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Everything posted by whyme

  1. I don't think Paul Merriman is in it for the money. I get the impression that he has been wealthy for decades; he seems to be a true believer who had his enlightenment experience when he went through the Dimensional Fund Advisors boot camp and he wants to evangelize. That approach, involving "factors" like company size and "value" (I think that is primarily determined by the ratio of book value to market cap), is grounded in academic research, notably by Eugene Fama who was awarded a Nobel prize for his efforts in this area. One can argue--as Bogle probably would--that Merriman's approach is overcomplicated, involves more fees and risks underperforming the broad cap-weighted market, which provides "Enough," to cite the title of one of Bogle's books. But to my mind some overweighting of small cap, "value" and maybe a couple of other categories (in low-cost passive funds) in an effort to capture the premium that those factors are demonstrated to have yielded in the past is within the circle of reasonable approaches to investing, so long as one sticks with it. If Bogle is right, those factors will revert to the mean and over the long run you'll end up with market returns minus fees, so you'll do slightly worse if you are paying higher fees. If Fama is right, in the long run you can expect a bit better than broad-market returns, but you must assume more short-run risk to get that premium. It is interesting to contrast Merriman with Rick Ferri, who was also a DFA, Fama and French-influenced slice-and-dicer (he wrote a book about asset allocation) but who seems to have drawn closer to Bogle's simple broad market philosophy in recent years, describing the basic decision to invest in stocks as "the cake," and questions about factors, etc., as "the color of the icing on the cake." I count both of those guys among the voices that will set folks on a good course, in stark contrast to the horde of brokers and insurance salespeople that prey on 403b account holders. We're doing fine if the arguments are confined to the icing.
  2. I don't think it will make a huge difference, so long as she can stay the course and consistently contributes a big percentage of her income. Target Date funds never go below 30% or so in stocks--even the 2020 fund is at 50%--so there will be some growth. If she's counting on this as the largest part of her retirement income, Marian may want to minimize volatility even though it means lower returns. One also has to be realistic about the fact that people who plan to work until 75 or older often find they can't stay in the workforce that long for health, family or employer-related reasons. So Marian should probably build the possibility that she may need to begin drawing on this portfolio sooner, maybe in 5 to 10 years, into her plan. If it all works out and she keeps teaching for another 20, that'll be all to the good. Thanks for the kind words, Tony. I'm here procrastinating on very daunting online class preparations. If I drift away from the forum again, take it as a good sign that I'm actually doing my job.
  3. Marian, Tony put his finger on the main issue: your first priority should be to invest as much money as possible. The traditional 403b will make that easier, because you are investing pre-tax dollars (your annual tax bill will be lowered and your take-home pay will be reduced less than the full amount of your contribution). That means aiming for the max contribution to the 403b--$26,000/year. Don't be discouraged if that sounds unattainable: start where you can, and keep ratcheting it up toward that goal. Once you get to that max, you could consider opening a regular Roth account at Vanguard. This would permit you to put in up to $7000/yr (in addition to your 403b contributions) and there are no added administrator fees. (There are income limits that you need to meet to be able to contribute to the Roth, so if this is ever something you consider, be sure that you are under the income cap.) If, as I think is very likely, the tax-deductible 403b will allow you to contribute more than you would to a Roth 403b, I would definitely pick the traditional. Taxes in retirement are a much smaller issue than income in retirement.
  4. As I think you know, the further away the date, the higher the percentage of stocks. You can go on the Vanguard site and see exactly what the percentages are for the underlying portfolio in each Target Date fund if you are interested. More stocks = higher expected return but also more volatility (i.e., the value of your nest egg could decline abruptly if you hold a lot of stocks). You can pick any of the funds--you are basically choosing the level of risk you are able to accept for the promise of better returns over the long haul. In every case, the target date fund has a "glide path," which means that it will slowly become more conservative (less stocks, more bonds) over the years. Pick one you think you can stick with and get started now. If upon further research you later decide you want to shift to a more conservative or more aggressive fund, you can do so without any cost. (But only do that after deliberate consideration when things seem stable--the worst thing you can do is sell in a panic when the market drops precipitously, which it will do from time to time.) If you have trouble deciding, pick the one closest to your expected retirement date, that should do the job.
