Opinions on pensions for retirement

[aevans1206]

I am in so much debt that I really have no business thinking about retirement, however, after reading about all of you financially savvy people, I just can't help myself. Currently, I am a teacher and most likely, I will always have a teacher's pension (unless it gets flushed away by investing in things like Bear Stearns or the housing market). Is it as important for me to worry about private retirement accounts? Obviously, I would like to live on more than just my pension, but does that mean I need to have the same sense of urgency? Just wondering 'cause I know nothin' about nothin'.

[Scanner]

I think you have the right thinking on this.

I'd be worried, not overly, but not underly (is that a word, teech? ) worried either.

Yes, teacher's pensions are backed by the state gov't's so it's unlikely that they would totally default (unless your state totally defaults, which in NJ, isn't off the realm of possibility).

What I do see happening is "renegotiating" the benefit when the states are at near bankruptcy.

"Sorry, that $4000/month pension - well, we only have enough money for $2600/month."

This is why building your own personal wealth is so important. Don't get me wrong - I am not anti-pension. My wife has one at her employer and she thinks it's a noble goal to work towards. But I love having defined wealth. There's no substitute for that kind of security.

[maat55]

I would concentrate heavily on getting out of debt first. Dave Ramsey has a 7 step plan for financial peace that might interest you. Read his book The Total Money Makeover. It will give you a clear path to follow.

[aevans1206]

I'm acquainted with Dave Ramsey's steps and like them tremendously. At the same time, there has been quite a bit of discussion at work as my employer began a 401K program for it's uncertified staff of which we certified staff may also take advantage. One of the items addressed is that your money grows the most when invested early (20s rather than 30s). Sooooo....my thinking is about trying to build a bit of a nest egg for those later years because it'll have the most growth now??? Any thoughts??? I know, I know, I know. Debt...debt...debt. But between my husband's new salary and mine, We make plenty to hammer debt tremendously and perhaps put a little aside.

[maat55]

With the market down, paying off debt might be more efficient for now. If you are in your twenties, you have plenty of time for investing. Being debt free will allow you to make up for lost time quickly.

[aevans1206]

Totally true.

[jIM_Ohio]

You haven't listed any numbers.

I have 250k of debt, but it's my mortgage. Some people come here thinking 10k is a lot of debt (it isn't). Read the blogs and you'll find some here digging out of 100k+ of cc debt.

And it's still relative- because if the person with 100k of cc debt has 24k/year of disposable income, that is different than only 2.4k/year of disposable income.

I would list the debts before I give 401k advice. I would not pass up a match to pay down debt.

[disneysteve]

Originally Posted by maat55

With the market down, paying off debt might be more efficient for now. If you are in your twenties, you have plenty of time for investing. Being debt free will allow you to make up for lost time quickly.

I agree that paying off debt needs to be a priority, but you could also look at current market conditions differently. When the market is down is the best time to get in. You don't want to wait until it goes back up to invest. You want to buy while prices are depressed.

Does the 401K plan offer any match? If it does, I would put in enough to get the full match. If it does not, I'd go with a Roth IRA instead for your own retirement savings.

[maat55]

Originally Posted by disneysteve

I agree that paying off debt needs to be a priority, but you could also look at current market conditions differently. When the market is down is the best time to get in. You don't want to wait until it goes back up to invest. You want to buy while prices are depressed.

Thats a tough one, I fully agree that now could be a good time to be getting into the market, but doing it with a ball and chain of debt seems futile. Aggressively getting rid of the debt then investing aggressively seems like a good plan.

I myself am resisting the urge to jump in until my EF is fully funded, Lucky for me, it will be very soon.

[disneysteve]

Originally Posted by maat55

Thats a tough one, I fully agree that now could be a good time to be getting into the market, but doing it with a ball and chain of debt seems futile.

I didn't mean to suggest investing instead of paying off debt. But I do think a little of both might be in order, especially if there is a match on that 401K plan.

[LivingAlmostLarge]

Depends, what rate the debt is at, how much, and how long to pay off debt. If you are going to sit here for 5+ years paying debt, then you'll have to start. If it's 3 months then not a big deal.

As for teacher's pensions, where I've lived and my mom is a government worker, the problem isn't it going away. It's that it has gone way down from what was initially promised, much like sweeps said.

Instead of 70% of income it might be 35% of highest wages or something.

[maat55]

Originally Posted by disneysteve

I didn't mean to suggest investing instead of paying off debt. But I do think a little of both might be in order, especially if there is a match on that 401K plan.

I would certainly do the 401, but Steve, you know where I stand on debt and investing. The freedom of being debt free out ways the short term loss if any of being in the market carrying debt. IMO.

