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 Post subject: Career Transition Advice
PostPosted: Wed Oct 24, 2012 7:04 am 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
My wife and I started a business in March of 2011 while still working full time. The foundation was laid and the business grew enough for us to start considering changes.

I taught 7 years in public education and this year I did not renew my contract. I've been working our business full time since September 1. Also, my wife is transitioning from a salary employee to a contract employee in December so that her schedule will be flexible enough to also work our business. With both of us essentially changing our careers we are faced with question of what to do with our current retirement funds, as well as what to do going forward.

Being a former teacher, my retirement is in the Teacher Retirement System of Texas. To be honest, this fund has not been gangbusters. I am faced with the decision to leave it with TRS and let it gain 5% or move it with a brokerage.

My wife's retirement fund has performed much stronger than mine. I taught for 7 years, my wife has been at her job 5 years, and her fund has more than doubled mine. Again, the question is whether to leave it or move it.

There is also the question of what to do going forward. We are not in a position of trying to maintain and grow wealth. We are in a position of wanting to create/build wealth. I know many people refer Vanguard as a brokerage. However, right next door to my business is an Edward Jones and I like the idea of having a face I can meet with.

Please discuss.

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I just want to be something more than the mud in your eyes. I want to be the clay in your hands. - Mineral


Last edited by vanderbilt79 on Wed Oct 24, 2012 7:57 am, edited 1 time in total.

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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 7:22 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
The Edward Jones' Face too likes to have a face to meet with. Face to Face is always better when you are selling people things they don't need. You should note that the variable which carries the most sensitivity to overall return is the expenses. Perhaps not the most sensitive, but it is important enough to care about.

Also, are you sure you are comparing apples to apples with your and your wife's "retirement plans"? TRS is defined benefit plan. Your wife most likely has a defined contribution plan (or both). You should make sure you understand the rules before taking the lump sum early distribution from TRS. And what you are giving up by doing so.

Also, there are potential SS ramifications for both you and your spouse from TRS. Although, you most likely don't have 40 quarters at this point, but you should be aware that carrying a TRS benefit will reduce both your and your wife's SS benefit.

My Hat is off to you on the small business. I admire those who do it. There are very few things I detest more in this world than our small business.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 7:59 am 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
I have read the Edward Jones fees are pretty steep. Good point on the face to face "sales".

_________________
I just want to be something more than the mud in your eyes. I want to be the clay in your hands. - Mineral


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 8:30 am 

Joined: Wed Oct 24, 2012 8:27 am
Posts: 3
Location: Houston, TX
I've just started contributing to TRS this year, and I wish it were optional. However, the way I have read the rules is that you only have the option of leaving your funds there for five years. After five years of not actively contributing to the fund (ie not working for the state education system) the funds will be returned to you anyways. In my opinion, I'd pull them out now and roll it into something that will perform better.

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You can't be a real country unless you have a beer and an airline. It helps if you have some kind of a football team, or some nuclear weapons, but at the very least you need a beer. ~Frank Zappa


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 9:21 am 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
Yeah, I would roll the funds out of TRS and into an IRA. Even if the money isnt returned to you in 5 years, there is the, albeit slight, possibility TRS could go belly up and either slash the rate of return or slash the defined benefit you receive prior to you getting to retirement age.

Once you roll the funds out of TRS and into your own IRA, that money is yours, and subject only to the risk you deem appropriate for it.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 9:22 am 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
Also, regarding Edward Jones, you are better off going with the low cost brokerage firm and then paying a fee-only advisor for advice on what to do with your money, if you want that face to face meeting with someone.

Then you know the cost up front and can decide after each visit if its worth what you are paying.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 9:36 am 
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Joined: Wed Sep 23, 2009 9:01 am
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I'd avoid Edward Jones. If you need your hand held then pay a handholder by the hour (CFP). Edward Jones makes their business on selling people annuities and other high fee products they don't need. How else could they stay in business against teh discount brokers.

If you REALLY want a broker that you can call or talk to face-to-face, Charles Schwab might be a reasonable compromise.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 9:38 am 
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Joined: Wed Sep 23, 2009 9:01 am
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Bichon Frise wrote:
My Hat is off to you on the small business. I admire those who do it. There are very few things I detest more in this world than our small business.


Can you explain this statement? I'm confused.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 10:38 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Savarel wrote:
Yeah, I would roll the funds out of TRS and into an IRA. Even if the money isnt returned to you in 5 years, there is the, albeit slight, possibility TRS could go belly up and either slash the rate of return or slash the defined benefit you receive prior to you getting to retirement age.

Once you roll the funds out of TRS and into your own IRA, that money is yours, and subject only to the risk you deem appropriate for it.


TRS is a state system. States cannot declare bankruptcy. It will be guaranteed by the state, and if they can somehow slip out of that, which Saipan has been unable to do, PBGC will cover it.

