On the Money... (Financial Advice/Lessons)

[clean]

At low enough income without family of origin support, there's not enough to save or invest to accumulate quickly.
6% of $20k simply isn't very much, even if one lives somewhere that $20 k is sufficient to live comfortably with six months of expenses in the bank and putting 6% in the 401(k).

That perspective is why the argument on the Doomed Humanities thread that people make $36k ten years out is not at all compelling.

For example, saving 10% of practically nothing instead of putting that same amount into a one-year credential or a new job that pays much better, is more stable, and has more humane working conditions.

I have  not been following the Doomed Humanities thread.  So I dont know what is prompting some of this.

However, considering the math, given a 2000 hour work year, 20K is only $10 an hour.  $36K is just about $18 an hour and with efforts to move the minimum wage nationally to $15, I would like to hope that someone is not attempting to get a graduate degree or PhD to enter a field making just over minimum wage. 

When you choose an action, you choose the consequences of that action. And if you desire a consequence, you'd damn well better choose the actions that lead to that consequence."

Conversely, IF the consequences are undesirable, realize that the actions to date are a 'sunk cost' and cut your losses and change your path.  A graduate degree should allow one to enter a management career path that will allow for better opportunities than 'minimum wage'. 

I know too many people who retired too early into nothing to want to do that,

Yes! My former department chair retired and advised, "dont retire From Something, Retire TO something!"  Find a passion!   Fortunately, in academia many of us have already found our passion, so there is no reason to 'retire' in the sense that they stop working for their current employer. They simply cut back on the parts of the job that are unpleasant. 
For me, I have already decided that Summer 2024 will be my last summer.  Whether it is my last year to work for my employer is another matter, but even IF i continue to work, I will no longer work summers!  (I wont have to financially!)

[polly_mer]

However, considering the math, given a 2000 hour work year, 20K is only $10 an hour.  $36K is just about $18 an hour and with efforts to move the minimum wage nationally to $15, I would like to hope that someone is not attempting to get a graduate degree or PhD to enter a field making just over minimum wage. 

How do you feel about advising people to take out student loans to study their passions in college because the average salary ten years post-BA is $36k, which is not dire poverty?

[Ruralguy]

Personally, if they had to do something like max out the loans to get to that kind of life, I'd suggest doing it at a state school where you are a resident. But people are often not quite certain what they will major in, and most can't major in STEM.

[polly_mer]

Personally, if they had to do something like max out the loans to get to that kind of life, I'd suggest doing it at a state school where you are a resident. But people are often not quite certain what they will major in, and most can't major in STEM.

Ah, you clearly aren't reading the student loan porn with people who take out absurd levels of loans (even figuring out how to get extra loans since federal loans top at $31k for total undergrad) for a passion dream that pays diddly for most practitioners.

In case you missed it, at least one person this weekend on Doomed Humanities flat out told people to study what they like because they won't starve.

Perhaps I missed the part where the advice was to do the studying cheaply at a low-ranked school because at least then they will have their humanities degree with no loans, but also no network to get a good middle-class job where any college degree will do.

I do remember linking multiple articles indicating that institutional prestige matters most in precisely those non-career prep majors to get a solid middle-class job.

[new_anth]

One of the real costs of academia for those of us who do not come from middle class families/families where we can rely on generational wealth (for down payments, for not having student debt from college, etc) is that it's not until our 30s, possibly late 30s that we start saving for retirement at the same time that we're paying off student debt and trying to put together a down payment.

And those of us who are trying to do that on one income because we don't have partners have it that much harder. (NB: this is especially hard, in my experience, on BIWOC who don't have academic parents.)

This is precisely why I wish we could have demystifying conversations about money--so that people learn earlier than I did about some really practical decision-making around money.

Things like:
* that non-profit job that pays $21,000 a year after you graduate is not enough money for someone who has no family safety net... Your private school peers can do it because their parents have enough money to help offset their expenses.

* there is no amount of frugality on $21k a year that can build a savings account that can pay for a house and for your parents who will need support in their later years.

