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Hi! I need some help and I found this forum on the internet by googling the term 403b. So, I spent some time and have been reading through the posts and hope that I have learned something. I need some advice, but I think it may be frustrating for you guys because I am a little new at all this.

 

Here is the deal:

 

I am a physician and I will finish training (fellowship) June 30, 2007. After med school, I did 5 years of residency and 2 years of fellowship in surgery and I am now going to get a 'real' job, making real money. I took out loans in college and med school. That amount is around 120,000. I have been repaying that. for around 4 years and have consolidated that. With the salary that I have been making, paying these loans, paying other expenses, I have not saved much money. What I did save I put in an IRA, where I have around 15, 000. About 6900 is cash in a money market acct. The rest has been 'invested' for me into stocks by my dad. These stocks are GE, Lucent and Motorola. I didn't really want to invest in these things, but my dad argues that I cant just have the money sitting in an acct and I need to invest so it can earn something. I was against that, because in residency I had ZERO time to watch these investments. The result has been that he fiddles with it once in a while and I have no idea if it is right or wrong.

 

So I bought a book and I have been reading on the internet with the idea that when I graduate I have some time off so I will devote myself to this issue and move that money around to whatever investment I want.

 

Well, the problem is that I will be working for a university in Florida. Part of my contract includes enrolling in a retirement plan. They want me to sign this form and so I thought some other opinions might be useful.

 

They say I must enroll in a program called the State University Optional Retirement Program - it is not optional for me. This is a 403b - Defined contribution plan. They say that the vesting time is immediate. The employer will contribute 10.42% of my gross pay. My pay will be 200, 000, with probably another 20,000 max from on-call pay. I can contribute up to 10.42% also apparently. I guess this means that I will be taxed on 220,000 minus 10.42%. I think from my reading that there is some max amount I can contribute to this each year or that is I can't just put all of the 10.42% away pre-tax. They also say that I am eligible to contribute to a 457 plan.

 

Okay, so within this plan they have a form where they want me to break the employers 10.42% down between 5 marketing companies. These are ING, AIG - VALIC, Jefferson National, Met Life investors, TIAA - Cref. They also want me to break down the 10.42% that I can contribute between these 5 companies.

I called the hospital fringe benefits rep and he recommended I meet with a rep from each of these companies to make a better decision.

 

My questions are:

 

1. Should I be contributing the 10.42% from my salary also? Or I should I put into my IRA? Am I even allowed to put into my IRA anymore? I think I should contribute to match the employer.

 

2. How do you know how to break down between the different companies? Then, once you pick a company, how do you know what product to buy. On the state of Florida websites they have links to all these companies. I went there and I HAVE NO IDEA WHAT THEY ARE TALKING ABOUT. Example: The AIG-Valic website has a performance sheet. They give a bunch of names followed by a whole buch of numbers. Core Value Fund(American Century), Large Cap Value Fund (State Street Global Adviser), Vanguard Windsor II Fund, Large Cap Blend Core Equity Fund (BlackRock), Lou Holland Growth Fund [70], Social Awareness Fund...There are many, many more. There are 19 names just in this one company!

 

3. What if I make a mistake, get the wrong thing and later change my mind. Will I have to pay to change?

 

4. Should I get a financial advisor? One of the senior MD's I work with told me to get a financial planner and that it was the best thing she ever did. So, I called the director of my program in Florida for a referral and she said she just fired hers so she couldn't tell me anyone! Great!

 

5. I read here that meeting with a fee-only hourly advisor was best. Should I do that when I get to Florida? How do I then make a long term relationship with that person? My problem is that I don't trust anyone. I feel like if I screw up at least I can only blame myself.

 

6. Should I contribute to the 457 plan? I think I should, right?

 

7. One of my friends told me that none of this is really that that good for me since I will be a 'highly-compensated' employee so i should not get my hopes up and try to play the stock market more. GREAT! I don't think that I am going to change my habits 100% when I am out of training. That is, I will not be checking the stock market every hour between surgeries and calling a broker like some surgeons do. I dont want to 'play the stock market."

