FI for Colorado Teachers Part 5: Case Study 1: Teacher Married to a Teacher

TL; DR: This is the fifth in a series of posts for Colorado teachers about Financial Independence and takes an in-depth look at three scenarios for two teachers married to each other to achieve Financial Independence and retire early (two scenarios at age 45, the other one at age 42).

Part 1 in this series describes the “what” and the “why” of Financial Independence. Part 2 discusses the process of “how.” Part 3 looked at the possible “what its” and “yeah, buts” objections to accomplishing FI. Part 4 discusses how knowing the rules around taxes can allow you to optimize your finances and help you achieve Financial Independence. This post will look at three scenarios for a teacher married to a teacher, and lay out some possible paths to achieving Financial Independence and retiring early (or achieving “work optional” status).

When discussing finances in general, and especially when discussing the idea of Financial Independence, many folks just feel overwhelmed and don’t know where to start. The basic premise behind this entire series of posts is to try to lay out possible paths that teachers in Colorado could take in order to achieve Financial Independence in a way that can help them overcome that feeling of being overwhelmed and give them the confidence in order to pursue it.

While previous posts have laid out the “why”, the “process”, looked at some of the possible “objections”, and then talked a bit about tax optimization, this post is going to be a case study that gets very, very detailed in what this might look like for a married couple who both happen to be teachers, starting from very early in their careers all the way to an early retirement in their forties. I started with this scenario because it happens to be my scenario (well, the being married to a teacher part, not the retiring in our forties part), but also because it is a scenario that actually happens fairly often. (And, again, I’m saying “teacher” married to a “teacher”, but this applies to any PERA-covered employee married to another PERA-covered employee, but focuses on the ins and outs of what a teacher career-path looks like.) In future posts I will look at other scenarios, including a teacher married to a non-PERA covered employee, a single teacher, and teachers who are already well into their career.

As mentioned in part 3, any kind of long-term projection like we’re trying to do with this case study relies on assumptions. A lot of assumptions. Some – perhaps all – of those assumptions will be incorrect, sometimes by a little and sometimes by a lot. That doesn’t mean you can’t do the projection, it just means that you have to realize the numbers won’t be exact and the decisions you make along the way will likely change as you adapt to the reality of what actually happens.

This is one of the reasons why so many people don’t try to do these projections for themselves, because they figure it won’t be accurate. But by not laying out a general path, they end up making decisions (or, usually, not making decisions) that make the goal very difficult to achieve. This post lays out three different versions of possible paths that will help you achieve Financial Independence, as long as you are willing to be flexible and adaptable along the way to adjust for any changes in the assumptions. You will also be able to make a copy of the spreadsheets I’m going to share and change the assumptions or the specific numbers that apply to you in order to make your own model. The idea is that, for many people, they have to be able to see the big picture laid out in some detail in order to realize it’s even possible. That’s what I’m attempting to do here.

So, let’s get to the three scenarios. Each of the scenarios is similar, but each also has at least one significant variation that necessitates looking at them separately. The reason for that is to try to match three of the most likely general scenarios a married teaching couple might be looking at, to give you a good base to make any modifications for your specific circumstances. For each scenario, there will be a description of the scenario and the particular variation we are examining, and then each scenario will link to an additional document and a spreadsheet. The additional document will lay out all the assumptions, give a “key” for the accompanying spreadsheet, and then give a year-by-year description of what’s going on in the scenario. The spreadsheet will show a year-by-year breakdown of the decisions and financial impacts of those decisions, taking the teachers from their first years in the profession, through an early retirement (if they choose, could be “work optional”), all the way through their retirement years (I stop at age 90, but that doesn’t mean you have to).

Similar to the discussion about assumptions, the spreadsheet also makes a form of “assumption” by some of the “decisions” I’ve made each year along the way while constructing the spreadsheet (“decisions” meaning choices I’ve made in the spreadsheet for how you’ll possibly behave in the future). It’s very important to realize that those “decisions” are not set in stone, those are just examples chosen to show what is possible as well as to try to optimize your savings and investments based on the tax code and your goal of Financial Independence. There are likely “decisions” that could optimize this better than what I chose, and there may be reasons why you want to make different “decisions” along the way, which is where you can make your own copy of the spreadsheet and play some “What ifs?” of your own. Either way, the spreadsheet should help you to be able to see what’s possible and what trade-offs you’ll have to make, and that should help you figure out if this is a path you’d like to take.

For each of the following scenarios, you really have to click through to the linked document and spreadsheet for each one to get the full impact. What’s below is just a brief intro to each scenario.

