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Everything posted by EdLaFave

  1. Let me go further than Tony has. There is no guess work here. We have the data. This is a proven winner. Google it and see or start with what Vanguard has to say on the issue: https://institutional.vanguard.com/iam/pdf/CIRAE.pdf
  2. I don’t think your hopeful suggestions are hopeful enough. I don’t believe in negotiating with myself. This is where I’d start: 1. Fidelity is the only approved vendor. 2. The Fidelity plan only offers target date index funds and the three fund portfolio. 3. Employees are automatically enrolled into a target date fund based on their age and they default a percentage of their pay into the plan. Then the negotiation moves from there. I certainly wouldn’t start by conceding the approval of exploítative plans in the hopes of stopping agents from being on campus.
  3. I totally understand the throwing up and collapsing aspect of the story. Put me under a bunch of pressure and conflict in an environment where neither fight or flight are legitimate options and my body wouldn’t be able to handle it. I agree with MNGopher, living on 17k/year per person is risky. Perhaps if they’re living in inexpensive places abroad then it is more reasonable? I also wouldn’t feel comfortable with the 3.5% withdrawal rate for a 50-70 year retirement. The Early Retirement Now “study” found that a 75% stock portfolio has a 7% chance of losing value over that period and a 3% chance of reaching $0. I feel much safer at a 3% withdrawal rate.
  4. I don’t have any personal experience with this. Intuit answered this question for a 401k, which I imagine is very similar to a 403b. https://ttlc.intuit.com/community/retirement/help/what-happens-if-i-have-a-401-k-loan-but-later-lose-or-quit-my-job/00/25699 If I were you I’d start googling, read the paperwork you presumably signed, and get a hold of the institution you took the loan from to get details on the exact terms.
  5. Sorry to read that. In another life I’m an uncompromising union boss that is entirely focused on teacher pay, benefits, and working conditions. I am 100% behind unions, but sometimes the things they focus on really upsets me.
  6. So most people don’t know math. Depressing. I’m always shocked when I hear a full grown adult claim they never use algebra. How different is their life than mine? I use it to properly space out medications, to water and treat my lawn, to plan my investments, to track and adjust weight loss, to adjust my weight lifting program, to determine if purchases (house, car, AC, etc) are worthwhile, to order the proper amount of mulch, and on and on it goes. I guess everybody else is just winging it?
  7. I don’t entirely share this quality, but I can fully understand the basic human desire to do and accomplish things. What fascinates me is that so many people choose to direct this energy towards their employer’s goals and interests rather than their own. There’s a pretty big difference between my little Millennial bubble, which is overpopulated with software engineers, and my perception of the general population. In my bubble there is a significant minority (40% maybe) of people who believe: 1. Corporations are amoral at best and immoral at worst. 2. The short term profit motive combined with #1 cultivates a culture where employees are objects standing in the way of additional profit. 3. The economy is structured against workers and it’s only going to get worse. These folks tend to complain loudly and have no problem envisioning and planning for their lives post-FIRE.
  8. The author claims: 1. Identity crisis. 2. Lack of productivity leading to doubt, depression, and negativity. 3. People won’t like you because you’re retired. 4. You won’t be as happy as you think (or happy at all) and then you’ll beat yourself up. 5. With nothing to do, you’ll question the point and hollowness of life. I feel like 1, 2, and 5 are all the same point. We really have conditioned society into becoming human machines that find joy in maximizing productivity for their employers. It’s like Stockholm Syndrome, just wild. I think 3 just saves you time from dealing with folks you’re better off avoiding. 4 is interesting because of course you adjust to happiness, but a lot of people struggle to adjust to their soul sucking jobs. The choice seems obvious.
  9. So you’re going to be retired and NOT receive a pension for several years? I think I’d basically ignore what is or isn’t actuarially neutral for them and think entirely about my circumstances. The most naive approach is to estimate when you’ll die and calculate (in inflation adjusted terms) which payout gave you more money. Of course this is incomplete because you’d have to model opportunity cost. Delaying will lower your taxes now, but increase them later. Delaying might mean that you can’t take the early pension payouts and invest them for a nice return. I’m sure there are more opportunity costs. If you want to be precise you’d have to build them all into a model and see what looks better. Of course at that point you’d want to tweak your assumptions (like life expectancy) to see how much they affect the end result...that’ll allow you to better account for risk/uncertainty. For example it probably wouldn’t be worth delaying to get an extra dollar if your assumptions are right, but risk 100k if your assumptions are wrong.
