Can I become a millionaire as a teacher?

Blog Posts
#1

Originally published at: https://www.personalfinanceclub.com/can-i-become-a-millionaire-as-a-teacher/

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Teachers are underpaid. I believe the long term solution to all of the world’s problem is education. And we should be paying teachers to reflect that.‎
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But still, it’s not like teachers make NO money. In 2019 the average US teacher salary was $61,730. Pretty close to the median US household income of $68,703 (which often has more than one income earner). ‎
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So Madison here decided not to wait her entire life for her pension to kick in. She took that $11,730 off the top and put it into her 403b. (Which is like the teacher version of a 401k). Since it’s a traditional 403b, she was only taxed on the remaining $50K/year, giving her a lean cost of living, but she made it work.‎
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And for her financial ambition, she was rewarded! Hitting millionaire status in her mid-forties. Instead of working ANOTHER twenty years waiting for her pension, Madison has options! Maybe she can teach part time, and work more on her hobbies. Or switch careers for the second part of her life. Or keep teaching because she loves it and go on more fancy trips or be outrageously generous! I don’t know what Madison is going to do with her money, that’s her business. But she crushed it.‎
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As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.‎
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-Jeremy‎
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via Instagram

#2

Hi there! I’m a teacher and have been thinking about investing in my district’s 403b, but I’m not sure if that’s a wise move for me. Some quick background:

  • I have an emergency fund, my only debt is my mortgage, and have been maxing out my Roth IRA for the past few years. I’ve also been automatically investing 11% of my salary into my pension fund. Between the pension and the Roth, I’m investing almost 20% of my current salary in retirement.

I’ve held off on looking further into my school’s 403b plan because I heard 403b’s in general tend to have poor investment options and high fees. Also, my school district doesn’t match and I see that I could only begin withdrawing from a 403b at age 59 1/2, with a 10% penalty if I needed to withdraw earlier. (Maybe I have this wrong, since the example above says she has options in her 40’s). However, I know that a 403b would lower my taxable income and some of my coworkers swear by it.

Since I currently have almost 20% of my income invested in retirement, I’m wondering if I should consider other investment options like a brokerage account invested in index funds. Basically, I’m worried I’d be over-invested in retirement and tie everything up in funds that I can’t access until much later in life if I add a 403b to the mix (I’m 35).

Curious to know people’s thoughts! Thanks for taking the time to read this!

#3

First thing you should do is get the details of the 403b you can invest in. My daughter is also a teacher, and she has a 457b plan she contributes to with some very good, low fee options to choose from. You need to get the lowdown on your plan so you can make a decision about it. I see you’re maxing out your Roth, good deal. Another often overlooked investment option is an HSA plan. You didn’t mention if you have a family, but you can invest up to $7200 in an HSA if you qualify. You must have a high deductible health plan that qualifies, and meet a few other requirements as well. Your Roth account would be a good place to put those index funds you mentioned to work, as would an HSA account.

Don-

#4

Thanks for the response! I unfortunately don’t qualify for an HSA plan. When getting more information about the 403b, are there particular things I should be on the lookout for? After some online research, I see that I should:

  • try to invest in EFT’s rather than annuities. Are mutual funds okay too? I believe those are actively managed and the expense ratio can be higher whereas EFT’s are not.
  • try to find funds with an expense ratio lower than .50%
  • look into whether they have ERISA protection.

Does that sound about right?

Also, if I went the 403b route, I worry that I would be overly invested in retirement accounts that I can’t access for a long time. I need to think on that some more and decide what makes the most sense for me.

Thank you again for your reply!!

#5

Not sure where you have your Roth, but the place I always recommend is Charles Schwab. And yes, mutual funds would work well for that, and the two Schwab funds I like are SWPPX and SWTSX, with expense ratios of .02% and .03%, respectively. You could not go wrong by having 50% of your Roth in each fund, very simple hands off investing. BTW, there are many other good funds to choose from, but those are my two favorites.

What you need to qualify for an HSA is a HDHP, call your HR department and ask if one’s available. If you are relatively healthy and don’t spend a lot on medical bills every year, you can turn your HSA into another IRA account basically. Search youtube for HSA, tons of videos about it

Does your state have a DRS ( department of retirement ) website? Our state has a wonderful site with all the info about pensions as well as the 457b investments, etc. Hopefully you have one as well and can find out your investment options for your 403b.

Lastly, use the investment calculator on this site to give you an idea of how your investments could grow, that should give you a better idea of how much you need to put away over the years.

One more thing, googling 403b it looks like you can w/d from it at 55 penalty free. YMMV LOL

#6

I agree with Don. You could ask your school where you can invest your 403b. You should have a few options such as Vanguard, a specific credit union, etc. From there you can see what exactly you can invest in. There will be a list of ticker symbols such as VTTSX and from there you can look at expense ratios which are hopefully lower than 0.2%. PFC generally suggests a target date index fund if it’s offered. Hope this helps!

#7

I’m not a fan of target date index funds for a few reasons. 1) They may invest in actively managed funds, which cost more and underperform other index funds. 2) It’s too easy to just set and forget, which means you’re not taking an active role in your investments, and that could easily lead to higher fees. 3) You get what you get, no flexibility in what the investments are. 4) Even the long term TDFs hold bonds, why would someone who wants to retire in 2065 want to hold bonds? 5) The average expense ratio of a TDF is .7%, that’s no bueno for me. And the biggest reason of all is that they underperform standard index funds.