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BrandNew

Clueless About 403B

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Mark, thanks for the correction on the Trad IRA--it's true, there are income limitations that restrict who gets to deduct 100% of contributions.

 

Brand New, Tony makes a great point: you can easily get lost in a flurry of options and details. His suggestion (Vanguard Target Date through Aspire in your 403b) is a very reasonable one and will put you in a great position. At your age, if you just commit a decent percentage of your salary to that on an ongoing basis and do nothing else, you have a high probability of a fine result at retirement (and will probably have the option of retiring at an earlier than usual age). So, my revised 2¢ is: do that.

 

Later, if you want to know more about the range of options and about what academic research has shown to be the soundest approach to investing, you can begin to do some reading.

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Thank you for the advice! I will starting doing more independent reading as opposed to meeting with providers who are offering sales pitches more than anything else. Also, I have met with Aspire before and the representative did say that they were the lowest cost. I have also called payroll just to inquire as to what most teachers in the district do and the top four providers given to me were: AXA, Security Benefit Life, MetLife, and Valic. I was thinking about going with MetLife, could anyone tell me why this would not be a good option? (Using specifics and possibly a comparison with a more beneficial provider) Also, does any one know the surrender fees for Aspire? Lastly, I saw a post which spoke of TIAA-Cref and I've heard great things about them as a company and I even called to confirm that they were not an option for my district.

 

P.S. I saw some of the earlier posts and it's Miss BrandNew to clear any confusion :)

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Brand New, I'm sure Mark, if he's still around, can do a better job than I of concisely explaining why you don't want MetLife or any of the other insurance company annuities, but you can start with those "surrender fees." I am not familiar with Aspire, but since Tony is recommending them, it's a safe guess that they have no such fees. Surely, no Vanguard fund has a sales load (commission paid up front) or surrender fee. (Most probably--you should confirm this with them--Aspire takes a small percentage of your invested assets to manage the 403b paperwork; this should be less than half of one percent per year, preferably much less. This is on top of the management fees of the funds you acquire: if you are dealing with Vanguard, their costs range from a high of about half a percent annually to super-low cost options that are below one tenth of a percent annually. Most likely, Aspire offers a selection of Vanguard funds, but not all of them.)

 

I'll venture to say that the only reason those four insurance companies have the most popular products in your district is that they have the most visible and aggressive sales forces. Make no mistake, those sales and advertising costs are borne by their customers. Insurance annuities are, with very rare exceptions, costly products that are structured very much for the financial benefit of the insurance company owners and their salespeople, not the investor. I don't know what you are being asked to buy, but a 5% up-front commission is not uncommon--that's 5% of your money directly "invested" in the salesman's pocket. Then there are all sorts of other fees buried in the product and hard to locate, not to mention those surrender fees.

 

With a couple of exceptions like Mark, those of us posting here are current or retired teachers (I teach at a community college) who have taken an interest in the subject and don't like seeing our fellow teachers ripped off. We're not financial professionals, and we're not selling anything. Unfortunately, the origins of the 403b were tied to annuities, and while many clearly superior options for supplementary retirement investment have emerged over the years, school districts have been reluctant to act in the interest of their employees. Thus, grossly inferior but aggressively marketed products still dominate the scene.

 

If you have the time and inclination, google around for articles that discuss annuities and 403b. Avoid the articles sponsored by insurance companies--look for ones in third-party magazines or financial guides. Or better yet, read a good book on investing for retirement (The Bogleheads guide, maybe?). You'll get the picture. Until such time you've researched it yourself, though, please trust us on this one--avoid the annuity salespeople. Follow Tony's advice about the Vanguard target date fund. It's an excellent option.

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WhyMe,

 

Thank you for the response! I was hoping to get the advice of actual educators and others who use the 403b plan and are not a provider. I will contact Aspire again to answer a few questions and mention the Vanguard funds.

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To all

 

 

I said I had spoken my final word on this topic but I guess I take that back. I 'm very passionate about this issue. I am currently a teacher with four years to go until retirement. I consider myself smarter than the average teacher only because I made All the mistakes one can make. I've learned from my mistakes and want to help you avoid the same mistakes. Some teachers just don't get it no matter what you tell them. They are predictably irrational in their financial decision making.Trust me most teachers investing with Insurance companies are basically being ripped off. Whyme is correct in everything he is saying. Also Steve Schullo-he has a doctorate!!!and is our investment expert around here. He knows what he is talking about.Asking which four companies are the most popular with teachers in your district is not the correct way of going about this.

 

 

Aspire has no surrendar fees. They supply a list of investing options not just Vanguard. You might even have an open platform so you can pick any funds you want. Mine just happens to be limited but I have plenty of great options.I am not saying ASPIRE is perfect but if you self direct the account ,your fees will be very low. Stay away from any loaded funds they may offer-funds with upfront fees. Again I think the Vanguard Target Retirement is your best bet until you feel more knowledeable. It is managed for you by Vanguard so that you need no middle advisor. If I could be 23 years old again. I would invest in that one fund and be done with it. Chances are I would probably outperform 70%

of all other portfolios. Thats pretty good odds in meeting your investment goals.

