Erin and her husband Logan live in her hometown, a major metropolitan area of Nebraska, along with their six-year-old son and eight-year-old cat. Erin is a classroom teacher with 17 years of experience and Logan works as a media specialist at their local community college. While Erin loves teaching, and truly sees it as her calling, the stressors of the pandemic–and in-person pandemic teaching–are wearing her down. She’d need to work another 16 years in order to qualify for her full pension, but she’s not sure she can or should. Erin would like our help today weighing her career options.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send in requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight and feedback in the comment section.
For an example, check out the last case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.
The Goal Of Reader Case Studies
Reader Case Studies intend to highlight a diverse range of financial situations, ages, ethnicities, locations, goals, careers, incomes, family compositions and more!
The Case Study series began in 2016 and, to date, there’ve been 68 Case Studies. I’ve featured folks with annual incomes ranging from $17k to $200k+ and net worths ranging from -$300k to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight and trans people. I’ve featured men, women and non-binary folks. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, Spain, Finland and France.
I’ve featured people with PhDs and people with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.
The goal is diversity and only YOU can help me achieve that by emailing me your story! If you haven’t seen your circumstances reflected in a Case Study, I encourage you to apply to be a Case Study participant by emailing email@example.com.
Reader Case Study Guidelines
I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn.
There’s no room for rudeness here. The goal is to create a supportive environment where we all acknowledge we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises.
I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Erin, today’s Case Study subject, take it from here!
Hi, Frugalwoods & Frugalwoods readers!
I’m Erin and I’m 39 years old. My spouse, Logan, is 40 and we have a 6-year-old son, Noel and an 8-year-old cat. We’ve been married since 2008 and live in a major metropolitan area of Nebraska (in my hometown) and we both work in education.
I’m a classroom teacher and am in my seventeenth year doing so. I have a PhD in education and currently teach middle school English. I’ve taught a variety of classes–everything from ESL and reading recovery courses to master’s level courses at the university.
My spouse earned his degree in physics and has worked in everything from technical support at a local software company to his current position as a media specialist at a local community college. He loves his job and I love working with my students. (More about my job later).
Erin & Logan’s Families and Hobbies
We’re very lucky to live near all of our family members, with the furthest being only an 8 hour drive away. Pre-pandemic, our son spent a lot of time with his cousins, aunts, uncles, and all of his grandparents. We are fortunate to have had a wonderful pre-pandemic support system!
We love to travel and see the national parks. Our favorite activities are hiking and going on road trips. I love to garden and read books, and my spouse loves playing video games, reading and his new hobby of making jewelry.
What feels most pressing right now? What brings you to submit a Case Study?
We are beyond fortunate to have enjoyed relatively good health and good financial stability since the pandemic hit in 2020. I love working with kids, but pandemic teaching and the constant stresses of my job are causing me to re-evaluate if I can do this job (that I absolutely love) until retirement eligibility for my full, unreduced pension when I turn 55. This would mean another 16 years of teaching.
Last year nearly shattered my love for my job. I had what felt like insurmountable demands from numerous stakeholders with no lifeline and every day I feared for my safety, and that of my family, by facing possible disease exposure due to the nature of my job. I was fortunate enough to accept a one-year-only position teaching in a remote learning classroom for this school year.
I LOVE my job this year and am beyond happy in this new position. However, it is one year only – and thus, not stable long-term. I do have the option to return to in-person classroom teaching next year, but the thought of returning to feeling like I’m in a hair-on-fire emergency every hour of my workday makes me feel physically ill. I work in a large district and the more I see of how things work, I don’t think I’d be happy in any position other than that of a classroom teacher in my current district.
To Teach or Not to Teach?
My spouse and I have talked and he’s told me that I don’y have to return to teaching in-person if I don’t want to. But one of the core parts of our long-term plan is to wait until I’m 55 and then live off my defined benefit pension.