 

8. Should I get rid of those stocks in the IRA and do something else?

 

Okay, sorry I am so unknowledgable. Thanks in advance for whatever sense can be made from this nonsense

 

newbee

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This is a common issue with new doctors . I have a doctor friend who was in the same boat years ago .You spend years preparing for your vocation and then you guys make big salaries and haven't had the time to study about investing. He is fine now because he slowed down, learned on his own, and stopped listening to his friends.

 

My suggestions based on my amateur status as an financial advisor is this.

 

1. Read some books on investing. John Bogle has several good ones

2. A fee only advisor is definetly in order considering the large income you will be making.

3. Don't mess with individual stocks until you have the time, inclination, and sophistication to do so. Mutual funds would be a safer harbor from your cash.

4. With the match you are getting at the State University of 10.42% how can you not take advantage of that 403b plan even if you do have some lousy choices?

 

5. I do not recommend you meet with the advisors. They are salespeople. You are dealing with insurance products which you don't need. Talk to the TIAA-Creff rep and put your money with them in a diversified

allocation of stocks and bonds across different asset classes. That is by far your best choice because of low fees!! Go to morningstar.com and start reading about assot allocation and take a look at their style box

 

Also If you meet and sign up with each companies rep you are unnessarily complicating your life. Holy smoke!

Do you really want to have all those salespeople call you all the time?? You will be busy enough.

 

My final advice from someone who makes alot less than you (me) stop listening to your fellow doctors recommending ###### stock tips. Its a recipe for disaster. Later on when you have accumulated a good bit of cash and taken care of your debts than I would say go ahead and use your "play money" to fool around in individual stocks on a limited basis. With the salary you will be making you can get away with it. I would never be able to do so. I have no play money. Mine is all serious money.

 

Please feel free to post again. There are many smart people on this site and we are to be trusted since we have no incentive to make money at your expense.

 

WOW!! $200,00 a year. You don't have a problem!!

 

 

Tony

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If I may add, I think "screwing up" is sometimes necessary . It becomes a learning process you will never forget. Its happened to the best of us.

 

 

Visit this site about locating a competant fee only financial advisor but remember being your own advisor is smart because no one will care about your money more than you. So keep learning on your own so you can smell a rat when you come across one.

 

http://www.napfa.org/consumer/WorkingwithaFeeOnlyAdvisor.asp

 

 

Let us know how things are going

 

Tony

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I would second a couple of the key tips you have already received.

 

1.) DEFINITELY put in your 10.4% - ESPECIALLY if it is required to get the equal match. You are talking $20,000 of your own money that will IMMEDIATELY make a 100% return because your employer is matching it with another $20,000. That means you are investing $40,000 per year. Not that you want to make any mistakes, or pay more in fees than you have to, but investing $40,000 per year does not require the greatest plan in the world to build a HUGE nestegg. Go to an investment calculator, put in $40,000 per year at even 8%, for 25 years and see what you come up with. That is quite conservative, as it is likely you may work longer, invest more as you age, and make more than 8% over time.

 

1a.) The stock market and individual stocks. WHY? If you invest $40000 and increase it over your career, and earn a modest 8%, you do not need much risk to accumulate a tremendous amount of money. Good mutual funds, both US based and international, low fees, as well as a sound diversification and you are going to be able to do very well. The only reason to invest in individual stocks is if you want to play around with it as a hobby or you feel the need to accumulate 10's of millions of dollars or 100's of millions of dollars. If you are content with 5-10 million dollars, you don't need to risk your investment on single stocks.

 

2.) From the provided list, TIAA-Cref is almost certainly the best option. They are not an insurance company, their fees are low, and I am sure you can find some good, dependable, consistent funds in the stock/bond and Money Market area.

