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Broski499

I Ate Their Sandwhiches, But I Won't Be Eating Their Pie.

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I'm a first year teacher so everything is new to me. My Dad had been mentioning that I should look into starting a 403b to suppliment my pension when I retire. I was busy enough with being a new teacher that I didn't think about it. Then one day, there were sandwhiches in the lunch room and these people asking me when I wanted to retire. They said 403b and I thought, hey I need one of those. I scheduled a meeting and met with one of their reps. They started off by showing me where my pension would be by the year I retire and how to make up the difference with the income of a 403b. They talked about how the max I can put into a 403b is 18,000 and asked if I wanted to start puting in 1,800 a paycheck. They knew I was a first year teacher yet somhow they thought I could live off whatever was left after taking 1,800 out of my montly paycheck! Crazy. I say I can commit $100 to start and then go from there. They show me the return projection and something seemed off. Then I looked at what the projected return was and it was a crap 3%. Turns out it was an anuity. After having to email and call to get the thing cancled now I am trying to plan what to do next. I have so many options that my District allows but I'm not exactly sure where to start. I have a meeting with School's first credit union as they have a mutual fund option through nationwide. The fees are pretty low but I'm still a little lost.

 

Features

Portfolio Rebalancing
Managed Account Services

 

Managed Account Services

.70%

 

Asset Based Plan Administration Fee

.21%

 

Asset Fee

.04% or, .44%

 

Participant Recordkeeping Charge

Annual fee flat $4.00

 

There are so many funding options. Not really sure what to do. I don't know if any of you have heard of reddit but they have a personal finance subreddit and this was the advice I was given in terms of how to diversify my mutual fund.

 

For 403(b) funds, I would use:

  • 54% US stocks:
    • 81% DFA U.S. Large Company Portfolio 0.08% (DFUSX )
    • 19% Vanguard Small Capitalization Growth Index Fund Investor Shares 0.24% (VISGX)
  • 36% Nationwide International Index Fund Class A 0.7% (GIIAX)
  • 10% Dodge & Cox Income Fund 0.43% (DODIX)

 

 

Would appreciate any feedback!

 

 

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Love the title to your post!!

 

As a fan of Reddit myself, their r/personalfinance sub has some good advice. Until today - don't do a 403(b).

 

As a first year teacher, you should not be using a 403(b) unless it was a Roth 403(b). Even then, the Roth 403(b) expenses would be hard to justify against a Roth IRA.

 

Here's what I would do in your situation (and if I could talk to my wife 9 years ago when she was a first year teacher):

 

First build the foundation before investing for the future - pay off your consumer debt and get an Emergency Fund. Karma is a bi&*^ when it comes to untenured teachers being let go and even being RIFfed. You'll need cash in case that happens.

 

Once you've done that, then look to the future. Choose a well-known custodian (Vanguard, Charles Schwab or Fidelity) and open a Roth IRA. Start investing what you can, with the aim to get to 10-15% of your salary. For now, choose a target date fund closest to your retirement date or a total stock market fund, so the diversification will take care of itself. Until you get to a six-figure balance, you don't need to be too concerned about diversifying between different mutual funds.

 

Any questions let me, or the rest of us, know.

 

Dave

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Dave,

 

Just curious. I agree he should do the Roth IRA first since his plan might not have the best choices but why are you against a teacher starting a 403B ? If the choices are good and the costs low would it be advantageous to be in a 403b to reap the benefits of tax sheltered compound growth?

 

Tony

 

P. S. to Broski. I wish as a first year teacher I was as astute as you are. I might have avoided all the mistakes I made early on. Broski welcome to the site and we hope you will continue to post questions and insights. I too love your post title. It shows the right attitude!!!

Its o.k to be a little lost. You are asking the right questions.

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Love the title to your post!!

 

As a fan of Reddit myself, their r/personalfinance sub has some good advice. Until today - don't do a 403(b).

 

As a first year teacher, you should not be using a 403(b) unless it was a Roth 403(b). Even then, the Roth 403(b) expenses would be hard to justify against a Roth IRA.

 

Here's what I would do in your situation (and if I could talk to my wife 9 years ago when she was a first year teacher):

 

First build the foundation before investing for the future - pay off your consumer debt and get an Emergency Fund. Karma is a bi&*^ when it comes to untenured teachers being let go and even being RIFfed. You'll need cash in case that happens.

