If you’ve poked around my website at all, you already know how much we like “crappy” jobs. (If you’re scratching your head, read these posts: #1 and #2.) In those posts, I explained how we moved to rural teaching districts (“crappy” places in the eyes of many but not ours) where we were able to dramatically increase our net worth through a combination of hardcore savings and frugal living. To be honest, I’m a little tired of writing about those two jobs, but I realized that I haven’t told the full story.
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The Inside Baseball
Around March of 2009 my wife and I were doing a lot of things right financially. We were both maxing out our 403b and IRA accounts, we had a net worth around $400,000, a nice home, a modest debt load, and our spending was in check. However, one day during a spreadsheet planning session, I realized that we were squandering a golden opportunity. While we were already saving over $50,000 a year, I knew we could better optimize our financial plan.
I know some of you are thinking, “what the heck, they were saving $50k a year and he wasn’t happy.” Yeah, that’s correct. Why? Because we should have been fully funding all six of our retirement accounts, not just four of them. In addition to our Vanguard IRAs, my wife and I both had access to a 403b and 457 plan at work. Our problem was that we never seemed to have enough money to fund our 457 plans even though we were earning about $120,000 a year. I realized that we had a cash-flow problem. Although we made enough money on paper to fund all of our retirement accounts, our living expenses, retirement contributions, benefits, and taxes were gnawing away at our disposable income. “If only we had another $1,000 a month,” I thought to myself.
Birth of THE Plan
As I looked over my spreadsheet, I saw $60,000 sitting in our 457 accounts earning 2% a year in a short-term fixed account. The money was stuck there because the fees associated with the investment platform were prohibitive: 125 basis points (or 1.25%) just to invest our own money. (Ha…no way in Hades!) Suddenly, I thought to myself, “How can I make this money useful NOW? Then, like a thunderbolt to the head, I realized that a 457 plan allowed for pre-59.5 withdrawals without penalty as soon as you “separate service” from an employer. In other words, if we quit our jobs, we would be able to access the $60k without penalty. I also realized that we had enough time to contribute another $30k before 2010 to get our 457 balance up to $90k.
I sat and thought about the possibility of quitting our jobs to access our money. Was I crazy to even contemplate such a move? It seemed insane. After all, we taught at a good school, Edwina was the Teacher of the Year, and I was a popular coach and the A.P. Spanish teacher. But, things appeared to be trending in the wrong direction: days were becoming more stressful and less enjoyable, we always seemed to be in a rush, we each had over 140 students, Fridays were jubilant, and Sunday evenings were dreadful. (Hey teachers, can you relate to any of that?) Lying in bed, I asked my wife, “Are you happy here in LaGrange?” After a brief conversation, we agreed that our jobs were consuming our lives. I told her that I had an idea…
The next day in my wife’s computer lab I started writing The Plan. In it I detailed the following facts:
- if we quit our jobs, we would have access to $60k
- if we increased our 2009 contribution amounts, we could get our 457 balance up to $90k
- if we started taking 457 distributions in January of 2010, the money could cover most of our living expenses
- if we found new jobs with both 457 and 403b plans, we could max out all six of our retirement accounts (403b, 457, and IRA)
- if we took yearly 457 distributions of $30k, we would have three years of living expenses
- if we maxed out our retirement savings, we would greatly increase our tax efficiency
I actually wrote a couple of versions of The Plan over the course of the week. As soon as I finished writing a version, I would print it off and submit it to my wife. Thankfully, she read them and she became receptive to the idea of us quitting our jobs and taking new jobs in another school district. Here is an early version of The Plan that I found in an old notebook:
Execution of The Plan
Once we realized the benefits of quitting our jobs, it was my job to find our next teaching gig. After monitoring the TeachGeorgia website for about a month, I found our first “crappy” job location in Echols County. In May we quit our jobs and began preparing for our move to Statenville. In July we got settled into a rental house, and in August we began teaching at Echols County High School. We immediately recognized our good fortune: the people were nice, we had fewer students (I went from 142 student to 41!), and the quality of life was better.
The job was also better financially: we were exempt from Social Security tax (yes, you read that correctly) and we had a “replacement” retirement plan instead of Social Security. It was beautiful; the normal 6.2% Social Security deductions were absent from our paychecks while our employer contributed 6% to the district’s replacement plan. To top it off, we were 100% vested in those contributions from day one!