 

I hope we have made ourselves clear. We know what we are talking about. I say that in total confidence.

 

 

Tony

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Hi all!

 

I have decided to go with ASPire, and I called the company today to gather more info about Vanguard funds. The representative told me that when using a financial planner (which in my case would be through Edward Jones) that person would most likely not assist me since he or she would not get a commission, but if they do help they would charge a fee for their assistance. Since I am new to the entire 403b, do you think it would be okay for me to use a representative now until I find out more about self-directing my account? I also called Vanguard and was able to use online tools and it recommended the "Life Strategy Moderate Growth" however, I was also interested in using the Target plan, because the Vanguard rep said that that one becomes less risky as you age. After deciding the plan, I have to choose funds in which to invest, how do you recommend I go about differentiating between funds? I have another meeting with a different ASPire (through Edward Jones) representative later today.

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Brand new

 

You are such a bright cookie and you are off to a great start .Over all I'm impressed with all the research you are doing BUT

 

Using Edwards Jones to get you in a target fund or any other fund will kill the benefit of going with Aspire. You really need to do this on your own to get the rock bottom price which overtime makes a huge difference. Its really easy:

 

1. Talk to the Aspire Rep on the phone

2. Make it clear you want to SELF Direct the account. All you do is write self direct on the application form and you are in without a rep.

3. Send the Application In or fax it

4.Pick the Target fund you want and you are done.The fund the Vanguard Rep would be an O.K choice if its available to you.

 

Again I know you are young and want some advisor help but just remember these people are in it to make money and they are basically salespeople.

 

Please don't sign anything yet.

 

Tony

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Hi all!

 

I have decided to go with ASPire, and I called the company today to gather more info about Vanguard funds. The representative told me that when using a financial planner (which in my case would be through Edward Jones) that person would most likely not assist me since he or she would not get a commission, but if they do help they would charge a fee for their assistance. Since I am new to the entire 403b, do you think it would be okay for me to use a representative now until I find out more about self-directing my account? I also called Vanguard and was able to use online tools and it recommended the "Life Strategy Moderate Growth" however, I was also interested in using the Target plan, because the Vanguard rep said that that one becomes less risky as you age. After deciding the plan, I have to choose funds in which to invest, how do you recommend I go about differentiating between funds? I have another meeting with a different ASPire (through Edward Jones) representative later today.

 

 

Congratulations on your selection to do it yourself. You have no idea how much money you've saved yourself over your lifetime! Just don't let the Ed Jones person talk you into anything, you know what to do.

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Hi Brand New,

I'm not an expert like the "big boys" on this board, but I have learned some things through the hard knocks of experience. Here is what I have learned:

 

1. Run, run, run as fast as you can away from any products offered by insurance companies. NO ANNUITIES...Listen clearly NO ANNUITIES! (If you want to see what happens when you sign up for an annuity, follow my previous thread on this board about Valic and what it is like trying to get money OUT! The topic is called Distributable Event rollover posted by me kat92128.)

 

2. The others may not agree with me on this, but if I was just starting out, I'd probably fully fund my traditional IRA first directly with Vanguard. That gives me complete control of at least $5000 a year, a tax credit (if your Adjusted Gross Income is $56,000 or under)and the ability to move the fund around. I like the Target retirement funds that Vanguard offers, because it's easy to figure out. The more I can control on my own, the better.

 

3. If you have more than $5000 a year to invest, then I'd look into the lowest cost option for a 403b and follow Tony's recommendations.

 

For reference, I'm 57, a school administrator currently, and started with all of this stuff about 10 years ago, back when options like Valic were really the only choice. I've learned the hard way about fees, surrender charges, and hidden costs.

 

YOU DON'T NEED EDWARD JONES! That is redundant to this process and the goal of keeping fees low.

 

One final caveat: It is sad and almost criminal that there is no one unbiased at BrandNew's site who can help him/her with these choices. I remember trying to figure this all out in the beginning, and it is very confusing, even for otherwise brilliant people! Thank goodness for Dave O. and his work!

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Kat,

 

Your suggestion about doing a traditional or even a Roth first is sound and makes great sense if only because that process is not as confusing/complicated as 403B land is and you can pay the lower Vanguard expense ratio with no administration and intermediary fees common with 403b's.

 

I know I am being redundant because I have brought this up before but, why does any employer even need to be in the middle of this 403b process? Someone should be able to do the 403b thing on there own just like we do with IRA's. Having the employer in the middle of all this doesn't help a bit because they know nothing about expenses or whats best for their employees in this area. They just keep adding insurance companies. Pure ignorance. Plus ,they are totally resistant to rational advice probably because they know squat about personal finance themselves and listen to the Insurance advisors.BrandNew is at least sorting this mess out. Others will continue to learn the hard way just like I did.

 

The other problem as I see it is too many folks want others to do their investing for them. They simply don't care enough to do the research and ask the hard questions that Brandnew seems to be doing.

