Investment Questions

[Dave Gray]

I have been looking at finances lately.  I still have some questions about what I should be doing -- and when I should stop doing certain things.


Retirement:
My job offers a 401K with some matching.  I max that out, because you're dumb if you don't.  That's all invested in a mutual fund with a maturity for 2040.

I have a ROTH IRA that I've been maxing out for my entire working life.  That is all set a mutual fund that matures in 2035.

My wife works for the school system and has a 403B, which she has put some money in over the years, but not very rigorously.  It has some OK money in it, but my advisor said to move new contributions to a ROTH 403B, but leave existing contributions as they are.  I am considering maxing this out, as well.  There are no perks or matching.  It's only the added tax benefits.  I am unsure how to proceed here and I don't know much about this investment because it's not in my name.

My wife also has a pension.  This confuses the shit out of me, because there is this thing called "drop" where you anticipate your retirement date and you get paid monthly based on the highest earning years of your career, so you have to kinda anticipate your future salary.  I don't REALLY know how to evaluate this and I definitely don't know if it has a perceived change to your net worth.  I could use some help with this.

Additionally, I know that people are skeptical of Social Security existing or "running out of money", but I'm not.  That's something that we fund and I believe will exist, so I don't really know how to estimate that, either.

Long term investments:
I have a brokerage account.  It started from a lump sum but was stagnant.  I recently decided to auto-deposit a little money to it each month.  I started it in 2021 and then it lost its ass in 2022, along with everyone.  It has slowly crept back and is slightly positive all-time.  I don't really know what the exact criteria my broker is using, but he asked me a bunch of questions about risk, and he made some suggestions.  This would be where money came from if I wanted to buy a new car or remodel something in the house or take a vacation.

College Savings:
I need help here, as well.  One thing that I always put a priority on was proving for my kids to go to college (or trade school, or whatever further education is right for them.)  I literally set up the auto-deductions for each of them before they came home from the hospital to go in a 529 plan.  Not only have I contributed regularly, but the rate of return has been good, so there's a lot of money in here.  My oldest daughter is 12, so she has 6 or 7 more years of contribution and growth.  My concern is that there's gonna be too much in there and I'm going to get screwed on the backend.  But it's so hard to estimate how much money you'll need for school, because there are so many variables not only to the cost of college, but where you'll be accepted, scholarship opportunities, out of state vs. in-state vs. local, room and board, etc.  I just don't know if I should ride it out until she's college-aged or move my future deductions into something more versatile.  I have this issue for two kids.

Short-term Savings:
This is where I'm kicking myself, because I had, for most of my working like, between $10-20K just sitting in a checking account or savings account at essentially 0% interest.  The amount would fluctuate, but I just had money on-hand for various life expenses and it would earn, no joke -- like $2 a year.  Granted, high yield savings didn't exist like it does now when interest rates were super low, but I definitely could've put that money to much better use.  I estimate that I probably left 40K, conservatively, on the table through my working life.  That chaps my cheeks.  Since I've wised up, I've opened a high-yield savings that makes 5% APY and that's where the bulk of my accessible money is.  I still have about 2 months operating expenses in a checking account.  I also have purchased a 1-year CD for about half of my "liquid" expenses and plan to purchase another in a few months, so that I have them maturing on a 6-month turnaround.  The APY is only slightly higher, but it's guaranteed.  I figure that even if I need to tap into the money, I won't need it all at once.  I may get to a situation where I'm juggling 4 CDs that mature in 3 months cycles.  This may be dumb, but it seems to make sense to me.

I also have a crappy savings account that makes no interest.  I'll all but stripped it back to its minimum balance before fees.  Honestly, I don't even know why I have it.  I probably should close it.

Playing around money:
I don't have this currently, but I want to open an account with a small amount of money that auto-contributes and just buy individual stocks -- winners and losers that I like.  Disney, Epic Games, Apple...whatever.  It might only be a single share of each and I probably wouldn't liquidate this.  It would just be a way to house some stuff for fun.  I don't really know what method to do this.  I'm thinking that a place that just takes 2% of your purchase is what makes the most sense.  This would be small potatoes.

Other:
I don't know if it counts, but I bought solar panels outright.  It saves me about $170 a month.  The payback time is roughly 11 years, which is just about what you'd expect if you put the money in the S&P500.

I also pay extra to my mortgage each month, which equates to about an additional payment per year on my 20-year fixed.  I refinanced and the rate is pretty low.  This is probably not financially smart, but it's a peace of mind thing.  My loan is 2.88% and the S&P averages over 7%.  I may have to change this.  Over time, I'm leaving 4% on the table.