* it's okay to take baby steps... it's okay to start saving for retirement while paying off student debt (I know the strict David Ramsey orthodoxy is "pay all debt first!" but for me, having an emergency fund & saving for retirement has mega-motivated me to pay off debt)... it's okay to not know everything before you start...

* academia is simultaneously organized around prestige + increasing in precarity... It's super important to develop the skills & the network needed to land alt-ac careers (and that's something many academic advisors don't know how to do). It's super important to not be in fantasy land about these facts.

[Juvenal]

Careful, people: One wouldn't want to scrimp and save while young and active to have plenty of cash when old and decrepit -- or dead -- for that matter. :-)

Nor would one want to fiddle youth away and have no other options but to work to make ends meet when 'old and decrepit'.

I am sure that there is some fable about ants and grasshoppers.

(though I think that the unpublished end is that the ants eat the grasshopper before the end of the winter!)

And then there's the fable of the financial advisor for insects.  Much more relevant.

[Vkw10]

I am buying out of state service credit in current employer's defined benefit pension system, with the goal of reaching the Rule of 80 to qualify for retirement in a few years. The rules require that you be vested, then you can buy one year of documented out of state service for each year you've worked current system.

Last year I vested. It took six weeks of back and forth to get the required documentation of my out of state service. It took 4.5 hours to set up the rollover from 403b to buy in five years. Today, I did the paperwork to rollover and buy in another year.

Retirement plan rules are complicated. You have to do everything exactly right to avoid tax penalties. I need to do this twice more, but I'm not sure I have the brainpower to work through the process again.

[arcturus]

I am resurrecting this thread to ask about retirement plans.

My university has both a 403b and a (governmental) 457b. I have been contributing the max to the 403b plan and my university also contributes to a separate account in the 403b. I have not previously contributed to the 457b plan, in part because there is a nominal fee for each separate account and the fee for the 457b is higher than that for the 403b. I am adverse to paying fees, so I have been investing my excess savings using a taxable brokerage account. However, it occurred to me this weekend that I am paying more in taxes on the dividends/capital gain distributions in the taxable account than the fee for the 457b. If I make Roth contributions to the 457b, I think I should have the same amount to invest, but pay less in taxes since it grows tax-free (Roth), right? The available mutual funds in the 457b are slightly different than those that I chose for the taxable account, but they include good options (low fees) that I am ok with using instead.

My questions:
1. Can I contribute to both a 403b and a 457b?
2. If so, is the personal contribution limit of $20,500 (plus catch up contributions) for both, separately, or split between the two (i.e., can one contribute a maximum of $41k or only $20.5k in total)?
3. The 403b has a maximum contribution (employer + employee) of $61k. Does this total limit apply only to the 403b, or is there some other limit that includes all contributions to employer-sponsored retirement plans (403b, 457b, 401k, etc)?
4. Is there anything risky about contributing to a 457b plan? I hear about 403b plans (and 401k plans) in the financial news, but not much about 457b plans.

[Hegemony]

You can indeed contribute to both.

This page has links that seem to explain it all:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions

Even if the fees are higher for the 457b, it is almost certainly more advantageous than contributing to a non-tax-advantaged account.

[onthefringe]

I am resurrecting this thread to ask about retirement plans.

My university has both a 403b and a (governmental) 457b. I have been contributing the max to the 403b plan and my university also contributes to a separate account in the 403b. I have not previously contributed to the 457b plan, in part because there is a nominal fee for each separate account and the fee for the 457b is higher than that for the 403b. I am adverse to paying fees, so I have been investing my excess savings using a taxable brokerage account. However, it occurred to me this weekend that I am paying more in taxes on the dividends/capital gain distributions in the taxable account than the fee for the 457b. If I make Roth contributions to the 457b, I think I should have the same amount to invest, but pay less in taxes since it grows tax-free (Roth), right? The available mutual funds in the 457b are slightly different than those that I chose for the taxable account, but they include good options (low fees) that I am ok with using instead.

