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EdLaFave

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Everything posted by EdLaFave

  1. 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.
  2. 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%.
  3. 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.
  4. 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.
  5. 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.
  6. I think the Right would absolutely HATE universal TSP with automatic enrollment. There is a lot of truth to this, which is why I support systemic reform. However, I spend a lot of time talking to people on the right about economic issues and they fully support creating policies that favor employers and maximize corporate profits. They take pleasure in the idea of busting unions. They’d celebrate if the minimum wage was eliminated. They’re very supportive of forced arbitration. They think it is wrong and should be illegal for workers to share salary information. They view workers on strike as un-American and entitled. They’re against pensions, healthcare programs, and sometimes, to varying degrees, social security. All of that is to say, I think they’re intentionally electing people who represent those values. I’ve heard people argue that they don’t really support those things, that they’re being duped into it thanks to the PR/“news” campaigns that corruption can buy. I'm not sure how to test that hypothesis, but I tend to believe people when they tell me what they believe in.
  7. I generally agree with your desire to shift more from the employer to the individual. My employer controls quite a bit about my life. I don’t particularly like them controlling my healthcare and retirement...although if they proved to be better stewards or were forced to be better stewards then my complaints could be mitigated.
  8. So the fees weren’t listed in any of the documentation I was given (unless I overlooked it multiple times). I think my company gave me generic documentation and not plan specific documentation. Everybody in the hiring/on boarding process confirmed there weren’t such fees. Once per quarter (I haven’t been at my job for too long), the vendor updates a page on their web site that tells you what you paid in fees for that quarter. The first time I went to that page it listed $0. One day I was bored and brought it up again to find out I was being charged fees! For me, an IRA with a larger contribution limit, no income restrictions, and no employer sponsored accounts would be ideal. For others they may be overwhelmed with the responsibility of having to take the initiative to open the IRA (choosing from a near infinite list of possibilities). These folks may not save anything if it weren’t for HR handing them the 401k form on their first day. I’m not sure what is best for the typical person. This solution is clearly a compromise between ideologies. My ideal is the TSP for everybody with automatic enrollment and default target date.
  9. EdLaFave

    Crying Poverty

    The author received a critique and he responded with a smug follow up post to: Declare that he was right without addressing the substance of the critique. Attack the younger generation(s). ...both of which were an apparent effort to claim victory/superiority over people. You're describing less than ideal aspects of the human condition. At different points in my life I've been surrounded by the lower end of the income scale and the upper end of the income scale. Based on that experience, the flaws you're describing become more pronounced and severe the further up the income scale you go. I have no experience or evidence to suggest that teachers are somehow inferior to their peers in this respect. A common technique to wiggle out of addressing one group's grievances is to point to another group as being either more worthy or more to blame. Whenever I see anything that gets remotely close to this divide and conquer territory (intentional or not), I want to explicitly point it out and refocus on the issue at hand. I'm not sure what you believe the liberal agenda is or how it applies to the discussion. The Republican economic agenda has basically been: Diminish unions. Don't enforce anti-trust. Minimize the minimum wage. Minimize requirements to pay overtime. Cut taxes for the wealthy (individual rates, estate tax, corporate rates, etc). Cut the social safety net (social security, medicare, medicaid, ACA, patient protections, etc.) Stop fully funded public colleges and universities. Deregulate industries. ...I'm sure there's more, but you get the point. So when you hear workers give voice to their economic conditions are you hearing it as a political critique against the Republican agenda? What is your opposition based in? What don't you understand? Retiring early (by that I mean, in your 30s or 40s) is absolutely unrealistic for the majority of workers because they don't earn enough money. That's just a simple math equation. Go get yourself a six figure income and it becomes quite realistic. I'm not sure how "new" or "popular" FIRE is. Certainly it's gotten press thanks to a rather noisy online subculture, but I'm not sure we're seeing more early retirees than we saw in previous decades. I haven't seen any data.
  10. I recently, after months, discovered that my 401k adds 0.6% on top of the funds’ expense ratios. This was so well hidden that I didn’t find it for months, the company told me no such fee exists during hiring/interviewing, and none of the employees knew about it until I found it. Lots of knowledgable people are stuck with less than excellent plans.
  11. EdLaFave

