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Confusing Options Coming To Retirement Plans. It Could Cost You

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Hey 401kers welcome to the 403b world

Among the two dozen or so rule changes is a provision that is strongly supported by insurance companies but has consumer advocates worried. It would eliminate some of the liability for employers who add annuities to the menu of options for their 401(k) plans — including expensive and complex products that purport to offer the peace of mind of a guaranteed income .

 

https://www.nytimes.com/2019/06/04/your-money/retirement-bill-annuities.html

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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.

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39 minutes ago, EdLaFave said:

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.

The millionaire educator Ed Mills quit several districts so he could improve his 403b! And kept moving to very inexpensive rural areas in the deep south, so both he and his wife could save more. The Playing with FIRE documentary producers wanted to feature him in the documentary but he was in Mexico. He retired in his late 40s or early 50s. 

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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?

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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?

 

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 I think the main problem with teacher's pay is starting pay.  It starts so low that many don't stick with it long enough to reap the other benefits.  I started at 20K back in 1990.  That same summer I made more per hour installing low voltage cable with a buddy.  For this summer job, I had zero training, no interview, references, or resumes.  Just showed up and started working, and didn't even meet the boss until about a month later. I did a few other jobs in the summers during the early years of teaching.  Starting pay now in my district is about 40K, which is pretty low for a college grad in a medium cost of living area.  Teachers at the top of the pay scale who also coach a few activities can now make over 100K.  

With salary closing in on 6 figures, full medical and dental insurance, life and disability insurance, great 403B choices (now) with small employer match, approximately 50K pension at age 57, a severance payment, and full "bridge" health insurance until medicare, I can't complain too much about the compensation. I know others have it much worse.

 

 

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6 hours ago, EdLaFave said:

I suppose the author may consider me part of the “whiney internet retirement police,” but [...] 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?

I agree, Ed, I don't think it is a real plan, more of an evangelical polemic for belief in his version of FIRE.   

I'm all for saving aggressively toward financial independence (not necessarily "early," though that's ideal if you can manage it).  But some FIRE advocacy strikes me as severely out-of-balance.   It promotes an almost cult like us-against-them tone (pretty sure that I'd be labelled as an enemy from "the woe-is-me, whiny-heine crowd").  It dismisses basically all other priorities in pursuit of a nest egg, and uses dubious assumptions while doing it (I hope none of his readers are actually counting on a consistent 10% annual portfolio return).  "With a little frugality, two teachers should be able to live on $24-30k a year."  Maybe, if you want to relocate to Statenville, Georgia, as the author advocates.  But if you want to live near your family or an established community of friends or you value the cultural offerings provided by big cities or you make international travel a priority or you are committed to providing for charitable groups or family members in need or... well, you get the idea:  there are many goals, values and pleasures in life, and ruling them all irrelevant in favor of frugal living in the rural south is far from a universal answer.

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2 hours ago, MNGopher said:

I started at 20K back in 1990...Starting pay now in my district is about 40K

That’s 39k in today’s dollars, so not much has changed. 

2 hours ago, MNGopher said:

Teachers at the top of the pay scale who also coach a few activities can now make over 100K.

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).

2 hours ago, MNGopher said:

I can't complain too much about the compensation.

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.

19 minutes ago, whyme said:

It dismisses basically all other priorities in pursuit of a nest egg, and uses dubious assumptions while doing it

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.

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1 hour ago, EdLaFave said:

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.

Amen, Ed.  Your voice can provide a valuable counterpoint to those tendencies within the FIRE movement.

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Hi guys,

For the record, I don't like poverty either.  I've seen lots of it during my travels through Latin America, India, Saudi Arabia, and the South.  That said, there is nothing poor about our lifestyle here in South Georgia.  When you have very few bills, $25-30k goes a long way in rural / small town America.  I realize this lifestyle is a nightmare scenario for many people, but we love it here.  Whenever we feel the need, we get in our car and go to Jacksonville or Tallahassee to experience "big city" living.     

What we've done here is OUR version of FIRE.  I write about it because some people formulate their own plan of attack after learning about our FI path.  I wish I had know of some of these concepts in my youth!     

As for people being wasteful or flawed, I disagree with that assessment.  I thought I made that clear with:
"Look, I’m not here to belittle teachers with financial difficulties, but at the same time I won’t run from the fact that I think:  Teaching Is a Gold Mine!"