 

Tony

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Hi.

 

I was in your position 3-4 years ago at the same age as you. I too am a teacher. At first, I didn't know what I was getting into so I asked other teachers for advice and did a fairly great amount of research on this forum and our the internet. I did research on all the vendors that were listed for my district. I took cost and mutual funds availability into account when choosing a vendor. I wanted a vendor that provided different choices for mutual fund at the lowest cost possible. I stayed away from any insurance companies and annuities. This led me to join Calster Pension2.

 

I direct my own mutual fund. I allocate it to meet my risk level. It's pretty easy. All you have to do is set up your allocation to where you want your money to go inside your account. If you don't want to do this, then you could just pick a target fund until you are comfortable in picking your own mutual funds.

 

I'm still young so my risk level is pretty high right now. I'm not worry at all because I have 30+ years left. If a fund's price goes down, then I'm not worry because I will be buying more shares of that funds than if it was at a higher price. The lower the price, the more share you can buy; while the higher the price, the less share you can buy with the same amount of money. It's called cost-dollar averaging and I follow it.

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Hold on, Brand New. You're doing well so far, don't be seduced away from the righteous path. Here's the rule in your situation: avoid all salespeople. Edward Jones will offer you little or no value and rake off a percentage of YOUR MONEY, most likely for the entire duration you hold the accounts, which could be fifty years or more! Believe it or not, this could add up to hundreds of thousand of dollars! Everybody here is telling you the truth: you can do the self-directed thing, it's not hard, and you will not make any mistake if you follow Tony's plan. If you just make regular contributions into a Vanguard Target Date fund, don't stop contributing and don't sell when the markets get turbulent, there is a very high probability--almost a mathematical certainty--that you will do better than 70 or 80% of investors, including those who are paying for high-priced advisory services. I realize this is counter-intuitive, but it's actually the case. Read some of those books we mentioned earlier and you'll understand why. In the meantime, self direct, don't talk to any sales people, pick the Target Date fund and sign up to contribute a little more than you are comfortable with. You will be very pleased by the result.

 

A couple of other thoughts: Kat, I'd mentioned the Trad IRA option earlier in this thread, but backed off because of something Tony pointed out: Brand New needs straightforward, easy-to-follow advice at this point, and we weren't doing her any favors by throwing out a variety of options, albeit good ones. I endorse Tony's suggestion, and sugget we all do, because it's entirely reasonable, can be put on "automatic" via her employer, and can last a lifetime, including when she is contributing far above the Trad (or Roth) IRA limits. She'll have time to explore some alternatives later if she wants, but Tony's plan is completely sound, even if she never changes a thing until retirement.

 

My other thought is that while I want to scare you away from the predatory salespeople that swim in the water around teachers with 403b accounts, Brand New, I don't mean to say that all people who help with financial matters are to be avoided: some become necessary at different times of life, including accountants and estate lawyers. But in this situation, the better move, no contest, is to just check that self-directed box and set up an account with Vanguard. Please keep us posted.

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Brand New, I'm sure Mark, if he's still around, can do a better job than I of concisely explaining why you don't want MetLife or any of the other insurance company annuities, but you can start with those "surrender fees."

I'll venture to say that the only reason those four insurance companies have the most popular products in your district is that they have the most visible and aggressive sales forces. Make no mistake, those sales and advertising costs are borne by their customers. Insurance annuities are, with very rare exceptions, costly products that are structured very much for the financial benefit of the insurance company owners and their salespeople, not the investor. I don't know what you are being asked to buy, but a 5% up-front commission is not uncommon--that's 5% of your money directly "invested" in the salesman's pocket. Then there are all sorts of other fees buried in the product and hard to locate, not to mention those surrender fees.

 

With a couple of exceptions like Mark, those of us posting here are current or retired teachers (I teach at a community college) who have taken an interest in the subject and don't like seeing our fellow teachers ripped off. We're not financial professionals, and we're not selling anything. Unfortunately, the origins of the 403b were tied to annuities, and while many clearly superior options for supplementary retirement investment have emerged over the years, school districts have been reluctant to act in the interest of their employees. Thus, grossly inferior but aggressively marketed products still dominate the scene.

 

If you have the time and inclination, google around for articles that discuss annuities and 403b. Avoid the articles sponsored by insurance companies--look for ones in third-party magazines or financial guides. Or better yet, read a good book on investing for retirement (The Bogleheads guide, maybe?). You'll get the picture. Until such time you've researched it yourself, though, please trust us on this one--avoid the annuity salespeople. Follow Tony's advice about the Vanguard target date fund. It's an excellent option.

 

 

See this thread: http://bwise.ibforums.com/index.php?showtopic=5272&st=0&do=findComment&comment=29190 It describes an unfortunate teacher who invested in an annuiy for 20 years and is about to have a come to Jesus meeting with yours truly next week. BN, invest in the Target fund-it balances itself until you get a better handle and the cost is unbelievably low. You don't need to pay anyone-you can do it!!!

 

"Investors should remember that excitement and expenses are their enemies." -Warren Buffett

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