[CF DolFan]

My wife also has a pension.  This confuses the shit out of me, because there is this thing called "drop" where you anticipate your retirement date and you get paid monthly based on the highest earning years of your career, so you have to kinda anticipate your future salary.  I don't REALLY know how to evaluate this and I definitely don't know if it has a perceived change to your net worth.  I could use some help with this.

Additionally, I know that people are skeptical of Social Security existing or "running out of money", but I'm not.  That's something that we fund and I believe will exist, so I don't really know how to estimate that, either.

I don't know much to help you otherwise but I'm assuming you are speaking about the FRS pension plan. If so this is the formula to estimate her pension. High risk jobs like police and fire are the same but is calculated at 3% instead of the 1.6%.

 Result of Step 1 X Step 2 = Option 1 Annual Benefit at Normal Retirement Age (divide by 12 to get the monthly benefit)
 
An example for Regular Class members enrolled in the FRS prior to July 1, 2011:
If you have 30 years of service and your Average of the 5 highest years is $65,000
Step 1:   30 X 1.60% = .48
Step 2:   $65,000
Step 3:   .48 X $65,000 = $31,200 Annual Option 1 Retirement Benefit at Age 62 (or $2,600 per month) If you retire at 67 it is more.

So lets say you decide to go into "Drop" for 5 years. Then technically you are retired and instead of accruing more retirement you are paid the $2,600 a month. After 60 months/5 years you'd stop working, get a check for $156,000, and then collect $2,600 a month until death. There are other options that include spousal benefits etc that changes the monthly amount but you get the gest of it.

One of my very good friends worked his last 5 years as a Battalion Chief and worked as many hours as he could. They typically work 24 on and 48 off but he'd volunteer to work an extra shift a week which is an extra 48 hours a paycheck. Long story short ... he just left Drop with a $525K check and will receive 105K a year until he dies. He is turning turning 50 this year.

While the pay is not so great Sate Pensions are great.


As far as Social Security I'm like you. We pull Billions of dollars out our butt constantly to help whoever but pretend we are not going to take care of our seniors.

[Spider-Dan]

It sounds like "drop" allows you to "retire" while you continue working, then get a big lump sum check when you physically stop working.  The downside would be that your pension check is lower.  To continue on CF's example:

It looks like raises for FL state employees are inconsistent, but they've gotten several recently and 4 in the last 5 years.  So let's suppose their average raise over time works out to 1.5%/year.  If your highest 5 years average out to $65k, and your highest paid years are at the end of your career (i.e. you aren't taking demotions or cutting back on hours), it means you're making about $67k/year at the tail end of those five.  If we run that out for five more years of 1.5% raises, you'll making ~$71k/year after five years, for a 5-year average of a little under $69k.

So now we plug that number into the retirement formula, but it's 35 years of service instead of 30:

Step 1:   35 X 1.60% = .56
Step 2:   $68,988 (the new 5-year average)
Step 3:   .56 X $68,988 = $38,633 Annual Option 1 Retirement Benefit at Age 62 (or $3,219 per month, a $619 increase)

Now, we have to take into account that you received a $156k check by "retiring early" and going into drop.  In order for that $619 monthly increase to outweigh the $156k check, you would need to take a pension for at least 253 months, or 21 years... so you wouldn't get ahead until age 83, which is pretty close to a woman's life expectancy of 85.

So it looks like drop is the way to go.

[CF DolFan]

Teachers are paid by the County School Board and not the State. Typically state workers are the worst when it comes to raises. When I worked for the county we always got at least 3% even on the lean years when the state didn't raise at all.

There are also other variables  to how much you get like how you want your spouse involved. You get less if you want them paid even after you die. You get a higher percentage if you retire at 67.  Typically there are people to speak to that can give her a good idea how each will would work out for her ... but again that depends on how close the raise estimate is going to be.

[Dave Gray]

A common path for teachers like my wife is to leave the classroom at the end and try to become an assistant principal or work in the district office year-around or something like that, to get a salary boost right at the end.  Thank you for the help.


Update:

I've pretty much decided that I'm going to pull the extra money I'm paying toward paying off my house and use it elsewhere.  I don't know exactly where yet.  For the time being, it might just be in High Yield Savings, which is around 5% right now.  Then when that goes away after Feds change the rates, I'll probably move it to some kind of low risk, long term investment.

I also updated my individual trading account.  I think I'm just going to put a little money in monthly to play with, like a collection.

[Dave Gray]

So, thanks to Spider and CF for explaining.  I think I get the concept, but I don't know what kind of road my wife had ahead for her.  I think she also has an option for 5 or an 8 year drop...so I'm not sure how that plays out.