Jump to content
bWise Forums
Kevin P

403(b) Choices

Recommended Posts

Thanks Tony. Give 403bcompare.com a lot of the credit. It may only apply to CA for sure, but still.  And the BH forum where good 403b things turn up every so often! And I have learned a lot from your posts, not just the links which I do read! 

Sometimes I wonder if it's a case of "Fools rush in . . . ." (For me, not you!)

Share this post


Link to post
Share on other sites

I agree with Tony.

You, krow36 have been a huge addition (and badly needed) to our tiny community. 4,000,000 highly educated educators at all levels of the public k12 education world and the same few people come here (and a few have spouses in education) and try to reform the horrific 403b world. Talk about an esoteric topic! 

Share this post


Link to post
Share on other sites

Thanks Steve, it’s great to be able to contribute to the cause!

I’ve looked up the expense ratios of the funds and added them to Tony’s good work.

LGLAX-Lord Abbott Growth Leaders Fund Class A  Large cap growth, ER 0.95%, LOAD 5.75%

FDBAX-Federated Bond Fund Class A Shares Corporate Bond, ER 0.86%, LOAD 4.5%

GFAFX-Growth Fund Of America Class F-1 Large Cap Growth, ER 0.70%, NO LOAD

FKINX-Franklin Income Fund-Large Cap Growth - Bond Allocation, ER 0.62%, LOAD 4.25%

STIAX-Federated Strategic Income fund-Large Cap Stock -Bond Allocation, ER 0.97%, LOAD 4.5%

PGSGX- JPMorgan Small Cap -Small Cap Fund, ER 1.32%, LOAD 5.25%

0SGIX-JPMORGAN Mid Cap Growth -Mid Cap, ER 1.24%, LOAD 5.25%

SAMCX-Saratoga Moderately Aggressive Balanced Fund-Large Mid cap -Small Cap, ER 1.24%, LOAD 5.25%%

PSOAX-JPMORGAN SMALL CAP VALUE FUND-Small Cap, ER 1.24%, LOAD 5.25%%

FBTAX-Fidelity Biotechnology Fund-Large-Mid-Small Cap, ER 1.25%, LOAD 5.75%

You are at a disadvantage in trying to improve your wife’s 403b. First of all, it’s her account, and it’s up to her to make decisions on it. Maybe you can do some of the necessary investigation for her? I know from first-hand experience that teachers don’t have much extra time or energy for what she needs to do.

This advisor has loaded up her 403b with very expensive load funds and then on top of that is charging her 1.25%. That adds up to over 2% in annual fees not to mention a load of about 5% on average. This is a huge drag on on value over time of her account.

She needs to get out of the advisor relationship and into a 403b plan that allows her to invest in no-load, low-cost, diversified index funds. She can contact a Lincoln Investment office and find out what Lincoln plans are possible for her. The Participant Directed plan would be outstanding, but Lincoln Investment’s other mutual fund based 403b plans could be much lower cost than what she has now.

Share this post


Link to post
Share on other sites

Kevin P, to help you and your wife get a longer term perspective on saving for retirement and the investment fees involved, I suggest you play around with this calculator.  https://www.360financialliteracy.org/Calculators/403-b-Savings-Calculator3?fpath=197

First calculate the “Percent to contribute” by adding up the payroll deductions per year and divide that by “Annual salary”. If the loads on those funds average say 5%, you should subtract 5% from the “Percent to contribute” line.

Her “Annual investment fee” will be the average expense ratio which looks like around 1% plus the advisor fee of 1.25%, for a total of around 2.25%!

Then do the calculation with no loads, and an "Annual investment fee" of 0.1% or 0.2% which is the ER of Vanguard index funds. The difference in results should help motivate you and her to get into a lower cost 403b plan. You can use the same calculator on your SEP IRA.

Share this post


Link to post
Share on other sites

There are many ways to show how devastating those high-cost funds can eat into your final nest egg.

Below is a table I created that shows the HUGE differences in prices between a 1.95% vs. a low cost .35% on various sample portfolios.

The differences in the table represent ONLY ONE YEAR!

Over time these differences will be devastating.  

Various Costs 1.95% vs. .35%.JPG

Share this post


Link to post
Share on other sites

The chart is clear.

 How cleverly these folks  are able to hide the damage they are doing to your portfolio so that  unless you are an astute investor you may never know the damage is even being done! And, those high fees come out of your account regardless if the market is climbing or falling . I've known some pretty smart math teachers that didn't even have a clue. I had to point it out to them and I stink at math.

To me, now, even .35% is too darn high. I average 0.8% expense ratio. It just makes me sick to think how the "caring"  financial industry claims to be there to " help us reach our financial goals". In too many instances it all about lining their own pockets. How disingenuous and dishonest. I don't ever remember ever dealing with an advisor that totally disclosed their fees, how they are paid, and how expense ratios work. Not one.

 

 

 

 

'

 

 

 

;

'

 

 

 

 

 

 

 

 

 

Share this post


Link to post
Share on other sites

Tony, I think you left out a zero!?

Steve, your table is impressive, and I've used similar tables to get folks' attention on fees. It's simple and easy to understand but it's based on the fees of a given principal. It may not be applicable to younger investors with small balances. I really like the calculator I linked above because it shows the effect of fees over time. Not just any time, but time left to retirement!

It takes in to consideration current balance, continuing contributions, ERs, front-end loads, advisor fees, etc. It should attract the attention of anyone still working and contributing to their retirement every pay period. 

