Married to a Teacher How Win at Retirement
1) Maximize 401(k), 403(b), 457 retirement contributions.
2) Pay off all debt (except the mortgage) before aggressively saving for retirement.
3) Save for college for your kids.
4) Budget and create an emergency fund.
It is not surprising that teachers don't make excellent salaries. The work is challenging, and it is well known that teachers are underpaid compared to other professions. So you are a teacher married to someone who is not a teacher. This blog focuses on how to win the retirement game and be successful in this type of marriage. This is a great combination, especially with the teacher giving back to their community and educating the next generation of kids.
In your marriage, you might have one spouse that is a teacher, and the other perhaps works in a corporate job, makes more money than the teacher, and has more chances for promotions and increased pay. How do you maximize your retirement savings in this relationship and support your teacher spouse?
1) Are you maximizing your retirement savings? This is a lot easier than you think. Being in the corporate position, you will have access to a 401(k) are you maxing out your yearly employee deferral. You should be saving around 20% of your gross income for retirement. I use this as a benchmark and something to strive for. Are you also saving in a Roth IRA? I don't say a traditional IRA. With a Roth IRA, all the money comes tax-free in retirement. Maximizing your 401(k) and Roth IRA are a winning combination. Don't just do the default at work and save up to the employee match. Supersize your retirement and maximize your contributions. For the teacher, make sure you are saving beyond the pension; options are available such as the 403(b) and 457 plans, where you can put as much as a 401(k) for retirement. This is a common mistake I encounter with teachers just saving in their pensions.
2) Are you debt free? Do you have everything paid off, all debts except your mortgage? This is the first step needed to get you on the right track for retirement. The more money you can put towards debt and pay this off, the more money you can devote towards retirement. Many people rationalize debt by saying that it is a low-interest rate or they cannot afford the new car otherwise. But it is typically always better to pay in cash for large purchases. After you pay off your debts, the next thing is to pay off your mortgage. But I would not move to pay off the mortgage and sacrifice saving for retirement, as you will need money to live on in retirement, and a paid-off home will not put food on the table.
3) Are you saving for college for the kids? This is a common mistake that many parents make in not saving for college in a 529 college savings plan. They hope the kids will get scholarships, financial aid, etc. Hope is not a financial plan. The problem is that your children grow and get into college, and if you have not saved for it ahead of time, you are forced to take out loans and perhaps do things that can jeopardize your retirement. It is best to save early for college for the kids as this is the second most significant expense besides the mortgage. In addition, the new rules allow money not used in a 529 college savings plan to be rolled over into a Roth IRA, making saving for college even more appealing.
4) Do you have a budget and emergency fund? You need a budget to plan what you spend. Even if it is done on a simple piece of paper or spreadsheet, you need to have a way to track your spending. It is recommended to save around 20% of your gross income for retirement. You should also allocate your budget towards your needs, such as mortgage payments, utilities, and other ongoing monthly fixed expenses at around 50%. And finally, what are your wants, such as going out to eat or on vacation? We don't want our wants to exceed 30% of our budget. You don't have to be a budget expert; try to use the budget to help you plan your spending. Also, have an emergency fund with at least three months of living expenses in the bank. Only use the emergency fund if you have a true emergency.
These are four ways to win at the retirement game by being married to a teacher. I'm sure there are more. The main message is to save at least 20% of your gross income for retirement. If you can save more, even better! Pay off all your debts, save for significant expenses such as college for the kids, and, most importantly, budget where your money goes and have an emergency fund. It is never too late to save for retirement and get your financial house in order. Contact me on the contact page below if I can be of service.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid Federal Government tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in estate planning should work with an estate planning team, including their legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.