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New Member / New Parent Needs 403B Advice

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Good afternoon,

 

I recently stumbled across the "Teach and Retire Rich" podcast and the NYT article on 403B accounts, which lead to me to this website and what seems like a wonderful and helpful community of people. I also became a father in June, which has made me want to take stock of my family's overall finances a bit more with a unified plan. I am not sure if this is the appropriate forum for my questions, but any advice, guidance, or tips would be greatly appreciated, as I get the sense from the podcast that many educators are grappling with the same issues.

 

Like so many others on here have likely experienced, when I started teaching nine years ago at age 21, I signed up for a 403b account through a representative who showed up at my school without really understanding fees or the long-term financial implications; I heard retirement savings and thought it sounded responsible, so I just did it. In going back and assessing it now, I am hoping for help with 3 questions:

 

1) If I want to get out of the annuity products / company I am with, what is the best way to do so? I am currently signed up for the MetLife Financial Freedom Select, with a large portion of each contribution going toward a fixed income account. There is currently about $22,000 in the account, and I am not sure what the tax / fee penalties would be to switching a different provider and away from an annuity structure. My wife works for a hospital system and also has a 403b with an employer match, so we max that out; my plan is a supplement to that plan. I also am part of the NJ state pension system at the Tier 2 level.

 

 

2) Of the list of providers my school contracts with, does anyone have experience with them or recommendations as to which are best / low fee? Here is the list provided by my payroll department:

 

403(b)

Company Name

VALIC

AXA Equitable

Lincoln Life

Met Life

Security Benefit

Lincoln Investment Planning

USAA

 

403(b)(7)

Company Name

Aspire 403(b) (formerly 403 ASP)

Security Benefit/NEA Valuebuilder

AXA Equitable/Pen Serve

Lincoln Investment Planning

 

457(b)

Company Name

AXA Equitable

 

 

3) Is it a good idea to pay for the advice / services of a NAPFA fiduciary in my area? I like researching things myself; however, I feel it may be wise to pay a professional for an initial assessment as I change 403b's and look into setting up a college fund for my daughter and potentially a Roth account. Does anyone have any experience using a CFP as a fiduciary or a recommendation of a good one in the central NJ area?

 

I know there is a lot of information in here, but I am feeling a bit overwhelmed and this seemed like a helpful forum, so I figured it was worth a s. Thank you to anyone who takes the time to read / respond.

 

- Nick

 

 

 

 

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Certainly defer to those that know better than me but here's my 2cents.

 

You are to be commended on starting at 21.

 

In regards to your metlife account, put the weight on them to send you all documents with all information. This may take some digging (it did with my servicer here in Chicago) but you will only be confident you took the best root once you have all the information. Once you know, you can make a decision on what to do.

 

Of those companies listed, USAA strikes me as the most reliable. What's important is what funds you can invest in.

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Hi Nick,

 

Some quick answers to your questions:

 

1. Contact your rep and ask the dollar amount of the surrender charges should you move to another vendor. Also ask about the penalty free options should you choose to do it over time. In the meantime, ask him to re-assess your risk profile and have less money allocated to the fixed income account.

 

 

2. My initial choice would be to open a 457 and use Aspire. If you're comfortable opening and managing the account yourself, you can find forum posts of instructions on how people have done this. If you prefer to have someone assist you, then make sure they build an ETF portfolio that isn't too complex. You just need simple right now.

 

If you decide to stay with a 403(b), Lincoln Investment Planning will let you build a Vanguard portfolio, even using Vanguard Target Date funds. They will assess an annual management fee to your account (at your balance it will likely be 0.9%), but ask them not to tack on the rebalance fee as you will instruct them to do that yourself (if you don't use the Target Date fund).

 

While USAA is a reputable company, I'm not aware of their mutual fund choices inside their 403(b). I would ask for a prospectus if you are looking at them, and post to these forums if you'd like insight.

 

 

 

3. I can't comment on question 3 without a conflict of interest as I am a NAPFA advisor.

 

Best of luck!

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I can answer your 3rd question about finding a genuine fiduciary financial adviser. There is an additional organization called Garrett Planning Network that you can also check out for an adviser in your area.

