Would Teachers Be Better Off Paying Social Security Taxes?

Zero Social Security Tax!
How would like to open your paycheck and see zero Social Security withheld? Well you can, become a school teacher!

I couldn’t believe it when a teacher friend told me she didn’t pay into Social Security. Instead of paying 6.2% of her salary for FICA, she pays 11.5% into a public school retirement system trust.

Pros and Cons
My first thought was, “Lucky lady, she’s not throwing money down the drain like the rest of us”. Since the state trust is much more likely to be around 40 years from now probably see her money again some day.

But then I thought about the 11.5% of her salary that was being deducted for the state trust. Even though she pays no money into Social Security, the state government is keeping almost double the FICA tax for their trust.

The good part about her current setup is that she’s forced to save 11.5% of her salary and the probability of getting the money back is much higher than Social Security. The bad part is that she’s only getting 6% interest, calculated and applied once annually, on her contributions, just enough to barely keep ahead of inflation.

Which is Better?
My question is this. If she had the choice, would she be better off not contributing the 11.5% to the state trust, paying 6.2% into Social Security, and investing the additional 5.3% of her salary into the stock market? The assumptions would be a $40,000 salary (1.5% annual salary increase), a 40 year time frame, and an average annual return of 10% on her stocks.

My first take is that not paying into Social Security would be great. However, I know a low rate of return over an extended period of time can really kill the ability of money to grow, especially when you take inflation into account. Anyone out there a finance whiz? Which would work out better in the end?

So, Why Aren’t You Saving For Retirement?

Is this a question? Or is it statement, a challenge, a call to action?

If you’re married or have a significant other you may be familiar with what I’ve termed the “assumed question”. Phrased as a question, it actually interprets to a statement, request, or expectation that assumes action will follow.

What does this have to do with your retirement? Let’s look at some examples of assumed questions you may hear from your spouse, girlfriend, or boyfriend:

Why is that sitting out?
Do they care why? No, they want to know when you’ll put it away.

What are you doing this afternoon?
Do they want a list? No, they want to know that cleaning out your closet is at the top of the list.

While at times irritating, these questions are a little shove in the right direction. So, the question “Why Aren’t You Saving For Retirement?” is not really a question. The expected answer is not all the reasons why you’re not saving but rather the plan you have to start saving.

So I ask again, “Why Aren’t You Saving For Retirement?”

Searching for Retirement

A search on pflogs.org last night for the word retirement returned 20 hits over the last two days. It’s definitely a hot topic but are we over-thinking it?

As a person under 30 it’s hard for me to project where I’ll be during retirement. That time is so far away, how do I know what I’ll want or how much I’ll need?

In light of that, I’ve been taking what I call the “Save Now, Worry Later” approach to saving for retirement for several years. Instead of worrying about how much we’ll need in the future, our family saves around 30% of our income for retirement. When the day arrives, hopefully we’ll have to worry about how to spend all the money we have!

Of course the alternative is the “Spend Now, Worry Later” approach where you spend all your money now and worry about how to pay for retirement when it finally rolls around. This approach is not recommended. If used you will be waiting for retirement to roll around for a very loooooooong time.

Check out what some of the blogs in last night’s “retirement” search have to say about retirement:

Where Do You Stop on the Way Up the Corporate Ladder?

Which rung of the corporate ladder are you on? Which one are you aiming for? Did you have to work hard to get where you are today? How much harder are you willing to work to keep moving up?

In my early years as a software developer I used to look at the big cheeses in the company and think, “Someday I’ll be sitting in that chair”.

Now, 7 years later, I find myself looking at their furrowed brows and sagging shoulders in these same meetings and ask myself, “Is that really where I want to be?”. I’m closer to their chair but the closer I get, the more I wonder if I want it.

As a results-driven person, I struggle with this question. I want to excel and progress. I want the promotions and authority. I’ve definitely been moving up but at what point is the price too high?

