How to Invest for Retirement as an Educator

It’s been a while since I’ve posted an educational deep-dive on a topic, and this one is long overdue.

When the average person thinks about investing, visions of day trading individual stocks and risking their money fill their mind– this was legitimately what I thought investing was a few short years ago, because it’s the only way it was spoken about in my family.

Then, eventually, I learned what investing really meant, and that’s what this post (and the video that it’s based on), is all about.

If you’d rather watch this content than read (or do both at the same time, click the video below.

Let’s start where we always must– with the WHY.

Why invest?

  1. It’s more risky to not invest. Investing is something that feels intimidating and inaccessible to so many, but it isn’t actually that complicated. More importantly, investing is crucial to building wealth. Simply saving money in a typical savings account won’t actually keep up with inflation, which means that saving actually loses you money in the long run. That’s why, while investing feels risky, it’s actually a much bigger risk NOT to invest.

2. We should all aim to build wealth. There’s also a noticeable stigma about the idea of building wealth in the teaching profession, which probably comes from the fact that it’s not a job anyone chooses for the money. This is deeply harmful, because building wealth isn’t a selfish or greedy thing. It’s time to acknowledge that you need to be able to support yourself in retirement, and that building wealth is crucial to that. If you don’t invest for your retirement, you’ll likely place that burden on loved one.

And if you have children or plan to have children, investing allows you to be able to leave money to them. If you want your kids and their kids to be secure and have more opportunities than you did, investing is absolutely crucial. There’s nothing immoral about building generational wealth, ESPECIALLY if you come from a family that didn’t have those opportunities or was even impoverished.

Investing misconceptions:

  1. You have to trade individual stocks. The biggest misconception about investing (that even I had when I started) was that investing meant trading individual stocks. I believed this because, sadly, it was the only context in which I had heard of investing. This is NOT true: trading individual stocks in the stock market is actually very risky, time-consuming, and not what the typical investor chooses to do. Instead, the average investor uses vehicles such as 401(k)s/403(b)s, IRAs, etc., to grow their money over time without having such a hands-on approach.
  2. Investing is too risky. The stock market, over time, predictably trends upward, even when it fluctuates in the short term. There’s an excellent instagram post by @personalfinanceclub that illustrates the stock market as yo-yoing while walking up the stairs. This shows that even when the market goes up and down consistently, it ultimately trends upward.

We need to talk about pensions.

Every state has a teacher pension, which is nice because the money is automatically taken from each paycheck (you don’t need to think about it). You don’t decide how much to contribute; rather, it’s a set amount based on your salary.

But the important thing to note is that pensions are notoriously unreliable, as they are underfunded in most states to varying degrees. Here’s a map from 2017:

Now, let’s get into the real-deal of investing: employer-sponsored retirement plans.

For teachers, these are most commonly called 403(b)s & 457(b)s.  For these plans, YOU decide how much per paycheck you want to contribute, and which account you want to contribute it towards.

The beauty of these accounts is that the money comes out of your paycheck before taxes, meaning that it’s a smart move tax-wise. It’s also automatic, so you can set-it-and-forget-it.

The main difference between the 403(b) and 457(b) is WHEN you can take out the money without penalty.

“While [the 403(b) does] not allow distributions until you are 59½ years old, your 457(b) benefits become available when you no longer work for the employer providing the 457(b) plan.” -Investopedia

In other words, if you retire or change employers before 59.5 years old, you can withdraw money from your 457(b) without penalty, whereas you will pay some hefty fees if you withdraw from your 403(b) before retirement age.

A big thing to note is that while many typical employers offer a contribution match, the vast majority of public school systems DO NOT. It’s extremely rare– but if your district does offer a match, make sure to take advantage of it (this is, quite literally, free money).

But employer-sponsored plans aren’t your only investment vehicle– let’s talk about Individual Retirement Accounts (IRAs):

You can invest up to $6,000/year into Roth & Traditional IRAs (and more if you’re over 50 years old). This is great to invest extra money on top of your automated amounts in your 457b/403b, and to use for different tax advantages.

Roth IRAs are an excellent idea for early/long-term investing, because the tax structure is different. Since you are investing after-tax dollars, the growth that the account makes is not taxed. This means that there is no tax on the money when you withdraw it. In general, this is advantageous for accounts that will see a lot of growth (such as accounts that are maxed out and left to grow for a long time).

There’s something for every level of personal finance expertise: You can choose funds for your IRAs manually by opening an account with a company such as Vanguard or Fidelity, OR if you want a less hands-on approach (AKA you don’t want to choose specific funds yourself), you can open an IRA that will be managed through a robo-advisor. Here’s an article from NerdWallet that compares different robo-advisors.

“How do I choose the best robo-advisor for me?” – It’s highly individualized as to whether or not you want to choose a robo-advisor and which one you want to choose, but I will offer the advice that you should pay attention to fees and choose one with a lower fee, because they can add up fast when you have a lot of money invested.

A few final notes.

The key to investing is staying diversified, meaning having a strategy that employs multiple types of accounts, and potentially outside investments, such as real estate, if that’s your thing.

Don’t let feeling overwhelmed with or confused by information stop you from starting– this is probably the worst mistake you can make. Use your resources (Investopedia, YouTube, my comments section, my DMs/email) to your advantage and do the most important thing: get started.

Time is your best friend when it comes to investing, so educate yourself out of your doubts and learn what you need to learn to start.

🙂 Rachel

P.S.

Remember, if you’re ready to get started with investing, keeping a budget is the first step. Click below to get my free budget templates.

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And if you need more guidance with goal setting, mindset shifting, and budget brainstorming, you can purchase my Money Map Workbook for just $9 🙂

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