  5. Good work on finding the "hidden" 403b! I'm not surprised that they would steer you toward the higher-fee option, and possibly toward the added-fee advisor. More money for the TCG administrator. The school or district was probably told the service would be free to them; the schools often have nobody who really knows much about this, so there's no one acting in the best interest of the teacher/investors. A few states have excellent programs set up by the state government (sort of like the Thrift Savings Program that federal employees get) but many more don't, leaving school employees to be preyed upon by insurance company salespeople and stock brokers. So far it sounds like the "traditional" 403b is the best fit for your situation. We can review some of the variables here if you want. If the tax deduction you get now (each year you contribute) will permit you to contribute more than you would to the Roth, that alone is a very strong argument in favor of the traditional version. Let us know when you locate a list of funds and any related costs with the Vanguard option. If your Vanguard plan includes that same list that Krow posted, you're in good shape.
  6. My mistake on the percentage of assets fee--I didn't see that page applied to the 457, thanks for the correction. So far it looks like the 403b is the better deal. I wonder what those two asterisks next to Vanguard mean--can you find that? In general, Vanguard is a great choice and yes, there will be fees paid to them as part of the deal, but they should be reasonable if those asterisks don't mean there's another fee...
  7. Hello Marian, and welcome. If you are really able to work for another fifteen of sixteen years, you'll be able to build up a 403b (or 457) nest egg that will be a meaningful addition to whatever other sources of retirement income you have (such as social security or pension). I suggest we break your problems into parts: 1. Let's figure out what the fees are for the 403b. 2. Then we can look at the fees for the 457. 3. After that, we can talk though which program makes and which fund(s) make sense for you. 4. If there's a question about choosing between Roth and traditional, I suggest we put that off to last. Bottom line is that both options are good. Does that make sense? If I read the TCG 403b chart correctly, the 403b is far from zero-fee: in fact the fees may be on the high side. The key sentence about fees is weirdly ambiguous and ungrammatical: it says there is a $22.00 fee per year (which is reasonable for such a plan) and then it talks about .25% of assets (which is not unheard of but can really add up). It leaves out the word that tells you whether the percentage of assets is in addition to or instead of the $22. My guess is that you have to pay both every year. On top of that, whatever fund or investment vehicle you use will also have a cost, usually expressed as "expense ratio." You don't get billed for that--it is built into the fund, but you are paying it nevertheless. By the way, beware of that "advisor" option with an additional .43% fee! You do not need any such advisor. So the next job is to locate the list of funds that are available in the 403b accounts, and see if you can find where they list the expense ratio of each fund.
  8. It's quite easy to make changes and there are no tax consequences. So if you want to rebalance or adjust your portfolio, you can do it. But trading to catch opportunities in the market is not advisable... academic research shows that trading and timing the market fails in comparison with ongoing regular contributions to a low-cost diversified buy-and-hold portfolio. Of course you will find many people touting market-beating investments or strategies: mostly, these are salespeople who benefit when others follow their advice. A simple unswerving commitment to any of the portfolios you are considering will likely surpass the results of the large majority of investors, including professional investment managers (counter-intuitive as that sounds, it's true). Your problem is not to find the very best portfolio--that's unknowable, since nobody knows the future. Settle on a sound portfolio (your current options are all in that category) and turn away from the many traps, fees and distractions with which the good people of the financial services industry manipulate human nature to their own monetary benefit (that will require some willpower). Keep your contributions high and costs low: you'll reach your goals in time. If you are interested in the research I refer to above, I recommend "A Random Walk Down Wall Street" by Burton Malkiel. Even online interviews with Malkiel (or John Bogle or Charles Ellis) would throw light on the situation. Maybe this is old news to you, since you've looked at Bogleheads' arguments for the three fund portfolio. There are small disagreements between all of these sources, but those are always around the margins: overwhelmingly they share the same message.
  9. Welcome aboard, Cranberry. You are definitely on the right track, and if you start contributing as much as you can manage consistently, you'll have a great nestegg to get you through retirement. I think what you're doing is fine, no change is required. But FWIW, a couple of thoughts: 1. Assuming that you are not planning to retire for 25 years or more, I wonder why you want bonds. Those are usually there to buffer volatility and to provide a stable source of income when you are drawing down the account in retirement. Traditionally, the amount of bonds is something to increase as your focus shifts from building wealth to preserving it. At your age, I think there's a good argument for 100% equity, which has the best expected return over multi-decade periods. 2. I agree with Tony that diversification into international equities make sense. But some very successful figures, notably John Bogle and Warren Buffett, think an all-US portfolio is fine, so I can't blame you if you line up with them. 3. It would be good to understand what sort of fees that TIAA is charging you, beyond the fund expense ratio that goes to Vanguard. There are almost always some charges related to the bookkeeping requirements of "qualified" retirement accounts. You probably won't have any control over this, but it would be useful to know when comparing among options in the future.