[aevans1206]

The 401K is only matched for teachers who are uncertified because they don't qualify for the teacher's pension. I chose to have $50 per month directly deducted into the 401K-- half roth, half traditional. I also chose the conservative investing route. I'm just wondering if I should be worrying about being more agressive. Here are some numbers:

My salary: 56K per year
Hubby (new salary): 46K per year

We have about 86K in debt. 6K cc's/personal loans, 11,500 car loan, the rest are student loans (some fed, some private)

On the conservative end of things, we'll have about $1000 above what we usually spend (and that includes minimum payments on debt AND $200 monthly to savings) to spend on hammering debt or putting some into savings/retirement.

Everything's in more detail on my blog.

Thanks, y'all are pretty awesome.

[Scanner]

Take 75% of your disposable income and invest - split it between an EF, a house fund, and long term retirement. . .use the other 25% for debt reduction (I am assuming you are age 25).

So. . .that's $750/month to invest. . .$250 for debt reduction. When you invest, go 100% equities, since your 25% debt reduction is a debt sector investment.

Target:

1. c/c's first
2. student loan second (longest term)
3. auto loan last

Invest

1. Emergency Fund (EF) - internet savings
2. Balanced mutual fund - house
3. Large Cap stock fund - retirement - switch to Target fund when debt is retired.

[Scanner]

I chose to have $50 per month directly deducted into the 401K-- half roth, half traditional

My plan stands but I think there is some confusion here. You can't have a Roth/Traditional within a 401(k)

[jIM_Ohio]

Originally Posted by aevans1206

The 401K is only matched for teachers who are uncertified because they don't qualify for the teacher's pension. I chose to have $50 per month directly deducted into the 401K-- half roth, half traditional. I also chose the conservative investing route. I'm just wondering if I should be worrying about being more agressive. Here are some numbers:

My salary: 56K per year
Hubby (new salary): 46K per year

We have about 86K in debt. 6K cc's/personal loans, 11,500 car loan, the rest are student loans (some fed, some private)

On the conservative end of things, we'll have about $1000 above what we usually spend (and that includes minimum payments on debt AND $200 monthly to savings) to spend on hammering debt or putting some into savings/retirement.

Everything's in more detail on my blog.

Thanks, y'all are pretty awesome.

This is good info, still somewhat disorganized. Listing payments and interest rates (and payoff dates) would get you more specific advice.

If you are sending $200 to savings but still carrying the debt, I would rethink this. $2400 sinks the cc debt in 3 years alone. If I re-read that post correctly, this means you have $1200 to send to debt or invest or add to savings. $1200 sinks cc edbt in 5 months. Done deal, make that happen. I would then add $200/month to savings, invest around $500/month to $1000/month depending on the interest rates of the other debt.

Having car debt and student loan debt is not bad.

What are the terms of the student loans? What are terms of car loans. If rates are above 6%, I would send an extra $200/month or so to the debt while also investing. If above 8%, I would not invest more than $200 month while continuing to attack the debt.

If you have a Roth 401k available and can put in more than 5k per year, you have a HUGE savings advantage over many of us- I do not have a Roth 401k available to me, yearly contribution limit is $15,500.

[Joan.of.the.Arch]

Be careful if you are being offered annuities in a retirement plan. This is very common in 403-b's for teachers. Google whatever companies may be offering any annuities. Google the name of the annuity. There are some awful things said about annuities that get offered to teachers specifically.

Here is an article that's almost three years old now, but gives a sample of some of the problems.

Costly Lesson - Forbes.com

I'd liked to mention, too, that you probably do need a retirement plan beyond just your pension, even if your pension is impeccably secure. The biggest reason I can see for that is that your pension probably will not include health benefits, but only the option to continue buying the same insurance as the working teachers. But you will probably have to pay 100% of the costs.

Don't forget to find out whether you live in a state whose teachers cannot collect Social Security even if they qualify for it based on non-teaching earnings.

[disneysteve]

Originally Posted by aevans1206

I chose to have $50 per month directly deducted into the 401K-- half roth, half traditional.

Originally Posted by Scanner

You can't have a Roth/Traditional within a 401(k)

I'm assuming she means a Roth 401k and a traditional 401k.

[disneysteve]

Originally Posted by Scanner

Target:

1. c/c's first
2. student loan second (longest term)
3. auto loan last

This might be right, but I've listened to Suze Orman enough to hear her rant against private student loans numerous times. I'm not that familiar with them, but apparently they can be pretty bad to have. So I'd want to know more about the specifics of each debt - interest rate and terms - before totally agreeing with the order you suggest, Scanner. Since the CC debt is minimal (less than 6K out of 86K), those private student loans might need to be higher on the list.

[aevans1206]

Originally Posted by Scanner

My plan stands but I think there is some confusion here. You can't have a Roth/Traditional within a 401(k)

Our network went with Oppenheimer, which was offering the new roth 401K and a traditional 401K. You could opt to split, which I did.