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<\/figure><\/div>\n\n\n\nWhat actually is the difference between a 401k and a 403b?<\/p>\n\n\n\n
Honestly, not much.<\/span><\/p>\n\n\n\n I recently wrote a blog post about some of the biggest mistakes that you could make when you\u2019re investing in a 401k<\/a> and since it\u2019s so familiar with a 403b, I recommend you check it out, especially #3 and #1, which talk about understanding your investment options and then not matching out your match.<\/p>\n\n\n\n You see, any sort of match that you get is completely free money. Like, no strings attached, cold hard cash. I say no strings attached, but you do have to wait until you\u2019re 59.5 years old, but that really isn\u2019t much of a string\u2026I\u2019d say that it\u2019s much more of a rule that is just protecting you from yourself and inevitably emptying your retirement savings and using it for non-retirement things.<\/p>\n\n\n\n But of course, you likely know what a 403b is if you\u2019re reading this article because you likely have one \u2013 but how do you actually know if you have enough money to retire? Well? I think it\u2019s a few different steps:<\/p>\n\n\n\n\n\n\n\n 1 \u2013 Determine Your Retirement Number<\/a><\/strong><\/p>\n\n\n\n This likely seems like an impossible thing to do but trust me, it really isn\u2019t that hard! Let me introduce you to the 4% rule<\/a>. <\/p>\n\n\n\n In essence, the 4% rule says that if you are to invest your money into a stocks and bonds portfolio, and you remove 4% of your starting portfolio for the first year, and then that same amount every year, then you should never run out of money.<\/p>\n\n\n\n Let me explain with an example:<\/p>\n\n\n\n I know that this might seem hard to believe, but it really isn\u2019t when you put the pen to pad. Believe it or not, the results will actually shock you. I went back and looked at many time periods since 1928 when I used a portfolio that was a 60\/40 ratio of stocks and bonds, the portfolio literally never ran out of money. <\/p>\n\n\n\n Insane, right?<\/p>\n\n\n\n While this is great, how can you actually apply it to your portfolio? Well, if you\u2019re going to take out 4% every year, then you need to make sure that you have enough saved to cover that, right?<\/p>\n\n\n\n Let\u2019s pretend that you think you\u2019re going to need $50,000\/year to maintain your quality of life. To be able to take out $50,000 each year, you\u2019re going to simply take $50,000\/4%, or you can multiply $50,000 by 25, to get $1,250,000.<\/p>\n\n\n\n So, if you save $1,250,000, then you can safely withdrawal $50,000 every year, as the data shows, and never run out of money! Pretty dang cool to have a very, very concrete goal like that, isn\u2019t it? But that\u2019s only part of it!<\/p>\n\n\n\n 2 \u2013 Determine if You\u2019re on Track with a 403b Retirement Calculator<\/strong><\/p>\n\n\n\n This is the really fun one if you ask me! As you all know, I am a huge numbers nerd and absolutely love digging into the data. I am guessing that you\u2019re the same, and even if you don\u2019t like getting in really deep, I created a very easy 403b calculator that you can use in a few easy steps to make sure you\u2019re on track:<\/p>\n\n\n\n All you need to use the calculator are a few different pieces of information:<\/p>\n\n\n\n Let\u2019s run through a real-life example:<\/p>\n\n\n\n Take a look below at the inputs and how they will look in the calculator:<\/p>\n\n\n\n Believe it or not, that\u2019s the end of what you need to do to use the calculator! You can then look at when you might retire and simple scroll down to that year and look at what your estimated total might be! For instance, below shows just how the first five years might look:<\/p>\n\n\n\n As you can see, the beauty of investing is that in Year 1, you\u2019re really only getting the 8% return on your initial investment and the company match. But the longer you invest, the more that you get to start earning that same 8% on not only your investments but the returns that you have already made! <\/p>\n\n\n\n That, my friends, is the beauty of compound interest<\/a>, and it\u2019s why Einstein said, \u201cCompound interest is the eighth wonder of the world. He who understands it, earns it \u2026 he who doesn\u2019t \u2026 pays it.\u201d<\/p>\n\n\n\n What he means in this saying is that if you really understand compound interest<\/a>, then you\u2019re going to be very motivated to take advantage as much as you can and if you don\u2019t, then you\u2019re really going to be paying for it in the long run.<\/p>\n\n\n\n If you already have a 403b and aren\u2019t starting from scratch, simply input all of the same numbers but change the first cell to the amount that you currently have. For instance, if you have $10,000, you would input $10,000 into cell C11, or Year 1, Month 1, as I have shown below:<\/p>\n\n\n\n Below, I have included some more results, in 5-year increments, based off the inputs that we discussed above in the original example where we are starting from scratch:<\/p>\n\n\n\n You\u2019ll likely narrow into the yellow highlight, which you might notice is just slightly over the $1.25 million goal that we also talked about previously. So, that means if all of these assumptions were true, then you would have to work 4 months into your 40th<\/sup> year to be able to retire and hit your retirement goal! <\/p>\n\n\n\n Whether or not that\u2019s actually what happens is going to be up to you and the market performance, but if you don\u2019t have this in mind when you\u2019re planning your retirement, then you\u2019re starting off behind the eight ball!