Scenario 1
This example assumes two married 25-year old teachers with Master’s degrees, about to start their 3rd year of teaching in 2020, with one one-year-old child. They were hired before July 1, 2019 (which matters in terms of how their PERA-includable salary is calculated, as well as when they are eligible to retire). This scenario assumes they are both eligible to purchase 5-years of PERA service credit based on employment they had during high school and college, and that they both choose to purchase those years as soon as they are eligible (which is when they have earned 5 years of PERA service credit). This scenario lays out a path for being able to retire at age 45, and shows the amount available to spend each year while they are working and each year after they retire. It assumes no earned income after age 45, but many folks will continue to have some earned income during this “work optional” phase of their career.

Please note that while I’ve gone over all the spreadsheets many, many times, there is still a possibility that there is a mistake (or more than one). It could be a mistake in a formula, or it could be a mistake in overlooking some aspect. Please, please, please, if you find something that you think might be incorrect, let me know so that I can take a look and adjust it.

Scenario 2
This example assumes two married 25-year old teachers with Master’s degrees, about to start their 3rd year of teaching in 2020, with one one-year-old child. They were hired before July 1, 2019 (which matters in terms of how their PERA-includable salary is calculated, as well as when they are eligible to retire). This scenario assumes they do not choose to purchase any PERA service credit based on non-PERA covered employment during high school or college. This scenario lays out a path for being able to retire at age 42, and shows the amount available to spend each year while they are working and each year after they retire. It assumes no earned income after age 42, but many folks will continue to have some earned income during this “work optional” phase of their career.

Please note that while I’ve gone over all the spreadsheets many, many times, there is still a possibility that there is a mistake (or more than one). It could be a mistake in a formula, or it could be a mistake in overlooking some aspect. Please, please, please, if you find something that you think might be incorrect, let me know so that I can take a look and adjust it.

Scenario 3
This example assumes two married 23-year old teachers with Bachelor’s degrees starting their first year of teaching in 2020. Assume they earn their Master’s degree by age 25 and have one child at age 26. They were hired after July 1, 2019 (which matters in terms of how their PERA-includable salary is calculated, as well as when they are eligible to retire). This scenario assumes they do not choose to purchase any PERA service credit based on non-PERA covered employment during high school or college. This scenario lays out a path for being able to retire at age 45, and shows the amount available to spend each year while they are working and each year after they retire. It assumes no earned income after age 45, but many folks will continue to have some earned income during this “work optional” phase of their career.

Please note that while I’ve gone over all the spreadsheets many, many times, there is still a possibility that there is a mistake (or more than one). It could be a mistake in a formula, or it could be a mistake in overlooking some aspect. Please, please, please, if you find something that you think might be incorrect, let me know so that I can take a look and adjust it.

After looking at some or all of the scenarios in-depth (the links to the doc and the spreadsheet for each), remember to look back at Part 3, the “What Ifs?” and the “Yeah, Buts” to recall that this is a choice. You should align your goals with your values, and you may choose to do some things differently than I’ve schemed out, or not to do this at all. That’s perfectly fine, of course, but be intentional about it.

For example, some folks will look at the “net to live on” columns in these different scenarios and say that’s just not possible. Well, first, realize that is the actual amount you can spend, not your total “income”, which is different than the way a lot of folks think about their spending. And, second, realize that it is possible to live comfortably but not extravagantly on that amount of money, you just have to decide if it fits with your values and goals. I encourage you to actually think it through and then make some decisions that do align with your values and goals, don’t just let your financial life “happen” to you.

  • Part 1: The Concept
  • Part 2: The Process
  • Part 3: The “What Ifs?” and the “Yeah, Buts”
  • Part 4: Tax Optimization
  • Part 6: Case Study: Teacher Married to a Non-Teacher
  • Part 7: Single Teacher

FI for Colorado Teachers Part 4: Tax Optimization

TL; DR: This is the fourth in a series of posts for Colorado teachers that looks at the tax code and discusses how you can optimize your financial decisions to take advantage of it. Hint: most people don’t take full advantage of the tax code.

Part 1 in this series describes the “what” and the “why” of Financial Independence. Part 2 discusses the process of “how.” Part 3 looked at the possible “what its” and “yeah, buts” objections to accomplishing FI. This post builds on part 2 and discusses how knowing the rules around taxes can allow you to optimize your finances and help you achieve Financial Independence.

Taxes are an interesting thing. Most folks will begrudgingly admit that they are necessary, but then often go on to complain about how much they have to pay or how unfair the system is for X reason. While there are certainly good arguments that can be made about the fairness of the system and how it could be improved, there are also ways that you can make decisions to address how much taxes you pay. To be clear, this is not cheating on your taxes, this is simply knowing the rules and making decisions to take advantage of those rules. If people would take the time to learn the rules and then adjust their decisions, they might not complain about how much they pay (or, more realistically, complain a bit less).

I am not a tax expert, nor can we go in-depth on all the various aspects of the tax code in this post. But there is some pretty basic information that you can use to your advantage, and some specific aspects that apply just to teachers, both of which you can use to optimize your finances. Spending just a little bit of time learning about the rules and then adjusting your decisions can have a big impact over time.