My questions:
1. Can I contribute to both a 403b and a 457b?
2. If so, is the personal contribution limit of $20,500 (plus catch up contributions) for both, separately, or split between the two (i.e., can one contribute a maximum of $41k or only $20.5k in total)?
3. The 403b has a maximum contribution (employer + employee) of $61k. Does this total limit apply only to the 403b, or is there some other limit that includes all contributions to employer-sponsored retirement plans (403b, 457b, 401k, etc)?
4. Is there anything risky about contributing to a 457b plan? I hear about 403b plans (and 401k plans) in the financial news, but not much about 457b plans.

Yes, you can contribute to both a 403b and a 457b. The limits are separate, so you can contribute the full $20,500 (plus any allowed catchups)to each. Where I am, the employer contributions and required employee contrubutions to the third plan do not impact the contribution caps of my voluntary 403b and 457b.  457b also have some weird catchups where you can contribute and enormous extra amount in the three years before normal retirement if allowed by the plan.

My 457b does not have a Roth option, and my understanding is that I can't to a Roth conversion either (unless I leave my employer). Some employers do have Roth options for 457s though.

The 457b plans are risky only to the extent that the investments in them are risky. They also have the advantage of the money being available penalty free as soon as you leave the employer.

[arcturus]

Thanks, Hegemony and onthefringe! This sounded too good to be true (particularly the huge catch-up contributions allowed in the 457b plan for those aged 62, 63, and 64...), but I will definitely start making 457b contributions now that I know it is ok.

[clean]

Glad to see that the thread was revisited.

The advice about the 457 plan seems correct.  The 457 plans were really designed for police and firefighters who would retire earlier than other state employees.  The 457 plans primary benefit is that they are deferred compensation plans, not exactly retirement plans.  At any age, you can access the accounts, without penalty, once you separate from your employer.  So IF you are a FIRE (financial independence, retire early)  person, you can take advantage of this sort of plan. 
The deposit limits are similar to the 403b/401k plans, but you dont have to wait until your 50s to retrieve the funds.  So If you plan to retire early, this would be the way to go.  IF you make 'too much money' to contribute to a Roth IRA, this allows you to save a lot more.  The downside (or upside, depending on your reference point)  is that with a Roth IRA you can retrieve your contributions at any time, but you must separate from your employer to get this money. 

Personally, I was contributing to the 457 plan before I reached 50. Once I reached 50, I was able to increase my 403b plans by the amount that I was contributing to the 457 plan, but could not afford to contribute fully to both/all. 

One of the downsides of the 457 plans is that not everyone has access to them. They are sometimes more expensive, or have fewer investment choices than the more popular and prevalent 403/401 plans.  As such they may have higher fees.  But if you can not contribute to an IRA and want to increase retirement contributions (or are a firefighter or someone with a need or desire to leave their employer prior to the 'traditional retirement age')  these are great. 

[arcturus]

Thanks, clean, for the additional information. I do make 'too much money' to contribute directly to a Roth IRA, but I have been using the backdoor Roth process to contribute annually. Given that the backdoor Roth is currently under re-consideration by congress, finding this alternative 'front door' is an additional boon (with a larger contribution limit too!). I do have the concern that I don't have control over the choice of financial institutions, and the corresponding fees. For some reason this doesn't bother me as much for the original 403b contributions...so I will presumably be ok with these additional 457b contributions, eventually. I don't plan to quit (retire) or change institutions anytime soon, so this would be a long term commitment to this particular financial institution. At the same time, I have calculated that the annual (fixed) fee is equivalent to the taxes I would owe based on typical dividends/cap gains distributions for investment in the same mutual fund in a taxable account, if I max the contribution. Thus, the first year will be a wash in terms of outflow (fee or taxes) and subsequent years will be less (not to mention that the growth will be tax free upon withdrawal, since I plan to make Roth 457b contributions). Thanks again for the re-assurance that this is a reasonable thing to do!

[spork]

The short version.

The longer version.

[dismalist]

The short version.

The longer version.

The man says "don't drink". Why? Should we not have fun along the way?

There's too much of a perverse kind of Protestantism in the US of A. The Pilgrims had more fun than what is prescribed today.