It is a bit short sighted to just say do this or do that. The OP should verify information, run some numbers and find out what is best for them. If I recall, TRS offers 2.5% per year worked of 5 highest years salary. So, that is 17.5% of their salary (not sure if it is adjusted for inflation). That is risk fee.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 10:49 am 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
The TRS is subject to state legislation. It could easily reduce benefits or guaranteed rates. It could become dangerously underfunded.

Claiming it is state funded and thus completely safe is ignoring reality.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 11:14 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1610
Location: Seattle, WA
Bichon Frise wrote:
It is a bit short sighted to just say do this or do that. The OP should verify information, run some numbers and find out what is best for them. If I recall, TRS offers 2.5% per year worked of 5 highest years salary. So, that is 17.5% of their salary (not sure if it is adjusted for inflation). That is risk fee.


Isn't there some minimum number of years worked needed to actually collect pension payments? Like 10 years or something?


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 11:58 am 
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Quote:
TRS is a state system. States cannot declare bankruptcy. It will be guaranteed by the state, and if they can somehow slip out of that, which Saipan has been unable to do, PBGC will cover it.


I think Rhode Island and possibly one or two other states have figured out ways to slip out of their obligations. Given enough time and and infinite number of lawyers, anything is possible.


Quote:
It is a bit short sighted to just say do this or do that. The OP should verify information, run some numbers and find out what is best for them.

While I agree with this statement, having all of teh relevent information requires a crystal ball, and not just the ordinary one that predicts stock market returns. You need the type that can also predict political actions. In some states, Arizona for example, the state retirement system is under a full frontal attack from the legislature. Fortunately, nearly everything they have tried to do has been nullified by the courts. In most cases the issues are not about funding levels but about trying to screw teachers' unions or punish government employees for doing their jobs. In our situation teh legislature has lost every time and it has cost the state significantly so I think they have finally mostly given up. But the point remains, even if there are no funding issues, I'd personally start with a bias to get out of the system and research whether there are compelling reasons to stay in.

In my wife's case, she was smart to stay in the state system because she benefits from very generous terms in place a couple of decades ago. But the terms now are far less generous.

Also, be careful with what you think you know about inflation adjustments. I don't know how Texas works but in Arizona the legislature must vote one every year and does not always do so. But, since teh same adjustment is applied to all state retirement plans (employees, teachers, elected officials, cops) there is great incentive for granting a benefit every year and it usually happens. But that does not mean you can count on it.

And there are lots of lawyers working on ways to allow states to declare bankruptcy.


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 12:13 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
There are lots of reasons to do one thing or another. It is obvious to me, that the OP doesn't fully understand all the options. I encourage him to at least figure out some basic info. Somehow others, through a few paragraphs, have deciphered what is best. I have no clue, but all I am saying is for the OP to do his own digging and make at least a quasi-educated decision. For example, what if the OP's business takes the statistical turn of failing? Will he go back to teaching? Perhaps in another state? And what happens if withdraws the money? Does he start over? If he hasn't, can he get his time back? A lot of states will credit time for teaching in another state.

I would be interested in seeing some info on the state of Rhode Island skating out of their state pension obligations. I have only tracked the Northern Mariana Islands case, and the judge said no to them walking away.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 12:14 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
stannius wrote:
Bichon Frise wrote:
It is a bit short sighted to just say do this or do that. The OP should verify information, run some numbers and find out what is best for them. If I recall, TRS offers 2.5% per year worked of 5 highest years salary. So, that is 17.5% of their salary (not sure if it is adjusted for inflation). That is risk fee.


Isn't there some minimum number of years worked needed to actually collect pension payments? Like 10 years or something?


I believe vesting is 5 years. I looked years ago and I am not in the program. The OP should explore all options. Either way, under the minimum vesting schedules put forth by law, the OP should be vested if he truly worked a full 7 years.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Career Transition Advice
PostPosted: Wed Oct 24, 2012 12:18 pm 
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Joined: Wed Sep 23, 2009 9:01 am
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Just one of many stories about it:

http://bottomline.nbcnews.com/_news/2012/10/24/14646131-3-states-with-sinking-pension-funds?lite

Quote:
Although Rhode Island paid the entirety of its recommended contribution in 2010 and had consistently paid its full contributions for several years, the state’s public pension system was still just 49 percent funded. Facing a funding gap of nearly $7 billion, Rhode Island was forced to make difficult changes to its pension system. According to Pew, in 2011 Rhode Island transformed its plans into a hybrid pension and 401(k)-like plan. The state also raised the retirement age from 62 to 67 and limited cost-of-living increases. The total savings from these reforms were estimated to reach $3 billion. Although union lawsuits to block the plan are still ongoing, the state’s Treasurer, Gina Raimondo, told the Associated Press that "Rhode Island is leading the way. I expect others to follow, frankly because they have to."


I agree the OP should do a great deal of research on his own.

As far as vesting goes, there are really only 2 options - 20% per year for 5 years or 100% after 3 years. No other possibilities are legal in the US for any employer public or private. And I know from personal experience that if you vest then leave an employer and take your money out, if you ever return to the employer you are still 100% vested. The vesting clock never resets.


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