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EdLaFave

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Everything posted by EdLaFave

  1. Krow, do you know why Vanguard doesn't offer a 457b or why SecurityBenefit's NEA DirectInvest isn't available as a 457b? It is unfortunate that aside from some state run 457b plans, the only low cost vendor seems to be Fidelity.
  2. I'm ambivalent on this topic. Clearly the "winning" solution is to have a single vendor (Vanguard or Fidelity) that offers just a core set of funds (total market index funds, target date funds, and maybe fixed allocation funds). The district would then auto-enroll teachers into a target date fund based on their age. They'd have the ability to opt out, select a different investment, or modify the contribution rate...but by default they'd be put on a path to financial success. The problem with a huge list of vendors is that it overwhelms people, but every district I've seen with a huge list will usually have either Vanguard, Fidelity, or Security benefit so employees have access to elite plans this way. The problem with a "small" list, let's say 5 vendors, is that in my experience they're often 5 financial predators. So teachers aren't necessarily overwhelmed, but they don't have access to an elite plan either. ...I'd clearly pick the winning solution, but short of that, I think I'd prefer to have a massive vendor list.
  3. If you're going to have a 403b with Vanguard, it is reasonable that you'd open an IRA with them too (use their website or call them).
  4. Let me start by commenting on the big picture: You (and everybody else) can contribute to an IRA, which gives you all the same benefits of a 403b, but with even lower fees. You can contribute up to $5,500 per year. In addition to a 403b, you also probably have access to a 457b. You can contribute $18,500 to each type of account per year. So if you're able to max out your IRA and 403b then you should start investigating your 457b options. I'll let others comment on the CalSTRS Pension...but if they do make sure you get quantitative answers rather than a generic "it's great" comment. I am not familiar with every single vendor on that list, but out of all of the vendors I've studied, you have access to the top 3, which are nearly perfect: 1a. Vanguard, which I documented here. 1b. Fidelity, which I documented here. 3. Security Benefit's NEA DirectInvest, which I documented here. I agree with Tony in that I'd enroll with either Vanguard or Fidelity. I briefly discussed both plans relative to each other here. I also agree with Tony that an all-in-one fund like a Vanguard Target Date or a Vanguard LifeStrategy is a superior choice for the majority of folks (especially novices). However, you can build a 3 Fund portfolio, which has lower fees and is equivalent to an all-in-one fund (which is 2-3 times as expensive). Since this is all new to you, you may want to read my Investing 101 page, which explains the basics including all-in-one vs 3 fund and picking the "right" amount of bonds vs stock.
  5. I think this line of thinking usually leads to the truth. I think it is at least partially true in some cases throughout our nation's school districts. However, I really believe ignorance and neglect are the primary reasons school districts often fail to add lower cost plans. For the school districts who have low cost plans and fail to remove high cost plans after being pushed to do so and being given the explanation for why it is best...well then I start to question motives more strongly.
  6. This is true, but can you explain why and under what circumstances Required Minimum Distributions (RMDs) are harmful? I'm under the impression, perhaps mistakenly, that RMDs only hurt folks who have other sources of income and therefore would prefer to leave their retirement accounts alone to continue growing tax free. For example, if somebody's taxable account was large enough that its distributions paid the bills then being forced to take an RMD would generate an unnecessary tax bill. Wouldn't this primarily affect the wealthy or those who've over-saved for retirement? Is your typical investor and/or educator likely to be negatively affected by RMDs? I'm too tired to do the math to determine which "burden" is larger: Using a Roth IRA and therefore paying tax at your highest tax bracket. Using a Traditional 403b and therefore taking an RMD without actually needing the money, paying a lower effective tax rate, and then presumably paying the yearly tax drag associated with re-investing that money into a taxable account. I suspect #1 is the bigger cost, but I'll defer to whoever has done the math. Unless I'm missing a technicality, I believe this is true. However, when you receive a bit of irregular income you could use that income to pay your bills, increase your contribution rate to your retirement account (403b, 457b, 401k, etc), and decrease the contribution rate when the irregular income is exhausted. This is essentially equivalent to contributing to a Roth immediately and although it may be a bit of a hassle, I think it is worth the favorable tax treatment.
