when a crash is coming, followed by another crash just a few years later.

Since market timing is a loser’s game, I’ll plan based on the expected 30 year returns of stocks compared to the known 30 year cost of a mortgage.

I just think it is important to be clear about this issue, if you’re going to own your home for decades (and probably even a single decade), especially if your interest rate is near inflation, then paying off the mortgage is very likely an inferior choice.

The argument for that path is based on emotion, which may be reason enough to do it, but people should be clear about that.

People should also be clear that you’re most likely going to lose money on your house even if the price rises. Interest, property tax, HOA, maintenance, real estate agent fees, government fees for selling/buying, and so forth kill you. Maybe you’ll break even when compared to renting after ten years or so. Most people don’t understand this. 

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3 minutes ago, EdLaFave said:

Sure I’d love to be able to predict when a crash is coming, followed by another crash just a few years later.

Since market timing is a loser’s game, I’ll plan based on the expected 30 year returns of stocks compared to the known 30 year cost of a mortgage.

I just think it is important to be clear about this issue, if you’re going to own your home for decades (and probably even a single decade) then paying off the mortgage is very likely an inferior choice.

The argument for that path is based on emotion, which may be reason enough to do it, but people should be clea about that.

People should also be clear that you’re most likely going to lose money on your house even if the price rises. Interest, property tax, HOA, maintenance, real estate agent fees, government fees for selling/buying, and so forth kill you. Maybe you’ll break even when compared to renting after ten years or so. Most people don’t understand this. 

Yeah, couldn't agree more. Emotions are a killer to wealth building but they are also beneficial IF one is aware of their impact.

Some people consider renting instead of home ownership. At 71, I think about the benefits of renting especially in earthquake country, but for other reasons too. But I would not recommend either/or to anybody. 

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3 hours ago, EdLaFave said:

People should also be clear that you’re most likely going to lose money on your house even if the price rises. Interest, property tax, HOA, maintenance, real estate agent fees, government fees for selling/buying, and so forth kill you. Maybe you’ll break even when compared to renting after ten years or so. Most people don’t understand this. 

You may be right Ed. I must admit I never realized at the time I purchased my home all the costs involved in keeping it up plus taxes which I just had to cough up again just recently.

Still, my house has quadrupled in value over 30 years.  Its' paid off. Yup its an emotional relief!!  I've done many of the repairs and upkeep myself. Taxes you can't escape but Its worth it because a home has intangible value. I live in a nice safe woody area and my neighbors are trustworthy people. Living in an apartment doesn't sound appealing to me.or making economical sense based on the rent and the constant turnover of residents . I like my large yard because I like to garden and landscape. It keeps me moving.  I found when I got the house mortgage  out of the way I had more money to invest . If I lived in a complex I would still be paying rent which also goes up.

Even though investing in stocks may make more sense in growth terms , we  also have to pay dividend and capital gains taxes and fees on your funds. Even a tax sheltered 403b has a tax liability  eventually.  Everything has its pros and cons. Nothing is 100% free.

I feel like Steve. I was stubborn about paying off my mortgage when the markets were soaring.  When the markets tanked I kicked myself for not having paid it off. I saw thousands of dollars disappear in the crash. My original inclination to pay off the mortgage would have made great sense .

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Keep in mind a dollar 30 years ago is now worth approximately $2.11.

The expenses associated with investments are smaller and the gains are larger.

There are many valid non-financial reasons to buy a house, but we shouldn’t trick ourselves. Taking a vacation makes no financial sense, but it doesn’t mean we shouldn’t do it, but we should be aware of the price we’re paying and not just assume we’re coming out ahead.

You should all forgive yourself for lacking the ability to time the market. It’s like kicking yourself for not successfully going all in on each day’s winningest stock. You’re comparing your actions against an impossible standard with 20/20 hindsight.

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