  10. I suspect I’ll hold the minority opinion here, I didn’t find the 5 listed arguments to be particularly persuasive: 1. This argument is as old as time and I’m tired of hearing it. Every generation gets labeled as inferior to the last, yet somehow when you look through the volatility, civilization manages to improve rather than regress. In this case, I guess she is arguing that this generation of parents/society is getting it all wrong relative to older generations. I’m not buying it. 2. She didn’t even provide evidence that relationship building is hindered by preferring teachers with a basic understanding of technology or giving children one to one access to technology. She just states it as fact, a fact that I suspect isn’t actually true. The access I had to technology as a student changed my life and prepared me for my career as a Software Engineer. 3. She seems to be arguing that training diminishes quality instruction rather than adding to. Obviously that isn’t generally true. It would be reasonable to ask for better training or the ability to “test out” of training that is beneath you, but to argue that training hurts quality instruction conflicts with every experience I’ve ever had with training/education. It’s an investment that generally pays off because you’re able to stand on the knowledge and experience of so many people who are probably smarter than you. 4. I have no idea how she proposes we hold parents accountable. While I sympathize with the annoyances that the general public (in this case parents) can often provide...that’s part of the job of a teacher. 5. It isn’t clear what she needed for the kids that was being withheld. I guess dealing with all of the sad aspects of society (poverty, disability, etc) and seeing that show up in children had a negative affect on her mental state, which then affected her physical state. That’s fine, I sympathize. There are lots of jobs I’m not emotionally capable of holding, but it is because of who I am, not a defect in the job.
  11. I’m confused. The Facebook post author is a different person than MoeMoney, right?
  12. That should certainly create uncertainty on their end, but such is the nature of predictions. For most professions, the employer absolutely has immense control. To add to that general topic, I’ve argued (to companies) that making certain changes to directly benefit employees would provide an indirect, but significant benefit to the company. They disagreed because they viewed everything as a zero sum game; if the employee benefits, it can only be at the expense of the company. Naturally they came to view me as their opposition.
  13. It’s true that the income taxes are being paid, but as long as the money remains in the Roth account, the heir isn’t paying taxes on distributions. I’m fully in support of any policy that prevents generational wealth and dynasties.
  14. Why were you surprised that your decision to quit caught them off guard? If I were them, I would have predicted that you’d stay put (possibly finding a way to earn the other half credit through sub-ing or whatever) for two reasons: 1. You love the work and want to continue working even after having quit. 2. It would have doubled your pension, which is of course equivalent to earning a massive sum of money. The blog kind of reads like there may be some unstated reasons for being unhappy.
  15. If you inherit an IRA from somebody other than your spouse then you have to setup a plan to withdraw money from the account. https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules The link above indicates the lifetime expectancy option still exists. I think you’re referring to legislation that may or may not pass and whose differences between the House and Senate has yet to be rectified. I believe the House is trying to do away with the lifetime expectancy for non-spouses and you’d have 10 years to deplete the account. I believe the Senate is allowing the first 400k to be handled via lifetime expectancy and the rest has to be depleted in 5 years. I understand this passed with overwhelming support in the House, but I’m not ready to bet that it becomes law. Keep watching it, we’ll see. https://www.forbes.com/sites/leonlabrecque/2019/04/23/new-proposed-stretch-ira-rules-will-have-a-big-effect-on-iras-and-it-could-cost-your-kids-thousands/
  16. I’ve taught financially illiterate people how to invest in a couple hours and I bet I could have the same outcome with children. Can they speak sophisticatedly about tax policy and the intricacies of different types of investment accounts? No, but they know that they need to invest every dollar in a target date fund or they know how to split money across three total market funds. Cutting through the financial BS on your own is tricky. Following a total market index investment philosophy that is laid out for you, well that can be done by anybody. ...people in my real life would laugh at me having faith in humanity because the bar I have set for humanity is beyond low, some may say I’m overly pessimistic.
  17. If you have a 403b with Vanguard can you utilize Vanguard’s Personal Advisor Services (PAS) for a 0.3% fee? There’s just a built in conflict of interest even for an ethical Financial Advisor because they can only sustain themselves by eating into their clients’ profits. That pill would be easier to swallow if they were bringing serious knowledge/skill to the table, but if they’re picking appropriate investments then what they’re providing can be taught to the clients in an afternoon instead of charging them a lifetime of AUM fees.
  18. I thought I read half of teachers quit within 5 years. With respect to the 30k/1M numbers, that just speaks to the reality that you need enormous capital to safely support modest annual withdrawals. 4% withdrawals are pretty safe for somebody at normal retirement age. 4% of $750,000 is $30,000. 3% withdrawals are pretty safe if you want your portfolio to last forever. 3% of $1,000,000 is $30,000. The OCPS (FL) pension does NOT come with cost of living adjustments. I suspect most employees don’t realize that...they may learn about inflation in real time as it eats them alive.