    Crying Poverty

    I truly dislike the principles demonstrated in the blog, including a surprising lack of reflection and introspection. 🤢🙄😔
  12. On a slightly related note... Suppose you wanted to embrace the alleged Republican ideals of maximizing consumer choice, privatization, and “simplifying” systems. I would be quite intrigued with doing away with EVERY workplace plan (401k, 457b, 403b, etc) and increasing the contribution limits of the IRA accordingly. Maybe employers would be required to send payroll deductions to the IRA of each employee’s choosing (using a formalized mechanism that every IRA vendor has to support). Or maybe not. For me, that would be an acceptable middle ground, which doesn’t quite reach the promised land of every employee nation wide being automatically enrolled in the TSP with an asset allocation based on their age (opt out and modification allowed obviously).
  13. Please read this as a friendly critique because you and I have a TON of common ground... Of course not. I never confused you with Mr. Burns. I think living in a low cost area with 30k will buy you a dignified life with a few perks. For a variety of reasons, I think general FIRE arguments should at least use a medium cost of living location as their baseline assumption (even if the individual making the argument prefers small town America). If my memory serves me (no time to re-read the article), the article suggests living on roughly 13k per person per year is reasonable. That’s quite a bit different than 25-30k...I don’t think 13k is reasonable anywhere in the US. If teaching is a gold mine and teachers are struggling financially then the only logical conclusion is that teachers are to blame. You’re certainly free to make that case and I suspect teachers are just as inefficient as everybody else. Beyond that logic issue, teaching is objectively NOT a gold mine. It pays you less than your similarly educated peers and I *think* the typical teacher earns roughly 25% more than the typical American worker, which isn’t enough to be “rich”. I’m 100% supportive of objectively telling an individual what things they can control to better their situation. However, I think it is critical to simultaneously acknowledge the inequities of the system and to acknowledge when people are being forced into unreasonable sacrifices and conditions due to that system. Similarly, I think it is important to accurately describe the scale of the situations they face. In my view your post and many FIRE posts miss that mark. I believe your article/post was declaring teaching a gold mine, suggesting they work up to 365 days a year, shaming them using a raise to take a vacation, declaring that teachers should be able to live on 13.5k per person, suggesting that people who don’t live in small towns will always find a reason not to (even though they “should”), projecting 7-10% returns, suggesting a couple of teachers save 100k when the median teacher doesn’t have the salary to do that even if they wanted to, and so on. So when I read that stuff the picture that is painted in my mind isn’t one of “look here are the things you can do and the sacrifices that you can endure to make the best out of this situation”. The picture painted in my mind is one of “with all of these opportunities I’ve quantified (sometime using questionable assumptions) there is no reason you shouldn’t be killing the game and retired in 7 years...but like everything else people will always find an excuse for failing.”
  14. You can search my history to find my answers to this type of question. Cliff notes (likely incomplete): 1. Get an understanding of how well he understands the problem. 2. Clearly explain the problem. 3. Get an understanding of why they may not want to change after they now understand the problem. 4. Offer a clearly defined solution to the problem and offer to do as much of the work as possible for them. 5. Listen and respond to what is motivating this person...be so well prepared that you can respond to the unexpected on the fly. 6. Go in expecting that this problem exists due to ignorance and/or not making it a priority, which is quite different than corruption or ill intent.
  15. I’m looking forward to watching the post-theatre release.
  16. The state of Georgia is paying 4x the fees that individual school districts pay with Fidelity. Talk about negotiating power!
  17. That’s 39k in today’s dollars, so not much has changed. Presumably in MN? That’s a lot better than here in Orange County FL where the maximum base is 74k (not sure what you get for taking on activities, but you get 2-5k extra depending on how advanced your degree is). I take your point, but if you feel the urge then complain anyways. 😀 I’d like to see teachers paid as much (or at least in the ballpark) as our “respected” occupations (engineer, lawyer, doctor, finance, etc.). It’s just such an important job, even if it isn’t valued as such. I often wonder how much of this job will be automated away or augmented by technology/AI, but that’s a conversation for another day. I couldn’t have said it better myself. Sometimes FIRE/personal responsibility arguments seem to get very close to arguing that there are two groups of people: 1. Those who find happiness with poverty-level resources. 2. Those who are wasteful and flawed in some way. ...those arguments always irk me because: 1. With so much inequality I have no intention of conceding the notion that people should get comfortable with the existence of poverty. 2. Money can absolutely buy happiness in many ways. I’m not interested in shaming people who want more out of life than a spartan existence centered around work and stretching a dollar to its absolute limit.
