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EdLaFave

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Everything posted by EdLaFave

  1. I'm not sure you asked any specific questions so here are few thoughts: 1. Are you sure you'll only have a single vendor, Lincoln, for your 403b? Most employers give you at least a few options. If you're stuck with Lincoln then look into whether or not you have access to their self-directed plan. Search this form, it has been discussed. 2. Lots of folks with access to a 403b also have access to a 457b. Find out if you do because it may have better options. 3. When the employer switches vendors do you know what options you have for the money currently in the "old" vendor? Keeping it in the old vendor will probably be expensive. Moving it into the new vendor might save you some on fees. Or you might have the option to roll it into an IRA, which will clearly save you the most on fees, but it may make a Backdoor Roth less desirable if that is something you might do in the future. Figure it out what you want to do with this money. 4. Expense ratios are critical, but you should be equally concerned with any fee regardless of what it is named. Often times there are "loads" which is essentially a sales tax you pay to the person selling you the investment, I refuse to pay loads. Often times the vendor will charge you some kind of Assets Under Management fee, which is a percentage of your entire portfolio...this is really important. Other times the vendor will charge you a flat fee per year to have an account, often times you can't get away form this, but you want it to be as little as possible. There are other fees, but my point is to be aware of everything, not just expense ratios. 5. I support the 3 fund portfolio so if you've got Vanguard Total Stock Market (maybe VG Institutional Index is a stand-in), Vanguard Total International Market, and Vanguard Total Bond then you'll have a fully diversified portfolio with low costs. 6. I can't remember the catch-up rules so maybe 20k isn't maxing out the 403b for you, but for most people it is $18,500. 7. Deciding how much money you need to retire is tricky. I'm not sure I'd rely on TRA Retirement Tracker. Personally, I'm aiming for 33x annual expenses, but our circumstances/preferences may differ. ...you might want to read my Investing 101 page for my general view on these topics.
  2. I basically second everything Tony said. I don’t see the need for adding small cap or extended market (#4) to the total stock market fund, but there are plenty of folks who like to do that. If you aren’t interested in the 3-4 fund portfolio and prefer an all-in-one fund then I agree with Tony that you should consider a target date fund. However, you might also want to consider the LifeStrategy finds as well, they’re just like the target date funds except their allocations never change. You may want to consider reading my Investing 101 page. It includes everything I think investors should know (minus an explanation of the tax code and various types of accounts), it's only a couple pages, and I tried to write it without assuming any knowledge on behalf of the reader.
  3. This is a huge problem. Ultimately districts do not care about retirement plans and prefer to outsource that work to a Third Party Administrator. I think my reform effort was successful because I got the school board chairman to care. I think our job boils down to getting people to care and I really wish we could convince employees to care because that would change everything.
  4. If this isn't public knowledge we (the 403b/457b community) should dive into exactly why Third Party Administrators promote high-cost vendors and diminish low-cost vendors. Do Third Party Administrators get a cut of the profit generated by high-cost vendors? Are folks at the Third Party Administrators paid off in a more "under the table' fashion? Is it a more subtle physiological flaw, similar to how doctors are more likely to prescribe a medication if a pharma rep takes them out to a single dinner (something that essentially has no monetary value to a highly paid doctor)? In the same way folks from Wall Street go back and forth between Wall Street and government positions, do folks from these vendors go back and forth between the vendors and the Third Party Administrator? I can observe that the Third Party Administrators are behaving exactly as a corrupt player would, but I'd like to know the exact nature of the corruption? In my view, this is what would have made for a good entry in the New York Times series on 403b/457b plans.
  5. Full disclaimer, I didn't watch the clips. Having said that, many of the listed topics aren't for beginners and even worse, lead investors down a road to bad decisions (alpha for instance).