 

Finding an adviser is tricky. You need to prepare yourself by having some sort of a plan worked out. Since you are resourceful and you sought us out here, I would insist that you just pay the adviser by the hour but you need to do some work.

 

To help you prepare, below are real life examples of six friends who interviewed a fee only profession found on either Garrett or National Association of Personal Financial Advisers.

3 women and 3 men:

  • Two are happy because the adviser cleaned up their mess and are satisfied with the returns.
  • One is very happy he got rid of his broker and is now making higher returns
  • One friend had a hard time getting her questions answered, and the adviser was defensive at times. (I was surprised this friend needed help because she already knows a lot.) But, she is happy with the adviser now. He charges $250 per hour and .50% AUM. He manages her investments.
  • One friend rejected the adviser because the adviser recommended to my friend to sell his large gold holding (my friend will never sell his gold. I also said get rid of that gold!! and build a diversified portfolio. This friend is not smart enough to recognize good advice, unfortunately. Sit down when you read this--my friend still believes his broker who says gold is going to $3000 an oz. Like I said, he isn't smart about investments and refuses to learn either).
  • One friend rejected the .75% AUM, assets under management fee. He thought it was too high (I agree!).

Based on what I heard from this small sample, if you want the adviser to manage your portfolio for you, he or she might charge an AUM up to 1.25%. THATS WAY TOO MUCH!

 

If you bring in a plan that you manage and you want the adviser to look over the plan and make suggestions, then the hourly fee should suffice. The Garrett rep told me that any potential client has the right to hire and just pay the hourly fee. However, if you want the adviser to do everything, you will have to pay them AUM, or a retainer.

Hopes this helps. Hiring a financial adviser is a very important decision. Sometimes hiring a financial pro that takes care of your best interests is more difficult than managing your money without help. Don't be intimidated!

I suggest that your hire an adviser and keep him or her for a year or two, learn from him or her to manage it yourself and say thank you and continue on yourself.

Tell us what happened after you meet with an adviser. People need to learn how to use one for the client's best interest.

 

Good luck,
Steve

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It’s interesting that the district's list is divided into the annuity based 403b providers, and the mutual fund based 403b7 providers. Usually they are all mixed up together. Many of the insurance companies sell both annuity based and mutual fund based 403b plans. I guess you now realize that an annuity based 403b is far from ideal for retirement investing. I think you’re getting good advice on finding out more about your MetLife variable annuity.

Although 403bcompare.com shows that USAA has several index funds in their mutual fund based 403b, your district’s list has them with the annuity sellers but not with the mutual fund based sellers. Their S&P500 Index fund has an ER of 0.26% and a $10/yr acct. maint. fee. USAA is a respected firm which specializes in banking and insurance but does do investing and mutual funds. I think a total fund fee of 0.26% is low enough to be considered if it’s available.
Lincoln Investment Planning, with its Retirement Solutions Premier plan adds a 0.90% fee that adds to Vanguard’s very low priced ERs (plus about a $45/yr custodial fee). So a VG Total Stock Mkt fund would cost about 1%. The poster A440 on the Boglehead forum, with the help of his union the NJEA, has been able to talk Lincoln out of the 0.90% fee. I see you are in NJ so perhaps you can take advantage of this? https://www.bogleheads.org/forum/viewtopic.php?f=1&t=175295
Finally there’s Aspire. They call themselves an Aggregator, and they allow investors to choose from a wide variety of funds and fund providers, including Vanguard's low-fee index funds. They add 0.15% to the fund’s ER and a $40/yr account fee, part of which they keep and part of which goes to the provider. They allow investors to be “self-directed” and avoid an advisor fee.
So you have at least 3 good possibilities for a much better 403b than the one you have.

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1. Get out of met-life. Ask for paperwork to transfer out. Sometimes its online. If not call your Third Party Administrator.

 

2. Yes there will possibly be surrender fees and perhaps other smaller fees. Bite the bullet. Don't think twice-its alright. Pay them.

 

3. Sign up for Aspire. The forms are online at https://www.aspireonline.com/resources/forms-documents-library. If unsure, call Aspire. They will guide you.