 

Once you've done that, then look to the future. Choose a well-known custodian (Vanguard, Charles Schwab or Fidelity) and open a Roth IRA. Start investing what you can, with the aim to get to 10-15% of your salary. For now, choose a target date fund closest to your retirement date or a total stock market fund, so the diversification will take care of itself. Until you get to a six-figure balance, you don't need to be too concerned about diversifying between different mutual funds.

 

Any questions let me, or the rest of us, know.

 

Dave

Interesting. My fiance and I have a foundation, been saving up for the past 5 years. We dont' have any debt. I have a Roth IRA through betterment with a 90% stock 10% bond diversification. .35% fee.

 

My fiance and I are hoping to buy a house in a year to two years so that is where the bulk of our income is going to go. I just wanted to get started on a 403b because compounding returns, amiright!

 

So from what I can tell you are not a fan of the Pre-tax accounts? How come?

 

From what I have been reading you gain a lot by putting pretax dollars in. What do they say, by putting 100 bucks in it only takes 63 bucks off your paystub.

 

I'm meeting with a retirement person from my credit union next friday to see what they offer.

 

My plan is to start at depositing $100 a month and then up it once we get a house.

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Dave,

 

Just curious. I agree he should do the Roth IRA first since his plan might not have the best choices but why are you against a teacher starting a 403B ? If the choices are good and the costs low would it be advantageous to be in a 403b to reap the benefits of tax sheltered compound growth?

 

Tony

 

P. S. to Broski. I wish as a first year teacher I was as astute as you are. I might have avoided all the mistakes I made early on. Broski welcome to the site and we hope you will continue to post questions and insights. I too love your post title. It shows the right attitude!!!

Its o.k to be a little lost. You are asking the right questions.

I guess my question to you is how do I know if I have good choices? Vanguard isn't one of my availible choices but I have access to vanguard funds through some of my choices if that makes sense. I've combed over the compare403b and I think i'm to the point where its becoming obsessive. I am only astute as my instinct told me somethign wasn't right with the people I met in the lunch room, then I found 403b wise and boom. Spent a few hours reading up and now I at least feel like I'm starting to understand all of this lingo. Really a lot to take in and I don't understand why a district would give you so many choices, really makes it a headache trying to go through and find the best one.

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Hi Broski,

 

Welcome. Do you live in California? If you do, CalSTRS Pension2 is an excellent 403b choice and if its not available to you (only California teachers), call CalSTRS and inform them.

I agree with you and Tony, debt or no debt, everybody should start saving something for long term retirement planning. You can choose Vanguard or TIAA CREF now for the regular Roth IRA.

You will have to literally write a check and send it to Vanguard or TIAA CREF. Open up an account and let them know.

We know the over whelming confusion that the choices offer. the insurance industry does that purposely, with over the top choices. The district is not giving you so many choices. Its the insurance industry and the corruption with the state insurance commissioners office. Our California state commissioner offices DEMANDS that districts must sign up every insurance company that signs the IRS and other agreements. The list is not your district's choice, its the state bullingly its way on all districts and all California teachers. And there is nothing we can do until enough teachers demand changes. Thank goodness you got the message early in your career by the sales pitches to IGNORE ALL, and I mean ALL insurance products!!!!!!!!!!!!!!!!!!!!!!

 

Lets keep the discussion going. Find out about Pension2, I think they changed the name BTW. And start that Roth IRA with Vanguard or Tiaa CREF. IMO those are the only two companies that have the ethics and low costs that I value.

Steve

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Hi Broski,

Welcome. Do you live in California? If you do, CalSTRS Pension2 is an excellent 403b choice and if its not available to you (only California teachers), call CalSTRS and inform them.

I agree with you and Tony, debt or no debt, everybody should start saving something for long term retirement planning. You can choose Vanguard or TIAA CREF now for the regular Roth IRA.

You will have to literally write a check and send it to Vanguard or TIAA CREF. Open up an account and let them know.

We know the over whelming confusion that the choices offer. the insurance industry does that purposely, with over the top choices. The district is not giving you so many choices. Its the insurance industry and the corruption with the state insurance commissioners office. Our state commissioners offices DEMANDS that districts must sign up every insurance company that signs the IRS and other agreements. The list is not your districts, its the state bullingly its way on all districts and all Calfornia teachers. And there is nothing we can do until enough teachers demand changes. Thank goodness you got the message early in your career by the sales pitches to IGNORE ALL, and I mean ALL insurance products!!!!!!!!!!!!!!!!!!!!!!