After a great fall semester, we made it to January of 2010–it was time to execute The Plan! In January we took our first 457 distribution (from our previous employer–not the new one!) so that we would have money for our living expenses. At that same time, we contributed 100% of our paychecks to our 403b and 457 accounts. Over the year, we pulled funds from our 457 accounts when we needed money for our living expenses. This allowed us to live a nice lifestyle while saving a lot of money. From 2010 to 2012 (2.5 academic years), we repeated this process and it enabled us to save $263,510 (see table below). In the spring of 2012, we left Echols County to take a break from teaching.
Over the next two academic years, my wife taught for one year and I taught for five months. We took the entire 2013-14 academic year off (not a sabbatical, “off” as in with NO job). In 2014, we decided to look for another “crappy” job so that we could grow our net worth to $1 million and possibly never have to work another “real” job again. Once again, I monitored the TeachGeorgia website and eventually found jobs for us in Coffee County, Georgia. Lather, rinse and repeat…
In July of 2014, we moved to Douglas, Georgia to perform more of our hardcore-savings magic. For our living expenses we drew from two sources of income. First, we had our 457 plans from our previous jobs in Echols County. Second, in 2013 we began taking 72t distributions from our IRA accounts at Vanguard. These two sources of income easily allowed us to go full throttle on our retirement savings. After two years of living frugally and saving like crazy, we were ready for another break, so we called it quits again. In our two academic years in Coffee County, we saved $238,683. The grand total for our 4.5 academic years in Echols County and Coffee County was an astounding $502,193. (Hey, I’m from a working-class background, so a half million is big money to me! Most days I still can’t believe we did this.) Check out our numbers below:
The categories in the table above contained the following accounts:
- Retirement * This category includes our 457, 403b, and traditional IRA accounts. You’ll notice that the 2012 balance is very large. That year we rolled our district annuity (in lieu of Social Security!) over to our Vanguard IRA accounts. We each had a little more than $10,000 in those accounts.
- Family Money * This category includes our Health Savings Account and a taxable mutual fund. We opened our HSA in 2012 when we began using a high-deductible healthcare plan (HDHP).
- Son’s Money * This category includes my son’s various accounts: a Coverdell educational savings account (ESA), a UTMA account, and a Georgia 529 college savings plan.
Here are some averages for our five years of hardcore savings. (Since my last job had 5 weeks and 3 days of holidays and breaks, I considered the school year to be nine months long for the monthly calculation.) Knowing our savings averages served as a constant motivator as we worked towards our savings goals. A bad day is soon forgotten when you realize that you just saved over $500. A bad month at the job? Oh well, we still saved over $12k! Keep in mind, that is money SAVED, not earned before taxes.
How to Build Your Own $500,000 Savings Plan
Flip Your Thinking * Okay teachers, I love and appreciate all that you do, BUT too many of you view teaching as taking a vow of poverty. That kind of thinking ensures that you will always be poor; it’s called a self-fulfilling prophecy. What if you flipped your thinking and viewed your teaching job as a chance to save money to “buy your freedom?” Instead of waiting for politicians to grant you a 2% raise (before taxes) or riding out your 30-year prison term teaching career, you could simply take control of your own finances and life. I know this sounds revolutionary to many, but it can be done.
Prepare Your Cash Flow * If you have a 457 (with no surrender fees!) at your current job, you need to start feeding it now. Pretend it’s starving. As in our case, your 457 distributions could cover your living expenses while you save 100% of your paycheck. We never invest in our 457 accounts. Instead, we treat them like savings accounts that will be used for our future living expenses. (Be sure that your 457 plan doesn’t have surrender charges because all such fees are stolen taken from YOUR 457 account balance.)
Target Your Next Job * At some point you’ll need to have your next job ready, so plan for it. While there is always an element of chance to landing a job, don’t depend on luck. Monitor job vacancies in a few areas you might consider for your plans B or C. Network and ask around about potential openings in your districts of interest. Also make sure that your potential employers offer the retirement plans you need (403b and 457); do not take a job that does not have the retirement plans that you need! Finally, I recommend that you choose an inexpensive locale where you can blow in, live frugally, and save all of your salary.
