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Old 09-12-2017, 11:44 AM
 
Location: Tennessee
23,592 posts, read 17,582,380 times
Reputation: 27682

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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?
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Old 09-12-2017, 12:03 PM
mlb
 
Location: North Monterey County
3,183 posts, read 2,857,897 times
Reputation: 4878
Only I have a government pension (will get about 30K a year)

I saved via 401K and other retirement tools.... but since my spouse did not work in places with retirement accounts - I saved FOR him - as if he did..... so 20-30% of my salary has been saved over 17 years.

You never know what will happen to pensions.....
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Old 09-12-2017, 12:05 PM
 
256 posts, read 477,303 times
Reputation: 565
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.

The hubs fed pension with more than 30+ years is about $32,000. We've saved into the federal 401k since he started working there. We were skeptical from the time he started that we could count on that full pension, courtesy of the American taxpayer. I personally know several retired feds who have virtually no savings. . .and these people all made 6 figure salaries and never missed a vacay.

It's an entitlement attitude. We've always been contrarians and believed that we couldn't count on SS either. So we bought a v-e-r-y modest house in a nothing town and saved and invested like crazy. Paid off the kids 5 years of college/grad school too. One car family. One income family.

It can be done but most people don't want to. Why Should they if they have access to someone else's moolah?
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Old 09-12-2017, 12:24 PM
mlb
 
Location: North Monterey County
3,183 posts, read 2,857,897 times
Reputation: 4878
We figured that with the 401K portfolio plus SS for both of us we'd equal what we are living on now.

The pension would be gravy.

No kids - and we're moving to a more expensive state after retirement.

There will be an inheritance as well.
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Old 09-12-2017, 12:28 PM
 
1,227 posts, read 1,260,773 times
Reputation: 4310
Serious Conversation,

I think paying off the house first sometimes makes sense. We have pensions and savings. When we had to take out a mortgage to purchase our house I ran a spreadsheet to figure out what was the best move monetarily. Should I save and pay off the house later or pay off the house and then save? I was surprised to see that paying off the house first (in my case) and then savings actually gave me the best results. I paid off the mortgage in 3 years and then started saving again. But it's a mathematical problem and the results will vary with changes in mortgage rate, amount owed, time, investment returns, and your age.

On the other hand, I took out a car loan because I am paying only $400 of interest for the entire 5 year life of the note. I couldn't beat that and will not pay it down early; even though it bugs me to be in debt.

Meanwhile, I know a lot of people who receive a pension who have no savings. Their thinking is they don't need to have savings because they have their pension.

I've always been of the mind that you need to have your expense floor covered (through annuities, pensions, social security) and that savings will then be used to cover inflation, emergencies, and wants. I had a hard time convincing my husband of this. But now he is seeing his friends struggle as a result of inflation and the light is starting to turn on in his head.
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Old 09-12-2017, 12:29 PM
 
1,533 posts, read 1,441,482 times
Reputation: 11204
Whatever they save, regardless of whether it is labeled "retirement" or just "savings" is money they can use in retirement. If their house is paid off, they won't have to worry about paying a mortgage in retirement, which will allow them to use more of the money they have saved for other things.


Just because their savings aren't "retirement" savings doesn't mean they're making a mistake. It's their money. They know what is important to them (not losing the house, maximizing other savings).


Why all the angst over how they choose to prioritize their savings? Do they owe you money?
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Old 09-12-2017, 12:39 PM
 
Location: Tennessee
23,592 posts, read 17,582,380 times
Reputation: 27682
Quote:
Originally Posted by LookingatFL View Post
Serious Conversation,

I think paying off the house first sometimes makes sense. We have pensions and savings. When we had to take out a mortgage to purchase our house I ran a spreadsheet to figure out what was the best move monetarily. Should I save and pay off the house later or pay off the house and then save? I was surprised to see that paying off the house first (in my case) and then savings actually gave me the best results. I paid off the mortgage in 3 years and then started saving again. But it's a mathematical problem and the results will vary with changes in mortgage rate, amount owed, time, investment returns, and your age.

On the other hand, I took out a car loan because I am paying only $400 of interest for the entire 5 year life of the note. I couldn't beat that and will not pay it down early; even though it bugs me to be in debt.

Meanwhile, I know a lot of people who receive a pension who have no savings. Their thinking is they don't need to have savings because they have their pension.

I've always been of the mind that you need to have your expense floor covered (through annuities, pensions, social security) and that savings will then be used to cover inflation, emergencies, and wants. I had a hard time convincing my husband of this. But now he is seeing his friends struggle as a result of inflation and the light is starting to turn on in his head.
She didn't seem to be targeting the early payoff for purposes of paying less interest. It seemed to be based on the fear that say, year 26 of a 30 year mortgage, you lose your job and get foreclosed on and everything up to that point was a waste.
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Old 09-12-2017, 12:39 PM
 
26,115 posts, read 28,514,332 times
Reputation: 24817
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?
I don't think it's the best move, but I can think of far more boneheaded moves. At least they are paying off debt. Their living expenses will be low. Maybe after they pay off the house, they will think of investing.

I have always tried to save as if I wasn't going to get a pension. So I put away about 32% of my gross income. The pension will still be at least 50% of my income at retirement, but at least I am not totally reliant on it. I've got options now that I wouldn't have if I hadn't been saving/investing for the last 20 years.

However, I am also a renter, so my equation is different than theirs. They won't need as much income once their house is paid off. I'm going to need that investment income on top of the pension.
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Old 09-12-2017, 01:07 PM
 
Location: Tennessee
23,592 posts, read 17,582,380 times
Reputation: 27682
Quote:
Originally Posted by mysticaltyger View Post
I don't think it's the best move, but I can think of far more boneheaded moves. At least they are paying off debt. Their living expenses will be low. Maybe after they pay off the house, they will think of investing.

I have always tried to save as if I wasn't going to get a pension. So I put away about 32% of my gross income. The pension will still be at least 50% of my income at retirement, but at least I am not totally reliant on it. I've got options now that I wouldn't have if I hadn't been saving/investing for the last 20 years.

However, I am also a renter, so my equation is different than theirs. They won't need as much income once their house is paid off. I'm going to need that investment income on top of the pension.
Keep in mind TCRS is pretty well-funded. TN is not in a fiscal mess. If I was in IL, I'd be more worried.
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Old 09-12-2017, 01:35 PM
 
5,397 posts, read 6,538,749 times
Reputation: 10468
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?
dont you feel bad about electronically stalking these people? you looked up their salaries on the website, you looked up/estimated their pensions, and you looked up their tax assessments. then you posted it on a public forum to base what is a simple question. did these 'old friends' give you permission to use their info to ask your question?
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