First, a quick reminder about how Federal taxes work (very simplified, but helpful for our purposes). You have a certain amount of income, some of it earned (your paycheck) and some of it is not (interest, dividends, capital gains, etc.). Some of that earned income you can “shelter” from taxes by investing in tax-deferred accounts, and some if it is automatically sheltered from taxes (your PERA contribution, your insurance premiums if you choose to take them pre-tax, your HSA contributions if you have them, dependent care expenses, etc.).

You then have some deductions to your income which, for the vast majority of taxpayers now, is going to be the standard deduction, with a few other deductions that might apply (for example, teachers also have the $250 teacher expenses deduction they can take).

You then end up with your taxable income, which is taxed using a progressive tax rate (that is adjusted for inflation each year), which means some of your taxable income is taxed at one rate, some of it at another, and perhaps some of it at yet other rates if you have a large taxable income. (Note that some of your unearned income, like qualified dividends and long-term capital gains are treated differently. This is important and we’ll talk about this eventually.) For example, in 2019 for a married couple, the first $19,400 in taxable income is taxed at 10% and any amount over $19,400 and up to $78,950 is then taxed at 12%. If you have taxable income above $78,950 but below $168,400, it gets taxed at 22% (and it continues above that, but most teachers won’t need to worry about that).

Many folks don’t completely understand how this progressive system works and think that all of their taxable income is taxed at whatever tax bracket they are currently in, which can lead not only to misunderstandings about tax policy, but sometimes some poor decisions around your taxes. For example, if your taxable income is $75,000, then the tax you would owe would be $8,612, which is an effective tax rate of 11.48%, not the 12% that many people think that $75,000 would be taxed at. ($19,400 at 10% is $1,940, the remaining $55,600 to get us up to $75,000 is taxed at 12%, which is $6,672 in taxes, for a total of $8,612.)

But it gets even better, because many people don’t actually owe that amount because they also get tax credits. Tax credits are different than tax deductions. Tax deductions get subtracted from your income to then determine your taxable income, but tax credits are dollar-for-dollar offsets to the tax you owe. The most common one for many people is the child tax credit, which is currently $2,000 per child (with up to $1,400 of that refundable). So, for the example above, if they had one child they would owe $6,612 in taxes, not $8,612. There are many other tax credits that could apply, so it’s important to investigate those based on your situation.

State taxes in Colorado are much simpler, as they take your federal taxable income, perhaps make a few adjustments, and then calculate your state tax at a flat (not progressive) rate of 4.63%. This means that all the ways you can lower your federal taxable income (deductions, tax-sheltering, etc.) also lowers your Colorado state tax owed, and then there are a few Colorado-specific tax credits you might be able to utilize (one of the most common is contributions to the Colorado 529 college savings plan are exempt from Colorado state taxes). Also, a quick plug (pun intended) for the Colorado Alternate Fuel Tax Credit, which is a $5,000 tax credit for an electric vehicle (and that’s refundable), which means if you have at least $7,500 in federal tax liability, then you can take a whopping $12,500 in total tax credits if you buy an electric vehicle (subject to phase out limits – Tesla and soon Chevrolet will begin ratcheting down).

Sorry if that was more (or less) than you needed, but we needed to set the stage for the next part of our discussion, which is about how best to take advantage of those rules on your path to financial independence. We’re going to focus on four areas: tax-sheltered accounts, Section 125 deductions, HSA contributions, and possibly optimizing to get the Savers Tax Credit.

Tax-sheltered accounts come in two main variants – pre-tax and post-tax. Pre-tax accounts are things like 401k/403b/457/Regular IRA accounts, where the money you contribute does not get taxed in the current year, but then gets taxed when you withdraw it during retirement (hopefully). Post-tax are the Roth variants of those, where the money you contribute is post-tax, meaning you do pay taxes on that money in the current year, but then any investment earnings you receive do not get taxed, so when you withdraw during retirement there is no tax liability.

For many folks, particularly if you are on the road to Financial Independence and will be considering retiring (work optional phase) early, the pre-tax accounts are the ones you want to focus on. (This post will not be able to go in-depth on why this is probably preferable to using Roths, but there are many resources on the web that discuss this.) This lowers your taxable income (both Federal and State, and often keeps you in the lower tax brackets), allows your investments to grow tax free, and sometimes helps you qualify for the Savers Tax Credit (more on that in a minute).

Every public school teacher in Colorado has access to PERA’s 401k plan (which is a good one). Most teachers then also have access to a 403b and a 457 plan. The 403b is going to be through a vendor other than PERA, but the 457 could be through PERA or that other vendor. Having access to that 457 is a huge advantage for teachers (and most public employees), because it not only allows you to shelter additional money, but also allows you to access that money when you are younger with no penalties (which is huge if you are planning on retiring/work optional at a younger age). (If your district does not offer you a 457 plan, talk to your Human Resources department ASAP. Even if they don’t want to deal with an outside vendor, setting it up with PERA is very easy for your district to do since they already are setup for the 401k.)