  7. I'd like to see the data on sales reps' income and I'd like to break it down based on the number of years in the industry. I suspect the financial institution is always winning and I suspect there are some employees making great money and others who wash out because they can't rip off enough people fast enough. Even with "huge" percentages/commissions, if your "clients" have small balances then you need a lot of them.
  8. The only moral and ethical thing for @403bannuitysalesman to do is to find a new career that doesn't involve taking advantage of people. Anything less than that is a justification for their indefensible actions. They'll answer for themselves, but I suspect what they want from us is one of two things: They're a shark that embraces the immorality of their actions and therefore they enjoy messing with us. They're troubled by the immorality of their actions, but rather than stopping, they're seeking a rationalization, justification, or penance for their behavior by writing posts that condemn the very practices they willingly continue to engage in.
  9. jebjebitz, this really is a black and white issue. High cost annuities are always bad and I support you in doing everything you can to kill the sale of any such product. There are three types of annuity sales reps. The first is entirely ignorant. The second is a total shark that embraces the immorality. The third is somebody we’ve heard from recently who attempts to justify their immorality. ...but at the end of the day, all three affect teachers in the same way. All three exploít teachers and severely damage their retirement prospects. The world would be better off if there were a bunch of jebjebitz’s running around and forcing these financial predators into new careers. You’re looking for nuance and extenuating circumstances, but I have none to offer.
  10. I just wanted to quickly add that I believe a Roth account (IRA, 401k, or otherwise) is an inferior option for most people. I came to this conclusion because of the progressive nature of our tax code. That means with a Roth, every dollar is taxed at your highest tax bracket. However, with a Traditional, you get to fill up the lower tax brackets first. As a result, the Traditional account will likely have a lower effective tax rate. The only time I’d contribute to a Roth is if my highest bracket for the year is less than the tax bracket that I expect to be in during retirement due to the expected value of my Traditional accounts, pensions, and so forth. Most people are never or rarely in that situation. For a more thorough argument read this: https://thefinancebuff.com/case-against-roth-401k.html On the other side of the coin, I view this argument as an optimization that is far less critical than paying high fees and making behavioral errors. So I wouldn’t fret over it.
  11. Seeing as how your name is literally "annuity salesman", I assume you take advantage of teachers by selling them unnecessarily expensive and complex products. If all of the folks you "worked" with went with a low cost, self-directed option then I assume you'd be out of a job. I must emphatically state, nobody has to decide between making a living or ripping off teachers. That is a false choice. There are an almost endless number of ways to make a living without taking advantage of people, public servants in particular. If you're selling high cost products to teachers then you're a huge part of the problem...and the fact that you understand what you're doing makes it much worse.
  12. ...I think jebjebitz is talking about the FIRE folks who've reached retirement and therefore will have a lot invested, but won't have new money.
