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Teachers: How to Save for Retirement Without Social Security or Pension - YMYW podcast - YouTube
Channel: Your Money, Your Wealth
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We got Anna. "Hello Joe and Al, I love your
funny and thoughtful podcast." Well, thank
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you, Anna. "I'm a teacher in my mid-40s at
a state school. I opted out of the underfunded
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pension system when I started the job a decade
ago. Instead, I contribute to a defined contribution
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plan and various supplemental retirement accounts.
Unfortunately, in my state, I'm ineligible
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to contribute to Social Security, so no pension
and no Social Security. However, I do live
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in a LCOL, low cost of living area, and I'm
recently able to save more than I spend - $40K
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per year into retirement accounts - and I'm
thinking about adjusting my portfolio to take
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the lack of Social Security or pension into
account. What do you think are the pros and
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cons of these ideas? All right, Anna. She's
saving $40,000 a year?
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Yeah that's excellent.
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Solid. Mid-40's? She's gonna be just fine.
What, why you rolling your eyes at me?
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I didn't roll my eyes, I smiled and then I'm
looking at the rest of her question.
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Got it, whatever. (laughs) Okay. "Take a chunk
of my savings each year, $10k, and put it
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into I-Bonds creating a safe inflation-protected
bond ladder." Number one, what do you think
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about that idea?
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What's an I-Bond? Inflation?
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An I-Bond? It's like a double-E bond. It's
just a government bond.
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Never heard of an I-Bond?
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I have, I just can't answer the question without
knowing exactly what is. (laughs)
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Got it. Or maybe it could put it in "1," bonds
creating a safe inflation... but I believe
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it's I-Bonds.
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I think it's I-Bonds.
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Yeah that's what it looks like, I-Bonds, so
I do believe, Anna, you should have some of
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your money in bonds. I don't know that you
necessarily need to buy a bond. I might buy
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a bond fund, and I might stay shorter-term
just because when you look at the long-term
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rates of bonds versus stocks, you don't get
much extra benefit, much extra income for
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a longer-term bond and you have a lot more
risk. But I do agree with putting some in
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bonds, and whether it's $10,000, that's about
25%. That could be about right.
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I disagree with that. You're mid 40s, Anna,
so you're a little bit older than me.
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(laughs) Not much.
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You got 20 years of work left. I think as
you get closer to retirement you're going
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to need as much capital as you possibly can
to accumulate. So I get what you're doing
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here is you're saying I need a supplement
for my pension and Social Security, so let
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me put $10,000 a year in I-Bonds. I-Bonds
are paying, what, 2 percent? In 20 years,
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I don't think that's a good idea. I think
you want to continue to save the $40,000 in
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a globally diversified portfolio and don't
segment it. Don't try to bucketize this thing.
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You look for a target rate of return over
20 years, let's say, what do you think, Al?
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Globally diversified portfolio, 20 years,
call it six and a half percent?
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Are you fine with that?
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Yeah I would be fine with that.
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Okay. And then if she does that, she's got
$1.5 million. I'm assuming she has money already
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saved. So that's if she started today and
she saved $40,000, and she got six and a half
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percent return on that $40,000 savings per
year. At the end of 20 years, she's got that.
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And if I take a 4 percent distribution from
that, that's $62,000. As a teacher I'm guessing,
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what do you make as a teacher - $80,000?
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$60, 70, 80.
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$80,000? I mean some administrators might
make $100,000 and some.
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Kinda depends on where you are in the country
too. And we don't know what state she's in.
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So I don't know, $62,000. That's, of course,
the future value of that... (Joe calculates)
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It's always good to do calculations on the
air, isn't it?
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(laughs) Yeah it is, here we can see it.
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Uh-huh. It's about $42,000. Can you live off
of $42,000? If you're good then you're all
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set and keep doing what you're doing and have
a global diversified - don't try to segment.
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Yeah and that was assuming you don't have
anything saved now.
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But she's in our mid-40s and she's cranking
$40,000? She probably has some cash there.
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Number two question. "Use my tax-deferred
retirement accounts and combined short term
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TIP funds and long term TIP funds to create
a sort of liability matching strategy." Anna!
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Are you a pension hedge fund manager?? No,
I would not do that. She's trying to - this
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is what like big pensions do, and they match
ladders with liabilities, and the liability,
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in her case, would be an income stream or
income payment. I disagree with that strategy
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as well. I like the TIPS though, what a TIP
is is a treasury inflated protected security Alan.
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Yes, that I knew.
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Okay. Any other comments on that strategy?
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No. Agreed. Okay. Her third comment is "more
is better."
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"Stick with the total return portfolio but
perhaps choose a more conservative allocation,
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say move to 50 fixed income 50 stocks to substitute
for Social Security. Cheers and thank you
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for all your work." All right Anna.
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Yeah. Now you're on the right track. But that's
too conservative. And that's assuming you
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have a 20-year threshold.
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Yeah, Anna, if you're retiring in the next
five years, well then all bets are off. Then
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just ignore everything that I just said. But
if you're retiring at 65, let's say. Because
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you're looking for a supplement of Social
Security. I love the fact that you're concerned
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of saying you know what, I don't have Social
Security, I'm not going to have a pension,
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but I have all these supplemental retirement
accounts that let聽me put $40,000 in a year.
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If you continue to do that, I think you'll
be fine. And it sounds like she lives in,
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what did she say?
A low cost of living area.
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LCOL? FMO...?
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What are you trying to say, Joe? (laughs)
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I dunno. FOMO?
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Fear of missing out?
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Yeah that's what I meant to say.
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Okay. FOMO.
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Loco?
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Let me just say. if you do have 20 years,
I would go at a minimum 60% stocks. I might
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do 70 percent stocks, I might even do 80 percent
if I could handle the fluctuations.
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Volatility. Yeah. I have roughly the same
time horizon. My portfolio is 100 percent
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stocks. So there you go. All right Anna聽I
hope that helps. Good luck with everything.
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Keep pumping away, keep saving.
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