Share this post


Link to post
Share on other sites

I did.  Correct to 0.08%

Well, I did state I was bad with math. Decimals put me in summer school and got me hit on the head a few times as  kid going to catholic school run by ferocious  nuns.

Share this post


Link to post
Share on other sites
18 hours ago, krow36 said:

Tony, I think you left out a zero!?

Steve, your table is impressive, and I've used similar tables to get folks' attention on fees. It's simple and easy to understand but it's based on the fees of a given principal. It may not be applicable to younger investors with small balances. I really like the calculator I linked above because it shows the effect of fees over time. Not just any time, but time left to retirement!

It takes in to consideration current balance, continuing contributions, ERs, front-end loads, advisor fees, etc. It should attract the attention of anyone still working and contributing to their retirement every pay period. 

Hi krow,

Not sure why you have to explain your calculator to me, and that your calculator does more than my table. Well, yes, of course, the calculator does more! I simply created my table as another way to display costs, which we all know is purposely opaque, vague, complicated, and understated by most financial advisers. Our readers need all of the displays possible because most people do not fully comprehend the damage to the final nest egg of costs over many years. 

As Taylor at Bogleheads has famously said for 20 years, "There are many roads to Dublin." 

Have a great day,

Steve 

Share this post


Link to post
Share on other sites

My comments on the calculators were aimed at Kevin P and anyone else that hadn't played with the type that allows those kinds of inputs. I was addressing the lurkers, I guess.

I was hoping that Steve, Tony, Kevin P and anyone else would give us feedback on it. Maybe I'm mistaken in thinking it's a very useful motivational tool? Maybe someone knows of a similar, better tool that has even more inputs for a more accurate prediction? 

Steve's table is great and directly applicable to those of us who are retired with our nest-egg that has to last. "My" calculator is directly applicable to those still working and contributing to a high-cost nest-egg. Or am I wrong?  

Share this post


Link to post
Share on other sites

Hi Krow36,

Of course, you are not wrong. Nobody is wrong. You asked for feedback about the calculator. But so what if I think its too complicated because of the assumption that lurkers know ERs, front-end loads, and adviser fees. But that doesn't mean that you should stop inserting anything because of what I or anybody else said. I am certainly am not going to stop putting up more tables as I create them, and you should not stop putting up calculators. 

Two well-respected posters objected to the quarterly reports and the returns we made because it focused on short-term thinking (http://board.403bwise.com/topic/6795-q1-ytd-return/). I just think people need to understand how properly balanced full diversified low-cost portfolio work. It might help people not to get spooked when the market starts acting up like it had since the beginning of 2018. I am still going to keep posting the quarterly reports, the returns YTD, my costs and to show people that I have not changed a single investment just because the market is acting up. I have data going back 24 years because of the quarter by quarter returns which slowly turn into years and then decades. 

Look, we are all on the same mission, to get the attention of more of our public K12 colleagues to take another look at their hastily and aggressively sold commission laden plan: TSA or indexed annuity.  

Keep on posting krow36. You have improved the quality of the information on this forum big time.

Steve

 

 

Share this post


Link to post
Share on other sites

Hey all, apologies as I have been away for a little while. I appreciate everyone's feedback on this. Krow - I'll be on later playing with the calculator. 

So, in addition to the loads and fees of the funds, he still gets his 1% as well. Not only that but one of the funds (Lord Abbett Growth) has a Premier Renewal fee. I have no idea what that is, but it was $90 each of the last 2 quarters. All in all I guesstimate this is costing her about $1000 a year, and she's putting in $4000. So enough of that guy. Obviously need to get away from him. Even if we ask him to put everything into a Vanguard fund he's still gonna rake his 1%.

I remember seeing something about Lincoln's PDP. Does anyone here have any info on that? Is there an easy way to get this accomplished? Has anyone gone through it?  

 

Again, I can't say thanks enough for the help with this. 

Share this post


Link to post
Share on other sites

With only the 4 403b providers (Lincoln Investment, Legend, AXA and VOYA), I think your best bet is either a better plan with Lincoln Investment, or possibly the Legend plan that has Vanguard funds? I posted about the Lincoln Investment PDP on April 19. There has been 1 or 2 posters in NY that were allowed to use the PDP although it’s mainly for NJ districts. As explained, it involves getting permission from a regional office.

As you have pointed out, your wife is paying at least 3 fees with her current Lincoln plan that are seriously hurting her returns:

Load fees of 4.5% to 5.75%. This reduces her initial contributions by that percent.

Advisory fee of 1.25%, applied to her balance.

Expense ratio fees of 0.62% to 1.37%, applied to each fund’s balance.

There should be a phone # that she/you can call about fees, including the Premier renewal fee of $90/Q??

She/you needs to find out what “Platforms” Lincoln offers her district. Is the Premier Platform offered and if so, what is the management/wrap fee? She/you needs to find out the list of funds she can use, their ERs and whether they have loads. It’s possible that the “Advisory fee” is optional. See if it can be dropped.

Can you give a link to the Legend 403b plans available in her district? I see that in CA, the Legend Freemark has 7 low-cost, no-load Vanguard index funds, Admiral class, with a management/wrap fee of 1.25% to 2.25%. She/you need to find out if the Legend plan with Vanguard funds that you mentioned has a management/wrap fee, and if so, how much is it?

I don’t think you’ve provided us with her district’s 457 vendor list. Is there one? The NY state 457 plan is certainly much better than her 403b options. If she doesn’t have it, she should ask for it! Teachers can contribute a maximum of 18.5k to both a 403b and a 457 account.

 

 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×