  13. Jebjebitz, there are folks who convince themselves of all kinds of mental gimmicks. Some believe in a magical rebalance bonus in the sense that they believe if they keep a percentage in bonds or cash and then rebalance into stocks during a crash that they’ll do better than an all stock portfolio. This isn’t mathematically correct because the bonus from “buying low” in a bad year is outweighed by the “drag” of owning bonds/cash during the many good years. Some believe in a “bucket” approach because they hate the idea of “selling low” to get money during a crash. Again, this isn’t mathematically correct because you’re stil selling just as much as you otherwise would have, but now you’ve got big chunks of your portfolio sitting in a bond/cash bucket creating a drag. You should think of your portfolio as the summation of all accounts, creating arbitrary subdivisions will increase drag, costs, complexity, and so forth. Some believe in a high dividend approach again because they hate the idea of selling stocks. They say to themselves if I own enough stocks that the dividends pay my bills then I’m golden forever. This isn’t how it works mathematically. When a stock gives you a dividend it also drops in value, which is functionally equivalent to selling some stock that doesn’t give you dividends (the latter may actually put you in a better tax scenario). Plus a stock can eliminate/reduce dividends at any time. All of these things that people do are just logical errors that make people feel good. The only key is to pick an asset allocation you can live with without doing something foolish and save up a massive amount of money such that the inflation-adjusted growth is greater than your expenses. Maybe your portfolio should be 33x your expenses, maybe it should be 50x, nobody can know. Then be ready to work again if you get a recession, or back-to-back recessions in the case of the 2000s, that drags your portfolio below a value that makes you feel comfortable. ...it is a stressful scenario because you never know if you have enough unless you accumulate so much that you almost certainly worked many more years than necessary.
  14. If they were to invest the full $5,110 on day one of each year and they got 4% real returns then when they turn 65 they'd have $584,649.80 dollars. At a 4% withdrawal rate that would support $23,385 per year. If you combine that with social security, I suppose that could support a modest retirement. ...I suppose their claim is technically true because if you assume 7% nominal returns they'd have $1,354,767 when they turn 65, but my suspicion is that people reading the $1,000,000 figure will think in terms of today's dollars and not tomorrow's devalued dollars. ...my calculations are rough because I lump summed each year rather than dealing with $14 each day and I'm not sure that 4% real returns is representative of an S&P 500 fund.
  15. I don't think this thread sets peoples' expectations in line with what is mathematically possible/probable and I believe that is always a harmful state of mind for folks to be in (even if it feels good initially). Let's look at a quick example: Here in Orlando a starting teacher makes something close to $40,000 and let's really quickly estimate some "essential" expenses: Taxes will be close to $2,000 (no state or local tax). Assumes they invest 10k in a traditional account to get a bit of a tax break. Assumes the standard deduction. Assumes the $250 teacher expense deduction. Completely ignores the expense of social security and medicare/medicaid because I'm lazy. Mandatory 3% pension costs about $1,000. You can't find housing for less than $13,500. Transportation, food, clothes, cell phone service, and internet cost roughly $6,500. Throw in another $6,000 for healthcare and all of the things I may be forgetting. Notice I've budgeted $0 for entertainment, vacations, pets, children, etc. That leaves you with just $11,000, but let's be extra generous and assume the following: The person manages to somehow invest $15,000 per year (36% more than we think they'll even have). The person starts investing at 23 years old. The person benefits from a 4% real return. Their inflation-adjusted portfolio won't be worth $1,000,000 until they're 55 years old. They'd have to invest $25,000 per year to hit the $1,000,000 by the time they're 46. Possible criticisms of my model: I didn't model a slowly inflation-adjusted increase in investing each year. It was too much work so I just gave them 36% more than I thought they'd have right off the bat. I didn't model the financial benefit you'd get from splitting housing expenses and such with a spouse/roommate. I also didn't saddle the person with kids...something quite a few teachers have. I didn't model home equity or the reduction in housing costs if you live there for 30 years. I also didn't model the full cost of taxes and I gave them a generous inflation-adjusted yearly return.
  16. I'm not surprised to hear that, which is part of the reason I say the only reason this continues is because employees allow it. I believe I would have quietly done the same thing as you, but they made it so painful and they behaved so "poorly" that it drove me to go much further than I ever really wanted to go.
  17. I haven't. Thanks for your responses. I'll add it to my queue, but unless I get more involved it might sit there for quite a long while ?