  6. I know most people come to these boards for help picking out a 403b/457b, but a subset of those people will go on to lobby their district for reforms. I don't want that subset of people to be unnecessarily discouraged from lobbying for the very best vendors. I think some of these claims about Vanguard/Fidelity being difficult to add are now outdated. I have zero data to suggest that Vanguard and Fidelity have been blacklisted by TPAs. In fact, all of the data I have suggests otherwise: TSA Consulting Group is a massive Third Party Administrator. They might even be the largest, look at all the districts they serve. TSA Consulting Group has not blacklisted Vanguard and Fidelity because both are available in districts throughout my state and I'm unaware of any district asking for Vanguard or Fidelity and being told no. As far as I know, a Third Party Administrator has absolutely no power to blacklist anybody. The Third Party Administrator serves at the pleasure of the school district and must do what they're told to do by the school district. Many years ago (maybe 10ish?) there was some kind of regulatory/requirements issue that led to Vanguard (and possibly Fidelity) being dropped from many vendor lists. As far as I know that issue wasn't created by a Third Party Administrator and both Vanguard and Fidelity are now in full compliance with whatever this issue was. Anecdotally, I want everybody to understand that I was able to get both Vanguard and Fidelity added to the vendor list of OCPS (FL). As far as I'm aware, my only hurdle was to convince the district that it is in their best interest to add Vanguard and Fidelity. As far as I know, once they made that decision they faced no regulatory/blacklist/etc hurdles in adding Vanguard and Fidelity. It was simply a matter of wanting to add Vanguard/Fidelity, not overcoming obstacles once that desire was in place. Having said all of that districts will tend to rely on the "expertise" of a Third Party Administrator and generally speaking (certainly in the case of TSA Consulting Group) the Third Party Administrator will be inclined to speak favorably about high-cost/unethical vendors and unfavorably about low-cost/ethical vendors. That is a hurdle you'll have to overcome. However, I have a hard time imagining that hurdle is lowered for Aspire and their 0.15% fee when the Third Party Administrator could show favoritism to plans like Plan Member Services' Elite plan, which charges roughly 2%. ...bottom line, if you're going to work towards reform then push for Vanguard and Fidelity first and foremost and only settle if you truly need to (I don't think you'll need to).
  7. I unaware of any reason that Vanguard or Fidelity would be more difficult to add than any other vendor. However, I do agree that Aspire is a quality alternative to Vanguard, Fidelity, NEA DirectInvest, etc. Because I prefer quantitative answers over qualitative answers, Aspire charges an extra 0.15% per year. If you assume a 3% real return, the 0.15% fee eats up 5% of your real profits after one year and 6.54% after 30 years. Adjusting for inflation, if you invest $8,000 every year then after 30 years you will have lost $9,945.96. I don't find this to be egregious, but I do think it is unnecessary and I'd prefer investors keep their money.
  8. I'm not sure how much you're investing every year, if it is equal to or below the IRS limits for an IRA ($5,500 per spouse) then just stick with the IRA. Lincoln has a self-directed option for certain locations (NJ is one I think). Search the form it has been talked about several times...this is the first result. AXA is awful and I don't know about Waddell & Reed (but the odds aren't good). I'd make sure it is true that you only have 3 options, usually there are more. The 457b has slightly different rules than a 403b, you can google that. Usually it is reasonable to pick the plan with the lowest cost regardless if it is a 403b or 457b...if each route has identical costs then you may choose based on the slightly different rules. I can't remember the exact fees for the self-directed Lincoln plan. I'm guessing it is relatively good, but you'd probably still benefit from getting your district to add Vanguard or Fidelity. I view Aspire has a 2nd tier option because they add on fees that you could avoid by going directly to somebody like Vanguard or Fidelity.
  9. Oh I know that and we appreciate it ?. I was just speaking generally.
  10. You left out the next few lines, "Yet, as Bank of America details in their 2018 report, these perceptions may be as outdated. Millennials are saving at the same rates as Generation (“GenX”), more Millennials have a savings goal than other generations, and Millennials feel more financially secure than GenX." Older generations like to trash Millennials, often based on second/third hand anecdotes, without any statistical data, and with inaccurate hindsight of their own generation. When it comes to financial matters, I think Millennials are increasingly coming to the conclusion that the economy is built to perpetuate and exacerbate income inequality, meritocracy is a myth, and companies view them as nothing more than a line in a spreadsheet. Everybody I know who is striving for financial independence buys into these ideas with varying levels of conviction.