  19. That is still a large fee. If you assume the average portfolio has a 3% real return, then that fee consumes 21% of real profits on the year. Of course that compounds over time making things worse and worse for the investor. Is having such an advisor better than an advisor who takes 1-2%? I guess so. I guess losing a finger is better than losing your legs, but I’m not excited about either option. I’d never refer anybody to such an advisor.
  20. You’ll definitely want to begin tracking your spending. Without doing that, you can only guess what your retirement needs will be and there is already enough forced uncertainty in that equation. Plus the longer you track expenses, the more accurate you’ll be when it comes to estimating irregular or easily overlooked expenses. I’m confused what you mean by “saving” is that in addition to “investing”? If you only have 12k left over each year after taxes and spending then you won’t be building up a very big portfolio. If you will in fact receive a 30k pension (adjusted for cost of living?) then you are in great shape. Depending on your assumptions, that’s the equivalent of having a $750,000-$1,000,000 portfolio. Combine that with a modest portfolio and a medium/low cost of living retirement destination and it looks like you’re in great shape. I assume we’re talking about non-spouse beneficiaries... You’re not exactly right, google the “life expectancy method” and the “5 year method”. Bottom line: the beneficiary has to take withdrawals from the account (either spread across five years or their expected lifetime). As long as the money remains in the Roth IRA it won’t be taxed. As long as they follow the rules, it won’t be taxed when they pull it out. However, once the money is out of the Roth IRA (and presumably reinvested somewhere) it’ll be subject to taxation as any other money would be. Keep in mind that the CalSTRS2 Pension is a reasonable 457b to invest in even if you can’t get Fidelity added.
  21. This is a complex topic, but I want to be really clear that tax advantaged accounts are virtually guaranteed to be superior to a taxable account. The only reason I qualify that statement is because I suppose the government could rewrite the tax code in unpredictably insane ways. This is true because in a taxable account you ALWAYS have to pay annual tax on the distributions (dividends and capital gains generated internal to the fund) the funds give you, but in a tax advantaged account you NEVER have to pay tax on distributions. So a taxable account has higher yearly expenses and as we all know lower expenses are superior. Within tax advantaged accounts there is the debate about which is best, Roth or Traditional. The answer depends on which option will generate higher tax bills and has nothing to do with when the tax is paid. The answer is unknowable for sure because it requires knowledge of the future. I generally view this as an optimization not to get too crazy about. At any rate, I argue Traditional is very likely superior for most people and somebody wrote a blog that essentially parrots my opinions. The reason I think Tony prefers Roth and Taxable over Traditional, and correct me if I’m not being fair, is because there is an emotional benefit to paying all (most?) of your tax up front and feeling like everything you have is truly yours. However, mathematically it doesn’t matter when you pay tax in a tax advantaged account, it only matters how much you pay. I’m more than happy to dive into the dirty details if anybody would like. This is another tricky topic. The tax code treats “ordinary income” differently than “capital gains”. They each have different tax rates (generally lower for capital gains), different income brackets, and different rules for achieving the 0% rate! Distributions from a taxable account are broken up into two buckets: qualified and unqualified. The qualified portion is treated as a capital gain. The unqualified portion is treated as ordinary income. Then when you sell shares in a taxable account they’ll either be considered “long term” or “short term” depending on how long you owned the shares. Long term gains are treated as capital gains and short term gains are treated as ordinary income. If you search my post history you’ll see me talking about how to pay 0%, or close to 0%, taxes in retirement (particularly early retirement). A taxable account plays a big role in 0% tax early in the FIRE years, but you begin to pay tax later on. In my first analysis (the software I’m writing is still incomplete) the taxable account accounted for something like 80% of my tax bill while the Traditional account made up the other 20%.
  22. There is a real dilemma when it comes to starting an ethically sound advising business. You need to charge fees to support yourself and from your perspective those fees will be small, but from the investors perspective those fees will be large. The only way to solve that mathematical imbalance is through scale, but how are you going to accomplish that? Don’t let me rain on your parade. I’m just highlighting the underlying problem. Maybe there is a solution, maybe there isn’t. Maybe what you want to do is part of the solution, but I’ve focused my efforts on helping people for free and contributing to an online community where people can find help.
