Long overdue greetings to all my loyal readers. For the record, I missed you too.
In case you missed it, we’re now back in Georgia after our one-year adventure in Merida, Mexico. We have a new house, new jobs, and a new school for our son. We’re living in Statenville, Georgia in beautiful Echols County where we taught from 2009 to 2012. So far, we love being back…this feels like home!
Let me start this post with a simple question:
Is a Teaching Career Really That Bad?
Wow, have you seen the recent media coverage regarding teaching in America these days? This Time article painted a grim picture of life as a public school teacher: low pay, endless bills, shrinking benefits, and declining support. If you keep reading, you eventually come across this article that highlights 13 teachers with severe financial struggles.
Here are the referral links for the credit cards we currently use:
According to Time, this is what teaching in America looks like:
Yikes! Why would anyone ever go into the field of education if it were truly this bad? Sure, most teachers love working with kids, but they have to make a decent living just like everyone else too, right?
Look, I’m not here to belittle teachers with financial difficulties, but at the same time I won’t run from the fact that I think:
Teaching Is a Gold Mine!
Is teaching as bad financially as Time magazine says, or as awesome as I believe? Firmly believing that teaching is an incredible financial opportunity, I began reading on the internet…
The Race to Retirement Revisited
Somewhere in the depths of my foggy old brain, I recalled that way back in 2011 Mr. Money Mustache had written up a case study illustrating how a teaching couple could achieve financial independence in a “mere” thirteen years.
In his example, he said that a teaching couple earning $46k each could live off one salary and save the other one. He estimated that the couple would net $80k after taxes which would leave them with $34k to live on ($80k – $46k).
With an average return of only 5%, they would have over $855k at the end of 13 years. Not bad, huh? Here are the numbers:
I later found another post where he wrote,
“What I want you to do is start thinking of REAL savings. Not putting away $5 or $150 per month, but more like FIVE THOUSAND per month. Not everyone can do that. But a middle-class American family with two teachers making $60k each per year, who are currently saving zero and struggling to get by? THEY SHOULD BE SOCKING AWAY $5000 PER MONTH. Word.”
¡Palabra Pedro! Oh boy, saving $5k a month really gets my hardcore-savings juices flowing. However, after a while, I realized that MMM’s 13-year FIRE plan overlooked or underplayed many financial opportunities unique to a teaching career.
To be fair, he did mention that his numbers didn’t reflect any pay increases, social security, or pension benefits. We can’t expect MMM to know every nook and cranny of every profession, can we?
MMM’s suggestion that two teachers could attain FIRE status in only 13 years, while impressive, seemed to underwhelm me. Why? First, thirteen years is a long time to focus on a goal. In my experience, most people do better with short-term goals.
Second, MMM’s 13-year FIRE plan could become a 7-year plan with a few optimizations. Remember that back in 2011, the FIRE movement was in its infancy with MMM leading the charge. Since that time, the FIRE community has identified and honed a number of wealth-building techniques; this knowledge has grown exponentially.
Here are eleven wealth-building techniques that a teaching couple could use to better optimize their FIRE plan. They could use any, or all, of the following:
1. Maximize Paycheck at Current Job
There are a number of ways teachers can increase their on-the-job pay:
- teach extended day (an extra teaching assignment in lieu of a planning period),
- coach a sport,
- sponsor a club,
- attain a graduate degree (or two). (USM, Lamar, ASU)
MMM’s salary number of $46k seemed low to me. Way back in 2003 I was able to juice my salary to $56k a year by simply taking on an extended-day assignment. Had I coached that year, I would have bumped my paycheck to about $60k.
2. Work Extra Jobs
Another way teachers can increase their income is by working on their days off. Since a teaching contract is usually for 190 days a year, that means teachers have 175 “free” days a year. I’ve know many teachers who work after school, on weekends and holidays, and during summers.