In 2019 you can contribute up to $19,000 to your 401k or your 403b – the limit applies to the combined amounts you can put into one or both of those accounts. (If you are over 50 you can contribute an additional $6,000, so up to $25,000). Note that this is per person, so if you are married your spouse can also contribute up to $19,000 (or $25,000 if over 50). But an important point to understand, particularly as your income increases as you grow older, is that you can also contribute up to $19,000 (or $25,000 if over 50) to your 457 plan. That’s in addition to the 401k/403b contribution. Essentially, public employees have double the amount they are able to shelter. (And, in fact, the 457 plan even has an additional “last-three-years” catch-up provision that can effectively allow you to contribute twice as much – $38,000 currently – each year for the last three years you are with with that employer.)

And the 457 is even better than the 401k/403b, because it’s considered “deferred compensation”, which means that you can access that money as soon as you leave that employer. This is different than a 401k/403b, where if you access the money before age 59.5 you may have to pay a penalty. (Note, there are ways to access a 401k/403b before age 59.5 without a penalty, but a 457 is so much easier if you have that option.) This means that if you do achieve Financial Independence and enter the “work optional” stage by quitting your teaching job, you can immediately access any money in your 457 to use as living expenses, even if you are way short of 59.5.

When we get to the case study posts (starting with part 5), we will go more in-depth on how to use this in the best possible way, but here are the two most important points to remember:

  1. Invest as much as you can in your 457 plan and increase it every year until you max it out.
  2. Once you max out the 457, invest as much additional as you can in the 401k/403b.

Many folks look at that and say, “That’s great, but I need money to live on.” That is certainly true, but keep in mind that since these contributions are coming out pre-tax, they don’t actually reduce your net pay by your total contribution. For example, if you contribute $19,000 in a year to your 457, and you normally would be in the 22% federal tax bracket (plus 4.63% Colorado tax bracket), your net pay “only” decreases by $13,940. Now, that’s still a fair amount of money, but it’s a lot less than $19,000. (And, as we’ll see, it might actually be even less than that if you can qualify for the Savers Tax Credit). As you’ll see in the case studies, if you can rein in your lifestyle expenses, most folks can actually save more than they think.

The second area to be aware of is Section 125 Plans. This refers to the part of the tax code that allows you to receive part of your income pre-tax if it is used for particular expenses. The added benefit for teachers is that it comes out pre-PERA contribution (although that will be changing for new hires hired after July 1, 2019). What are these particular expenses? They include insurance premiums (health, dental, vision, etc.), dependent care expenses (child care), and flexible spending account contributions (unless you have a high-deductible health plan, which we’ll discuss below).

All of these end up being expenses you can pay with pre-tax dollars (and pre-PERA dollars for current PERA employees), which can save you a significant amount of money. Again, if you were going to be in the 22% federal tax bracket, plus the 4.63% Colorado tax, you would save 26.63% of the total you spend on these areas. Plus, if you’re a PERA employee hired before July 1, 2019, you save an additional 8% on your PERA contribution (and that will be increasing over the next few years to at least 10% as part of the legislation passed in 2018). (Note that if it is coming out pre-PERA, you want to stop doing this in your last 3-5 years of employment in order to maximize your Highest Average Salary calculation. The amount you “lose” in tax savings during those years is more than made up for in pension income over time.)

If you have access to a High Deductible Health Plan (and most teachers do), then you also have the ability to contribute to a Health Savings Account (HSA). Employers also often kick in a small amount to your HSA in order to encourage you to sign up for the plan. Your contributions do not come out pre-PERA, but they do come out pre-tax and pre-FICA. HSA’s are known as “triple-tax-advantaged” accounts, because they are the only accounts that allow you to contribute pre-tax, earn pre-tax, and withdraw pre-tax. Basically, you never pay tax on this money (as long as you use it for medical expenses). And unlike an FSA, you don’t have to “use it or lose it” each year, can can carry over any balance for as long as you want.

You also have the option to invest this money, which can help it grow even more. From an FI perspective, this is an amazing account, especially if you can afford to not withdraw any money for medical expenses along the way and just let it grow tax free. As long as you save your receipts, you can always withdraw the money in the future when you need it, or you’ll likely have future medical expenses anyway. If you never have medical expenses (unlikely, but it could happen), then you can still withdraw it after age 65 and simply pay taxes on the withdrawals (but no penalty).

If you do have a High Deductible Plan, you can’t also contribute to an FSA (the HSA takes its place). But many district will have a Limited Purpose FSA that you can contribute to, and that money can be used for dental and vision expenses, but not health expenses. While this is “use it or lose it”, if you can estimate your out-of-pocket dental and vision expenses for the year, this is an extra tax strategy you should take advantage of.