Lets keep the discussion going. Find out about Pension2, I think they changed the name BTW. And start that Roth IRA with Vanguard or Tiaa CREF. IMO those are the only two companies that have the ethics and low costs that I value.

Steve

I am in California. That is great news I will def look into that! So are you recomending I have a 403b through Calstrs pension 2 and also have a roth IRA open as well? Any adivce at which I should contribute more too? Thanks for all the help. Yeah I email the company that I got signed up for and they start going off on all of the benefits and what not, such a joke. Luckily I can pull my money out within 60 days of opening the account so I won't have to pay a fee or anything.

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To address a couple of points:

 

Broski499: You're off to a great start. Having a foundation and already be contributing to a Roth is a great start, you are ahead of many others in your shoes. It's not that I'm not a fan of tax-deferred acounts, it's that I don't think it's wise for someone so early in their career to start their savings there. Once Roths have been maxed, then it would be time to move to a 403(b).

 

Tony: My hesitation with teachers using 403(b)s is that when you fast-forward to retirement, all of your money is now tax-deferred (pension and 403(b)). It leaves you no wiggle room with taxes, so if they are higher than where they are now, you have no choice but to pay it. Also RMDs can be avoided and 403(b) expenses when compared to a Roth are often 8-10x more expensive. However, if someone is already doing a Roth, then a 403(b) in the next place to be saving.

 

As Steve said, stay away from 403(b)s offered by insurance companies (AXA, VALIC, MetLife, etc) - they are expensive options that take far too much of your money for the option of saving with them. If you have Fidelity, Lincoln Investment Planning or Aspire as options, they all have open investment platforms so you can choose whatever investments you want. There's still a fee to use a 403(b) on their platform, but it's better than using an annuity.

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Dave or anyone else.

 

I am about 50% 403B/457B and 40% taxable funds and only 10% Roth IRA. Should I stop the 457 tax deferred and go 100% Roth for my final year? My 457B recently starting offering a Roth 457 option.

 

 

This has always been confusing to me . I realize its best to have a mix of options but advice is all over the place about which should be funded.

 

 

Tony

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Tony,

 

Tough to give specific advice as I don't know you :)

 

If you're in your final year of teaching, and given the split you have between the buckets, it would be beneficial from a long term tax perspective to put more in Roths right now. It will cause your taxes to go up this year by doing so, but will give you added flexibility in the long run.

 

BTW, many advisors will tell you the opposite and emphasize the tax-savings benefit now. I think that can be a short-sighted view given that a lot of teachers pensions will be larger than their final salary at somepoint during retirement. (For many Illinois teachers, the crossover point is the 8th year of retirement where their pension is now larger than their final year's salary).

 

Best,

Dave

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I'm a first year teacher so everything is new to me. My Dad had been mentioning that I should look into starting a 403b to suppliment my pension when I retire. I was busy enough with being a new teacher that I didn't think about it. Then one day, there were sandwhiches in the lunch room and these people asking me when I wanted to retire. They said 403b and I thought, hey I need one of those. I scheduled a meeting and met with one of their reps. They started off by showing me where my pension would be by the year I retire and how to make up the difference with the income of a 403b. They talked about how the max I can put into a 403b is 18,000 and asked if I wanted to start puting in 1,800 a paycheck. They knew I was a first year teacher yet somhow they thought I could live off whatever was left after taking 1,800 out of my montly paycheck! Crazy. I say I can commit $100 to start and then go from there. They show me the return projection and something seemed off. Then I looked at what the projected return was and it was a crap 3%. Turns out it was an anuity. After having to email and call to get the thing cancled now I am trying to plan what to do next. I have so many options that my District allows but I'm not exactly sure where to start. I have a meeting with School's first credit union as they have a mutual fund option through nationwide. The fees are pretty low but I'm still a little lost.