We’ve calculated that amount will be about $5,600 given where I’d be at on the salary schedule at the age of 55. We could live off that entirely, given that I’d also be receiving social security at my full retirement age. I can’t stand the thought of giving up on that pension. Plus, I’m not sure what I would do beyond teaching. I love teaching so much, but the stress of pandemic teaching is not good for my mental or physical health and I developed a chronic health condition last year.
What do I do if I’m not teaching? I’m not sure. And is it wise to give up on a pension that I’d only need to work 16 more years to earn? I’m more than halfway there and a large part of me feels like I need to just “gut it out” until it’s done. But I don’t want to be that kind of teacher for my students. They deserve a happy, well-adjusted teacher just as must as a teacher needs to feel a sense of autonomy in their own classroom.
Erin & Logan’s Son
Additionally, the pandemic has really made us think about our own child’s needs. Our son has Autism Spectrum Disorder of moderate severity, meaning that on a scale of mild, moderate or severe, he falls squarely in the middle. He also has social-emotional needs, behavioral needs and receives speech therapy services from our wonderful public school system. So far, he functions relatively well in the mainstream classroom, attended full-day in-person kindergarten all last year and is currently in-person for first grade. However, with the various needs of individuals on the spectrum as they mature into adulthood, we want to be financially prepared in the event that he will need financial or housing assistance.
He was diagnosed with ASD at age 3 and received home-based early childhood development services from the time he was 22 months old. I can’t thank enough the person who pointed out his speech delay just before he turned two. As a new parent, I was unaware of the speech milestones he was missing. Initially, I felt offended and defensive that someone noticed something in my child that I had missed. But truly, this person’s comment was a blessing and allowed us to get our son the help he needed early on. Early intervention makes such a difference!
My son’s diagnosis has made me a different teacher and I definitely have a special place in my heart for my students with social emotional needs and those who are on the spectrum. I love finding ways to help classmates of students with social emotional needs understand that kindness matters most. One of my favorite sayings for call and response in my classroom is “If you can be anything, be kind!” I used to run after-school clubs for students with social emotional needs or those who are on the spectrum. Sadly, with Covid, I haven’t been able to run any clubs since March 2020.
My husband and I have had hard conversations about what would happen to our son if we were to both die while he is young (we have a will and guardianship set in place). More than that, though, we’ve talked about how to help him be set up for success when we’re no longer able to care for him. We presume he will be cognitively able to be employed and attend college, but he’s only in first grade and that’s a long way off. Is there a trust that we should consider setting up for our child, given that he is special needs and may need continual care after we are gone? He will remain an only child, so we need to plan accordingly.
Couple Time in a Pandemic
My spouse and I also really want more time with one another, just us two–but where are we supposed to find babysitters for our special needs child in the age of Covid? We used to have family
available, but with the continual risk of our child spreading Covid to them or they to him, we feel we don’t have any options.
What’s the best part of your current lifestyle/routine?
I don’t worry about money, ever.
Spouse and I spent our first 6 years together (4 married) watching every penny and living in a tiny apartment, so now I don’t feel like I have to pinch pennies too much.
There’s no better feeling than being “grocery store rich,” where I can go in and buy whatever I want. I don’t put too much of a price tag on our groceries, but we also never go out to eat. The only time we do so is on vacation, and we count that as “travel” expenses. I can make better tasting, healthier food for less money at home. We did this before the pandemic, and we’ll keep doing it after the pandemic.
What’s the worst part of your current lifestyle/routine?
Spouse and I constantly feel like we have no time. We’re entertaining our high-needs/special needs child, we’re doing laundry, we’re cleaning, we’re doing work tasks, we’re finding time and space to have our own time to ourselves and it feels like we have no time for each other. I don’t know how to get our time with each other back–we have no babysitters (and I won’t likely have any, due to pandemic concerns)–and we don’t see family much at all any more due to the pandemic.
Where Erin and Logan Want to be in 10 Years:
- Keep doing what we’re doing. In 10 years, it would be nice to be close to retired. I had always planned on us retiring at 55.
- Continue traveling to national parks. We want to be healthy and active enough to continue regular hiking and camping. I do NOT want to get to a point where I’m sedentary and feeling inactive and unhealthy.