  11. I try to tear down financial taboos in every conversation I have. I think it is helpful to remind people of two things: 1. You are not the things you own or the size of your wallet 2. Meritocracy is largely a myth; your bank account isn’t indicative of your human worth or your ethics/values. I think if people believed those two points we’d all be more likely to talk about money and we’d all be better for it. ...I also think a lot of parents simply don’t know about financial topics because they never had the money to “learn on the job” so to speak. For example, why would a life long renter know that mortgages front load the interest and have huge up front costs? Schools need to play a role here.
  12. I don’t want to ask for information that is too personal, especially on a public forum, but I’m really quite interested in how your son is experiencing his entry into the career/financial world. So I’d like to read what you’re able to share. Is spending high on frivolous things? Has he done the math to see how much he needs and is wildly discouraged? If so is his discouragement justified by the reality? Is he just generally distrustful of the entire system? I’m always fascinated by the philosophy and psychology of people as they’re becoming immersed in this world and I think the younger the person is the more likely they are to be right...but sometimes they end up at a wildly destructive conclusion like abandoning saving at all.
  13. MoeMoney, you and I are fairly closely aligned. Defining the wealth necessary for financial independence is tricky because there are so many unknowns. I view it as a spectrum which ranges from a little risky to very safe. If the economy doesn't crash or slow significantly then at the end of this year (34 years old) I'm going to hit my first milestone on that spectrum and in about 3.5 years (37 years old) I'm going to hit the last milestone on that spectrum. I will have dedicated 15 of my best years to something that not only failed to bring me joy/fulfillment, but brought me a good bit of stress/negativity. The trade-off will allow me to purchase my freedom, which I'll be quite happy to have. However, it came with a cost that prevents me from being too "excited". At the same time, I understand I'm extremely fortunate because most people will spend their entire lives, not 15 years, and lots of people will truly struggle. I do want to make an important point. Highlighting and lamenting the fact that it'll take many people many decades to reach financial independence is meant to match expectations with reality because when those two things aren't in sync bad things happen. It is not a suggestion to pursue get rich quick schemes because that is going to make the situation worse. It is not a suggestion to not save at all because that is going to make the situation worse. Making regular contributions to low cost, well diversified investments is the only path forward. I think it is useful to accurately understand how challenging something is, but you still do the best you can simply because you have no other choice. For a huge number of Americans, that is the situation they face in our economic system. Tony, I think things absolutely are tougher than they were in the past. Lifespans have literally begun to drop and income inequality is at an all time high! If we're speaking generationally, I think baby boomers (who fondly remember paying for college with a summer job) are entirely out of touch with the conditions younger generations are facing.
  14. The tyranny of compounding costs.
  15. I’m not terribly knowledgeable about non-deductible contributions to Traditional tax advantaged accounts. On the face of it, it seems like a useless thing to do...why not just go Roth directly? I know people use this technique as part of a Backdoor Roth where they follow up the contribution with a conversion to Roth...only folks who earn too much to contribute directly to a Roth need to do this. I’ll let others answer your questions because it is just something I haven’t hand to face.
