I actually came across this site when researching more about finances and retirement savings. And although I have been addicted to all the posts on here, I feel like I'm learning A LOT, but I'm still very fearful that I'll never be able to manage everything successfully on my own. I also don't make a lot of money, and reading into posts where the salary is well over 100K freaks me out about my own.

Some background information:
I'm a 25 year old high school teacher. My salary has been at a pay freeze since I entered the profession (this is my third year) at 35k. I don't know if I'll ever make a lot of money and we recently de-unionized, changed insurance, and now pay more into my benefits (although I still have good benefits that are affordable in comparison to other private sector jobs). I'm going to be impressed if I ever make 60k. But the catch is, I love my job. I consider myself intelligent and well educated and I know I would love doing a lot of other jobs that work with people...but teaching is awesome. So how can I save enough for retirement when I don't make that much money in the first place?

I graduated with 27k in student debt. That was my only debt and this past november I paid my LAST payment! 2 1/2 years later I'm debt free. I had higher interest on my federal loans at 6.5% so it was a personal goal to hit the ground running. (I rent, pay my own bills, car insurance, food....everything, so I did/do live on a frugal budget to afford to pay it off so quickly)

Now that I have 'extra' income, I want to invest more. I already have a 403(b) that I contribute 10% of my salary with no company match. The more I've read on here, the more people recommend a Roth IRA over it. Over the past 2 years I think I've profitted $700 from my investments which seems like so little to me... but I'm not really sure what normal is.

Would keeping 10% in my 403(b) be a smart decision? Or should I keep it open, but lessen the percentage I'm investing and open up a Roth IRA?

I'm getting married in June and I'm saving up for the wedding and honeymoon which we can afford without any debt. However, my savings account is still (and WILL be) as low as it was in college ($2,000)! Eventually we want to be homeowners....realistic homeowners, and have a couple of kids. But I want to be able to retire happily... and just in case anything were to happen, I want to be able to take care of myself without having to rely on someone else.

Wrap up:
Stay in 403(b) or roth ira? Both?
Stay in current job, or if I ever want to retire happily, do I need to get out of teaching?
How much money SHOULD I have in savings to be safe/buy a home?

Can I retire happily, without ever being rich?....

Thank you for your advice!

My first recommendation is to review your 403(b) materials and pinpoint the funds with the lowest expense ratios. Compare those expense ratios to mutual funds available through brokers such as Vanguard or Fidelity. Since you don't get a company match, it only makes sense to contribute to your 403(b) if you get a better deal there than you would privately (or if you're already maxing out your Roth IRA). Unless your company has given you at least one stellar option in your 403(b) plan, you're better off sticking to the Roth IRA. Example: My company has 10-12 funds in its 401k, most of which have mediocre expense ratios (maybe like 0.45% to 1.2%) but there is one index fund with an expense ratio of 0.07% ... which is better than (or on par with) what I can get through Vanguard ... so I concentrate my 401k holdings there. If that option weren't on the table and the best I could get with my 401k was the 0.45% then I would contribute to the Roth IRA with Vanguard because they have a bunch of funds with a lower expense ratio than that. Expense ratios reflect a [hidden] cost to you ... the higher the expense ratio, the more you're paying to invest. It's the one factor that you can control, since you never know where the market will go or how a particular fund will perform.

I made a lot of progress toward increasing my net worth through tax-advantaged retirement accounts when I was making a salary of around 35k as a SINK ... and you might even be living with someone (or will be soon) which has the benefit of economies of scale. Therefore, I think it's totally possible to continue doing what you love and still work toward your goals. I would say keep your options open though. Maybe look into what you might need to do to pursue moving up the administrative ladder (e.g. assistant principal) or possibly doing some side work in teaching a college course or an enrichment course here and there.

I often struggle with juggling priorities ... and you have several ... so I have a couple of tidbits to add regarding those. If you have kids, the standard advice is that they can get student loans but you can't get retirement loans ... so make sure you keep your eye on the prize and don't lower your retirement saving in order to fund their education. Regarding the homeownership, there will always be another house ... as much as possible, try to keep emotions out of a homebuying decision ... it's the biggest purchase you'll ever make and it's pretty permanent ... take the time to figure out what you want and don't settle.

