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Considering Retirement Savings Options In Maryland

403b Lincoln Financial Group

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#1 cadwaj

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Posted 17 March 2017 - 07:23 PM

My wife and I are both teachers in Maryland.  Our only option for 403b investment is Lincoln Financial Group (www.lfg.com).  The annual fee has been 0.43%, but we were recently informed that it will be reduced to 0.31%.

 

I am currently enrolled in the “Aggressive” model portfolio because I have at least 20 more years before retirement, and I plan to switch to “Moderate” and “Conservative” model down the road.  But, I do have the option of switching to a Morningstar advisor managed portfolio.  My current portfolio balance is:

 

·          AM Fds EuroPacific Growth 24.00%

·          Vanguard 500 Index Admiral Shares 13.00%

·          Blackrock EQ Dividend I 11.00%

·          JPM Small Cap Equity 10.00%

·          Jhn Hnk Disciplined Val Mid Cap Fund R6 9.00%

·          MFS International New Discovery R6 8.00%

·          Vanguard Total Bond Market Index 6.00%

·          Other 19.00%

 

In four years, I have contributed $11K, my current balance is $14.5K, and I have paid $95 in fees and expenses.  I think we have a good 403b program, but I want to get some input. 

 

Should we stick to the plan, or see if I can get access to other options (TIAA-CREF, etc.)?

 

Would it be wise to switch to the Morninstar portfolio? (I am not sure what the investment mix looks like)

 

We currently put half of our contributions into a standard 403b and half into Roth 403b.  Should we consider contributing more heavily to one or the other?  We both participate in Social Security and have a state pension plan.

 

We also have access to 401a and 457b plans.

 

Thank you,

Joe



#2 tony

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Posted 17 March 2017 - 09:12 PM

Joe

 

On first appearance it seems you have mostly managed funds and two index funds. You also may have a few loaded funds in the mix but you did not list the class share so that info is unclear. Also 19% is an awfully large "other". Can you be more specific please.  It is hard to evaluate your portfolio with  such a large percentage of missing information

 

This was set up by an advisor / salesperson right?  It looks like it to me.You seem to be diversified with a hefty position in International issues at 30%  You also have some value tilt in your large caps and mid caps.

 

This is a very aggressive portfolio if that 19% is not in cash. Does that annual fee include all underlying expense ratios?  Are you sure?  I would check to see if you are paying manager fees, and  loads in addition to expense ratios. Did you read your contract and prospectuses?

 

This portfolio could be successful but I would check how those managed funds do against their index over a 10 year period. If they did not outperform their respective index you might be better served going all index funds. I will bet you that will be the case. Vanguard website allows you to do that comparison. 

 

Bogle recommends your age in bonds. While I don't adhere to that strictly I think you may be under-represented in bonds. Because interest rates are rising, that may seem smart now but if the stock market crashes your portfolio could lose 40-45% of its value. Can you handle that?  IF the answer is No I would add more bonds. Again a lot depends what that 19% other is all about.  

 

Going 50/50 Roth/tax sheltered 403b is acceptable and I think smart.

 

Hope this helps

 

Tony



#3 krow36

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Posted 17 March 2017 - 10:25 PM

Joe, welcome to the forum! I think there’s some missing information that would aid in answering your questions. What are your ages (about 45?). What is your income tax bracket? What is your desired asset allocation? About how much can you contribute to your deferred income accounts? Does the 401a account provide an employer contribution? Do you have to match it to get it? Who is the provider of the 457b plan? What are the funds offered in the 457, and their ERs?

 

Can you copy and paste all the funds you can use in the Lincoln 403b? I agree with Tony. We’re very keen to reduce costs on the forum because that reduction goes to us rather than the vendor. Most of us try to keep managed funds to a minimum and use broad-based index funds for most of our portfolio. I assume your present “annual fee” of 0.43%, going down to 0.31%, is in addition to each fund’s expense ratio? Please edit your post to supply each fund’s ER. 

 

You say that the only 403b plan you have access is the Lincoln Investment Group’s 403b. But then you mention getting access to TIAA or ??. Most school district’s have a number of providers of 403b plans than can be chosen by employees. Does your district have a list? It’s usually found on the district’s website at the HR or business office. If you district has selected a single provider and it’s Lincoln, that’s unusual, but actually very admirable. Assuming that there are some good low-cost index funds available, and we see two!

 


#4 MattP

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Posted 18 March 2017 - 07:50 AM

Joe, first off, congratulations on accumulating over $14,000 in 4 years in your 403b. These 403b contributions, in conjunction with your Maryland state pension and Social Security, will provide you with three potential sources of retirement income. As far as your 403b portfolio . . . I could not find an exact match on 403bcompare.com. However, I am pretty sure there are other fees to this account. If your district plan is similar to mine, this 0.43 annual fee is just the first layer of "Administrative" fees. You may then paying Lincoln Financial Group somewhere in the range of 1% -1.25% (I was paying MetLife 1.15%) to "manage" your money. Finally, you are paying an expense ratio to each of the actual funds you invest in. Here are the possible expense ratios I found using 403bcompare.com, my own district's info, and looking at the fund's prospectus:

·          AM Fds EuroPacific Growth - Expense Ratio 0.49 - 1.14%

·          Vanguard 500 Index Admiral Shares - Expense Ratio 0.05

·          Blackrock EQ Dividend I - Expense Ratio 0.99 - 1.44%

·          JPM Small Cap Equity - Expense Ratio 0.86 - 1.26%

·          Jhn Hnk Disciplined Val Mid Cap Fund R6 - Expense Ratio 0,77%

·          MFS International New Discovery R6 - Expense Ratio 0.96 - 1.37%

·          Vanguard Total Bond Market Index Expense Ratio 0.06% Admiral Class - 0.16% Investor Class

 

(Side Rant: I was surprised to see the range in some of these funds expense ratios. I get that some of the funds have Class A, B, and C shares, but in some cases I think I was comparing B shares to B shares. The prospectus gives one number, 403bcompare.com gives another, and different vendors give different numbers. Does anyone know why? Are the Vendors "marking up" these funds? How can that be legal? After spending several hours looking for the "correct" information on fees, I am more confused and frustrated by the lack of transparency regarding this issue! I need some aspirin, a nap, and possible therapy.)