<\/p>\n\n\n\n Now that you know where your plan is going to put you, and when you\u2019re able to retire, the part that you can truly impact is beginning \u2013 let\u2019s head to step 3!<\/p>\n\n\n\n 3 \u2013 Evaluate Your Plan<\/strong><\/p>\n\n\n\n Let\u2019s stick with this same example that we\u2019ve laid out above \u2013 if you\u2019re starting teaching after graduating college, say at age 22, this means you\u2019re going to retire around age 62. That might be right on for you, or 3 year early if you\u2019ve planning on age 65, or maybe it\u2019s even, oh I don\u2019t know, let\u2019s say 7 years too late if you were hoping to retire at age 55. <\/p>\n\n\n\n What do you do?<\/p>\n\n\n\n Easy \u2013 regardless of which situation you find yourself in, increase your contributions! If you can, that is. If you\u2019re ahead of schedule or on schedule, you obviously don\u2019t need to do this, but why not do it if you can? <\/p>\n\n\n\n The issue with FIRE, or Financial Independence, Retire Early, is that it implies that you\u2019re working so hard to retire early. I like to say just FI, or even financial autonomy<\/a>, and then do whatever I want. So maybe the acronym is FADWIW (Financial Autonomy Do Whatever I Want). Hmm \u2013 I don\u2019t like that acronym as much\u2026<\/p>\n\n\n\n But the thing is, you don\u2019t have to retire early. Maybe you love your job. Or, maybe you want to get to this point in life and then do a different job that is more fulfilling, or even start your own business! <\/p>\n\n\n\n This all starts with financial freedom, so the key to achieving this as early as you can is that it simply just opens more doors for you to decide later what you want.<\/p>\n\n\n\n So, let\u2019s go back to that example where you want to retire at age 55. You basically have three options:<\/p>\n\n\n\n You have the ability to do all of these, although the first two are indirect (if you can outperform the market with your investments or if you\u2019re a boss at your job and get promotions) but you\u2019re also limited to a product of the environment to a point.<\/p>\n\n\n\n The third way is 100% on you. Even if your employer match doesn\u2019t change, you can always put more in, up to $19,500 in 2020. So, let\u2019s do just that. I\u2019m going to increase the contribution by 1% and see how that changes the retirement date:<\/p>\n\n\n\n I know that it might seem daunting for you to contribute 13% of your salary to retirement, but if you can start doing this from day 1 then you\u2019re never going to know the difference. <\/p>\n\n\n\n If you start from the beginning, the difference of 6% and 13% on a $36K salary is only about $96\/paycheck assuming you\u2019re paid biweekly. And that\u2019s pre-tax! If you were to actually receive that money, it would probably be closer to $70. <\/p>\n\n\n\n The question is this \u2013 would you rather have that extra $70 every two weeks or have the ability to retire 7 years early? There is no generic right or wrong answer \u2013 it\u2019s 100% what is best for you, and that is why it\u2019s called personal finance!<\/p>\n\n\n\n I urge you to download the 403b calculator, play around with it a little bit, and see if you\u2019re on track for your goals. If you have any questions, please don\u2019t hesitate to reach out to me at andy@einvestingforbeginners.com<\/a>, and if you know of someone else that might benefit from this article, share it with them, or send them the link to my 401k calculator!<\/a><\/p>\n\n\n\n We\u2019re all in this together \u2013 good luck in your journey!<\/p>\n","protected":false},"excerpt":{"rendered":" Do you have a 403b? Isn\u2019t it frustrating how in the personal finance world always talks about a 401k but not your 403b? Don\u2019t worry \u2013 I\u2019m here to help make sure you\u2019re on track with a 403b calculator! First off, what even is a 403b? A 403b is very, very similar to the 401k […]<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[5948,5975],"tags":[],"yst_prominent_words":[2588,1661,1597,3781],"_links":{"self":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/10638"}],"collection":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/comments?post=10638"}],"version-history":[{"count":1,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/10638\/revisions"}],"predecessor-version":[{"id":20950,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/10638\/revisions\/20950"}],"wp:attachment":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/media?parent=10638"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/categories?post=10638"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/tags?post=10638"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/yst_prominent_words?post=10638"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/eor7ztmv4pb.exactdn.com\/wp-content\/uploads\/2020\/05\/b159p1.png?strip=all&lossy=1&ssl=1\")
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