  10. Excellent advice, DK! I once had a similar issue with a rollover between IRA accounts. As I learned later, that should not have triggered a 1099, though I got one. The outgoing custodian mis-coded it such that the IRS interpreted it as a taxable withdrawal, and in a year or two I got a surprise tax bill. I was able to resolve it without cost by sending various records, but it was quite a scare.
  11. Yes, please do give us an update, Reg. I'm pretty sure that you cannot rollover to an IRA until you are 59 1/2 or have left your job, whichever comes first. I'd be surprised to learn that the IRS charges a fee for any 403b-to-403b rollover, though. Surrender charges on the insurance product are, sadly, all too common.
  12. Since I came back after a period of inactivity here, I find that when I click on the name of a recent post, or on a link that alerts me I've been quoted, I am directed to an error page. Basically, I have to go to the top-level forum list in order to read anything. This was not the case before--are others experiencing the same thing? Admin--is this a known issue?
  13. Thanks, Tony. So you were stuck at Vanguard? I once had to stop contributing to Vanguard because it was dropped from the list. My memory is fuzzy on this point, but I think I was able to roll those funds into whatever the replacement 403b account was. This happened to me two or three times: there was a period when the laws around 403b's were changing and vendors were dropping like flies.
  14. I'm pretty sure you can't move the assets outside of the 403b plan (such as to an IRA) until you either reach age 59 1/2 or separate from that employer. But it is usually possible to move among active vendors within a plan. It would be in your interest to see whether you can consolidate your 403b assets at Fidelity. I'm no expert on this, but I've never heard of a 403b vendor being "frozen," where assets cannot be moved out. Vendors drop off approved provider lists such that one can no longer contribute to them pretty commonly, though. This has happened to me a couple of times. You can ask your payroll/benefits office about this, but if I were you I'd call Fidelity to ask them about consolidating there. They should be able point you in the right direction to get questions answered, at least. Fidelity is a fine place for the money to grow, I hope you can do that. My worry is that there may be strings attached to to the insurance investment, e.g., big "surrender" fees for pulling money out before years have elapsed. If that's the case, your decision will be more complicated.
  15. Here's the main outline from another source: https://www.cnbc.com/2020/07/28/aig-investment-advisory-unit-to-pay-40-million-to-resolve-sec-charges.html
  16. First off, I'd avoid asking for an "advisor" at Vanguard, lest they think you want to get into their formal advisory service, which costs money. Not to imply they are bad actors--unlike the self-described "advisors" who prey on teachers to sell inappropriate high-fee insurance products, Vanguard's advisors will give their clients sound advice that is in their interest. But they do take an annual fee based on your assets. To set up a 403b, you don't need that advisory service. They should answer your questions and help you set things up free of charge. I suggest you call and tell them that you want to establish a 403b account. They should walk you through the process. Make sure you have the name of your district and if the district has a code number for Vanguard on their 403b list, it'd be good to have that on hand, as well as your social security #. You might want to ask about their target date funds, and whether they have some easy-to-understand info about how those work and how to decide which one is appropriate for you. The Vanguard rep might deal with all of this over the phone, but in any case I'm sure they have both online and printed material that can help you with that. (We can also help here--trust me, it's simple. If you later decide you want to tweak your portfolio after more research, you can do that easily and at no cost.) Once you've gone through the basics of the new account, you can tell them (if this is correct) that you have an existing 403b variable annuity, and you are wondering what would be involved should you wish to roll those assets into your Vanguard 403b account. They can help you figure out what is possible and what to look out for in terms of fees and penalties. (Those would all come from the insurance company; Vanguard would be happy to have the funds and they won't charge you to bring money in.) Expect a fee (essentially for bookkeeping) that applies to virtually all 403b accounts. I'm not certain, but I think for Vanguard the fee is $60/year. (They'll take this out periodically--you won't need to pay anything out of pocket.) That fee remains the same amount per year even when you build the account up to hundreds of thousands of dollars. There are also costs for any fund you buy (expressed as an "expense ratio," it is built into the price of the fund). Vanguard's expenses are consistently low. If you are still considering the idea of borrowing from the 403b, you might also ask whether and under what limitations such an arrangement is possible through Vanguard. Personally, I don't like that strategy, but it can't hurt to know what is and isn't possible. Please come back and let us know about your experience!
