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Old 09-12-2017, 05:21 PM
 
Location: Central Massachusetts
4,800 posts, read 4,842,106 times
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I agree it is kind of silly not using the retirement account 403b for state employees. However living modestly and having a paid off house to live in is a very good thing. I have friends who did less and worse.
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Old 09-12-2017, 05:43 PM
 
Location: Eastern Washington
14,216 posts, read 44,870,326 times
Reputation: 12787
Quote:
Originally Posted by Serious Conversation View Post
I had an interesting discussion with an old friend last night. Here is the backstory.

Married couple with two children - 9 and 4/5. Homeowners - house worth about $180,000 from Zillow. No idea as to their other debt level, but she's always been frugal and they do not live "high on the hog." They don't take expensive vacations, have expensive tastes, etc., far as I know. Other debt payments are likely to be minimal.

Him: 35 - teacher at a local high school.
Her: 31 - teacher at a local elementary school.

Their salaries are between $42,000-$46,000 annually given their length of service and education per the salary schedule on the system website. It is an above average living for the area.

What struck me as unusual was the fact that she says they are saving nothing privately for retirement at all and are plowing everything into the house and cash savings. We only talked for a half hour, but this just seemed odd. She said she's counting on the state pension. If she made $65,000 as her final five year average compensation and after 28 years of service (this puts her at 50 in 2035), and retired this year, the monthly pension benefit would be about $1,450. Between both of them, it is doable but not a ton of income. Furthermore, a teacher with a doctorate and thirty years of service would only top out at a little over $58,000 here.

She says they are working to pay off the house as soon as possible. She didn't say how long they have remaining, but they bought the place in 2011 for $165,000 per the county tax assessor parcel details I found.

Her dad worked with mine at the same manufacturing facility for a number of years when we were kids. She said he was laid off as part of some mass layoffs in 2010, and was out of work for a number of years. She said that fear of losing the house makes them want to pay it off as fast as possible.

Personally, I think the house idea and foregoing private retirement savings is a boneheaded move, but how did you prepare as a government employee?
You don't say if they have a 403b or similar available, and if there is an employer match. My understanding is that if a 401k or 403b is available with a match, the first and best retirement savings money is to save enough in these to at least get the maximum matching funds. My 401k matches 50% of what I put in up to 8% of salary. That is the only 50% "interest rate" that I know of, outside of being a loan shark.

You also didn't give an estimate of the interest rate on the home loan, or how much is left on it.

To me, a big part of "does this make sense" is if this couple wants to live in this area for their working lives and then retire in the same place, since you note that houses in the area don't appreciate much, if at all.

Paying off the house does provide some additional security as if it's paid off, it can't be foreclosed on. Depending on the job climate that could be important.

I think people giving you grief should just consider this to be a "case study" - the people are real, or so you say, but, they could be fictitious, and the discussion would be the same.
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Old 09-12-2017, 08:10 PM
 
Location: Tennessee at last!
1,886 posts, read 2,033,779 times
Reputation: 3795
I am a retired federal employee. I am financially conservative.

I paid off my house early, any extra money went to that purpose. For the dollar analysis, it would not be the best move. I knew that. BUT for the emotional security it was well worth it. I liked the idea of not paying a mortgage each month.

I also pay off cars as I buy them, even though they offer and I qualify for zero or low interest loans.

I generally keep 6 months of expenses as emergency cash that is in a bank, but liquid. This sometimes goes lower than 6 months right after a major purchase like a car, or last month a new boat.

I started a traditional IRA when I adopted two more kids, not for my retirement, but for their college, because their ages worked out well for a retirement fund for me. (They at 14 years old now.) I stopped funding that when I bought my retirement home in TN which will pay for the first 2 years of college, and my kids are trending towards careers that would match with a two year technical college program.

When I was working I generally put 15% of my salary into the TSP, like a IRA, that was matched giving me an extra 5%. That has grown over the years and is quite substantial now.