 

3.) With the amount of money you are talking about, and the fact that you are just beginning your career, I think a few hours with a FEE ONLY financial planner would be the best investment you will ever make. Make sure they are on the up and up (any talk of annuities, whole life insurance products, Loaded funds etc. should set off some warning bells), but they could really help you sort through your long-term options, take into account the role of other investment options like an IRA, and also account for things specific to your location/career. Also, most people on this board are dealing with salaries fo $30-$60K if they are teachers. So, you will have tax implications that none of us will ever have the pleasure of worrying about.

 

You have found a good source here, there are others as well. Keep reading and learning as much as you can. High fees, commissions, insurance/investment products should always trigger an alarm for you to look more closely - make sure you advocate for yourself and don't be afraid to ask pointed questions of those who you invest with - ie. "how do you get compensated?"

 

You say you are not very knowledgeable, but if you are raising these questions, finding this (and other ) sites, and thinking long term about your investments, and you are just starting your career, I would wager you are easily in the top 1% of informed investors. Most of us learned the hard way - after getting ripped off.

good luck

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Kev,

 

Good follow-up. Can you imagine how well he will do if he listens to our advice. If only I had his problem.

 

Sometimes its the little guy( like me )that can be of help because our money is so much more sacred to us and we have learned how to strech that dollar. My dad was the best at it. From a modest salary he was able to feed a large family, keep my mother at home, pay our college tuition, and still accumulate retirement funds. He had a fourth grade education and being an immigrant from Italy had no language skills.

 

I am still in awe of his ability today. I see people with large salaries today that just burn every penny they make and can't make it to the next payday. Money management is definetly an art and sometimes its the persons you think are least likely to be able to help you that actually can.

 

 

 

 

 

I would second a couple of the key tips you have already received.

 

1.) DEFINITELY put in your 10.4% - ESPECIALLY if it is required to get the equal match. You are talking $20,000 of your own money that will IMMEDIATELY make a 100% return because your employer is matching it with another $20,000. That means you are investing $40,000 per year. Not that you want to make any mistakes, or pay more in fees than you have to, but investing $40,000 per year does not require the greatest plan in the world to build a HUGE nestegg. Go to an investment calculator, put in $40,000 per year at even 8%, for 25 years and see what you come up with. That is quite conservative, as it is likely you may work longer, invest more as you age, and make more than 8% over time.

 

1a.) The stock market and individual stocks. WHY? If you invest $40000 and increase it over your career, and earn a modest 8%, you do not need much risk to accumulate a tremendous amount of money. Good mutual funds, both US based and international, low fees, as well as a sound diversification and you are going to be able to do very well. The only reason to invest in individual stocks is if you want to play around with it as a hobby or you feel the need to accumulate 10's of millions of dollars or 100's of millions of dollars. If you are content with 5-10 million dollars, you don't need to risk your investment on single stocks.

 

2.) From the provided list, TIAA-Cref is almost certainly the best option. They are not an insurance company, their fees are low, and I am sure you can find some good, dependable, consistent funds in the stock/bond and Money Market area.

 

3.) With the amount of money you are talking about, and the fact that you are just beginning your career, I think a few hours with a FEE ONLY financial planner would be the best investment you will ever make. Make sure they are on the up and up (any talk of annuities, whole life insurance products, Loaded funds etc. should set off some warning bells), but they could really help you sort through your long-term options, take into account the role of other investment options like an IRA, and also account for things specific to your location/career. Also, most people on this board are dealing with salaries fo $30-$60K if they are teachers. So, you will have tax implications that none of us will ever have the pleasure of worrying about.

 

You have found a good source here, there are others as well. Keep reading and learning as much as you can. High fees, commissions, insurance/investment products should always trigger an alarm for you to look more closely - make sure you advocate for yourself and don't be afraid to ask pointed questions of those who you invest with - ie. "how do you get compensated?"