Each rung on the corporate ladder:

  • Takes Longer to reach
  • Requires more Effort
  • Demands more Sacrifice
  • Eats up more Time
  • Inflicts More Stress

Is this what I want? Of course, as compensation for all these things, your salary increases as well. Is it worth it? The list of negatives seems longer, but as they say, “money talks”

Unfortunately, I don’t have the answer today. I imagine for each person it’s different. As I grow and learn, I’m realizing there’s a definite need for a balance between earning money and enjoying life. How do you find this balance? Where will you stop on your way up the corporate ladder?

How Will You Spend Black Friday?

What are you looking forward to most about Thanksgiving weekend; relaxing with friends and family or dashing madly from store to store?

What I want to know is who decided that Thanksgiving weekend should be all about shopping? As an inherently cheap person, I’m really torn between joining the dash to score a deal and spending time with the family.

Believe it or not, last year was first time I participated in the shopping smorgasbord. For years I had resisted the tempting teasers the retailers dangled in front of me the week before the holiday. I couldn’t take it anymore, I knew I was missing out on some great deals and had to join the rush.

I left Thanksgiving dinner early and stayed up all night researching which video camera to buy and where to get the best deal. I hit the stores to stand in line at o’dark thirty, and raced from Best Buy, to Circuit City, and on.

At the end of the day I was exhausted. I picked up a few good deals but had spent way too much of my vacation day standing in line. I suppose if I’d had the tips from PFAdvice on how to outsmart the competition I may have fared better but the time I spent definitely outweighed the savings. I decided it wasn’t for me; I echo the sentiments of My Money Blog when he says it’s “not worth the trouble”.

I was actually disappointed in myself for letting the retailer’s “hype” get to me. I couldn’t believe I’d let Best Buy and Circuit City decide how I was going to spend a good chunk of my Thanksgiving. I’ve learned my lesson; I’ll be relaxing at home this year with my family.

What about you? Has the hypnotizing spin cycle of door buster deals sucked you in this year? Do they have you hyped up enough to join the huddled masses in the parking lot of Best Buy?

How will you spend Black Friday?

Lunch Money Arbitrage

Gen X Finance wrote today about his “Brown Bag Experiment“, and how much money he could save a year by brown bagging it. I’m all for saving money but sometimes you need to get out, whether it’s to network or maybe to get away from your “favorite person” at work.

If you’re the type that feels guilty indulging on lunch once in a while, try this strategy, it may make the food go down a little easier. Usually when I do go out for lunch it’s with a big group of people. The bigger the group when practicing lunch money arbitrage, the better. I put the whole bill on my cash back credit card and everyone gives me the money, make sure they include the tip.

As an example, at a work lunch a few weeks ago, I put my $6 sandwich and the rest of the group’s $135 tab on my American Express Blue Cash card. I collected the cash from everyone and deposited it in my ING Direct account a few days later. I’ll pay the credit card bill in a few weeks.

I figure the cash back plus the small amount of interest I earned will pay for about half of my portion of the lunch bill. Not a lot of money but like I said, it made the food go down a little easier knowing the first half of the sandwich was free.

I could probably fine tune the details with a better credit card reward and better savings account rate, any suggestions welcome, but the concept is what’s important. If we can learn to spot opportunities similar to this, of course with bigger payouts, then we’re on the road to a money smart life.

Who Wants Free Estate Planning?

How much would you expect to pay for a good attorney to draw up your will?

Free Beats Expensive, Any Day
The various price quotes I received for simple estate plans several years ago were what delayed me from taking action on this important financial planning step. Luckily, before I decided to bite the bullet and shell out some cash, a good friend of mine let me in on the secret of how to get a quality estate plan for FREE!

Expert Advice
My friend was studying law at a nearby university and was enrolled in an estate planning course. His instructor was an expert in Probate and Estate Planning, with 17 years of experience and a leader in his field, locally and across the state. The focal point of the class was that each student had to go through the full process of creating a will for a client.