  23. For anybody that might be as confused as I was, even though the word “pension” is in the name, this isn’t a pension. It’s a 403b/457b program. Your logic is perfectly sound. Vanguard’s 403b is superior. However, when it comes to the 457b, CalSTRS Pension 2 is almost certainly superior to Mass Mutual and is also superior to a taxable account. At the highest level there are two types of investment accounts: taxable (no tax perks) and tax advantaged (401k, 403b, 457b, etc). Tax Advantaged accounts have contribution limits and income limits because the government wants to limit the benefits it extends. However, a taxable account doesn’t have limits of any kind. You simply go to a vendor of your choosing (Vanguard, Fidelity, etc) and fill out the paper work to open a taxable account. Then you can start funding it from a linked bank account and purchase investments. In a taxable account you’ll receive dividends/capital gains distributions every quarter based on the stock that is held internal to the fund(s) you own. You will have to pay tax on that amount every year. Additionally, if you sell shares of your fund(s) for a profit, you’ll owe tax on that amount. I can break down all of the details for you if you’d like, but that’s the main idea. I don’t, but I can teach you everything you need to know. Ask some questions. This may actually lead to me writing a blog post on this. Hearing your questions would help me do that. I don’t have the information necessary to answer that question. What will you spend per year in retirement (including healthcare)? How much are you saving per year? Depending on the age you want to retire there is a general rule (supported by math and historical data) that you’ll need 25x-33x annual expenses to “safely” retire. The earlier you retire, the more you need. There are no certainties here, only probabilities. ...when performing the previous calculation you’ll want to subtract whatever your pension and social security payout is from your annual expenses. Of course if you retire early those amounts may be diminished. If you respond with some more details, I can give a better reply.
  24. Let me know if I missed any topics/questions... 1. What should you do about your previous 403b accounts? Unfortunately, you don't know the exact yearly fees you're being charged. I documented the plan AXA offers OCPS (FL) here and the annual fees are very high. I haven't personally studied Oppenheimer, but 403bCompare indicates their fees are very high too. When deciding if you should rollover those old accounts, the question to ask is, "Where can I build a fully diversified portfolio for the lowest annual fees and is the fixed cost of leaving worth getting the lowest annual fees?" Let's start with the second part of that question first, I've never seen a surrender fee high enough (because they also come with very high annual fees) to justify staying with the old accounts for any length of time. The only exception I can imagine is if the vendor waives surrender fees when you retire or switch districts and you're planning on doing that soon. Vanguard is arguably the best 403b available in the US (Fidelity is the only competition), I documented Vanguard's plan here. Since you already have the Vanguard 403b, you're already paying the fixed $60/year fee so I see no reason you shouldn't rollover your old 403bs to that account. If the old 403bs were from a previous employer/district you also have the option to roll them over to an IRA, but I don't see that as advantageous since you already have that Vanguard 403b. Now comes the question of when you should perform the rollover. You may want to take the time to understand your plans' Surrender Fee Schedule. They'll charge you a percentage to leave, but often times that percentage gets reduced at fixed intervals. So if you can save 1% on the surrender fee by waiting a couple weeks, then wait. Otherwise, you can leave right away. Or if you don't want to even bother dealing with an investigation, just leave right away regardless. 2. Roth vs Traditional You didn't explicitly ask about this, but I believe Traditional accounts are better for most people. Later on when you have more free time, you may want to consider reading this. 3. Is a 457b advantageous for retiring early? I plan to "FIRE" so I know a bit about that life. When you retire you can withdraw money from your retirement accounts (401k, 403b, etc) without paying a penalty if you use Rule 72(t). We can really get into the weeds with discussions surrounding retiring early (I like that topic a lot), but for now suffice to say that you don't need to use a 457b for this purpose. 4. What about the Mass Mutual 457b. You need to be a bulldog in drilling them about fees. Ask them to list, in writing, every fixed fee (annual, transaction, etc), every annual fee, and every other fee (like surrender fees). I can basically guarantee you're going to be paying a lot to use their 457b. Good luck. 5. How do you get another vendor on your 457b. Well first make sure the Mass Mutual is the only vendor and make sure there isn't a state-sponsored 457b. I was able to get Vanguard and Fidelity (those are the vendor's you'll want and you already have one!) added to my district's vendor list. You can read some posts from my blog about some of the things I did during this journey. If you search my post history then you'll find me giving advice to folks trying to do the same thing and I can help you through the process and share lessons learned. Whoever told you they can't add vendors is wrong. The school district has total control over who is on the vendor list. 6. What accounts should you use? Definitely max out your IRA and Vanguard 403b. Whether or not you should use the Mass Mutual 457b depends on how expensive it is and how long you plan to remain employed at your district. A taxable account is the alternative.
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