- Teaching in a setting where I feel like I have autonomy and where I can really enjoy the good parts of teaching. I love students and I love teaching in general. Spouse really enjoys his job and doesn’t see any need to retire any time soon.
|Logan’s net income.
L puts pretax maximum of $19.5k into 457b & pre-tax maximum of $19.5k into 403b. Employer matches his contributions up to 9.5% of his total salary.
|$1,250||L net income, minus HSA, 403B, 457, term life insurance & taxes (L’s work provides disability insurance & health insurance coverage at no cost to him)|
|Erin’s net income.
E puts pre-tax maximum of $19.5k into 403b & mandatory 9.78% of her paycheck into pension (currently $6,100 annually). E also pays $313 pretax monthly for her & child health insurance & $3,600 annually for FSA eligible childcare for before & after school care.
Employer contributes 9.88% of total salary to defined benefit pension plan. E is eligible for DCB pension plan when she is 55. Currently forecasted to receive $5,600 monthly for mine & spouse’s lives if this is still in place in 2037.
|$1,850||E net income, minus 403b, pension contribution, Childcare FSA, health insurance, disability insurance & taxes|
|E sporadic income||$100||Sporadic income from class coverage, professional learning opportunities, training, etc. General average for this.|
- Purchased in 2012 for $160k
- Paid off in full in December 2017
- Equity: $260,000, according to latest Zillow valuation
|Item||Amount||Notes||Type of securities held||Name of bank/brokerage||Expense Ratio|
|E – pension balance||$70,000 my contributions + $70,000 employer contributions = $140,000 (balance is not shown with employer contributions due to the way the pension plan is reported)||Public Employees Pension Plan – Tier 1||Pension||Very little information given about this; I should be more involved & could request this information.||Not available, to my knowledge. I probably haven’t looked hard enough.|
|L – 403b Retirement||$176,174||403b plan||Mutual fund||TIAA CREF||I should find this but don’t know how; it’s the only option offered by his employer|
|E – 403b Retirement||$161,233||403b plan||Mutual fund||Vanguard||I should find this out, but don’t know how. It’s the only option offered by my employer.|
|L – 457B Plan||$127,612||457 plan (can withdraw at any point)||Mutual fund||TIAA CREF||I should find this but don’t know how; it’s the only option offered by his employer|
|L – Tax Deferred Annuity Plan||$114,569||Tax Deferred Annuity||Annuity||TIAA CREF||I should find this but don’t know how; it’s the only option offered by his employer|
|Joint savings fund – bank||$40,322||Savings||Local bank||Interest rate is less than 1%|
|Beneficiary: child 529 plan||$30,100||529 plan||NEST 529 plan||NEST plan|
|E – Roth IRA||$14,626||Roth IRA – savings account||Savings||Local bank||0.05% interest, not great|
|Joint credit union savings fund||$13,052||Savings||Local credit union||Interest rate is less than 1%|
|Joint credit union savings fund||$11,304||Savings||Local credit union||Interest rate is less than 1%|
|HSA fund||$8,500||HSA, note: spouse’s employer contributes $1,200 annually to his HSA||Not invested, should we invest the remainder?|
|E – Mutual fund||$7,447||Mutual fund||Franklin Income||Edward Jones|
|L – Roth IRA||$5,000||Roth IRA||Mutual fund||Vanguard|
|E – Roth IRA||$4,126||Roth IRA||Mutual fund||Vanguard|
|Total:||$673,340 retirement (not including Erin’s employer pension match) + $7,447 mutual fund + $64,678 cash + $30,100 planned spending 529 plan + $8,500 HSA planned spending fund|
|Make & Model||Valued at||Mileage||Paid off?|
|2014 Nissan Leaf||$6,500||24,500||Yes, paid off|
|2006 Toyota Camry||$6,000||102,000||Yes, paid off|
|Grocery||$600||Try really hard to keep this at $600 each month. Includes kitty litter & cat food as well as toiletries & household supplies. Child eats breakfast & lunch at school (free for all kids this year due to USDA funds in our district.)