Make a Plan * Get out a spreadsheet and figure how much money you (and your family) could save if you pulled off 1, 2, or 3 years of hardcore savings. The numbers might shock you. If you lack financial planning creativity, feel free to copy my plan.
Work Your Plan * If you go through all the trouble of quitting, moving, and finding a new job, you should try to suck it up for at least two years to make your plan work. Don’t Lose Your Nerve. If your new job is terrible, keep in mind that you’ll be leaving as soon as you have $50,000 or more. It’s a great motivator when you understand how much you’re saving. Know your average savings by: academic year, month, day and hour. You should always know what you’re accomplishing.
Final Thoughts
Okay, now you all know just how crazy I am. Back in 2009 I had a lot of crazy questions running through my mind. “Why can’t we max out six retirement accounts in addition to our pension?” “Why can’t we save over $10,000 a month or $100,000 a year?” Instead of ignoring these “crazy” questions, I opened up a spreadsheet and a Word document, and I began exploring various options in hope of achieving my financial vision. Eventually, a moment of clarity arrived and showed me the way. Sometimes it’s good to be crazy.
Obviously, my quirky retirement planning is not for everyone, but I am certain my approach will appeal to someone reading this. If you’re a fellow crazy teacher looking to save a lot of money fast, just know that it can be done. You’ll have to do some unconventional things (like quit your job and move to the Hinterland), but it might greatly accelerate your wealth-building plan. If you know of someone who might benefit from this approach, do me a favor and please forward this post to them.
What do you think about our unorthodox approach? Are we crazy? Could you craft a similar radical hardcore-savings plan to ramp up your wealth building? I look forward to your comments and questions.
Bonus Tables for the Bored and Nerdy
Hey guys, sorry to dump these here, but I know some of you like tables as much as I do. Here are our “crappy” job savings averages by location. First, here are our averages during our time in Echols County, Georgia from January of 2010 to May of 2012.
Next, here are our averages during our time in Coffee County, Georgia from August of 2014 to May of 2016.
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I was a little confused about your “rolling” of the 457 to fund living expenses while contributing to another 457 account but I think I get it. You’re never treating it like an investment account but rather a cash flow “buffer” since the fees suck.
I was applying my own personal experience with the 457 here in North Carolina that actually has pretty decent investment options (US, US small cap, and total international index funds at costs similar to Vanguard Investor class shares). They didn’t have such low costs the first year I contributed but someone wised up and figured out a way to lower costs (having billions in the State’s plan probably helped with that…).
I also noticed you mentioned you were the AP Spanish teacher. Explica como tu puede navegar en Mexico por tanto tiempo! Great skill to have if you spend much time in Latin America (and as I’m learning some Portuguese right now, it’s a great skill to have to facilitate learning other Latin languages).
Most teachers have the worst 457 plans on the planet; they’re your boilerplate variable annuities that charge 1.25% just to invest your own money. Of course, the investment choices also suck and charge another 1%. Even the index funds (if they offer any) cost about 50 basis points which is 10 times what I pay for my Vanguard Admiral shares. So yeah, we always view our 457 money as a saving account, certainly not an investment account. To get to our money, we simply filled out a distribution form and got the money within two weeks.
I’m definitely not a native speaker of Spanish, but I don’t let that stop me. I am so glad I stumbled into Spanish when I played basketball in Neuquén, Argentina. My Portuguese is a piss-poor version of Portunhol that I picked up on a three month solo trip in 1989. I’ve even been know to butcher a little French, but I’m embarrassingly bad…maybe I should study the language… The French always seem so encouraging as I fall on my face linguistically. (I’m being serious here. I remember one 20″ conversation that I had in Portugal with a guy. Boy, it was brutal on my end, but he stayed totally engaged the whole time…what concentration!)
Hello Ed,
Again, another great article, and I really appreciate your sincerity and transparency. I have been debating funding a 457 because in my school we only have two choices: an annuity and a TIAACREF that doubled the management fees (not yet 1%, too bad no Vanguard). But I get it that you used it as a savings account, not investment. Still, my blood boils when I think of their fees. Thank you for the push… Tomorrow I will call HR!
Tchau,
Jurema
PS: Can I make a suggestion? I know you need some time from writing too many posts, but would you consider writing for those who completed 50 (Yeah, big O)?