Finally, as promised, we’ll talk about the Savers Tax Credit. In order to encourage folks to save for retirement, the Federal Tax code will actually give you money to help save, as long as your income is below a certain threshold. Because all of the previously discussed items (401k/403b/457/HSA/FSA/Section 125 plans) reduce your income threshold, if you can take advantage of enough of them you might also qualify for at least some of the Savers Credit. For example, in 2019 if you’re married and your adjusted gross income is below $64,000, you can claim 10% of your contributions to 401k/403b/457 plans as a tax credit, up to a total of $4,000. So, in our previous example where we discussed that contributing $19,000 to your 401k only reduced your net pay by $13,940, it may actually only reduce your net pay by $12,040, because you might get $1,900 from the Savers Tax Credit (assuming your income is adjusted gross income is low enough to qualify for the 10% Savers Credit). For many teachers, this is possible in your first few years of teaching, as you’ll see in the case studies posts.

There are more tax strategies we could consider, and we certainly will when we discuss the withdrawal stage of Financial Independence, but this gives you the overall approach. By understanding the tax rules and adjusting some of your decisions based on them, most folks can actually save (and invest) much more than they thought. While you can still complain about your taxes, you’ll have actively made some moves to reduce what those taxes were, which will help you on your path to Financial Independence.

  • Part 1: The Concept
  • Part 2: The Process
  • Part 3: The “What Ifs?” and the “Yeah, Buts”
  • Part 5: Case Study: Teacher Married to Another Teacher
  • Part 6: Case Study: Teacher Married to a Non-Teacher
  • Part 7: Single Teacher


FI for Colorado Teachers Part 3: The “What Ifs” and the “Yeah, Buts”

TL; DR: This is the third in a series of posts for Colorado teachers that discusses some of the possible objections people have as to why they can’t achieve Financial Independence. Hint: if it aligns with your values, the objections are easily overcome.

Part 1 in this series describes the “what” and the “why” of Financial Independence. Part 2 discusses the process of “how.” This post will focus on some of the objections people typically make when discussing whether achieving financial independence is possible, the “what its” and the “yeah, buts”.

First, a reminder that this series of posts is not saying that everyone should do this, it’s simply trying to show you a path on how you can do this if it aligns with your values and what you want for your life. So some of the following, especially the “yeah, buts”, might be valid for what you want. But this post will address those under the assumption that achieving financial independence and a “work optional” stage of life earlier than is traditionally expected is aligned with your values and is something you want to pursue.

The What Ifs?
Any time you try to make a long-term financial plan, you have to make a lot of assumptions. When we get to the case studies (starting with part 5 in this series), you’ll see assumptions that are made about inflation, investment returns, cost of living increases to the salary schedule, advancement on the salary schedule, increases in insurance costs, increases in the various limits in the tax codes, and many more. While we try to make reasonable assumptions for all of these, they are still assumptions, and actual experience will not match those assumptions exactly. Sometimes reality will be “worse” than the assumptions expect, and other times it will be “better”, but it will never be perfectly correct.

There are three ways to deal with this. First, many of the assumptions are interconnected, so when the actual experience is different than one of the assumptions, other of the assumptions are often affected in a similar direction and that helps balance it out. Second, you can try to make the assumptions on the more “conservative” or “less beneficial to you” side of things. For example, lowering the assumed investment return or increasing certain tax limits by smaller amounts each year. The spreadsheets in part 5 and the other case studies will allow you to make those changes, but they already have some “conservative” assumptions built in (like tax brackets and contribution limits increasing at a rate slightly below the assumed inflation rate). Third, and perhaps most importantly, is the idea of flexibility. As you live your life and actually experience whatever happens, you can (and will) make adjustments that can keep you on the financial path you’ve chosen.

So, what is the most common “What If?” that people are concerned about? The rate of return on investment is usually the biggest one. We have historical data that can give us a decent estimate on what that rate of return will likely be over a long time period, but – as all the advertisements say – past performance is no guarantee of future results. Plus our plan can be impacted a lot by something called “sequence of return risk”, in which when you get high or low investment returns can have a significant impact on your planning. (See this and this and this for more on sequence of return risk.)

How best to deal with this? You can adjust the assumption yourself in the spreadsheet, you can be flexible and make adjustments along the way (like increasing your savings rate to help make up for lower returns), or – and this is a big one – you can change your timeline a little bit. If investment returns are lower than your assumptions, that doesn’t mean your plan is kaput, but it might mean that your path to financial independence takes two or three years longer than originally projected. While that may not be ideal, keep in mind that what many folks should be comparing that to is a lifetime of “work not optional” and not achieving financial independence until their late 60s or so. Keeping in mind that context helps keep things in perspective.