Spouse & I eat meat very rarely & our child really only likes very processed chicken nuggets. We’d gladly spend more on meat for our child but he’s an extremely picky eater when it comes to meat. Meat costs are therefore minimal for our family.
Supplement our veggies with preserved garden produce (frozen or canned) where available. Spouse eats a lot of frozen veggies & I make a lot of veggie & bean chili in the instant pot. We’ll eat a large-ish omelet breakfast once per week. Otherwise, breakfast is tea/coffee & oatmeal for spouse & myself & school breakfast for our child. Spouse & I take leftovers for lunches & child eats school lunch plus free school snack. (He LOVES school breakfast, lunch & snack. Nothing I make for him from scratch can compare to his joy eating school meals.)
|Property taxes, amortized over 12 months||$300||Amortized over 12 months|
|L spending money||$300||Seems like a lot but this way spouse can buy whatever he wants, no questions asked. I will not begrudge him this & he’s kept it the same amount per month for 9 years. Spouse uses this to buy larger tech upgrades for himself, video game money, audiobooks, jewelry making equipment, whatever he might like. A small price to pay to keep him happy.|
|Child 529 fund or Investment fund?||$300||Not sure what to do here with this. I don’t want to have too much tied up in a 529 plan since I’m not sure what college will look like for our child in 2033 & beyond.|
|Vacation fund||$300||We average around $3,500 – 3,600 per year on a LOT of travel. We love road trips (and absolutely despise plane travel.) My car won’t last forever, so we’re carpooling with friends & family or renting small cars for our longer road trips & staying in inexpensive motels, crashing on friends’ floors or camping.|
|Utilities||$211||Electric: $75, Gas: $64, Water: $50, Trash: 22|
|Insurance (homeowners, auto & liability+), amortized over 12 months||$200||Amortized over 12 months|
|Life insurance, monthly||$164||Erin’s term life: $25, 2 $40K Whole Life policies that will be free of premium payment in Oct. 2023 @ $139 total (E has $260K of term life for her amount, L has $260K of term life that he pays for from paycheck deduction + E has $40K whole life & L has $40K whole life)|
|Internet||$93||*spouse insists on 1G Fiber internet|
|Gym membership||$84||YMCA gym membership, allows E & L an hour of kid-free yoga per week, access to pool for family fun time on weekends & discounted kid activities. Never thought I’d say we love our gym, but we really do.|
|Child items & activities||$50||Child takes one activity per week during school year of $25 – 30 per month, buy clothes on Facebook marketplace, Goodwill & garage sales where lucky|
|House upkeep expenses||$50||Amortized out for appliance upkeep, lawn care (we replaced roof 5 years ago, installed new HVAC system over the past 4 years, reinforced foundation 5 years ago, installed new soffit & fascia 5 years ago)|
|Tech upgrade||$50||Amortized out for 1 year, we will buy a large tech purchase of $1,200 – 1,800 every 2-3 years|
|Phone, amortized over 12 months||$39||Two phones, Mint mobile, spouse is heavy data user & pays for 10G plan, amortized over 12 months|
|Gasoline||$35||Regular driving, does not include road trips (Leaf is electric)|
|Gifts||$25||We have a large extended family, lots of nieces & nephews, we just buy gifts for kids, not adults. Spouse & I do not buy each other gifts.|
|Amazon, amortized over 12 months||$10||$120 annual fee, paid September 25 each year|
|Prescriptions – E||$10||E has several prescriptions to manage a chronic health condition. We pay for these OOP or with discounted pharmacy gift cards.|
|Clothing||$5||Clothing expenses are infrequent. We get hand me downs for me from my mom or sister or as gifts for birthday & Christmas. L’s clothing purchases are infrequent & lumped in with our grocery purchases or travel expenses. Occasionally, he will purchase clothes out of his discretionary spending or receive clothes as gifts for birthday or Christmas.|
|Medical expenses||$0||Child & E have a $0 deductible plan by going to in network providers, $0 copay for mental health visits, Child has been really physically healthy. L has HDHP with $3,600 copay ($4,250 OOP max) – spouse’s employer contributes $1,200 per year to his HSA|
Credit Card Strategy
|Card Name||Rewards Type?||Bank/card company|
|Chase Sapphire||Travel – UR points||Chase Bank, currently have 128K UR points|
|Amazon Chase||Amazon points – 5%||Chase Bank, Currently have 23,127 Amazon points|
|Chase Freedom Flex||Transferrable UR points||Chase Bank|
|Chase Freedom Unlimited||Transferrable UR points||Chase Bank|
Note: these credit card links are affiliate links.