 

You say you are not very knowledgeable, but if you are raising these questions, finding this (and other ) sites, and thinking long term about your investments, and you are just starting your career, I would wager you are easily in the top 1% of informed investors. Most of us learned the hard way - after getting ripped off.

good luck

 

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Guest TR1982

"Good follow-up. Can you imagine how well he will do if he listens to our advice."

 

Don't you think this is a bit arrogant? All you know of this person is what he wrote in a few paragraphs and you are prepared to say this. Wow. On top of that, there were several errors in both these posts. Scary.

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Newbee, I envy your determination and drive. The work you do and long hours you sacrifice are worth far more than the salary pays. I have friends at The University of Michigan hospital and they earn every penny as I'm sure you foresee doing.

 

I agree with you TR, this post has focussed on the wrong things. A few skipped notes, no you cannot contribute to an IRA anymore, you will be above the income cap (you POSSIBLY could this year if you haven't started at the hospital yet, you need to find out your AGI first, but defnitely not next year). And speaking of caps, unless my math is wrong or you are over 50, you cannot contribute 10% of your salary as it too will exceed the $15,500 limit on a 403(b). The 457 brings an entirely different angle aside from this.

 

Pros and cons to making this type of money, and the big con is the IRS takes away many tax-beneficial opportunities. Welcome to the life of creative investing, topics far beyond the scope of this message board. When you get to where you're moving, you need to find an advisor you trust and could work with for decades; do not be sold by someone's sales tactics. Unfortunately, if you want to use the 403b, you're going to have to meet with one of the providers the hospital uses as they are the only ones who can establish new accounts. If you find a good advisor down in FL they should help you structure your 403b choices before setting up the new account.

 

PLEASE find someone you trust in FL before you do anything, someone that can give you more detailed information face to face; at least more than some of the people on here who trip over their tongue drooling over your salary.

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Arrogant? The overwhelming advice that has been given so far has basically stated: "take the time to educate yourself, hire someone who knows more about your situation (large amt. $, taxes etc.) than we do, and be cautious in regard to fees/risk etc.

 

 

Not sure how telling someone to get advice from a more knowledgeable source or person really qualifies in the arrogance department.

 

He mentioned he was eligible for a 403b AND a 457 - would that be a possible reason that the 10% is feasible??

 

What are the "mistakes" in the advice I gave, I am not an expert and am always curious to learn.

 

Thanks

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Kev,

 

I don't think "Clueless" was looking for us to do an in depth analysis of his finances in an e-mail. I think he was looking for direction and we both gave him that including a recommendation that he visit a fee only

advisor. Our basic advice was sound. WE stated we are not licensed professionals.

 

I think TR and his friend BC in MI are actually coming across as arrogant. Not everyone is on the same learning curve. WE must threaten them for them to attack us so viciously. WE are only trying to help others

while they seem more interested in denegrading.

 

Regards,

 

Tony

 

 

 

 

 

Arrogant? The overwhelming advice that has been given so far has basically stated: "take the time to educate yourself, hire someone who knows more about your situation (large amt. $, taxes etc.) than we do, and be cautious in regard to fees/risk etc.

 

 

Not sure how telling someone to get advice from a more knowledgeable source or person really qualifies in the arrogance department.

 

He mentioned he was eligible for a 403b AND a 457 - would that be a possible reason that the 10% is feasible??

 

What are the "mistakes" in the advice I gave, I am not an expert and am always curious to learn.

 

Thanks

 

 

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Hi again

 

Thanks for all the advice. Most helpful is the recomendation to look at TIA-CREF more closely. I also did get the feeling that I would need to look at meeting with a financial advisor, I just feel "out of my league" when speaking to finance savvy people and hate that feeling, as I am not used to it.

 

BTW, the only assumption that I think is hilarious is that I am male - I'm actually female!

 

So anyway, the deal is that the University will put the 10.42% whether I contribute or not. So, I could put nothing and they will still put that % away. I think that in all likelihood I will match that money up to the 15,500 that I am allowed.