Free Will!
Here’s the exciting part for you and me. In order to give the future attorneys real world experience, the university offered a program where people in need of a will could sign up to work with one of these students. By the end of the course, you would have a customized will for your family, free of charge! Of course donations to the law school were accepted but as a young couple my wife and I didn’t have much money to donate.

Get What You Pay For?
You may be apprehensive about a will drawn up by a student. Maybe you’ve gotten a cheap/free haircut by beauty school trainees and realized afterwards you got what you paid for. Never fear, the difference here is that the instructor reviews each plan many times over.

Estate Planning Process
The student goes through the estate planning process of determining your assets, your beneficiaries, your wishes for incapacitation (think Terri Schiavo), dependent guardians, etc. Multiple drafts of the will are drawn up; the instructor reviews each and sends them back for revisions until satisfactory. The culmination is a final meeting with your family, the future attorney, and the instructor where you review the will and make it official.

HUGE Savings
How much do you think I would have paid to hire this experienced expert attorney to draw up our will? I don’t know, I was afraid to ask, but I’m sure it would have been a large percentage of my total net worth at the time.

Things to Consider
Keep in mind this approach is advisable only if it’s a well-established law program and the course is taught by an expert. However, creating a will is advisable, whether it’s free or not. I don’t know how ours will turn out since I’m not dead yet, knock on wood, so stay tuned to this site at least for the next 70 years and my heirs will let you know.

Do You Need A Financial Checkup?

Financial Health and Physical Health
Why do we need to take care of our financial health? To achieve financial freedom. Why do we need to take care of our physical health? To help us live a long life and enjoy the years we’re alive.

There are many similarities between keeping yourself physically and financially healthy. If we can understand and follow the basic principles behind them we can master both our finances and health. Depending on how you define success, you could even argue that without doing both, you’re not successful.

Financial Health Principles
This series will discuss principles we can follow to achieve financial health. As principles are added to the series, they’ll appear in the list below:

Financial Checkup – Teamwork

Financial Checkup Recap
The Financial Checkup series looks at how to improve our financial health. So far we’ve talked about our financial Behavior and how to Motivate ourselves to change it. Surrounding ourselves with good Influences will help us learn from them and pick up their financially healthy habits. One way to find an influence that will jumpstart our financial habits is Finding a Mentor.

Principle 5 – Teamwork
Why are there so many inspirational movies about teams of people accomplishing great things? When people that share a common goal or purpose come together, the sum is greater than the whole of the parts and the results can be incredible.

Being part of a team with common financial goals provides you with a great support system on your financial journey. Don’t get hung up on the standard structure of a team, it can be a community or even just a small group of friends.

If you are working towards the same purpose as others, a team can be a great place to share your experiences, talk about what works and what doesn’t. Team members can provide motivation, advice, recommendations, and assistance to each other.

Find a Team
I’ve found personal finance blogs to be a great place to join a virtual team on my financial journey. There are probably one or more blogs out there you could team up with whatever your financial interest:

Living frugally
Financial Success
Humor In Finance
Getting rid of debt
General money advice
Growing your net worth
Finances for Generation X
Exploration of personal finance from the perspective of a late-twentysomething

And of course yours truly, Inspiring Financial Success In Others

The next principle we’ll discuss is Teaching Others.

Last Minute Tax Strategies – Follow Up

The post A Quick Guide for Last Minute Tax Strategies reviews some strategies that H&R Block suggests for reducing our 2006 taxes. There is another strategy that applies to many homeowners that they probably should have included.

Early Mortgage Payments
Make your January 2007 mortgage payment before the end of December 2006.

Increase the amount of your Home Mortgage Interest Deduction for 2006, lowering your tax bill. Read more about How to Deduct Home Mortgage Loan Interest

Things to Consider
Many of us spend more money at the end of the year for the holidays. If this strategy would cause cash flow issues for you and lead to borrowing, don’t use it.

I take advantage of this every year and increase my deductions. This is a payment you have to make, just pay it a little earlier and lower your 2006 tax bill.

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