  17. Hi, Tony. Your posts are perfectly communicative, don't fret (and have a drink if you like!). I don't teach English, but I have a little experience writing. Plus I go back and use that edit command to clean up some of my many errors and typos. Anything you want to add (or correct) in my advice to Eggbread?
  18. Yes, Traditional 403b/457b accounts are a great retirement savings vehicle, if that is your option, don't hesitate. As to the Roth vs Trad question, please look in the 403b forum, somebody has recently asked the same question. Bottom line: both are good options, but it is difficult to know which will ultimately be better because the future (including future tax rates) is unknown.
  19. Tony's info is good. I don't know who "everyone" is who advises Roth over traditional. That isn't the case on this board. Sometimes people advise Roth for people in the early stages of their careers, because their current tax rate is relatively low, and the benefits of compounding tax-free over a long period of time are great. On the other hand, if the immediate tax deduction will allow or incentivise you to contribute more into a traditional IRA or or 403b, that's a good argument for the traditional account. As I see it, your choice to diversify between both a Roth and a traditional account is an excellent one, since both are good options, and there is no way to know which is optimal; that would require knowing what the tax laws will be decades from now.
  20. Eggbread, this is an addendum to my previous post. I just reread that one and I see that I overlooked your idea of borrowing and repaying from the 403b annuity. I have no experience with such a loan, but it does make a little more sense as a way to avoid taxes and penalty fees when opposed to the option of just cashing out the policy, which would likely cost you thousands. Still, that scenario makes me nervous. I have to wonder: are you sure you're in a financial situation where you can afford to buy a house or condo? If you were advised to buy this 403b annuity as a way to buy a house, I'm afraid you got some bad advice from a salesperson. It would be advantageous if your 403b funds could remain in a 403b (or IRA) as part of a retirement fund, and the money to buy (and maintain) a house is unencumbered by tax or fee restrictions. FWIW, in my experience, you'll need more money than you think when buying a place--there are a lot of expenses in those first couple of years. As I said earlier, it would be good to talk the specifics of your situation through with an accountant or other tax-savvy professional. If you want to seek more specialized advice on a free online forum, I recommend you try posting at the Bogleheads site. It is much like this site, but not focused only on 403b/ school employee concerns. It has a large community of users, including retired (and current) lawyers and accountants who sometimes jump in to address questions. The more specifically you can state the problem, the more precise the advice you are likely to find there. A couple of years back, I was shocked to get a letter from the IRS telling me that I owed $10,000+ in unpaid taxes. This was out of the blue: turned out it was due to a paperwork error by a broker when I rolled over some retirement funds a year or two earlier. Bogleheads told me exactly what I needed to provide in a letter to the IRS. Problem solved, zero tax owed, for the price of one or two postage stamps. Identifying and starting a good long-term 403b plan is easy, it doesn't really require much research, and is something I am confident that folks here can walk you through. But it looks to me as if you have more complicated financial planning needs involving taxes, budgets, mortgages , insurance, etc. Those may call for more expert attention.
  21. I'm reluctant to advise you because I don't know about that annuity plan. Sometimes those annuities have big "surrender" fees if you pull the money out early. You need to determine what the cost to you will be if you pull it now, and whether that would be notably different if you withdraw it in a year. Do you have any paperwork related to that investment? Another issue is taxes, assuming the annuity is in a tax deferred 403b account. You'd likely have to pay full income tax plus a hefty penalty if you pull the cash out of there. I know there is a provision to withdraw some retirement money for a house purchase under some circumstances, but I don't know much about it. In other words, I'm not familiar enough with the particulars of either the tax laws or the annuity rules to responsibly offer guidance, beyond urging you to learn more before making any move with that annuity. If you have a tax accountant, that might be a good person to consult.