I agree. 403(b) plans can be very good but they can also be very bad. Some plans only offer annuities with very high fees and are little more than a rip off for the participants. Perhaps if you tell us what your investment options are we can give better comments.

Overall though I don't think you are in bad shape. Having paid off that much debt in a short time certainly shows that you have the ability to save aggressively. Once all the wedding/honyemoon/forming a new household expenses are behind you...and don't let them take over for too long...you and your spouse should continue as you have.

Good luck and I hope you stick around.

Americans are highly focused on home ownership. Yet RE is usually not the most profitable investment. It has certain tax advantages, especially rentals where the landlord can put in the time and sweat equity; e.g., DIY. But as many have found, to their dismay, getting caught up in a bubble frenzy in RE can be even more damaging to one's finances than an equity or bond bubble.

Don't think of rent as "wasting money". Having a house, even a paid-up house, incurs substantial expenses on an ongoing basis. There is no free ride, ever.

I grew up in rental apartments and had a fun childhood. Recognize that it is usually ego driving home ownership - kids don't care whether their parents are paying rent or paying a bank.

Yes, we own a home now and it's great to live in. It also bankrupted us when our partner went under during the previous RE bubble (1990-1992, for those with short memories). Now that we're retired, we are looking forward about five years down the road, when we can go to a senior living community. It's a constant concern when we're traveling that the house is empty; even with an alarm system and wonderful neighbors, the vulnerability worries us (our urban area has a fair amount of lesser crime).

You've been given very good advice, I think. Lower expenses on your 403b and a Roth will definitely help lay a good foundation. Don't obsess over small gains when you're young; it takes a couple of decades to really see the effect of compounding. It happened to us (we never made much, either) so just keep saving and eventually it will make a big difference. I'd suggest putting the money into the Roth first, then any excess (especially when you become a two-income household) into the 403b. The limits on a Roth are MUCH lower than your 403b. You can only put in $5K/yr into the Roth.

Teacher pensions are not often very generous. Be disciplined and start upping your percentage of savings. It is almost certain that Medicare eligibility age will be pushed further out, and medical costs are THE BIGGEST expense of the elderly. Even now Medicare only covers 51% of total medical costs – many people think it's 80% but that isn't true. It's only 80% of what Medicare covers, and there's a lot that Medicare DOESN'T cover.

Increase your savings by 1% or 2% every year until you reach a 20% level. And in a two-income household both of you should be saving equal percentages. When it comes to retirement, two definitely do not live as cheaply as one!

Good luck to you, and don't be scared of making a mistake. Everybody does, and it's how you respond to mistakes – by learning from them – that makes the difference.

Hi Autopilot29,
First congrats on becoming debt free! That is fantastic!
Personally, I would beef up your savings fund. $2000 is probably what a month of expenses? I’d make my goal if I made 35K a year to have an Emergency Savings Fund (E-Fund) of about 3-6 months of expenses. Of course I may be less prone to risk than some. Personally, I’d want 6-9k in the bank in case of a rainy day. Perhaps a goal for next year of 2013 to consider? A good goal would be to double or triple that E-fund.

Also, congrats on getting married! Since having children is on the radar have you started a Baby Fund yet? Perhaps something like $10 or $25 a month towards this?

Being rich doesn’t guarantee happiness. But having a proper financial plan will help reduce stress in your life and marriage.

That’s just my 2 cents.

My first recommendation is to review your 403(b) materials and pinpoint the funds with the lowest expense ratios. Compare those expense ratios to mutual funds available through brokers such as Vanguard or Fidelity. [/quote]

This is how clueless I am... I had to google 'epense ratios'! I stayed up probably way to wait learning even more about even how to simply read my account summary.

And just by doing that, I think I need to make some changes to my investments
Currently im investing:
50% Large Cap Funds (T Rowe Price Growth Stock .70%operating expense and T Rowe Equity Income Fund at .66% OE)
15% in Mid Cap Funds (Vanguard Mid-Cap Index .10%OE)
10%in Small cap funds (t rowe price small cap .97% OE)
25% International Funds (fidelity diversified international .90% OE)

However, I do I have other options. For every fund I can pick from, there is a vanguard fund available, In the large cap its at 10%OE and small cap vanguard at .16%.