 

Features

Portfolio Rebalancing

Managed Account Services

 

Managed Account Services

.70%

 

Asset Based Plan Administration Fee

.21%

 

Asset Fee

.04% or, .44%

 

Participant Recordkeeping Charge

Annual fee flat $4.00

 

There are so many funding options. Not really sure what to do. I don't know if any of you have heard of reddit but they have a personal finance subreddit and this was the advice I was given in terms of how to diversify my mutual fund.

 

For 403(b) funds, I would use:

  • 54% US stocks:
    • 81% DFA U.S. Large Company Portfolio 0.08% (DFUSX )
    • 19% Vanguard Small Capitalization Growth Index Fund Investor Shares 0.24% (VISGX)
  • 36% Nationwide International Index Fund Class A 0.7% (GIIAX)
  • 10% Dodge & Cox Income Fund 0.43% (DODIX)

 

 

Would appreciate any feedback!

 

 

If you go with CalStrP2, you could get funds very similar to those you listed for lower fees.

 

For example, Vanguard Institutional Index Fund is exactly the same as DFA U.S. Large Company but has lower total fees. VINIX with calstr has a total fee of 0.29% (admin + ER). DFUSX with nationwide will have a total fee of 0.53%. This is just one example. The same applies to the funds you listed.

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To address a couple of points:

 

Broski499: You're off to a great start. Having a foundation and already be contributing to a Roth is a great start, you are ahead of many others in your shoes. It's not that I'm not a fan of tax-deferred acounts, it's that I don't think it's wise for someone so early in their career to start their savings there. Once Roths have been maxed, then it would be time to move to a 403(b).

 

Tony: My hesitation with teachers using 403(b)s is that when you fast-forward to retirement, all of your money is now tax-deferred (pension and 403(b)). It leaves you no wiggle room with taxes, so if they are higher than where they are now, you have no choice but to pay it. Also RMDs can be avoided and 403(b) expenses when compared to a Roth are often 8-10x more expensive. However, if someone is already doing a Roth, then a 403(b) in the next place to be saving.

 

As Steve said, stay away from 403(b)s offered by insurance companies (AXA, VALIC, MetLife, etc) - they are expensive options that take far too much of your money for the option of saving with them. If you have Fidelity, Lincoln Investment Planning or Aspire as options, they all have open investment platforms so you can choose whatever investments you want. There's still a fee to use a 403(b) on their platform, but it's better than using an annuity.

 

 

Tony,

 

Tough to give specific advice as I don't know you :)

 

If you're in your final year of teaching, and given the split you have between the buckets, it would be beneficial from a long term tax perspective to put more in Roths right now. It will cause your taxes to go up this year by doing so, but will give you added flexibility in the long run.

 

BTW, many advisors will tell you the opposite and emphasize the tax-savings benefit now. I think that can be a short-sighted view given that a lot of teachers pensions will be larger than their final salary at somepoint during retirement. (For many Illinois teachers, the crossover point is the 8th year of retirement where their pension is now larger than their final year's salary).

 

Best,

Dave

 

Dave,

Here in California, I know that my pension benefit will never be higher than my final salary. This is true for the few lucky educators who were able to stay working until they got 90% salary pension benefit, but those educators are extremely few in number becasue one has to work 38 or more years. Who wants to work for somebody else for that long without health consequences and emotional burnout, HELLO! Thus, the average is about 65% of salary. I have 49% of my final salary covered.

 

I disagree that investing in a tax deferred account early is "short-sighted." That's a pretty strong statement and I usually agree with much of what you say. I was surprised and it might be confusing to new folks who come here. At LAUSD 72% of all employees are not saving at all, now that is a serious "short-sighted" problem! 72%! Nothing wrong with investing in 457(b) Roth, Roth IRS, tax deferred and after tax regular savings. If somebody has been using the tax deferred plan, they are more likely to have either a roth or aftertax savings too, so that not "all" of our retirement money is subjected to ordinary income taxes at retirement. And if they are, so what? At least they are not part of the 72% who have no tax deferred savings at all.

 

New folks, there is nothing wrong with only using your tax deferred plan only for the rest of your career. This discussion is the next step in case you want to look forward to the tax consequences in retirement and the Roth IRA is one way to keep your future taxes lower. Now having said all of this, nobody here to my knowledge is a tax expert, always check with your CPA or tax specialist when deciding tax consequence in these plans. Don't just take online discussions to heart as your only source. We merely share ideas and experiences.

 

Have a great day and best of fortunes,

Steve

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