  16. I suppose we've reached the heart of the disagreement here. I like when arguments reach this point. :)
  17. Thanks for your nice words. You should leave a link to your site. Long story short on the pushback, I think the biggest obstacles were: Ignorance, pure and simple. People just don't know this stuff. Fear of legal liability so they trust the unethical third party plan administrator, in our case TSA Consulting Group. The desire to not add more work to their stack. After all, the 403b/457b plans are set and I don't think anybody complains about them! There may or may not have been corruption and relationships between decision makers and unethical vendors. More specifically here are a few of my thoughts: I'm just some random person. Nobody knew me in the slightest and I wasn't even an OCPS employee. So I think most folks probably began from a place of distrust and could have easily dismissed me without any pressure to address the concerns of an "outsider." Everybody is probably super busy with their core responsibilities and if they aren't, they still prefer not to do "extra" work. These forces push people to leave well enough alone. There was ignorance from start to finish, but the folks at OCPS Retirement Services were surprisingly ignorant (not meant as a pejorative). So there was a hurdle to educate them and even then, I got the sense that they didn't feel comfortable taking action on a topic they know little about. I was disappointed in the union. Although I eventually spoke with them, they'd regularly ignore my repeated communications and they never informed me of what they did with the information I gave them. I got the sense that they weren't well organized and that this issue was rather unimportant to them. The union plainly had a relationship with Security Benefit. Most school board members ignored my emails and the handful that didn't expressed either no interest in helping or declared that they couldn't help because this wasn't a "policy" issue (I disagree). Luckily, I repeatedly spoke at school board meetings and on a couple occasions the chairman, Bill Sublette, expressed a personal interest in investing and found the fees to be extremely unfair. My politics are quite progressive and he is a Republican politician. Although he didn't push to address the bad actors (I'm guessing because he believes choice, even bad choices, are inherently beneficial or because the work/cost to do so would have been too much) he told me he'd get Vanguard and Fidelity on the list. I'm guessing Bill Sublette is the primary/only reason I was successful. It was absolutely unexpected and quite pleasant to get that support from "across the aisle." By far the worst actor was the TPA, TSA Consulting Group, and in particular their Executive VP Steve Banks. The folks at OCPS Retirement Services insisted on including him on one of our calls and he vaguely threatened me with some kind of legal liability and gave all of these reasons why Vanguard and Fidelity are bad and all of the others are good. I got the sense that he/TSACG put a legal fear of god into OCPS Retirement Services and due to their ignorance they basically just followed whatever TSACG/Steve said. If Bill Sublette was our hero then TSACG/Steve were our clear villains. I can be a bulldog with the deficit of tact that you'd expect from an engineer. I'm sure that hurt my cause from time to time because this work is about relationship building and getting people to like and trust in you. ...ultimately the person who intervened on my behalf to get me into the NEA DirectInvest plan was an employee of an unethical vendor. First they tried to pitch me and they quickly recognized that I knew what I was talking about and even admitted that they basically invest with the same philosophy I espouse. After that they volunteered to help me. I don't fully understand why. Maybe they wanted to do the "right" thing and help. Maybe they wanted me to be taken care of so I wouldn't stir up any more trouble? Maybe both? I don't know.
  18. I understand we're all on the same team and perspectives will vary, but I disagree reasonably strongly on this. The Supplemental Poverty Measure was introduced in 2010 to better define poverty by accounting for income (including from the safety net) and what I consider to be required consumption (healthcare, food, housing, clothes, child care, taxes, etc). By that measure just under 44% of the population is "poor." So I think it is important to realize that even with proper spending and saving habits there are a lot of people who will have virtually nothing after 35 years of labor...for them, a million is fantasy. I also think it is important to point out that a million dollars might safely generate $35,000/year...is that a "fair" trade for decades on end of labor during the best years of your limited life? I'm not sure it is "wrong," but this isn't making me feel great about workers' prospects. I don't like the terms "middle" or "high" income because they mean something different to everybody. Saving $500/month is better than nothing, but in inflation adjusted terms that will leave you with less than $600,000 after 40 years of work. Depending on how aggressive you want to be in depleting that nest egg, you might get $20,000 per year out of it. I think it is important to be clear about these realities. Giving false hope limits structural changes and leads to internalized inferiority when people work hard, but don't get the promised or implied rewards. I'm a huge proponent of minimalism; consumerism grosses me out on a primal level. However, minimalism will not save a huge percentage of Americans who simply don't earn enough. In my view, it is inaccurate and irresponsible to focus exclusively on saving rates while ignoring earning rates and income inequality...what you do with your money doesn't "count" when you hardly earn any. ...quick side note, lots of folks who preach about minimalism are high earners and actually spend more than a typical or poor family could spend and still have money left to save! They just "feel" like they're minimalists because they aren't spending as much as their peers and still have money left over. It turns out the typical or poor family is already "minimalist" by necessity.
  19. I want to encourage people too. The stats I see on savings give me anxiety even just imagining being in that situation myself.
