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33 years of age
8 years in current career
Live and work in California
Career provides a 3% @ 55 pension with a max of 90% of my salary
457b plan that has roughly 40k in the deferred compensation plan
0 Debt other than house (just purchased first place 5 months ago)
Ive always been a saver and lived within my means
In my 457b I put about $500 a month. Im debating dropping the 457b to about $300 a month and the remaining $200 plus an additional $100 into the Roth IRA a month for a total of $300. My reasoning for this is to just diversify and have the Roth IRA with a different financial institution (fidelity or vanguard), a place where I have more control in my investments.
Lets say that when I do retire I retire @ $120k a year and maybe I retire abit early and get about 80% of that due to my pension. That puts me at about $96k a year. I plan on moving out of California first chance I get when I can retire. Heck that $96k a year would be more then what im making now. I understand inflation and all that will forsure occur over the next 20 some odd years.
Should I leave the 457b alone at $500 a month and just put in $100 a month into the Roth IRA?
I have about $10k in available funds to invest whether that means putting some into the Roth IRA or some other investments.
Am I on the right track? What should I do differently if need to?
I do think it's a good idea to put something in a Roth. How much is somewhat of an open question. You will likely have a high taxable income if you stick it out to age 55 because of that super generous pension benefit. Just curious, are you a cop, prison guard, or firefighter? I think those are the only ones left who have a 3% at 55 formula.
I think the bigger issue is actually your savings rate as a % of your income. Based on your income, saving $600 a month for retirement is ok, but not awesome. From one public servant to another, I wouldn't make myself too dependent on the pension. So, ideally, I'd like to see you saving the $500 in the 457 plan with an additional $300 in a Roth for a total of $800 a month retirement savings. I know, compared to most people in spendthrift America, that's saving a ton, but even that amount ($800 a month) still leaves you heavily dependent on the pension.
I know saving this $800 a month & up is possible because I live in a high cost part of CA, make less than you, and saved more than this for retirement for the better part of 15 years. I did reduce my contributions this year because the portfolio is now working hard for me and there are some things I want to do (travel, more fun) for the next year or two. But I'm 48 now. I started kicking my savings into high gear right when I was about your age (saving $1k per month or more). It did require some sacrifices, and I did make some mistakes (buying individual stocks, bad idea for most people), but I'm glad I did it (the saving part, not the buying stocks part).
Our pension plan got reformed 6 years ago. Even though I'm grandfathered into the more generous plan, we all had our pay cut across the board and it took us 6 years to get back to our previous pay. Since pension formulas are based % of highest year's pay, that was essentially a back handed way to cut the pension benefit for everyone. And we also contribute a much higher % of our pay toward the pension as well.
So that's why I'm so big on saving your own money. You can't trust what other people promise you. Besides that, if you get sick of your job, you'll potentially have the option to walk away if you don't like it any more. I know if you like your job, it might seem unlikely that you would hate your job in the future. But things can change faster than you think. I can't tell you how many people I've talked to who have said "I can't believe how much things have changed in my field compared to 10-15 years ago when I started". These people often don't have any easy options out because retraining takes time, is expensive, and the job in the new field often pays less, at least initially. So I'd hate to see you get caught in that trap--and it's a very common one.
Yes I am law enforcement. My actual current yearly income is at about $80k. The $120K I referenced is top step which I am 5+ years away. With each pay increase I get I increase my contribution to my current 457b plan. As mentioned I currently do a total of 500 and will be increasing my total to 600 for both the 457b and the soon to have Roth. I hear you on the $800 but with the brand new place I want to make sure i have some rainy day money for the house so at the moment I do not feel super to comfortable upping the total from 500 to 800 quite yet... but I do have a plan in place where by end of 2019 will be at that 800 a month but has yet to come to fruition.
Last edited by calicoolguy; 07-05-2018 at 12:21 PM..
You should probably be putting the maximum allowed into a Roth IRA, and then any additional you want to save for retirement can go into the 403b. I say this because of the large pension you expect to receive.
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