 

Joe, I would not be surprised if your total fees are in the 1% - 2% range. I hope I am wrong, and that you really are only paying 0.43% in fees. If you are, this is one of the best plans out there.



#5 tony

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Posted 18 March 2017 - 09:26 AM

Great post Matt keep up the good research for us. I had the feeling Joe wasn't getting what he thought he was getting. Its amazing how difficult it is to track down the true amount of fees in many plans the customer pays and how salespeople won't disclose the truth or simply don't really know themselves. When fees are not a selling point why mention them. Totally unfair.

 

 

I think maybe you are finding different fees i because fees change often and  sometimes they don't get updated .Yes it must be legal to tack on fees for service . If it wasn't legal these companies would not be doing it. These companies are large enough to have a legal team that advises them. Unfortunately these companies aren't really working in the best interest of their customers first . They are working in the best interest of themselves first then  maybe the customer.  Thats right. In the long run the companies get the goldmine and we get the shaft. Our best hope is Vanguard, a company that can put its customers first and still survive and pay its people.

 

Tony



#6 cadwaj

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Posted 18 March 2017 - 02:05 PM

Thank you for you input.

 

My wife and I are 33 and 32.  I should clarify that when I said we are “at least 20 more years before retirement,” I meant possibly retiring from teaching in 20-25 years and finding other work to get us through to full retirement age.  Our age makes me feel secure in being able to take a big hit from the market now and having time to recover before retiring. Additionally, our portfolio automatically adjusts to become slightly more conservative each year, to add security as we approach retirement.

 

Here is the fee breakdown that I found online (We are not invested in Ivy Mid Cap Growth I or Janus Triton I, but those are option):

 

Investment Name

Gross Fee Per $1000

Asset Class

 

Am Fds Europacific Growth

$5.00

International Equity

 

Blckrck Eq Dividend I

$7.20

U.s. Equity

 

Dodg Cx Income

$4.30

Taxable Bond

 

Ivy Mid Cap Growth I

$10.00

U.s. Equity

 

Janus Triton I

$7.80

U.s. Equity

 

Jhn Hnk Disciplined Val Mid Cap Fund R6

$7.70

U.s. Equity

 

Jpm Large Cap Growth R6

$6.10

U.s. Equity

 

Jpm Small Cap Equity

$8.70

U.s. Equity

 

Mfs International New Discovery R6

$9.60

International Equity

 

Pimco Total Return Inst

$4.70

Taxable Bond

 

Templeton Global Bond Fund Advisor Class

$7.10

Taxable Bond

 

Victory Sycamore Small Company Opp

$9.70

U.s. Equity

 

Vnguard 500 Index Admiral Shares

$0.50

U.s. Equity

 

Vnguard Inflation Protected Secs Adm

$1.00

Taxable Bond

 

Vnguard Mid Capitalization Index Adm

$0.80

U.s. Equity

 

Vnguard Total Bond Market Index

$0.60

Taxable Bond

 

I’m not sure is the above fees are part of our annual fees, but I do not think they are since they vary by fund, and our annual fees are set. I just sent an email to Lincoln Financial to see what they say. How do I find out if there are other fees?

 

When we signed up, we met with a representative from Lincoln Financial, who seemed like a salesman. He gave up the options of aggressive, moderate or conservative, and we chose a target retirement date, which determines the rate at which the portfolio becomes more conservative.  I didn’t feel like he was trying to steer me into any particular option.  I don’t recall having the Morningstar-managed option when we enrolled, but it is an option now.

I do not know much about the 401a or the 457b, but there is no employee match.  There used to be for the 403b, but it is no longer offered. Lincoln Financial Group is the provider of all three options.

We were only presented with the option to participate with Lincoln Financial Group by our employer.  I am not sure if I can purchase through other companies or not.

 

I hope this additional information is adequate. 



#7 krow36

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Posted 18 March 2017 - 04:07 PM

OK Joe, thanks for listing the mutual funds you can choose from in your school’s plan with Lincoln. The fees you listed are usually given as a percent. The Vanguard 500 Index (Admiral class) fee of $0.50 per $1000 is usually given as 0.05%. This makes it easier to figure out what you are paying in ER fees each year. You will have to add 0.31% to all the ERs, so the total fee for VG 500 Index is 0.36% and for Blkrk Eq Div it’s 1.03%. 

 

If you had 50k in each of these funds, you’d pay $515/yr for the Blackrock fund and $180/yr for the VG fund. The difference of $335 is going to Blackrock every year instead of staying in your account and growing at the compound rate of the market growth. You don’t need a fund that focuses on just dividends because those companies are included in the 500 Index fund based on their market capitalization (size). 

 

If I were you I would use only the Vanguard funds. The 500 Index fund covers about 80% of the US stock market. You could add some VG Midcap fund or not. The other mid and small cap funds are too expensive. The VG Total Bond Mkt fund ER 0.06% is excellent. I would skip the international stock funds—they’re all too expensive. Using just these 2 or 3 index funds, you will be saving $100’s, and eventually $1,000 as your balance grows. Have you decided on what you want for your asset allocation—the stock to bond ratio? What are your thoughts on your AA? Is the "Other, 19%" part of your Lincoln 403b? 

 






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