Jurema,
If the annuity doesn’t have surrender charges and has a fixed account, I’d treat it like a savings account. Tiaa-Cref is a good option usually. I’m with you on the fees. Once you know about Vanguard, you can’t unknow it. I’ll start brainstorming on a post for 50+ readers. Ed
Hey. I’m trying to understand why you had to move so much. Couldnt you have just stayed put and save the difference between what was in your 457 and your salary, rather than depositing the entire salary and pulling from the 457?
Seems like the tax would be similar.
Hi Yaacov,
Maybe so, but all I remember is that we had never saved over $75,000 in a year because cash would get scarce at the end of the year. However, as looked over possible plans, the possibility of accessing our 457 plans seemed like an easy way to increase our cash flow. This increase lead to our hardcore savings approach in Echols County and a near 100% savings approach in Coffee County. The availability of $90k of 457 funds enabled us to “go all in” on our savings to a much higher degree than ever before. Prior to 2010, the most we ever saved was $64k, but from 2010 to 2012 we saved: $85k, $85k, and $91k. If there had been a way to stay in LaGrange, I might have missed it, but that did not seem like an option as I recall. It’s also important to state that we were looking for a change of location due to burnout, so staying was not really a consideration. Thanks for the question. Ed
Hi – I just listened to your podcast interview on Journey to Launch and I was very excited by this concept, as I had just learned about my own 457 last year. However, once thinking about it in terms of net worth and taxes averted, I came to the same conclusion at the above comment. I have to say, I just don’t understand. Yes, on a yearly basis your savings were higher, but that is because you were supplementing spending with the prior position’s 457. So you were drawing down one account while adding to another.
At first I thought there was some tax advantage, but then double-checked and a 457 is taxed at each point of withdrawal. So… I guess my question is, from a net worth standpoint, where is the advantage? As the previous poster suggested, what if you had simply saved what you could each year and added it to the original job’s 457 – wouldn’t you have ended up in essentially the same place for total money saved in a 457 (or across 457s)?
I definitely understand changing jobs for salary increases and change of pace, those are good reasons. But if that isn’t the driving factor here, just viewing it as a 457 “hack” – can you explain how it increased net worth?
Hi Jess,
My hack puts me in the driver’s seat: 1.) I decide what my income will be for the year and take withdrawals accordingly. 2.) I can take them early in the year instead of waiting for my paychecks to come in. 3.) Having money early in the year allows to 100% on filling my buckets. That was harder for us to do when cash flow was tight. 4.) At the end of the day the 457 buckets are filled providing us with “bridge money” to get us to age 60 when our teacher’s pension kicks in.
All that said, many people hate what we do because they say all we’re doing is cannibalizing our retirement accounts. That might be true, but our cash flow sure seems to feel much better doing it this way. If this method does not appeal to you, do it your way because as we all know, there are many ways to skin the FIRE cat. Best of luck, GB
Ed,
Love the blog and this post is fantastic! 3 questions:
1) How much money did you three live on? I can’t seem to find a number as in this post or your other 2 posts about “crappy jobs” hinted at both $30,000 for living expenses and $50,000.
2) In terms of tiers, it seems that with both of you having a masters or multiple masters degrees has helped you make some extra money then if you would have stayed at a bachelors. Is this true?
3) I’m thinking of possibly teaching in the district that I’ve started student teaching in. Base pay is $39,000. Am I better off maxing out a 457 or 403b or contributing equal amounts to both? My gut says max out the 457 as I can take out money before my 50’s and can do so without getting taxed 10%.
Jonathan,
Thanks for the questions. First, we pulled $30k per year from our 457 from 2010 to 2012. We also had the remains of our paychecks. I don’t have my tax info here with me, but now I’m really curious to see what our AGI was for those years. I’ll be able to check those in two weeks when we get back to Tennessee. Second, my wife and I both have educational specialists degrees which means we get paid pretty well. We both earned an extra $12,000 more than a teacher with the same experience teaching on a bachelor’s degree. That’s $24,000 total…obviously a nice chunk of money. We also got stipends from coaching and sponsoring a club. Third, I agree with you…the 457 is awesome if you’re looking to have a penalty-free savings account. I never invest in my district’s 403b and 457 accounts because they’re fee-bloated annuity platforms. That’s why I quit my jobs…to be able to invest my 403b money and access my 457 money. Quitting can be a beautiful thing!