  22. The stock market is the right place to invest for the long term. But in the short term, it is volatile, sometimes wildly so. Did you notice what happened earlier this year? If you think you'll want the down payment in the next 1 to 2 years, I advise against putting that money in anything that has a risk of falling in value significantly before you want to withdraw it. These days, with bond rates near zero, opening an FDIC insured savings account with an online bank that pays about 1%/year would be a good option. Look at that house money as savings, not investment. As I said above, I think the down payment should be separated from the retirement investments: the house payment is for use in the near future, it's not being invested for your retirement decades from now. Someone else here may be able to identify an advantage to mingling those funds within a retirement account, but I can't think of any. As to the easiest, no worries approach to the retirement account, I'd vote for Vanguard, and for investing in an all-in-one diversified fund--probably what is called a target date fund. You'll need to pick the fund from a list (we can help) and how much per paycheck you'll contribute. After that you can pretty much ignore it, though I hope you'll increase your contributions as the years go by, especially when you get raises. The fund takes care of everything: it adjusts to become more conservative as you approach retirement age. PS: I wouldn't worry about the 457b plan. Some states offer a great retirement plan in those, but California is not one of those states, so you are not likely to find any 457b options superior to Vanguard and Fidelity. If your district is like mine, the 457B options are substantially worse than those two. PPS: I should have said don't worry about the 457b YET. If you reach a point where you are contributing to the limit on your 403b, the 457 permits you to contribute even more to your retirement. So it's good to know about--a nice option that school employees get that most people don't have--but for most people that's not an issue when you are just getting started.
  23. It appears that these are sub-companies that work with institutions, pensions, etc. If I recall correctly, when I rolled some 457b money into my Vanguard IRA a few months ago the check was made out to Vanguard Fiduciary Trust, per Vanguard's instructions (my name was on there somewhere, too). I don't know whether that's new, but there have been changes at Vanguard--did you get the notice not long ago saying their physical mail will now go to an address in El Paso, Texas?
  24. Hello, Eggbread. I am in California, and that list is very close (maybe identical, I didn't check) to the vendor list at the community college where I teach. Steve is correct, the "Life Group" salesperson is acting in his best interest, not yours, forget about that option. (PS: take a look at that email from your district. I wouldn't be surprised if upon inspection it isn't from the district at all, but instead sent by some salesperson adopting language about consultations you are entitled to by your district. I have received such emails, and by design it would be easy for someone to think this came from your employer rather than a commission-based salesperson.) We're all talking about a tax-favored retirement account for the long term. However, if your main priority is a down payment for your home, you may be better advised to start a separate account, possibly a "regular" taxable account for that purpose. (There is also a good argument for saving some money in low-risk investments as a reserve in case of emergency.) A relevant question here is: when do you expect to tap the money for the house purchase--one year? Ten years? The answer to that will help us to suggest a strategy. The best options on your 403b list (and they are among the best options anywhere) are Fidelity and Vanguard. If for some reason those don't suit you, CalSTRS Pension2 is also a not-bad option. As Tony says above, "Ignore pretty much anything else on your long complicated list. You don't need to go there." The main reason that the folks here prefer these vendors is their low cost. Costs, especially when applied over a retirement saver's lifetime, make a surprisingly large difference in the eventual return on your investments. With a retirement plan, you are dealing with fees charged to keep records of your account and the "expense ratio" of the funds that you invest in (there can also be additional invisible expenses eating away at your savings, having to do with trading by an investment manager, taxes, sales commissions or various shenanigans associated with some insurance products, but we will steer you clear of all of that). If you want to understand the importance of costs for investors, check out a PBS Frontline episode (I think it is freely available online) called "The Retirement Gamble," which features both Vanguard founder John Bogle and our own Steve Schullo, who replied to you above. If you want more detail, read Bogle's "Little Book of Common Sense Investing." For the long term 403b or 457b, we can advise you on a simple, sustainable and super-low-cost fund or portfolio toward which you'll direct your contributions. Fidelity is the very lowest cost provider, but there's a bit of a catch with Fidelity: like your district's vendor list, Fidelity's list of fund options is long and confusing. They have excellent options, but you have to be very conscientious to find them: it seems to me that Fidelity is really hoping to trap their customers into more profitable (i.e., higher priced) funds, which often have almost the same names as the low-fee versions. Once you've managed to set up your portfolio of index funds, though, they're great. Vanguard charges slightly more than Fidelity, but the whole company was built as a cost-saving entity, so it is easier to set up a low-fee portfolio there.
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