There are many other “What Ifs?” that can come into play, like losing a job or illness. The way I think about those are two-fold. First, those are “What Ifs?” that will affect you whether you are trying to achieve early FI or not, and if you are doing the work to achieve early FI you will be in better shape if those “What Ifs?” happen than if you hadn’t been on this path. Second, this is another case where being flexible comes in. You can (and will) make adjustments along the way. Again, this is true whether you are trying to achieve early FI or not, but will actually be easier if you are.

The “Yeah, Buts”
The “What If?” objections can be addressed by changing the assumptions in the spreadsheet or being flexible and adaptable along the way, but the “Yeah, Buts” are a bit different. These typically fall into the category of, “I just can’t” or “It’s not realistic to….” . It’s important to keep in mind two things here. First, it is possible and realistic. But second, it may not be something you choose to do. This goes back to the idea that this path is not for everyone but, if it does align with your values and want you want out of life, than you can make the choices that make it possible and realistic.

So what are some of the “Yeah, Buts”? First is often, “Yeah, but I can’t live on that amount of money.” As was discussed in part 2, if you make good decisions around the “big three” of spending, then it is indeed possible.

Second is often, “Yeah, but I need a new car to get to work and therefore I’m going to have a car payment.” As also discussed in part 2, ideally you would live close enough to work that you (or at least one of you if you’re married) don’t have to drive to work, you can walk, bike or take public transportation. But, if you do need to drive, there are many, many, many reliable and affordable used cars that will save you a tremendous amount of money and don’t require a car payment (or, at worst, require a temporary car payment that you can then pay off within a year or two).

Third is often, “Yeah, but you assume that I’m starting out without any debt but I do have debt.” This might very well be true, although my hope is that we do a better job in the future of helping young folks not start out in debt. But, if you do have debt, your first steps will be to eliminate that debt. Does that mean you can’t achieve financial independence? No, it just means it might take you a few more years to get there, and it might mean that you have to work a bit harder making some additional money in the early years through additional responsibilities or side hustles in order to help you pay off that debt.

Fourth is often along the lines of, “Yeah, but as I make more money, I deserve to be able to spend more of it.” There’s nothing wrong with that, if that’s what you want. But if you sit down and figure out what actually makes you happy and fulfilled, and you determine that additional spending on top of meeting your needs and some of your basic wants doesn’t provide any more happiness or fulfillment, then you can increase your spending very modestly as your income grows and still have a very comfortable, but not extravagant, lifestyle.

Think back to how you lived in college, or perhaps your first few years out of college when you didn’t make much money. Most people were able to live just fine and were reasonably happy. If you can control “lifestyle inflation” as you start to make more money, then you can modestly increase your spending, life a happy and fulfilled life, and be on the path to Financial Independence. Again, it’s about choices and what you value, and then aligning your lifestyle with those values.

There are many additional “Yeah, buts” that we could discuss, but the response to those objections is generally along the same lines: align your lifestyle with your values, make adjustments as necessary, and then live your life. If the freedom and flexibility of achieving financial independence decades sooner matches up with your values and your desires, then you can overcome the “Yeah, buts”. If the “Yeah, buts” seem like too much of a sacrifice, then you can choose a different path.

  • Part 1: The Concept
  • Part 2: The Process
  • Part 4: Tax optimizing/401k/403b/457/Section 125
  • Part 5: Case Study: Teacher Married to Another Teacher
  • Part 6: Case Study: Teacher Married to a Non-Teacher
  • Part 7: Single Teacher


Financial Independence for Colorado Teachers Part 1: The Concept

TL; DR: This is the first in a series of posts that will lay out a possible path for Colorado teachers to achieve Financial Independence and retire* early. This post looks at the concept of Financial Independence and discusses a little bit of the “what” and the “why”.

*Retire only if you want to, but certainly achieve a “work optional” stage of life much earlier.

This is the first in what will be a series of posts discussing how Colorado teachers can achieve financial independence. (Actually applies to any Colorado public school employee, not just teachers, but will focus on teachers.) This post will focus on the concept of financial independence: what it is, why you might want to achieve it, and the basic outline of what it takes to get there.

There are many, many, many excellent resources online (some of which I’ll link to at the bottom of this post) that are better written, broader in scope, and more in-depth. But I decided to write this series because, as far as I know, there is not any that are devoted specifically to Financial Independence for Colorado teachers. The path to Financial Independence is different for everyone, but there are certain aspects of being a teacher in Colorado that make this an easier path and are worth exploring in detail (notably Colorado PERA and the specifics of the Colorado state tax code). My hope is that this can be a resource for Colorado educators to adapt some of the terrific information that is available elsewhere online in light of the added options that PERA and the state tax code give you.

If you’ve ever explored anything financially related online, you have probably come across the acronym FIRE, which stands for Financially Independent Retire Early. (I will include some links to resources at the bottom of this post you might want to investigate.) While the FIRE concept may seem to be pretty well defined, there are many different approaches, definitions, and opinions about exactly what it means, so let me give you my take as a frame of reference for this series of posts. (Not that you have to agree with my take, but just as a common understanding for these posts.)