I’ll get back to you on that first question when I have access to my files. Thanks for visiting. Ed
Hey any word about your AGI from my first question?
Not back to my files yet. Next week sometime we’ll be back in Tennessee.
Hey Ed maybe you already answered this in your recent FAQ series. Otherwise it would be interesting to know if you get the chance.
That’s awesome Ed! Thanks for the detailed blow by blow… Wish I could have run into that years ago! I am sure this will inspire others to pull it off to
I’m copying your strategy from 2009 this year. I have cash reserves of about 50k due to the fact that I was oblivious to investing/FIRE till 2 years ago. I’m going to live off that, plus about 25k that will still come from our paychecks, 2017 will look like.
403B’s – 36k (0.35% fees plus 0.05% for VTSAX 0.4% total)
457 – 36k (0.35% fees plus 0.05% for VTSAX 0.4% total)
Roth IRA’s – 11k (VTSAX 0.05%) If I were the type to blow money on Xmas cards, Vanguard would get the first one!
Principal from Mortgage – approximately 9k
Another 457/403 for heath care in retirement – 1.5k (seems to be about 1% fees…ugh, I do it for the match)
Pension contributions that we were to forego a pension: about 10k
Total savings for 2017: about $104,500
We anticipate that about 30k will be depleted from savings to do this, along with the 20-25k that we will get from our paychecks. We spend way more than you guys though, might even be like 50k per year. I think additional costs for daycare and our mcmansion account for most of our spending differences. Our car/phone/no tv/food expenses seem to be about identical to yours.
This looks pretty similar to your plan when you started really ramping things up, right??
Pete,
Yes, those numbers look very similar to ours when we went hardcore. I love it. Is that $1.5k contribution for healthcare an HSA? Your .40 total investment fees is better than most 403b and 457 plans. Not that I like that .35 administration fee; that’s what it is, right? Enjoy your mushrooming net worth and good luck. Ed
It’s called a “personal healthcare fund (PHF)”. In 2012 the state of Michigan legislature voted to slash retirement benefits for teachers…mostly new teachers, but it had several negative ramifications for my wife and I too.
One consequence for me had to choose between keeping healthcare in retirement or setting up two new retirement accounts. One was a 2nd 457 account, that I contribute 1% of my salary to. Then, my school district sets up a 401k in my name that they match that 1% with.
Since my wife was also a teacher, we didn’t need to both have health care in our name in retirement, I took the PHF and she took the health care under her name. The investment options are more expensive, but it’s worth it for the match. I don’t have vanguard, but I found an S&P index fund and have it in that.
So, I actually have a 403B account, two 457’s, a roth, AND 401k accessible to me in some form or another…crazy huh!!!!!
And yes, that’s correct. .35% administration fees. There are 6 companies my school has as options, and .35% was the lowest available when I scoured each one. We all know it’s bull#$%, but .35% and access to vanguard is way better than most teachers get.
Excellent article Ed. I should devise a plan for college professors. We don’t have the luxury like you of moving from district to district, but there has to be a way to optimize those items more.
Jason,
You probably have better 403b plan than most at the k-12 level where we have fee-bloat annuity products. Check with your human resources to see about 457 and HSA options. You might want to consider using a traditional IRA and then executing a Roth IRA conversion ladder later. Just my two cents. Thanks for reading.
Just don’t waste money and don’t have children. Save all you can and with a job from obtaining no more than a high school diploma your savings will be at least $600,000 in 32 years. I retired at 51 years old and wife retired at 54 years old. One more piece of advice don’t spend over $15,000 for a new automobile and keep it a minimum of 175,000 miles before replacing. This world is a money racket don’t get caught up in it. Save All You Can. Retire early and enjoy life.
I’m still very confused. I understand quitting to be able to move the money to Vanguard.
As an example so I can learn: Say my teacher husband quits this district in May with $30k in the 457. then he moves up into administration in the fall at a new district, making $70k. I’m a SAHM.
Jan to Dec we then save ~$55,000 (I’m rounding off) in a 403b, 457, HSA, and in two IRAs (one is on my behalf). Let’s pretend my math is right (I’m waaay rounding off) and after minimal/no income tax and lots of FICA (his district does not pay that for us) during this Jan to Dec period we have $800 a month leftover to live on. So Jan to Dec we live on the prior 457’s $30k plus the $10k ($800/month). We need $40k a year take home to live on.