However, teachers (and all other members of the working class) have no chance of financial prosperity if they suffer the combo of high debt and excessive spending.  (When I was a younger teacher, I ate out all the time and made many a happy hour.  All that money could have made it to my IRA, but nope!)  Here in Georgia we just received a $3k raise, but what will it do for most teachers?  I bet most of that money will be spent on vacations and restaurant meals instead of savings and investment.  (Take a look at the parking lot at your local school.  How people afford those vehicles is beyond me.)

Look I"m all for teachers (and other workers) getting more money.  However, I'm not waiting around for a raise or income equality to take place.  I'm all about developing a plan for the here and now. 

Gerry           

 

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I've seen and witnessed teachers complaining about not being able to make it on their salaries and wanting raises while they drive fully equipped late date BMW autos.Asking some of them to learn  how to cook at home is like asking them to give up an arm to amputation. Frankly I don't see why we need a FIRE movement to enlighten others about how to live within their means and learn to reject consumerism. I don't feel teachers are doing as bad as some say. Many of us have no clue what true poverty looks like living in the USA although it certainly does exist..When you put all the benefits, and pension, access to supplementary retirement plans,plus summers off in the mix (extra job time)they are doing better than many.  I know I am sounding like a Republica n here but we need to try and lift ourselves up on our own through sacrifice and delayed gratification. The Fire movement is just common sense.

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Please read this as a friendly critique because you and I have a TON of common ground...

1 hour ago, millionarie_educator said:

For the record, I don't like poverty either

Of course not. I never confused you with Mr. Burns.

1 hour ago, millionarie_educator said:

When you have very few bills, $25-30k goes a long way in rural / small town America

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.

1 hour ago, millionarie_educator said:

As for people being wasteful or flawed, I disagree with that assessment.  I thought I made that clear with:
"Look, I’m not here to belittle teachers with financial difficulties, but at the same time I won’t run from the fact that I think:  Teaching Is a Gold Mine!"

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”.

1 hour ago, millionarie_educator said:

I'm not waiting around for a raise or income equality to take place.  I'm all about developing a plan for the here and now

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.”

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5 hours ago, millionarie_educator said:

Hi guys,

For the record, I don't like poverty either.  I've seen lots of it during my travels through Latin America, India, Saudi Arabia, and the South.  That said, there is nothing poor about our lifestyle here in South Georgia.  When you have very few bills, $25-30k goes a long way in rural / small town America.  I realize this lifestyle is a nightmare scenario for many people, but we love it here.  Whenever we feel the need, we get in our car and go to Jacksonville or Tallahassee to experience "big city" living.     

What we've done here is OUR version of FIRE.  I write about it because some people formulate their own plan of attack after learning about our FI path.  I wish I had know of some of these concepts in my youth!     

As for people being wasteful or flawed, I disagree with that assessment.  I thought I made that clear with:
"Look, I’m not here to belittle teachers with financial difficulties, but at the same time I won’t run from the fact that I think:  Teaching Is a Gold Mine!"

However, teachers (and all other members of the working class) have no chance of financial prosperity if they suffer the combo of high debt and excessive spending.  (When I was a younger teacher, I ate out all the time and made many a happy hour.  All that money could have made it to my IRA, but nope!)  Here in Georgia we just received a $3k raise, but what will it do for most teachers?  I bet most of that money will be spent on vacations and restaurant meals instead of savings and investment.  (Take a look at the parking lot at your local school.  How people afford those vehicles is beyond me.)

Look I"m all for teachers (and other workers) getting more money.  However, I'm not waiting around for a raise or income equality to take place.  I'm all about developing a plan for the here and now. 

Gerry           

 

Well said, Gerry,

Welcome back, it's been a long time!

I was disappointed you were not able to be in the Playing With FIRE documentary. Scott told me you were in Mexico during filming. 

I went to one of the FIRE meetings, and not all are filthy rich brats that make huge amounts of money. And so what if they were? Everyone has their version. Some will quit their paying jobs in their 20s, but others as late as their 50s. It all depends. Not all are eating rice and beans or back living with their parents (it was temporary in the documentary). Its the principles of rejecting the consumer culture, living with less stress and material things, and enjoying life with family and friends, and giving back so that the world is a better place. Those are great principles everybody should support. I am reminded of the cliche in Alcoholics Anonymous "Principles above Personalities"

I always remember that it's not so much how much you make but what you do with what you make. Heck, I didn't earn much money until I was in my 40s, as a teacher hustling to increase my salary with extra workshops and classes. 

Steve

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