  18. Moe, my experience paints a more optimistic scenario than perhaps your post does. In my experience, the biggest driver behind our district's bad decisions was ignorance and inertia. When they were given proper information and a bit of prodding, they improved. I do believe the Third Party Administrators are corrupt and I found the union to be useless. However, I found the district to be a standard slow moving bureaucracy that has clear flaws but isn't operating with bad intentions. True, but districts will respond to employee requests and pressure. I suppose that is one of my central questions. Would a district need to abandon Omni (or any TPA) if they refused? It sounds like Omni can't refuse, which matches my experience in dealing with TSA Consulting Group. Of course the other central question is, if Omni relents and adds Vanguard/Fidelity, but the district or union doesn't want to pay it, can the individual investor pay it. It sounds like Krow says they can. That has not been my experience and my intuition tells me that anybody who has said that is either being lazy and/or is ignorant. I was literally the only person calling for reform and I wasn't even a district employee and I "won". I had TSA Consulting Group on the phone with the folks at the district and the VP of something or another at TSA Consulting Group acknowledged that they had to do whatever the district told them to do and while they may provide information, they do not make decisions. ...it sounds like you're talking from personal experience, I'd be interested to hear your experience in a bit more detail (my apologies if I've forgotten it from an earlier post).
  19. You're right. I was just alluding to the end result rather than the hope/desire. @403bannuitysalesman confounds me a bit and I've always wondered if they're just trolling...something I contemplated in this post. I hope they feel free to post, but at the same time I question their intention and can't engage too seriously with their posts.
  20. Your advisor should be ashamed, not you. I politely disagree. We should unapologetically rage against and refuse to accept even a hint of victim blaming. This is the fault of exploítative financial institutions and their predatory employees. This is exacerbated by school districts’ and employees’ ignorance, which is in part due to the financial industry spending unimaginable sums of money to convince us we could never understand investing. Now it is our responsibility to help our peers. While it may be the reality, it isn’t reasonable to build a society where the individual has to study and become an expert on every aspect of their life because everybody is trying to exploít them. At some point trust is necessary and nobody is wrong for resorting to trust at certain points.
  21. Theoretically I suppose you could justify a low cost annuity. However, I can't justify anything with 2% - 3% yearly expenses.
  22. Could the district or the TPA structure it so the fee comes from each individual who is enrolled? I ask because I want to know if an argument can be made to the district that this won’t hurt them financially, it’ll just help the employees.
  23. 403b Your best option is clearly Security Benefit's NEA Direct invest. I documented that plan here. I documented the steps I went through to enroll in OCPS (FL) here. After 30 years of investing with 3% real returns, the fees will eat up 2.77% of your real profits. Your second best option is Aspire. I documented that plan here. After 30 years of investing with 3% real returns, the fees will eat up 9.02% of your real profits. Do you have access to a 403b? IRA/HSA Make sure you and your spouse are maxing out your IRAs. If you have a high deductible qualified insurance plan, make sure you're both maxing out your HSAs. 457b You gave us a lower bound on the expenses, but you didn't tell us exactly how much the 457b costs you. Obviously at a certain point the extra costs outweigh the tax benefit. This is a function of how long until you can roll it over to a low cost IRA, the current tax code, projections of future tax codes, and your income. Depending on those figures/assumptions, a taxable account may be preferable. If it is in your best interest and you want to go out of your way to minimize the costs, you can back-load your contributions so you still get a full $18,500 into the account, but you don't pay fees on that amount until the very end of the year. Does your wife has access to a 457b?
  24. The Bogleheads have enumerated the funds you should use to construct a 3 Fund Portfolio for each major institution (Vanguard, Fidelity, Schwab, etc). Check it out here. If 3 funds isn't your thing, you can always stick with an all-in-one fund which internally holds those individual funds. They come in two variants: Target Date and Fixed Allocation. ...investing isn't complicated, complexity is a "financial innovation" aimed at convincing you to unnecessarily hire somebody.
  25. I'm not terribly familiar with Omni as a Third Party Administrator (TPA), but they have something called the Preferred Provider Program, which does NOT have Vanguard and Fidelity. If a district uses Omni as their TPA, will Omni only allow the district to use the vendors on that list? Can a district demand Vanguard or Fidelity be made available to them?
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