Educator Career Mid-Point? Create Options in Life and Work
Reaching the mid-point of your educator career isn't like getting your first job in college or the last few years before retirement. As an educator, perhaps you stayed on as a teacher and continued teaching, or you chose to move up within the administrative side (coordinator or administrator). However, these are not an all-encompassing list as many educators take different routes. In addition, your career milestones track closely to age, your first job comes in your early twenties, and your retirement goals are to retire in your late 50s or early 60s.
The mid-point is different. It lasts a lot longer – potentially over a decade – and it's a mindset as a set of circumstances or financial markers.
Essentially, you've gotten over the first hurdles, life is good, but you start to realize that you're going to be working for at least another decade while getting your kids through college while funding your retirement fund.
For many educators, this is the first time you think about hiring someone to help you sort out your money. You look over your income and bills and realize there's some leftover even after saving into your 403(b) or 457(b). Then, the light bulb turns on, and it occurs to you that the cost of messing this up could be expensive. You start to ponder:
Am I saving enough?
Am I investing correctly?
Am I prepared for any risk that may occur down the line?
What happens when I pass away? Do I have an estate plan?
Assuming you're covering the bases, how about the more significant questions:
Is this all there is, or can I create options?
Can I figure out a way to start a secondary business (for subsequent income) or take time off?
Does my investment plan reflect my values?
While this is by no means an exhaustive answer to those questions, we've broken down the significant issues for you. Also, there is "no size fits all" as everyone is unique in their lives.
Covering the Bases
The mid-point isn't different from the other stages in the three most significant money pieces: saving, investing, and taxes. Think about:
Are you maximizing your retirement account(s): 403(b) or 457(b)? You want to lower taxable income when you're earning, and a 403(b), 457(b), or IRA savings is the most tax-efficient way (more on IRA below). While the impulse may be to use a retro pay or contribute a more significant percentage of salary early in the year – or conversely, towards year-end – resist. Spreading out those contributions over the entire year means you can somewhat avoid investing in a falling market. This strategy is called "dollar-cost averaging."
While working with educators & families with kids, there is a growing concern about affording their kids' current education (if their children enroll in private elementary schooling) and future college costs. If you have kids under 10, this number is arbitrary. Start early, if possible, saving into a 529 plan is the grown-up equivalent of drunk you leaving hungover you a big glass of water on the nightstand. The magic of compounding means that the money you put away grows and reduces those college costs. It also means lower loan costs later for your child. The advantage of tax-free growth adds considerably to the benefit. Depending on your state, you may also have state-tax benefits. It sounds like a win-win; just take it easy on those "adult beverages."
A taxable brokerage account for investing additional funds can help you diversify your overall investments and provide access to alternatives or other assets not available in your retirement plan. However, a taxable investment account will potentially subject you to capital gains taxes and taxes on earned dividends/interest on your investments. Although, you will also be able to use a tax-loss harvesting strategy to lower your overall tax bill.
Another option is to open an IRA with after-tax funds. You may be able to deduct the contribution depending on your income level and if you participate in your employer's retirement plan, which lowers your tax. Even if you cannot deduct the contribution, you are allowed to make after-tax contributions to an IRA. Thus, when you withdraw it in retirement, you'll only pay taxes on the growth of the account, not your contributions to the account. You'll need to file form 8606 every year and keep careful records.
You can also use the backdoor Roth strategy and immediately convert the traditional IRA to a Roth IRA, and growth in the Roth IRA account won't be taxable in retirement.
Another option is to open a Roth IRA with after-tax funds. Unfortunately, you won't be able to deduct the contribution. Although, when you start taking distributions in retirement, you won't pay taxes on the distribution.
Thinking About Risk
At this stage of your career, you've probably created some assets. With assets comes liability.
Have you thought through your insurance?
Is it time for an umbrella policy?
Is your life insurance keeping up with your income?
Have you acquired anything that needs a rider on your homeowner's insurance?
If you leave your employer who provides life insurance or disability insurance as an employee benefit, will you need to get an outside policy?
If you have children or want to leave a legacy, you need an estate plan. For children, you'll need to identify a guardian if something should happen to you and your spouse, and you'll most likely need a trust that specifies when and how much to distribute to your children as an inheritance. To leave a legacy, you need to provide the distribution of your wealth to charitable foundations accordingly.
You may think that leaving a will is enough. However, leaving a will or not leaving a will creates the process of probate on your estate. A trust helps relieve the stress on your family or anyone challenging your desired instructions.
Creating Options and Living Your Values
Do you think about taking time out as a family while your kids are young enough for you all to be together? Could you take your summer vacation overseas? Enjoying life doesn't have to wait until retirement. The idea of work-optional has become prevalent for many people.
If you want your life organized while reflecting your values, your investments will be a part of that. Putting together a financial plan with an investment plan that achieves both ends – gives you the freedom and flexibility while conforming to your worldview. It takes planning and effort, but the two are not mutually exclusive.
The Bottom Line
The educator's mid-point is where you see your hard work pay off. You're still in the building and growing phase, and as you get closer to retirement, you'll look back on the demanding and chaos of these years with nostalgia. Working with someone who understands your situation as an educator and can help you sort out all the pieces of your life can give you peace of mind and get you closer to your goals.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content was not reviewed by FINRA