 

I think that I will PROBABLY also elect to do the 457 thing, although I do need to read a little more about that.

 

Also, I was under the impression that I could still contribute to my IRA, just not as a pre-tax contribution, but that my earnings would be untaxed on that initial investment. Don't know where I got that idea.

 

The 2 reasons that I have been so reluctant with all this is that there is a part of me that wants to keep on living at my current salary lifestyle (48,000). Then, use the rest of the money to pay off the med school loans. I look at those stupid webpages every day and when I see that a loan that I took for 9000 dollars will equal 19,000 when I am done paying it back BURNS me up. So I want it gone. Second, the whole IRA being run for me has given me a feeling of dread when it comes to talking about this issue. My father and I have had some strong conversations about this. Unfortunately, like another post here, my dad, also an immigrant, put three kids through college, stay at home wife, etc, so his decisions carry a whole lot of weight in the family - and, also with me. But sometimes, I wonder if he is NOT always right.

 

Plus, my fiance, who is also a physician, is just CRAZY. He doesn't agree with my investment planning at all. His issue is that he has seen me borrow (interest free) from my dad, brother, him at certain times, like for exam fees, or whatever, and he gets irritated because he sees the money in my IRA as useless since I can't access it. He wanted us to go on a trip to Europe before August and I dont have the cash to do that and so I said no. Well, he thinks neither of us should contribute in addition to the 10.42% of the employer at all. He keeps saying, "What if we need that 15,500 in cash money?" "What if we get cancer and never get to spend it?"

 

Fianlly, my BIGGEST concern when it comes to money and being rich and burning through it is NOT how I will live but the effect that it will have on any kids that I have. I really think its all about how you grow up.

 

Thanks!

 

NewBee

 

 

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Guest TR1982

Now, Tony & Kev,

After this most recent post from clueless, I think you can see how this kind of free advice may not be that helpful. Look at all the issues she is raising. Did you even know she had a fiancee? Did you even know she was a she? Don't you think some of these issues should be taken into account? Or is plain vanilla advice fine for everyone?

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Also, I was under the impression that I could still contribute to my IRA, just not as a pre-tax contribution, but that my earnings would be untaxed on that initial investment. Don't know where I got that idea.

 

Plus, my fiance, who is also a physician, is just CRAZY. He doesn't agree with my investment planning at all......... but the effect that it will have on any kids that I have. I really think its all about how you grow up.

 

 

Regarding the IRA, I assumed you were speaking of a Traditional IRA which is taxed similar to your 403b pre tax in, taxable out. A Roth IRA is along the lines of what you are speaking, after tax in, tax free out..... unfortunately it too has income limitations. There is such a thing as a non-deductible IRA which achieves tax deferral, but again, income limitations.

 

You are spot on with "its all about how you grow up." Some people change after learning the ways of their parents but some do not know how the way they handle money is good, bad, or ugly. In my own experiences, you need to be on the same page with your fiance. Neither of you is right or wrong, it comes down to the lifestyle you want to live. You strike me as a person who thinks long term, and that is not on your fiance's mind. Good or bad aside, I side with you and the question I would pose to him is "when do we start saving then?" His thinking is very typical these days but people never remember to start saving for the day they no longer want to work. As doctors you know the stress and long hours will likely prevent you from working forever. Try to achieve a compromised joint philosophy and life will be easier.

 

 

 

I think TR and his friend BC in MI are actually coming across as arrogant. WE must threaten them for them to attack us so viciously. WE are only trying to help others while they seem more interested in denegrading.

 

 

THat's interesting since I thought my comments actually help answer questions and stay on point. Making big money doesn't make life easy. Guess you fell into your own pool of feeling "threatened" since you just couldn't resist taking a jab at me.