It seems to me that there is often a misconception of financial independence that it’s all about money. In my view, it’s not. Money is the means but not the end. Financial independence is, at its essence, exactly that – meaning that you don’t have to be employed and earning income in order to meet your financial needs. When you “achieve FI”, that means you have enough savings and investments to live off of even if you never earn another dollar at a job. That doesn’t mean you have to retire, the ‘RE’ part of FIRE, but it means you can if you want to (or circumstances dictate that you have to). Some people refer to this as a “work optional” stage.

So if FI is not about money, what is it about? I think it’s about living your best life and the life you want to live. It’s about making the most of your limited years (time is not a renewable resource) and about maximizing the time you have to do what you want. It’s about being intentional about life and not just letting life happen to you, but taking a little bit of time to plan the life you want to lead, one that aligns with your values, and then take the steps to allow that to happen. Perhaps that doesn’t seem all that different than what most people do, plan for the future. But this is taking it one (or two) steps further than most people do and being much more granular about the financial aspects of your future in order to achieve the life you want to live.

One of the unfortunate things about American society (I’m focusing on the United States in these posts) is the lack of knowledge and open discussion about money and finances. In many families, money is a taboo subject, and most schools do little or no real financial education. As a lifelong educator, it saddens me that we don’t make an effort to really educate our students about money and finances. Not because money or wealth is important in and of itself, but because of the tremendous impact finances and financial decisions have on everyone’s life. (If I was pressed to name the two most important subjects we should teach in K-12 education, it would be Physical Education and Financial Education, as those are so important throughout everyone’s life, yet we devote very little resources to teaching them.)

That doesn’t mean society doesn’t talk about “Money” with a capital ‘M’. We are inundated with stories about making money and wealthy people, bombarded with marketing encouraging us to buy things, and often social pressures to look and dress and own the correct things to fit in. But that’s as far as it goes for most folks, we get the pitch for all these things that are “desirable”, but not the knowledge and resources to manage our financial lives in a way that matches up with our goals and our values. FI is about achieving your goals and living your values. That may include retiring early or it may not – it’s about making decisions that optimize meaning and happiness. Once you achieve FI you may still continue to work, but you’ll continue because you want to do the work, not because you need the paycheck. And if at that point in your life you are ready to do something else, you won’t be restricted from making a change because of the need for that paycheck.

I think most folks would think that my family has done really well financially along the way, and we have, but if I knew what I know now back when we were first starting our careers, we would have achieved financial independence much earlier. So this series is intended to help some of you, if you decide this is the path for you, to do it better than we did. So what does it take to get there? Future posts will go into more detail, but it generally boils down to spending less than you make, and then saving and investing the rest. It’s also about making smart lifestyle choices (living within and actually below your means), and understanding the math of things like compound interest and how your taxes work.

Below you will find links to subsequent posts in this series (as the posts are written, the links will become active), as well as links to some excellent FI(RE) bloggers and other resources that you may want to investigate if you want to go down the rabbit hole and learn much, much more about this idea.

  • Part 2: The Process
  • Part 3: The “What ifs?” and the “Yeah, buts”
  • Part 4: Tax optimizing/401k/403b/457/Section 125
  • Part 5: Case Study: Teacher Married to Another Teacher
  • Part 6: Case Study: Teacher Married to a Non-Teacher
  • Part 7: Single Teacher

Some excellent resources to learn more about FI(RE)

How Do You Measure Investment Risk?


There are a lot of sophisticated measures in the investment business: P/E Ratios, Cash Flow Analysis, EBITDA, etc. The list goes on and on (and on). The one I find most interesting, however, is how most people measure risk. The generally agreed upon method is to measure volatility, which is how much the price of a particular asset (stock, bond, whatever) goes up and down, often in conjunction with looking at expected return of the particular asset. To simplify it a bit, the more the price of something changes, the riskier it is.

I find that fascinating and mostly wrong. If you are a long-term investor armed with self-control, measuring risk by measuring volatility is not very useful. This analogy is a bit of a stretch, but I’ll use temperature as an example. If a particular day starts at 60 degrees Fahrenheit and goes up to 80 then back down to 60, that would be considered “worse weather” than a day that starts at 100 degrees and stays there (or 40 degrees and stays there).

Now, if you are an investor who is actively trading, constantly moving in and out of different positions, volatility is important. Likewise, if you are an investor that is going to need to take money out of a particular investment in the near future, volatility could be important. But I prefer a different measure of risk: how likely are you to meet your goals?

To me, this is really the only measure of risk that matters. Will your investment portfolio/strategy achieve the goals you have set for it? If you are a long-term investor (and if you end up working with me you will be :-), you don’t care all that much about the daily ups and downs of your investment, as long as at the “end” your investment is up a sufficient amount that allows you to achieve your goal. Which means that if you construct your portfolio correctly, there is really only one sub-component of that risk that matters: you.