I'm also now more interested in the vanguard target retirement 2045 for a Roth IRA, but I probably need to do more research.

THANK YOU for all of your advice. I really have been on 'autopilot' and have realized this is something I needed to investigate, I just didn't even know where to begin. This blog has been great at providing me with motivation and resources.






And thank you for the home advice, the more comments I've read, the more I realize that we need to do a lot more planning before being able to commit to such a pricey venture. Thank you again for your advice, it helped me to get the ball rolling.

[/quote]

Thank you for the kind words-- living on 'cushion of 2000' was a major risk. Thankfully it did work out in the end and I had no emergencies, car troubles...so forth. As much as I 'want' for my future, I need my savings built up. I also have 'wanted' for my current situation and would like to be living a nicer lifestyle, but I will probably continue this frugal way of life until we make more money. Ideally I'd like at least 10k in savings, but I know a house would eat that up. Hard to fathom 'losing' so much money at once and being back on the bottom again... but that's the near-sighted perspective.

I've never even thought about a baby fund-- what a great idea.

Such great advice; I appreciate it. I do hear that rent is wasteful from a lot of people, and sometimes feel that I am throwing money away. However, right now it's a stable option and you're right: I don't have to 'maintain' it myself, pay property taxes, and I am allowed to be mobile in life-- leaving an area when needed without having to rapidly sell a house. It does have many perks.

Thanks for the saving advice, I'm definitely thinking of starting a ROTH. I am very goal oriented so throwing some statistics out there as to how much I should be saving is helpful.

thank you!

This is a good allocation. We might argue details but there is nothing fundamentally wrong with this. The fees are fairly low. Vanguard, T. Rowe Price, and Fidelity are all good companies.

My one lingering concern is that these are not somehow "wrapped" in your plan. Where I work (a university) there is an optional 403(b) available. One of the investment options is through a company that has funds from Vanguard but "wraps" them with fees. In other words, when you go with that company you have a Vanguard Total Stock Market Index fund for example, but the fee you pay is 2.5% perhaps. People see the Vanguard name, look up the fund, and assume they are just paying a very low 0.1% fee.

The expense ratio for the T. Rowe Price Small Cap Stock fund is 0.92%. If you are paying 0.97% then it appears your funds are "wrapped." I would not be overly concerned with a 0.05% extra fee because for many years it will amount to just a dollar or less per year. But you'll want to confirm that you are not paying additional fees on top of that.

Do you have a traditional pension on top of the 403(b)? It seems unusual that you get no employer contribution whatsoever and are a teacher.

I agree with the advice about building an emergency fund.

Interesting; something I didn't think about. I know it's also a non-for-profit company that handles my funds, but I did do some more research into it

http://www.weabenefits.com/retirement_403b.aspx?id=1566



Compare our fees with other providers

WEA TSA TrustAnnual administrative fee (capped annually at $300) 0.35%
Surrender charges None
Sales commission None
Mortality and expense (M&E) fee None
Fees to open, close, or change account None
Inactive Account* minimum annual fee $25
Other administrative fees None

So there is an administrative fee-- if that means that the funds are wrapped? I haven't invested elsewhere, so I don't know how comparable this is if say I went directly through vanguard...

I do have a pension that I'm paying into. And luckily the pension system in my state has been fully funded for a long time... however, I mentioned in a previous post that due to politics they're pay freezes and deductions across the state for teachers. So I'm having a hard time estimating how much I will be making by retirement and how much I will eventually have put away towards my pension to collect on.

Figured I might as well have a better plan B!

PS. Growing up only 'knowing' this economy in terms of my own money has unfortunately made me cynic and a stresser. A couple of days ago I was searching if it was even a good idea for me to invest anywhere... I'm scared that this government debt will kill the economy and take my money. (I know, I'm probably overreacting, but this issue seems to be a BIG one. At least I'm not hoarding cash (or gold) in my mattress yet...)

Your welcome re: kind words. It is a wonderful feeling to be debt free eh? That you accomplished this so soon after college tells me you know how to cut expenses and handle money. However, is there anything else you could trim? Do you have a budget?

Frugality is a good thing. Spend less than you make. That’s the key to all personal finance. Would you agree?

