My wife is a teacher in Massachusetts. She is 26. We max my 401k, but she has a pension. Just curious how other teachers plan for retirement? She has 403b that has fees so high I won't let her put money in. And I worry by the time she retires her pension will look totally different. How do people plan like this?

Thanks!

Have her start a Roth IRA with low fees. If not eligible for a Roth, Traditional IRA to backdoor Roth would be ideal. If I were in your shoes, I'd plan on the pension changing significantly in the next 30-40 years, and not for the better. Save as much as you can outside the pension plan, in both tax-deferred and taxable investments. Good luck, time is on your side!

How well funded is the pension? 70% or higher and its probably OK. Under 70 and you should open a Roth-IRA right away.

What do you mean how well funded? As in, how much as she put in herself?

The way the current system in place in Massachusetts is, when she retires, she would recieve 80% of the average of her salary for the top three highest paid years of work. Of course, this is still 30 years from now, so who will know if it will change.

Unfortunately (and fortunately), we make too much combined income for her to have a Roth.

Put the money into a traditional IRA and convert it immediately to a Roth IRA. This is the last year you can do this unless the law changes. And pay no attention to the part about needing professional guidance to do this. If you're with one of the big 3 (Vanguard, T Rowe Price or Fidelity), they'll help you for free.

I disagree about the roth. I'd much rather have the flexibility of taxable investments. not to mention, if you have ANY dollars in ANY tIRA account, you must do the conversion pro-rata. but, to each their own...

On to the pension...the first question to answer is if she is vested? if not, all bets are off if they cleanse themselves of the defined benefit plan prior to your DW becoming vested. Next is, to figure out how it works. There should be a summary plan description (SPD) which has the rules, formulae etc. Print this off/obtain a copy today, especially if she is vested. Kind of hard to say, "Gee, the SPD said this, but now they're saying that. What, the SPD is gone/changed?!" See what you (she) would get if you want to retire early, retire on time, work in to the grave. This seems rather simple, but you'll find it to be overwhelming once you get into the different types of annuities and lump sum options.

If you're worried about the stability of the pension, you'll have to figure out if it is administered by a state or municipality. States cannot declare bankruptcy. CNMI is testing this in court right now with respect to an under funded pension. It does not look like they will be able to declare bankruptcy (or pension fund will be able to). There is also the PBGC, which is administered by the federal gubimint. If you think your DW's DB plan will weasel out somehow, check to see what the PBGC will offer.

You'll also need to determine if your DW's job is in the social security program. Regardless of what you think the viability of SS is today (it will survive if you need a hint), SS will become an important part of your retirement planning. If your wife does not contribute to SS, it can affect some of her benefits (even those which are claimed on your record, living or dead). You should figure these out soon as well.

As far as the "high fees" in your DW's defined contribution plan, I would check to see if there is just a single option or two which you "can live with" that she can contribute to. This will help to reduce your AGI and get some funds into a tax deferred savings vehicle. Your portfolio, your wife's and your combined taxable investments should be considered as a whole. You should also take them to task on these high fees. It may be a long uphill battle, but it is well worth it. Even the BLS has published info on the importance of fees. Bump who ever is in charge in the butt and tell them you, your wife and all her coworkers won't tolerate their buddy making off like a bandit off of the teachers. The headlines pretty much write themselves.

As you can see, it is not quite as simple as "plug and play." You need an entire plan, written around YOUR goals. Good luck, and let me know if there are any other questions.

Bah. She's 26 and presumably has a long working life ahead of her. Also, this may be the last year she can do a Roth, it's only $5K, and a Roth offers a significant amount of flexibility in that she can withdraw her contribution without taxes (since it's already post-tax) and (under certain circumstances) without penalty.

It's a no-brainer to do the Roth this year at this stage in life.

bichon has done a very comprehensive reply. The work involved might sound overwhelming, though.

The one thing you should always be aware of is how long before she is 100% vested. And no matter what type of retirement account you open, it would be a great idea to start contributing at least 10% of her salary, more if possible.

A lot of teachers get burnout and want to do something else eventually. Knowing when you're vested can help get one get through a bad spot, which we've all encountered at times, even with jobs one loves.

Yes, the details of the pension will doubtless change over time. Don't let it worry you, just keep it in mind when you do your financial planning. And the advice to consider her investments as a part of your combined overall portfolio is also on track. You'd be surprised how many couples flub that basic step.

disagree. but since you know them so well, carry on.

no. I just disagree with you, that is all. Although, I may not have made clear above, I think people should think more about these decisions. It's difficult to know what is "best" without taking into account the entire system, including their goals. I know it is "just" $5k, but I like to make sure my money is helping me achieve MY goals.

Sure, if the decision is saving $5k in a roth or not, save it in the roth. but, it may not suit your goals "best". Certainly, a far cry from the "slam dunk" the conversion is professed to be on the interwebz.

PS, I've never heard anything about the Roth IRA conversion expiring this year. I checked fairmark and couldn't find anything, Ed Slott's website and I couldn't find anything and I even found this little nugget.

viewtopic.php?f=14&t=45342

See the link I put into this thread earlier. While I couldn't find anything explicitly ending the conversion, the allowance for the conversion itself was apparently tied to the Bush tax cuts. So if they expire, so does the allowance for conversion.

Thanks. Just to be clear, reading the Forbes article you linked to earlier, nothing says the laws allowing the conversion are ending. Just that tax rates will go up and it might not make sense in the future. Of course, I think the middle class won't see any tax increases (outside of what the supreme court just levied). This doesn't mean the conversion is going away.

No, I mean how likely is the retirement plan to exist at retirement? Funding level for a state pension is the % of money paid out that is currently covered by revenue being taken in.

Some are really good and are in little to no danger of reduced benefits or default. Others are in the 50% range and are completely unsustainable.

Your wife's June 2012 issue of the MTRS Advisor has her pension plan funding percentage on page 5: 66.3% with $11.7Billion in unfunded liabilities. Taxpayers are making up the shortage for full funding estimated by year 2040.