More specifically, do you have the self-control, the discipline, to follow your investment plan? When bad things happen (like the Great Recession in 2008, or the dot-com bubble in the early 2000’s, and the value of your investments drop, sometimes by a lot), will you be able to stay the course and not bail on your plans? One of the main reasons to hire a real financial planner (or even avail yourself of my services), is that they hopefully will help you to stick to the plan. While there are no guarantees, based on the entire history and theory of financial markets, if you invest for the long-term and don’t sabotage yourself by abandoning your investment plan at the worst possible times, you are (almost) guaranteed to be successful.

In fact, there is plenty of research that most investors earn less (often far less) than the mutual funds and other investments they invest in earn. How can that be? They buy high and sell low. They typically buy into a mutual fund (or stock, or whatever) after if has performed really well for a while (missing out on most of the gain), then lose heart and sell when it inevitably goes down. It’s the investor’s behavior that causes them to under-perform, and hence the riskiest part of investing isn’t typically what you choose to invest in, it’s you.

So what’s the secret?

  1. Spend less than you make.
  2. Regularly invest the difference in low-cost index funds.
  3. Don’t sell (unless you’ve achieved your long-term goal).

I’ll write several more posts exploring different aspects of this, but it pretty much is that simple. That’s one of the most frustrating aspects when I hear others talk about their finances. Either they are too afraid of “investing” because they are worried about losing their money (or somebody taking advantage of them), or they are constantly moving from investment to investment to try to outperform the market (generally with poor results, as that study indicated).

As I mentioned in one of the FAQs, about 90% of what you need to do is really pretty straightforward, and not all that hard to do, if you simply know a little bit and have that self-discipline. I’d be happy to get you started on that path.

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Who Should Use Fisch Financial?


Let me be clear, many of you should not. Many of you should hire a full-blown certified financial planner (CFP) who uses a fee-only method (as opposed to percentage of assets managed). This is especially true if you have a more complicated situation such as owning multiple real estate properties, or being part of a trust, or having a complicated legal situation (among others).

So if the above is true (and it is), why am I offering this service at all? Well, three main reasons.

    1. The majority of Colorado educators (my “target audience” if you will) do not have complicated situations. They have one or two incomes, have a mortgage on a house, have normal bills and maybe have some investments, but they aren’t very knowledgeable (or at least not confident in their knowledge) of how to handle their finances (and often just aren’t very interested in the topic). While they would also benefit from seeing a “real” financial planner, there are a lot of relatively straightforward changes they should probably make that I can help them think through. Which leads to reason #2…
    2. A lot of you won’t hire a certified financial planner (at least not yet). A lot of folks are intimidated by financial stuff, and they are worried that someone will lose them money or, worse, actually take advantage of them for financial gain. These folks are typically not that confident in their own knowledge and are worried they won’t be able to work intelligently with a financial planner and therefore will “waste” the money they pay the financial planner for no real gain. While I think any good financial planner can add a lot of value, it doesn’t matter if you won’t hire them. By offering a free service, I hope to not only help you make some positive changes in your finances, but perhaps also get you to the place where your confident enough to work with a certified financial planner should you choose to.
    3. I want to help. That maybe sound cheesy, or cliche, but it’s true. I’ve been interested in financial topics since high school when I worked in a credit union, and have continued to read a lot and learn over the years. I’ve certainly made many mistakes (and undoubtedly am still making some now, although hopefully not too many), but I feel like I’ve learned a ton over the years and am in a position to help others avoid any mistakes they might make (or possibly correct mistakes they’ve already made). For a lot of people, there are somewhere between 3 and 10 relatively simple things they can do that can make a huge difference in their financial security (and, therefore, in achieving their goals in life). I can help you figure out those things.

In addition to the general financial/investment knowledge I bring to the table, I’m very knowledgeable about one aspect that is key for Colorado educators: PERA. While most Colorado educators have a vague idea that PERA is a good thing, they don’t realize how good, and they also don’t realize that having PERA should affect all of their other financial decisions, and not just when they are close to retirement, but from day one that they start in PERA-covered employment.

This (along with lack of understanding of benefits and specifically 401k/403b/457 plans) is one of the main reasons I decided to offer my services. Over the years I’ve had so many conversations with very bright educators who nevertheless have very little knowledge of these areas and consequently have made decisions that have not been optimal. This may or may not be you. For some of you, working with me will end up making very little difference because you are knowledgeable and have made good decisions along the way. But it won’t cost you anything (other than a little bit of time) and it should reassure you that you’re on the right path. For others, this truly could be life changing. And I don’t say that lightly, being financially secure really can change your life and allow you to focus on what really matters – financial success isn’t the goal, it’s the means to achieve whatever your goals are.

Photo credit: Mark Dumont via / CC BY-NC