Erin’s Questions for You:
1) What suggestions do you have for me if I were to transition out of public school education? What else could I do that would utilize my strengths as a teacher while also providing a solid income and not just contract rates?
2) Should I give up my teaching position and thus a good chunk of my pension? Or stay another 16 years and my pension goes up $3,500 per month at the age of 55. Right now, it’s only at $2,100 when I reach 65.
3) Do you have suggestions for how to best plan for the care of our special needs child when we are no longer able to?
4) Do you have suggestions for how my spouse and I can spend more time together with just us two, given the constraints of the pandemic?
Liz Frugalwoods’ Suggestions
Erin and Logan are in excellent financial shape, thanks to the careful decisions they’ve made over the years. I am impressed with their thoughtful approach to retirement, their son’s care and their values-based spending. In light of that, I feel that much of what Erin is asking for today is an outsider’s view on how she and Logan should proceed in a financial context. I’ll get into a few technical financial areas, but I think today will be more of an overarching review of where Erin and Logan are at this stage of life. Ok, let’s get to it!
Erin’s Question #1: What suggestions do you have for me if I were to transition out of public school education? What else could I do that would utilize my strengths as a teacher while also providing a solid income and not just contract rates?
As I read Erin’s story, it felt to me–in places–that she might’ve written this a year ago. I know she didn’t, I’m well aware she just wrote it, but many of her concerns feel more at home in the early days of the pandemic. I well remember the terror and fear of our initial months of Covid, when vaccinations were a wistful hope and it was unclear how exactly the virus spread (I personally spent a lot of time wiping down groceries with bleach wipes in those early days!).
Awful as the pandemic continues to be and persistent as these new variants are, we’re not back in the dark ages of Covid anymore.
It’s not “mission accomplished,” but it’s also not, “panic, we have no idea what we’re doing!” We’re in a bizarre purgatory of the pandemic. We’re at the stage of needing to learn to live with Covid and needing to figure out how to take reasonable risks. As much as we all wish we could eradicate Covid, it doesn’t look like that’s going to happen. It seems much more likely that most of us will get Covid at some point and that we need to adopt tenable mitigation measures to keep ourselves as safe as possible, but not walled off from each other forever.
To this end, it feels to me that Erin is perhaps still internalizing and living out the trauma and horror of March 2020, April 2020, May 2020–you know, the bad old days. This isn’t a criticism. Far from it, it’s an observation that as a classroom teacher, Erin bore the horrific brunt of this unfolding public heath catastrophe. Along with other frontline workers, Erin risked her life for her students, for her job, for her vocation as a teacher. I want to take a moment to recognize that and thank Erin for her dedication to her students and her willingness to risk her own health in order to serve others.
However, we are in a different place now. We are in the place of adaptation, not avoidance. It doesn’t seem like Covid is going to evaporate, but it does seem like we can all learn to live with it in a safe, feasible manner.
There are things we can do to keep ourselves safe(er) now, namely:
- Get vaccinated!
- My husband and I got our Moderna booster shots earlier this week and I am so thankful for the awesome science that’s helping us stay safer. Safer is the operative word. There’s no way to eliminate all risks from our daily lives–from Covid to car crashes–sorry to say, none of us are immune from danger. But there are ways to mitigate these risks–by vaccinating, wearing masks, wearing seatbelts.