Of course, teachers should accept extra employment opportunities within the limits of their schedules and energy levels. In my opinion, an extra job is always for extra savings and never for extra spending.
3. Live Frugally
In MMM’s example, the teaching couple was living on a salary of $34k. While that’s not a lot of money, a teaching couple might actually be able to live on less.
With a little frugality, two teachers should be able to live on $24-30k a year. Heck, MMM’s family of three lives on a similar budget. (Our living expenses were really low when we taught in Douglas, Georgia.)
More specifically, they can move to 1.) lower COL areas with 2.) better employment opportunities. Unfortunately, most teachers are not receptive to this option for a multitude of reasons: “That’s too far from family,” “We can’t just move; it’s scary,” or “I don’t know anyone there.” As always, the reasons not to do something are infinite.
As my readers already know, I’m a big proponent of moving to greener employment pastures. Why should you spin your wheels in a high COL area with limited job prospects when all you have to do is move? Sometimes I lose my mind on Twitter and go into “Come-Claim-Your-Fortune-in-Georgia” mode:
Underpaid and disgruntled teachers ought to consider claiming their fortune here in #Georgia. Decent pay, mild winters, low COL, reasonable housing costs, and lots of #Opportunity. Find your job here:https://t.co/grIKjCLxvu@PAGE_EdNews @georgiadeptofed @SuptWoods
5. House Hack
Taking on housemates and roommates can lower (or eliminate) your housing costs. If you own a home with a reasonable mortgage, house hacking can help you pay off your home fast. Many teachers could use house hacking to accelerate their wealth-building FIRE plan.
6. Work Side Hustles
These days the side hustle is in vogue, but back in 2011 the concept was much less common. These days teachers can make side money with: a blog, a podcast, rental properties, credit tradelines, an online business, Teachers Pay Teachers, VIP Kids, Florida Virtual School, etc.
7. Earn More Than 5% on Investments
MMM’s 5% rate of return was obviously a very conservative estimate. Take a look at the end of the post to see how returns of 7% and 10% would accelerate a FIRE plan.
8. Save More Pre-tax Money
Believe it or not, many teachers effectively have two 401k plans: a 403b plan and a 457 plan (aka, deferred compensation). Here are the 403b and 457 contribution limits for 2019:
Individuals over the age of 50 can save even more thanks to catch-up contributions of $6k per account. Here are the potential savings numbers for a 50+ teaching couple:
Sure, $76k and $100k are some horse-choking numbers, but I know for a fact that it is possible to save $100k in a year while working as a teacher. However, the savings opportunities don’t end there…
9. Fund IRA and HSA Accounts
In addition to having a pension, a 403b plan, and a 457 plan, teachers can also save money in IRAs (individual retirement account) and HSAs (health savings account).
- IRAs * In 2019 individuals can contribute $6k each for a total of $12k per teaching couple. A 50+ teaching couple would also be eligible for $2k of IRA catch-up contribution ($1k per individual) resulting in a total contribution limit of $14k.
- HSAs * In 2019 a teaching couple can contribute up to $7k.
When you add IRA and HSA contribution amounts to the 403b and 457 amounts, you get some impressive numbers. A teaching couple (under the age of 50) has a maximum tax-advantage contribution amount of $95k:
$38k in 403b + $38k in 457 + $12k in IRA + $7k in HSA
A teaching couple over the age of 50 has a maximum tax-advantage contribution amount of $121k:
$50k in 403b + $50k in 457 + $14k in IRA + $7k in HSA
Granted, $95k and $121k is a lot of money to most teachers, but all teachers should be aware of these wealth-building options.
10. Vest in Pension Plans in 5-10 Years
Because full pension benefits require 25-30 years of employment, it’s unlikely that teachers with FIRE aspirations plan on earning a full teacher’s pension. However, such teachers should be aware that depending on their pension plan’s vesting schedule, they might be eligible for partial pension benefits in as little as 5 to 10 years of service.