Re: E-Fund Size
The difference Auto is that when you have a family (in June when you get married) it won’t just be you anymore. Might want to consider some cheap ($5-10 a month for x amount thousand in coverage) term life insurane once your married too.

Speaking of this what is your fiancé’s financial situation? Does she have a steady job? What kind of debt does she have if any? How does she view fiancnes, budgetting, etc.

Re: Baby fund - was the idea of someone else on the GRS forum. I think Panda perhaps?

I agree with DH. It is unusual that your employer makes no contribution considering your profession. Something to look into Auto?

Also, have you considered ways to either increase your income or lower your expenses?

See this thread for ways to save money.

What items could you reduce or slash off your budget?

That 0.35% extra management fee is unfortunate but it is not outrageous in my opinion, certainly not high enough to make it unattractive to contribute. I would continue with what you are doing. Those are not "wrapped" funds. The extra administrative fee is transparently disclosed.

It's really hard to say what will happen with pensions in the future. My wife and I both were in the same state pension plan 25+ years ago. It was doing alright but neither of us expect to ever get any significant benefits from it but we had no choice about contributing. We both left those jobs at different times over the years. My wife went to a new job with the same state pension plan. I was in the private sector for many years. We saved separately in taxable and tax deferred accounts. When I went back to the university job several years ago I got to choose between the same state plan and a different type of 401(a) that looks more like a 401(k). I picked the 401(a). Even then we expected there would be major changes to the state plan benefits.

Now, as of a year ago my wife will get a very sizable pension starting in just 2 years and that is mostly gravy since we were already planning to retire on our "Plan B." The legislature potentially can take away some of the benefits still but she is at the point where she can retire for 98% of the benefits now so even if they make a change she can retire before any effective date. But even that is unlikely because they just made some major changes 2 years ago.

She's a teacher by the way although a college professor. So, it can be done. The thing about a pension is that your benefits are earned based on age and time in the job so you can earn a pretty decent retirement salary even if your working salary is not large. But working to improve your salary near the end of your career is usually very beneficial. (Part of why my wife's benefit will be almost what she earns now is that they base it on your highest 3 years earnings and she did some special administrative things to get a very high salary for a couple of years a few years ago.)

Politicians will always be tinkering with pension plans and no one know what will happen in the future. But I think we are at a peak of the meddling stage. In many states the politics are already beginning to hurt the ability of schools and universities to attract good people. I serve on some committees at my university and I know that the changes our legislature is making have measurably hurt recruiting, which hurts how much grant money universities bring in, which has a pretty serious economic impact on the state. Some of the pro-business politicians like to believe they are doing something good by cutting government spending but trust me, the business community does not like the lower spending of the universities or the fact that the graduates are not as well prepared. It has cost our state dearly in terms of attracting business. So I definitely think there is a little more pain coming but I also suspect the pendulum will have swung the other way by the time you retire. Old people also vote so that attacking pensions is a good way to lose elections and that will only become more the case with an aging population. (Ask your congressman about that one.)

Good luck!

Do this! Okay, at the very minimum, max this out each year without lowering your 403 contributions (the Roth max is only $5000 per year, and you've been saving more than that paying off your loans). As for what to invest the Roth in, I would go with vanguard and their index funds. The market may go up or down, but on average over a long period of time it should go up. The return rate won't matter at first because you're investing so little (at least until several years have passed). After 20 years you'll have $100,000 in the Roth based on pure saving and not taking into account rate of return (should be more if history is any guide).

Hopefully you have a pension with your job, but if you don't you'll need to save even more aggressively. You also might want to look into supplementary income such as teaching at community college at night or writing a book or something. $35k doesn't leave a whole lot of wiggle room.

Nope, no employee contributions to my 403b; probably because it's public $?? I don't know how the community would feel about that funding my personal retirement as well as my salary..

Thanks for the link-- many of the suggestions on there we live faithfully by, but there are small cuts we could make. I live in WI and during the winter we only have 1 heated room in our apartment (the bedroom)! No cable, no designer shopping... but we usually do 1 'big' once a month activity (see a play, visit chicago... I've never really thought about it, but those expenses add up...150 per month?) <-- I guess that would be a good place to start documenting costs and creating a more structured budget for.

I definitely can look for a 2nd job, the difficulty is finding one that's not a long drive into the city away. But it's something I'm keeping my eye out for.