20 Comments

  1. 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!)

  2. jurema

    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

  3. 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

  4. Jonathan

    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

  5. Chris

    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

  6. Pete

    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

      • Pete

        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.

  7. 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.

  8. John

    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.

  9. Laura

    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

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