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TR - I still don't see how telling someone that they should seek more expert advice in the form of a fee only financial planner, or that they should educate themselves and advocate for their retirement planning, or that they should take advantage of the retirement plan provided through their work is bad advice??? Am I missing something? It really does not matter that she is a "she", or that she has a fiance, or that she has various goals. These are all excellent starting points, and everyone is emphasizing that with large amounts of money, more (and better) advice will be needed from a planner.

 

As far as Newbee being a she, instead of a he - I do feel foolish for that. Not because it would really change the advice I gave in any way. Just because it was a sexist assumption that someone earning a nice paycheck was a male rather than a female. Good example of the underlying assumptions that people make.

 

Newbee, you raise a lot of additional issues with a fiance, and various goals of travel, lifestyle, and feelings toward debt. A fee only planner can help sort through all of these priorities with you. The best advice from everyone so far is to seek that help, and find someone dependable. Tony gave a good link that can at least get you started in that direction.

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I though all of us made some valid points and criticisms but calling someone arrogant and then saying we are drooling over her money was just unnessary.Isn't that what financial advisor/salespeople do? Doctors do earn every penny they make.

 

Also I think Clueless has a good head on her shoulders and will do fine but, from the information she gave

I think her Fiance may need a trip to the financial advisor more than she does.

 

Tony

 

 

 

 

 

 

Also, I was under the impression that I could still contribute to my IRA, just not as a pre-tax contribution, but that my earnings would be untaxed on that initial investment. Don't know where I got that idea.

 

Plus, my fiance, who is also a physician, is just CRAZY. He doesn't agree with my investment planning at all......... but the effect that it will have on any kids that I have. I really think its all about how you grow up.

 

 

Regarding the IRA, I assumed you were speaking of a Traditional IRA which is taxed similar to your 403b pre tax in, taxable out. A Roth IRA is along the lines of what you are speaking, after tax in, tax free out..... unfortunately it too has income limitations. There is such a thing as a non-deductible IRA which achieves tax deferral, but again, income limitations.

 

You are spot on with "its all about how you grow up." Some people change after learning the ways of their parents but some do not know how the way they handle money is good, bad, or ugly. In my own experiences, you need to be on the same page with your fiance. Neither of you is right or wrong, it comes down to the lifestyle you want to live. You strike me as a person who thinks long term, and that is not on your fiance's mind. Good or bad aside, I side with you and the question I would pose to him is "when do we start saving then?" His thinking is very typical these days but people never remember to start saving for the day they no longer want to work. As do

 

 

ctors you know the stress and long hours will likely prevent you from working forever. Try to achieve a compromised joint philosophy and life will be easier.

 

 

 

I think TR and his friend BC in MI are ac

 

 

 

 

 

 

 

 

tually coming across as arrogant. WE must threaten them for them to attack us so viciously. WE are only trying to help others while they seem more interested in denegrading.

 

 

THat's interesting since I thought my comments actually help answer questions and stay on point. Making big money doesn't make life easy. Guess you fell into your own pool of feeling "threatened" since you just couldn't resist taking a jab at me.

 

 

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You might wish to visit the Boglehead forum, which has a lot of information on investing (as well as a physician's investing group listed under local chapters). The website is at:

 

http://www.diehards.org/forum/index.php

 

May I recommend a little reading? Try Burton Malkiels's "The Random Walk Guide to Investing." It's a short paperback by my college economics professor. Very, very good.

 

I think your main problem may be getting on the same page with your intended. Myself, I think there are a lot of arguments for not living up to your income, and for living below your means. Some people hate the idea though.

 

I think you will find over time, that a simple low cost portfolio will work out for you. Using your tax deferred for bonds (any low cost intermediate bond fund is good), and placing index funds in taxable I've found to be an extremely tax efficient way to invest. You can essentially cover the world with three funds: Vanguard's Total Stock Market, All-World ex-U.S. (international fund), and the Vanguard Total Bond Market. The point is to keep bond income off your 1040 return, and to use index funds with their low expenses and turnover, in taxable.

 

Tim

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