- Ages 5 and up can now get vaccinated and our five-year-old gets her first dose this week. Hooray! She is SO excited and we are SO excited. As more kids get vaccinated, classroom teachers will add layers of safety to their imperative in-person work. Yes, I’m getting my daughter vaccinated for her own health, but even more so for the health of her teachers, her grandparents, our neighbors, everyone at our church, etc! It’s a community effort to keep one another safe.
- Wear a good mask!
- We now know that masks help reduce the spread of Covid. Properly wearing a good, comfortable mask is an actual factual thing you can do to keep yourself and others safer. Safer.
- I personally am a fan of the KN95 because it loops around the back of my head (I cannot STAND ear loop masks–feels like my ears are going to pop off). Once I figured out which mask I’m most comfortable in, I have no problem wearing it for hours at a time. I even sing with it on at church–no problem! Plus, it has a wire nose bridge and fits tightly to my face–all key elements of a good mask.
Staying in the Classroom?
Erin repeated a number of times that she loves teaching, that it’s her calling and that she doesn’t know what she’d do if she didn’t teach. Since she and Logan cannot live on Logan’s salary alone, she’s going to have to figure out a tenable solution. Rather than giving up on classroom teaching, I wonder if Erin could frame the question as:
How can I become more comfortable and feel safer in the classroom given the unlikely-to-end-soon realities of Covid? What are the things I could do to make my job feel tenable and enjoyable again?
Erin is a highly qualified teacher with a PhD and she could certainly do something other than teach in a classroom, but it doesn’t sound like she wants to. If she does want to leave classroom teaching, there are certainly avenues she can explore: curriculum development, administration, etc. But if she wants to remain a classroom teacher, I encourage her to start visualizing what it would look like to re-enter the classroom in the fall of 2022. Thankfully, she has a lot of time to think about this since she’s working from home for the rest of this school year. I encourage Erin to consider sitting down with a therapist to work through the trauma she carries from the awful early days of the pandemic. There’s only so much we can do for Erin here on the computer screen and I have benefitted tremendously from therapy at different challenging points in my life.
Erin’s Question #2: Should I give up my teaching position and thus a good chunk of my pension? Or stay another 16 years and my pension goes up $3,500 per month at the age of 55. Right now, it’s only at $2,100 when I reach 65.
This is a tough one. From a purely financial perspective, it would likely make the most sense for Erin to continue teaching in order to qualify for her full pension. But of course life decisions are not made from a purely financial standpoint!
This is why I, again, encourage Erin to talk through her concerns with a therapist and do some imagining of what returning to the classroom might be like.
There have always been risks to doing things in-person and we all risk our lives every time we leave our houses. But that doesn’t stop us from doing it. We have to craft the risk-mitigation measures that make us feel ok about the jobs, the socializing, and all the other things we do.
In terms of her pension plan itself, I encourage Erin to read the documentation for her pension and then meet with HR/her union rep/superintendent to ask any questions she has after reading it through.
The two most important things to figure out are:
- If the pension is inflation-adjusted.
- When that adjustment occurs.
A common pension structure is that the amount paid-out is inflation-adjusted until you retire and then it stops adjusting. Many pensions will stop the inflation-adjustment at the point of your departure. Erin should talk with HR to determine if her pension has inflation-adjustment parameters, where they are, and what happens if you retire before retirement age. The answers to these questions will give her more data to go on in making her decision to continue teaching or leave.
Erin’s Question #3: Do you have suggestions for how to best plan for the care of our special needs child when we are no longer able to?
This is another question we’re unlikely to be able to fully answer today, but I’ll do my best.
It is my understanding that most people do not find themselves in the position of needing both a 529 College Savings Account (which Erin and Logan have for their son) and a Third-Party Special Needs Trust (TP SNT). The purpose of a TP SNT is to ensure that folks with special needs are able to receive income (i.e. inheritance from their family) without negating their eligibility for government benefits, such as Medicaid. The trust shields the person’s assets from Medicaid recapture, which is typically used when the person is in residential care.