For example, in Georgia a teacher with 10 years of service is eligible to receive 20% of a full pension at age 60. In Nevada, a teacher can vest in a pension in as little as 5 years of service (PDF, see page 4).
Every state has a different pension formula. If you’re a teacher with a pension plan, it is your job to learn the basics of how your plan works. (If you don’t know where to start, ask someone close to retirement at your school…I’m sure they can point you in the right direction!)
11. Take Breaks and Mini Retirements as Needed
A teaching career is an awesome option for people who need to take time off to: rest, travel, explore other interests, or simply live an adventurous life. No, I’m not talking about taking a sabbatical; I’m talking about quitting!
Teaching lends itself to working and saving hard for a few years followed by a year off. All you have to do is quit your job! Since 2009, my wife and I have willingly quit four jobs to either 1.) better our financial position, or 2.) take time off from work.
Because teaching is such a common job, there are always jobs available whenever we seek employment. In Georgia, it has been my experience that when a principal needed us to fill an opening, he needed us yesterday. As a result, we have never had a hard time landing jobs.
A final benefit to frequent job quitting is that it allows teachers to roll their retirement savings to more cost-effective retirement plans. Because termination of employment is a “separation of service” event, teachers are then eligible to move 403b and 457 funds without punitive fees. (After quitting our jobs, my wife and I always rolled our 403b funds into our Vanguard rollover IRA accounts.)
Two Optimized FIRE Plans
Now let’s take a look at a teaching couple that is using some of the FIRE techniques above to 1.) earn enough income to max out all of their tax-advantage accounts (the full $95k) and 2.) live an enjoyable frugal lifestyle. Here is what their savings would look like after seven year with a 5% return:
What do you think? Saving $812k in a mere seven years would be awesome, wouldn’t it? Wow, that sure beats working 13 years to reach the same financial goal. Now, would hitting those aggressive savings goals be easy? Probably not, but you have to admit hardcore savings will get you where you want to go at breakneck speed.
Next, let’s look at an older teaching couple (age 50+) looking to play catch-up with their finances. We’ll assume they 1.) have enough income to fully fund all of their tax-advantage accounts (all $121k) and 2.) have learned to live frugally. Here’s what their bottom line would look like after six years with a 5% return:
Once again, hardcore savings works like a superpower! It’s hard to believe that two people could save over $864k in six years, but the numbers don’t lie.
Okay, I admit those FIRE savings plans are really ambitious, but I’m certain those numbers will prod someone to develop their own incredible hardcore-savings FIRE plan. I am also sure the Internet Retirement Police will hate this post because according to them, all things financial are impossible.
The truth is that I don’t write for the woe-is-me, whiny-heine crowd. Nope, I write for a handful of FIRE aficionados who are just crazy enough to make their FIRE plan a reality.
Finally, I just want to say that I’m a big fan of Mr. Money Mustache and that I appreciate his contributions to the FIRE movement. So much so that I made sure to introduce myself to him at FinCon in Orlando this past September. I also thanked him for helping me understand the value of frugal living and why it is a vital component of a successful wealth-building plan.
Okay, that’s a wrap! Let me know what you think about this admittedly extreme FIRE plan. Am I crazy? Do you know anyone who has worked a similar plan? Thanks for reading and a special thanks to all those people (you know who you are) who have encouraged me to keep blogging over the past few months.
Yours in South Georgia Bliss,
Gerry (aka, Ed)
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Bonus Tables: FIRE Plans at 7% & 10%
As promised, bonus tables! Here’s what a 7% return would do for our teaching couple:
and $1.4 Million in 10 Years!
Now, here’s their savings numbers with a 10% return:
and $1.6 Million in 10 Years!
Now, our older teaching couple’s savings numbers with a 7% return:
and over $1.7 Million in 10 Years!
Finally, our older teaching couple’s savings numbers with a 10% return:
and over $2.1 Million in 10 Years!