Disclaimer: This post is not meant as a brag that we seem to have a lot of money.  In fact it is quite the opposite!  We have come to retirement planning a bit later than we should have.  If we were going to be living in the States, we probably would have taken the money from the sale of our home and put it as a down payment on a new house.  Furthermore, if we were living in the US, we would have access to a pension and not really have to worry about money (maybe?) in our future.  The drawback to moving overseas is that we have no access to any pension; therefore, we have had to learn how to invest.  This post is merely a look at how we are going to be investing, and perhaps a call to arms about how we need to be more financially literate.

Wait! Haven’t all these posts been about how poor you are? Now you’re investing!

Well I suppose they have been a bit on the bleak side.  The last month has been a busy one for us here at GoTeacherTrek.  It includes:

1. Selling a house
2. Packing all of our belongings in a pod
3. Saying goodbye to our puppy (we found a lovely home for her)
4. Finishing up work and saying goodbye to friends
5. Traveling across country with a sick toddler

Is that all?

Right?! I know.  But the plus side is number 1.  We were able to make a nice profit selling our home, and without the costs of daycare, rent, or mortgage on the horizon we have the opportunity to do something with a lump of money.

So shopping spree?

Of course! That’s what we do here at GoTeacherTrek! But probably not how you know it.

Ok then, so what kind of shopping spree is this?

Well I’m glad you asked. We are going to do something that only half of Americans do, invest in the stock market.

You’ve been talking a lot about money and finances and all that.  What gives?

In two simple words … Sheer panic.

I’ve been reading a lot about personal finance lately.  Call it a hobby, I guess.  I came to the realization that we are not prepared for retirement. Not even close. The rule of thumb is to multiply by 25.  That means if you want to live off of $40,000 per year  when you retire, you need to save $1 million dollars. Yikes!!!!!  We are very far behind!

Wow! I need to get started! How do you do that? Should I invest?

Well I am glad you asked.  The answer for almost everyone is yes*.  You should invest in the market.  I will present what we are planning to do.  (This in not a guarantee win and you can lose money doing this)

*if you have a lot of high-interest debt (I would say over 5%) you should steer clear from any kind of investing (stop after step 1) until you pay that down.  It is great making 8% in the market, but not if you are paying 15% in interest!

Here are 4 avenues into how to start investing.  In a later post, we will explain what to actually invest in.

1. Look and see what your employer offers (pension, 401k?)
2. Pre-tax contributions
3. Tax-deferred contributions
4. After-tax contributions

Step one – See if you can get any free money

Many employers will offer you some kind of 401K (or 403b).  Please sign up for this.  Many will also give you free money to do this.  (For example, if you put in 3% of your salary they will also put in 3%).  You should invest as much as you can to get whatever match that your employer will give you.  They are giving you free money! This should be a no-brainer!

Step two – Make pre-tax investments

The limit on 401K (or 403b) contributions is $18000 per year.  Now many people don’t have that kind of extra money lying around to invest, but any money that you do invest is pre-tax – meaning that you don’t pay tax on this.  So if you make $50,000 per year and decide to invest $5,000 of your salary, you would only pay tax on $45,000.

So what?

Well if you make $50,000 per year, you would roughly pay about $5700 in tax, but if you make $45,000 per year you would only have to pay about $4700 in tax.  So while each paycheck might be a bit less, it won’t actually end up being $5000 less.

During our teaching days, we were able to put roughly an extra 10% of our income into our 403b but as I said in the last post, make sure you invest wisely!

Note: for Palm Beach School teachers, the provider that we used (TIAA) has access to Vanguard funds.

Step 3 – invest in any tax-advantaged accounts

Lets say you have some extra money sitting around that you want to use to invest.  Since you already have it in your hands, you can’t put it in your 401K.  It might be a good idea to get an Individual Retirement Account (IRA). There are two types of IRAs: Roth and Traditional.  You can see which is right for you here. 

The maximum contribution that you can make is $5500 per person.  The first thing that when we sold our house was to max out both of our IRAs for this year.

Step 4 – invest in after-tax brokerage account

After all those avenues are exhausted, you can still invest by opening up a brokerage account.  We have our brokerage account through Vanguard.  We love Vanguard because it offers some of the lowest fees out there.  Here is a good article about their history.  We have almost all of our investments and our son’s 529 with them.

The drawback to having a brokerage account is that you have to pay 15% Capital Gains tax on any money that you make.  That is why you should only use a brokerage after the first three steps.

Homework

And here is you homework.  Take a look at your retirement plan.

• Are you in good shape?
• Do you have a different investment strategy?

We would love to hear it!