However when I was 3 years from retirement, I reduced this amount to 5% to get the 5% match. That is against all financial advice as generally that is when one is told to add more money to retirement accounts, but that is not what I did. I used the extra available money to buy my retirement house, with a mortgage, and to start fixing it up.

I have been retired 4 months now. Do not plan to touch the TSP any time in the next few years. My retirement house is paid for. My old house is on the market, but paid for too.

So government employees, like any other person, may use different approaches to managing their money. But if they are actively thinking about it and have a plan, for whatever their value system is, I'd respect that.
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Old 09-12-2017, 08:32 PM
 
Location: R.I.
970 posts, read 602,748 times
Reputation: 4165
Quote:
Originally Posted by Serious Conversation View Post

Personally, I think the house idea and foregoing private retirement savings is a boneheaded move, but how did you prepare as a government employee?
My first go around working for the Federal government/VA was from 1988-1990. At that time the environment I was working in was horrible and I left for greener private sector employment pastures. In late 2000 I was working part time at a local hospital ER and felt at age 43 it was time to return to full time employment. A former VA nursing supervisor that I had worked with during my first go around at the VA had advanced to the position of nurse recruiter and heard through mutual friends I was looking for full time employment and recruited me back to the VA. Two weeks following my return to work at the VA my 49 year old husband died suddenly from a heart attack.

Although you may think someone paying off their mortgage early was a "boneheaded move", for me it was a blessing because without having the expense of a mortgage when my husband died, going from two incomes to one income I was able to afford to remain in my home on my income alone. And additionally as my income steadily grew along with having no mortgage I was also able to save a decent after tax liquid retirement emergency fund and also max contribute to my TSP/401K. So when I retire in 6 years my FERS pension + TSP/401K + having the ability to first claim a social security survivor's benefit will allow me to afford to delay taking my own higher benefit at age 70 without spending down assets, and my 3 income streams will replace around 83% of my mid teen six figure income at retirement.

I think your old friend if she should unfortunately encounter the same fate as I of becoming a young widow she will be very glad she made the "boneheaded move" to pay off her mortgage early.
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Old 09-12-2017, 08:54 PM
 
11,929 posts, read 20,372,953 times
Reputation: 19326
Quote:
Originally Posted by M3 Mitch View Post
You don't say if they have a 403b or similar available, and if there is an employer match. My understanding is that if a 401k or 403b is available with a match, the first and best retirement savings money is to save enough in these to at least get the maximum matching funds. My 401k matches 50% of what I put in up to 8% of salary. That is the only 50% "interest rate" that I know of, outside of being a loan shark.

You also didn't give an estimate of the interest rate on the home loan, or how much is left on it.

To me, a big part of "does this make sense" is if this couple wants to live in this area for their working lives and then retire in the same place, since you note that houses in the area don't appreciate much, if at all.

Paying off the house does provide some additional security as if it's paid off, it can't be foreclosed on. Depending on the job climate that could be important.

I think people giving you grief should just consider this to be a "case study" - the people are real, or so you say, but, they could be fictitious, and the discussion would be the same.
You can lose your house if you don't pay your taxes....always keep that in mind...
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Old 09-12-2017, 09:13 PM
 
Location: Mexico City (at the moment)
1,345 posts, read 468,102 times
Reputation: 1963
Quote:
Originally Posted by Serious Conversation View Post
I had an interesting discussion with an old friend last night. Here is the backstory.

Married couple with two children - 9 and 4/5. Homeowners - house worth about $180,000 from Zillow. No idea as to their other debt level, but she's always been frugal and they do not live "high on the hog." They don't take expensive vacations, have expensive tastes, etc., far as I know. Other debt payments are likely to be minimal.

Him: 35 - teacher at a local high school.
Her: 31 - teacher at a local elementary school.

Their salaries are between $42,000-$46,000 annually given their length of service and education per the salary schedule on the system website. It is an above average living for the area.

What struck me as unusual was the fact that she says they are saving nothing privately for retirement at all and are plowing everything into the house and cash savings. We only talked for a half hour, but this just seemed odd. She said she's counting on the state pension. If she made $65,000 as her final five year average compensation and after 28 years of service (this puts her at 50 in 2035), and retired this year, the monthly pension benefit would be about $1,450. Between both of them, it is doable but not a ton of income. Furthermore, a teacher with a doctorate and thirty years of service would only top out at a little over $58,000 here.