  18. Can you define what a private placement vendor is?
  19. The article begins by pushing back on the notion that there is a major problem with teacher pay, but: 1. Teachers are paid less than their similarly educated peers. 2. Some of the top talent in the labor pool refuses to teach because they’re unwilling to accept the lower salary. I know it is anecdotal, but the only reason I’m not a teacher (along with several coworkers) is because of money. I’ve consistently made 2-3x what my wife makes and that has continued even after she moved into higher paying administration jobs. I’m not a fan of suggesting that people who spend more than 25k/year are bad with money. While it may not meet the technical definition of poverty (not sure, since I know we pay full time workers 15k in this country), those are poverty wages that might cover the bare essentials. A one bedroom apartment in Orlando is going to cost you more than half of that...now factor in utilities, food, transportation, healthcare, etc and it looks like home ownership, entertainment, vacations, hobbies, kids, and pets are all luxuries you can’t afford. I also found the article to be quite dystopian and unrealistic when he started to suggest retirement in 7 years was reasonable, when he started suggesting teachers find a way to fill every (most? some?) non-workdays with work, and when he suggested living on 13.5k per person. I don’t like to minimize the pay issue because I think it hurts both the profession and the children. I suppose the author may consider me part of the “whiney internet retirement police,” but my wife and I save over 80% of our post-tax, post-housing income, I’m staunchly anti-consumerism, I’m on pace to hit my FIRE number by 35, and people often consider my finances to be extreme. So if I’m suggesting this article is unrealistic...maybe it is?
  20. Did he live on the border between counties? Some (many?) counties are so big that if you lived in the middle of them then switching to another county would add quite a bit to your commute. The other thing I wonder about is pay. Here in Orange County (FL) they have a salary schedule that is in part based on years of experience. I'm not sure if those years of experience transfer to another district...or if your years of experience in another district would transfer back if you were to return to Orange County. It wouldn't surprise me one bit if moving between counties resulted in pay cuts. Do you know anything about this?
  21. One reason the 401k world will never be as bad as the 403b/457b world is...I can and do quit my job every few years and rollover to a low cost vendor. I feel for teachers stuck in a district with no real choice to quit, unless they’re ready to move.
  22. I’m definitely a tightwad, although I haven’t heard that term in quite a while 😀 Allow me to limit my comments to the legitimate, ethical, and rare advisors who are willing to sign fiduciary paperwork with their clients. If they’re doing their job correctly, then all they’re doing is telling you to buy total market index funds and encouraging you to max out your tax advantaged accounts. These folks are professionals and require a professional’s salary...that’s a lot to pay somebody for something I could teach you in 15 minutes. While I’m clearly opposed to exploítative “advisors”, I also don’t see a role for legitimate advisors because the elementary services they offer (which is freely available in communities like this one or bogleheads) simply isn’t worth the price. Perhaps the one exception is if you’re into all kinds of shady business deals or rare circumstances and you need a professional to work the system for you...I’ve never met anybody in those circumstances.
  23. Just my opinion: don’t let anybody (even yourself) push you towards making a time sensitive financial decision. Walk away every time and make the decision when you’re good and ready. If the “opportunity” has expired by that time then you most likely dodged a bullet. If you ask questions I will happily provide direct answers. I don’t feel comfortable definitively telling you that Aspire is your best option because I haven’t personally researched every vendor on the list and I’m not sure if you also have access to 457b plans (especially the NY state variant). However, I feel entirely comfortable in definitively telling you that using Aspire and the funds I referenced on my site is going to be massively superior to anything an “advisor” would put you in. It isn’t even close. I also feel comfortable telling you that even if you’ve got a great 457b, it cannot be that much better than the Aspire 403b. So if you’re just overwhelmed and can’t get to it, then investing through Aspire is an entirely reasonable middle ground until you find more time to get into it. I should also mention that maxing out your IRA (6k/year) is a great thing to do as well...and it takes almost no effort relative to this 403b/457b mess. I’m not sure if I linked you to my Investing 101 page, but it takes five minutes to read and gives you virtually all of the knowledge you need. The industry makes this appear far more complicated than it actually is because they want you to hand the keys over to them. I’m happy to guide you through all the nonsense.
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