  20. Thanks. I just wanted to be explicit about a few things. IRAs, 401ks, 403bs, and 457bs are all tax advantaged accounts. How tax is assessed on these accounts is determined by whether the account is a Traditional or a Roth. Some employers may not offer a Roth option, but that is a decision they’ve made...it isn’t the result of the tax code, plenty of employers offer both Roth and Traditional variants of tax advantaged accounts. I argue that a Traditional account (IRA, 403b, whatever) is likely the best choice because our tax code is progressive. Suppose your highest tax bracket is 24%. Every dollar you contribute to a Traditional account saves you that 24% tax. Then in retirement when you withdraw the money, the first dollars won’t be taxed at all, the next Y dollars will have the lowest tax rate, and so on and so forth. Every dollar you contribute to a Roth account requires you to pay the full 24% tax. Very few people will have more taxable income in retirement than they had when working. For those that do it would be ideal to have enough in a Roth so the portion of their retirement income that is above (or at least equal to) the highest income bracket when working comes from a Roth. However, that takes a lot of planning and predictive powers and if you wind up using Traditional dollars for a tax bracket higher than when you were working then take comfort knowing that you will likely still have a lower effective tax rate than a Roth because you took advantage of the lower brackets. However, everything I’ve said is based on the notion that the tax code won’t change. We know that is false because it literally just changed. Taxes are currently “low” and some would reasonably argue that tax rates in retirement might be higher and thus increase the attractiveness of a Roth (pay the flat low tax now rather than the high progressive tax later). I don’t find this argument to be unreasonable, but I make full use of Traditional accounts when given the option. I should also say, I view this as an optimization and something you shouldn’t fret over. Figuring out how to earn more money, spend less, and invest cheaply are essential. ...I forgot to mention an IRA is an individual retirement account. So your employer won’t be involved. My account is with Vanguard and they give me the option to do Roth or Traditional. So if you can’t figure it out, give them a call and they’ll walk you through it.
  21. Are you adjusting for inflation when you consider the 60k in the context of your previous salaries? Here in Orlando it is difficult to imagine getting by with spending less than about $30,000 per year. I’m too lazy to calculate the taxes that get extracted from a $60,000 salary, but let’s roughly assume that you have $18,500 per year to invest after taxes and 30k of spending. With a 0.07% expense ratio and a 4% real return it’ll take you 29 years to break the one million dollar barrier and 43 years to break the two million dollar barrier (inflation adjusted obviously). I think the article cited roughly $2,000,000 as rich. I think these rough calculations suggest that maybe my original estimates were too optimistic for the hypothetical savers. Lifestyle, spending habits, and investing strategy are important, but if you aren’t making good money it’ll take a very long time to be rich...if it is possible at all.
  22. Wow, I don’t remember ever seeing such a long vendor list. I think your best options are Vanguard and Fidelity. NEA DirectInvest is a fantastic plan, but the company is exploítative and if you don’t have to deal with their nonsense then you’re better off. I documented all 3 plans here, but the Vanguard bit is out of date since they updated the plan last year. You can search the boglehead form or here to find discussion on the new Vanguard change. Long story short, it helps folks with 66,666+ account balances and slightly hurts folks below that threshold...still a great plan either way If I were your friend, I’d run away from AXA today. If your district is like mine then Vanguard is there for a 403b and Fidelity is there for both a 403b and 457b. So in terms of cost and building a great portfolio you’ve got great options. I can’t remember the exact differences between a 403b and 457b. I think it has implications for withdrawal/rollover. Since a difference in fees won’t be an issue, you can google those terms and choose whichever sounds better for your needs. https://www.investopedia.com/articles/personal-finance/111615/457-plans-and-403b-plans-comparison.asp ...I know you didn’t ask about this, but I always make the case that a traditional IRA is preferable to a Roth. So that may be something to consider when you sort all of this out and begin lower level optimizations.
  23. Fidelity and Security Benefit’s NEA DirectInvest are so similar that my wife and I couldn’t put ourselves through the pain of switching. Although it was tempting to begin considering that until I remembered the pain of originally enrolling ? I absolutely think what I did is replicable in other states. Perhaps I am naive, but I think the problem is primarily ignorance on the part of districts. I think sharing knowledge can easily get new vendors added. Now removing unethical vendors may be trickier because there may be relationships (financial or otherwise) that might get burned up in removing vendors. I still flirt with the notion of a state legislator solving this problem for every district. Or somebody like Rubio pushing for the TSP plan for all...although you’d need somebody other than Rubio to make it happen. Still, the district by district approach can work...it is just more fragmented and piecemeal.
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