At this point in time what would you do in our shoes if he wants to stay in each district three years before moving on again. Do we not contribute to a 457 since the only 457 with funds is with the current district? Would you contribute anyway but pull out funds when needed? If so why?
I guess I’m looking for the same answer Yaacov (above commenter) wanted when you answered you’re not sure why it works. It just does. I’m hoping since you wrote it a year ago you may now know the reason why?
If not how would you go about starting this system as an employee making $70k with no retirement or HSA savings at all? We actually have no savings because we chose to pay off the house so I can stay home.
Also what would you do if you were in our shoes making $70k with no retirement / HSA savings, your spouse went back to work part-time taking home $24k, and your yearly living expenses are reduced to $30k?
I’m hoping this will explain how you saved so much money. I don’t see in my head your gross less your savings and expenses. Thank you so much for sharing your system.
Hi Laura, it seems that this post drives some readers nuts! The best answer for why this approach works for us is that:
1.) it increased our income just enough to cover expenses AS we went to 100% hardcore savings mode. I view it as front-loading both savings and income beginning in January. Starting the year knowing we have enough money to cover 9-12 months of expenses cannot be overstated. When you zero out paychecks for 8-12 months straight to your 457 and 403b accounts, you have a tremendous savings tailwind at your back.
2.) it lets me take money in a fee-bloated variable annuity account (one I would never invest in) and use it as income as needed. Had I stayed at my old job, I would not have had access to that 457 money. It would be stuck in a fix income account (or I could have invested it in an index mutual fund with an expense ratio of 1.50%–no way Jose!). Quitting my job allowed me to rollover my 403b and 457 funds. It seems to me that many FIRE enthusiasts don’t understand how bad 403b and 457 plans are; teachers in Georgia almost always have variable annuity plans with fees of 2% (or higher). That is the reason I’m usually eager to leave my job–it gives me immediate control of MY MONEY.
3.) from a mindset aspect savings became much easier because we always had “more money than month,” twelve months a year. Prior to 2010, that was not the case because we needed the money from our paychecks for living expenses. As a result, we were able to front-load for “only” 3 to 6 months a year. In our last jobs in Coffee County, GA we zeroed out our last 8 paychecks (Jan. to August) because we already had money to live on. Any income from future jobs will be 100% funneled to our various savings and retirement accounts.
The confusing part of what we do is that we save, invest, and take distributions simultaneously. That makes the accounting a little tricky.
As for what you and your husband should do, it depends on what kind of 457 and 403b accounts he has. What are the fees in the plan? I’d bet that it’s a typical high-fee variable annuity product. One thing you can both do is use your IRAs and HSA accounts to invest in. That would be roughly $18k that you could actually invest in. If the 403b and 457 plans are not cost-effective, you can use them to simply “park” money until you can move it at some point in the future. Of course, your husband might have to quit his job to do that.
Happy New Year,
Ed
This is an interesting strategy, but I feel like there is a big part missing, namely what you plan to do when you and your wife turn 70 1/2 and have to start making required minimum distributions from your retirement accounts. Given how much you’ve accumulated, you presumably will be paying a very high tax rate. Will you be using the time between when you turn 59 1/2 and 70 1/2 to roll over contributions ultimately into Roth IRAs so that you can pay the taxes at a lower rate? The specific reason I ask is that I anticipate paying off my mortgage fairly soon and am trying to figure out whether it would be wiser to fund a spousal Roth IRA or put it all into a 457 account. (I currently fully fund a 403b and my own Roth IRA.) Thanks!
Hi David,
You have certainly identified a potential problem. My plan is to convert as much of our IRA money to Roth IRAs. Then, I’ll start drawing down our traditional IRAs first. The good news is that the new tax law will allow for $101,400 of income with $6,907 of federal income tax (6.81% / MFJ +1). My next low-cost living situation should help us keep our costs down while we execute our Roth conversions. I don’t think we’ll be able to get all of our money to Roths, but we should be able to move a good chunk over. Like you, I don’t like the thought of having RMD in a high tax bracket…thanks, but no thanks! Thanks for the question, Ed