She says they are working to pay off the house as soon as possible. She didn't say how long they have remaining, but they bought the place in 2011 for $165,000 per the county tax assessor parcel details I found.

Her dad worked with mine at the same manufacturing facility for a number of years when we were kids. She said he was laid off as part of some mass layoffs in 2010, and was out of work for a number of years. She said that fear of losing the house makes them want to pay it off as fast as possible.

Personally, I think the house idea and foregoing private retirement savings is a boneheaded move, but how did you prepare as a government employee?
At least your friends are thinking about it. Many dont.

Paid off house=good.

Savings with matching funds from employment=Also good.

A balance of the two would be better, but at least they have a plan of sorts.

Many dont, even in government employ.
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Old 09-12-2017, 09:33 PM
 
Location: Mexico City (at the moment)
1,345 posts, read 468,102 times
Reputation: 1963
Quote:
Originally Posted by bungalowdweller View Post
Spouse of fed here. It's absolutely a-m-a-z-i-n-g how many government workers (fed AND state) don't save a dime into retirement savings, even when there is a match.
Yep.

Worth quoting for effect. I too am a-m-a-z-e-d sometimes at my colleagues lack of foresight. I've been doing it since 2002 when it became available to enlisted military, my wife even longer.

We have both been also maxing our 401K since hitting 50 (we are 1 year apart in age) with catch up contributions in the TSP 2030 funds since we are both fed worker types. I want to thank my American taxpayer friends for this opportunity for sure, we dont forget where it comes from, especially the 5% match.

We also live more frugally than many of our colleagues because of it. I'll take it when I am old(er) and not so likely to be productive, not now on vacay and new cars (never owned a new car in our lives).

I splurged some 35K (savings wiped at the time!)in 2002 on a home down payment to get my aging parents out of an old place they could not maintain anymore, as matters of the heart pointed us that way, but when they pass on we inherit the home in whole, now valued at 207K and change (house has been paid off for two years). It just worked out for all, so that is a plus, and they are happy in it now in their relatively healthy late 80's. Bad investment? Nope. Helped my folks when they needed it, and now will be a retirement boost for me and my wife.
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Old 09-13-2017, 01:31 AM
 
4,431 posts, read 2,605,246 times
Reputation: 10294
Quote:
Originally Posted by theoldnorthstate View Post
right, it is public information but YOU searched for it.
And YOU never searched "public information"???

I'll bet you have....much of what's on the internet is "public information".


And if The OP school taxes will help fund the teacher's pensions, OP is welcome to the knowledge.

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Old 09-13-2017, 05:20 AM
 
649 posts, read 553,719 times
Reputation: 1877
Retired military so have that pension, will retire from the state, so pension number 2. I max contribute plus catch up to 457 plan, DW max contributes plus catch up to 401k, both salaries are 6 figure. Both contribute to SS, have IRA's that we maintain but don't contribute to.

Emergency savings of 5 years of expenses. House has been paid for for 10 years and our only debt is her car. Healthcare for life through Tricare. We are both fiscally conservative and like the security of having the house paid off even though we didn't need to, her more so than me.
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Old 09-13-2017, 07:44 AM
 
Location: New Oxford, PA
120 posts, read 59,048 times
Reputation: 464
I was always one to pay all of my bills, and enjoy the rest of my earnings. Throughout my career, I did a bunch of overtime to boost my pension, and enjoyed that extra money every month, as well. I never opted into the deferred comp program, or anything like that. I was always the "money under the mattress" type. I saved enough to cover an emergency, but nothing more.

I was able to retire with a pension that matched my base salary. Everything I have (home, vehicles, etc) is paid for, with the exception of one auto loan at .9%. I still pay every bill on the first of the month, and spend the rest on whatever pleases me. My post-retirement Savings account consists of whatever is left over after that.
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