Here’s how the National Academy of Elder Law Attorneys explains it:
The trust instrument usually provides for discretionary trustee powers to utilize income or principal for the benefit of a primary beneficiary, without replacing or diminishing any government benefits… There is no payback requirement to reimburse the state(s) for Medicaid provided to the beneficiary (source: NAELA Basics: Tax Basics of Special Needs Trusts, By Vincent J. Russo, JD, LLM, CELA, CAP, Fellow).
I know their son is only in first grade and the future is a long way away, but it’s my understanding that the likelihood of needing both a 529 (which is used for college expenses) and a Special Needs Trust (which essentially assumes the person will never work a high-paying, full-time job) is probably pretty low. I am not an expert on this and I encourage Erin and Logan to do their own research and see which avenue will make the most sense for their son.
Another option for Erin and Logan to research are ABLE accounts, which:
… are tax-advantaged savings accounts for individuals with disabilities and their families… The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed. Contributions to the account, which can be made by any person (the account beneficiary, family, friends Special Needs Trust or Pooled Trust), must be made using post-taxed dollars and will not be tax deductible for purposes of federal taxes; however, some states may allow for state income tax deductions for contributions made to an ABLE account (source: ABLE National Resource Center).
In my research, I discovered it is possible to transfer money from a 529 to an ABLE account, but it sounds like it’s not a great idea from a taxation perspective (source: The Special Needs Alliance).
Additionally, if I understand the law correctly, I’m pretty sure you don’t have to make a decision on whether to establish a TP SNT until the child nears legal adulthood.
Another way to think about this is that given the uncertainty surrounding their son’s future, perhaps Erin and Logan should consider saving and investing money for their son outside of any particular tax-advantaged vehicle. This would enable them to make the decision when their son is older. Locking themselves into a 529 or an ABLE or TP SNT might not make sense at this stage. With the 529 in particular, the tax savings aren’t all that substantial. In their home state of Nebraska, the only tax savings with 529 contributions is a state income tax deduction.
One way to look at this: Why get the (kinda meagre) tax benefit now and tie your money up in a particular vehicle that has a lot of restrictions? A route they might consider is to keep saving money–saving money is good–but don’t lock it into a restricted account that makes it tough to be flexible with that money in the future.
Erin’s Question #4: Do you have suggestions for how my spouse and I can spend more time together with just us two, given the constraints of the pandemic?
Time together as a couple–minus kids–is so important!!! Again, I feel like Erin’s concerns here are more indicative of the early pandemic as opposed to the point we’re at now. Erin noted that they have lots of family living nearby but that they’re not seeing them due to the pandemic, which I understood (and adhered to) in a pre-vaccine world. Post-vaccine, I agree that the risk is not zero, but it’s also not a zero risk to have their son attend in-person school.
I‘m curious why Erin feels they can’t hire a babysitter or drop their son off with the grandparents for a weekend or a night?
I would completely understand that approach a year ago, but I think we’re past that at this stage, particularly since Erin and Logan’s son is now eligible to be vaccinated. This is another topic I urge Erin to discuss with a therapist to come to some sort of resolution on what risks she and Logan feel comfortable taking. Again, it’s the question of, “how can I feel comfortable and safer given that we’re still living through a pandemic?” We all need to make reasonable, considered compromises for our longterm health, and our longterm health very much includes our happiness.
Asset Allocation Rundown
Ok, I want to turn my attention to Erin and Logan’s full financial picture, which as I noted above, is great!!! There are just a few tweaks I suggest they consider at this stage.
- As noted above, Erin needs to read the full documentation on this thing and get any questions she has answered.
403bs and 457b:
- Erin and Logan need to get the documentation for these and read through them (boring, I know!). While their employer may only offer one brokerage (TIAA-CREF or Vanguard), there should be multiple fund options within that brokerage. For my retirement accounts, what I’ve selected are low-fee, total market index funds. The key here are the expense ratios, sometimes referred to as “fees.” You want your fees to be low, low, low.
- Someone at their employers’ knows the answers to these questions. Someone has the documentation they can run down. I do believe I very nearly drove the HR department crazy at my last job, but I made sure I was invested in total market, low fee index funds. It’s your money, you have a right to decide how it’s invested.
Tax Deferred Annuity Plan:
- I call this into question. Please, please please figure out what the fees (expense ratios) are on this bad boy. Often, these things are not a good idea. AND they are one of the most lucrative products for financial salespeople to sell you.
- An annuity CAN make sense at the end of retirement (when you’re in your 80s, say) and you’re concerned about longevity risk. If, at age 86, you want to hedge that you might live to 110, then an annuity might make sense because you would win if you did live that long. Of course, if you died the next day, the annuity company would keep all of your money. Even in this case, it is very easy to get scammed with an annuity.
- I’ll say it again: annuities are one of the most lucrative products for financial salespeople to sell you. Erin and Logan should do their own research on this and determine if it’s actually a good deal for them.
- I highly recommend they start by reading this Forbes article by Eve Kaplan: “Annuities: The Good, The Bad and The Ugly.”
- What’s an annuity? Eve Kaplan lays it out for us:
An annuity is a lump sum of cash invested to produce a monthly stream of income for a fixed period or for life. The income can start now (immediate annuity) or in the future (deferred annuity). Funds are not protected or insured by the issuers. The size of the future monthly check isn’t always a given – it depends if the annuity is fixed or variable. … I’m wary of the motives behind many financial product sales….especially lucrative variable annuities
- Another question I have is why Erin and Logan have three different savings accounts? It seems unnecessarily complicated to have money spread out over so many different accounts. I encourage them to consider combining these accounts into one account that earns a decent interest rate. Interest rates are low right now, but they should still get set-up with an interest bearing account.
- One option for this is the American Express high yield savings account (affiliate link).
- Well done on the credit card strategy, Erin and Logan! They’re doing everything right with credit cards: they’re paying them off in full every month and they are accruing benefits they’ll use in the future.
- Plus, they’ve diversified their credit cards and are earning travel rewards from Chase Sapphire and cash back from Chase Freedom Flex and Chase Freedom Unlimited(affiliate links). Nicely done!
- If you’re interested in implementing your own credit card strategy, I have a post to help you get started: The Easiest $486 I’ve Ever Made: How To Use Cash Back Credit Cards To Your Advantage.
- I encourage Erin and Logan to sit down–ideally with a therapist–to discuss their concerns over Erin’s continuation as a classroom teacher. While the pandemic is by no means over, we are in a different place and a place it seems likely we’ll be in for awhile. Finding a way to tenably live with the risks of Covid seems to be our current directive.
- If, after this exploration, Erin is set against returning to teaching, then it’ll be time to start a job search for a new career. Erin is highly qualified and smart, so it shouldn’t be an issue for her to find another job. I just encourage her to first consider if she actually wants to leave teaching.
- Erin and Logan should take time to evaluate the probability of needing both a 529 and a Third Party Special Needs Trust. There are plenty of lawyers who specialize in this field with whom they could speak. The caveat, of course, is that a lawyer stands to make more money if you do set up a Trust than if you don’t. Consider the possibility of continuing to save and invest money outside one of these specific, and somewhat rigid, accounts. Then, make a determination once their son is close to age 18.
- Dig into the pension, retirement accounts and annuity and do all of the reading. Determine the expense ratios, fees and investments held by all these accounts. Make changes where needed. For guidance on investing, I recommend this book: The Simple Path to Wealth: Your Road Map to Financial Independence And a Rich, Free Life, by: JL Collins.
- Consider combining the three savings accounts into one for purposes of streamlining.
- Determine what would help them feel comfortable enough to hire a babysitter or leave their son with family while they get some couple time together. Will they feel comfortable once their son is fully vaccinated? If he wears a mask? What are the mitigation steps they can take on this front to feel safer?
Ok Frugalwoods nation, what advice would you give to Erin? We’ll both reply to comments, so please feel free to ask questions!
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