 

4. Fill out the form and give it to the central office person at your school system in charge of 403b.

 

5.Fill out form and mark self direct where it asks for financial advisor. Pick a Vanguard Target Retirement that matches your retirement age. Its a fund of index funds. Really its all you need. Call Aspire for help with this too if needed.

 

6.After giving the completed form to your school district,soon you see the deductions out of your paycheck.

 

7. Your fees will be much much less than Met Life. Aspire does charge an administrative fee of .15-.19 a year. When added to Vanguard fee it will be very minimal.

 

8. Forget the advisor. You don't need one at your age. What you need to do is save as much as possible. Maybe later you can get advice from a planner.

 

This is what I would do if I were you at your age knowing what I know now.

 

Tony

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Hi Tony,

I don't understand number 8, about first forgetting the adviser and then later one maybe getting an adviser.

 

As you know, I love continuing discussions about hiring a fee-only fiduciary because it is very difficult. I agree that by the time people learn the basics they figure out they don't need an adviser. Its strange and as DIYers, we need to discuss how an adviser can bring a newbie along to eventually become a DIYer. Paul Merriman suggests hiring an adviser for a year or two to learn to do it yourself.

 

But talking with my friends that I mentioned above, they believe that understanding investing and investments means finding that right investment. They understand diversification, but they don't think in about constructing a portfolio, and don't understand how the stock bond split works. Allocation doesn't take care of the emotional baggage, and 2 of my friends have trusting issues with the adviser they interviewed, while another friend rejected the adviser's suggestion that he sell his gold! OMG, sell his gold was to him ludicrous because his broker says it's going to $3000.00. I hired him the same adviser to take care of my trust should something happen to me. But my friend did not trust him! Go figure! It's emotions. People cannot see good recommendations for a fee-only genuine fiduciary because of emotions.

 

All of my friends are knowledgeable enough to go on their own. But some won't or would rather stick with his broker. SAD!

 

We are extremely fortunate that we will never need a FA. Think of the money we have saved over the years!

 

Steve

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I agree with Tony that you don’t need an advisor for an “initial assessment”. Your own initial assessment is fine.

  1. get out of expensive MetLife 403b and start a low-cost mutual fund based 403b.
  2. start a college fund for daughter
  3. start Roth IRA accounts

You don’t need to pay anyone to confirm the above. Once you get started, you’ll see that these are DIY chores. If you have questions you can ask the folks here for their opinions. You probably do need to do some more research about the above 3 topics and investing in general.

I think first of all you need to stop contributions to the MetLife variable annuity. Then you need to decide on your new provider and fill out their forms and mail them in. If there’s a Third Party Administrator, check with them about the required forms and procedure. It may take several weeks or more to get the new account established. Then you can restart payroll deductions again.

With the new account established, you can focus on moving the MetLife funds into the new account. You need to find out about the surrender fees and what it will cost you to delay vs getting out all at once. There are no tax penalties to transferring your funds from MetLife to another 403b provider. MetLife will have surrender fees that decline over a number of years after each contribution. The transfer no doubt involves forms from the old and new providers as well as the TPA if there is one. The process often takes several months.

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I really appreciate all the thoughtful responses and everyone taking the time to help out. I wish I had known about this forum when initially starting out; I would have likely saved myself some time and money.

 

I called around to a few advisors and most seemed to offer some combination of either an hourly fee or a flat rate for an overall assessment. I think what I am going to do is take the advice of the previous posters on here and try to plan out as much as I can myself, then pay an advisor for 1 or 2 hours to look everything over and make sure I am not making any obvious or egregious errors. This consultation is just as important for my piece of mind, as I tend to be a little overwhelmed / intimidated by all the financial jargon, products, and fee structures.

 

I am going to stop the payments to the MetLife fund and I think switch to Aspire. After doing a bit of initial research, they seem to have some good low-cost mutual fund options from a variety of different providers.

 

One thing I am still a little confused on: if I pick a target date fund, do those funds allocate and diversify within the fund? Meaning, would my entire allocation be to one target date fund which would then allocate for me, or, would I need to choose a target date fund and pair that with multiple other options of my choosing? If it is the later, what are the primary consideration in the decision process?

 

Again, I really appreciate the help and time, and am looking forward to continuing to learn and become more active on these topics.

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One thing I am still a little confused on: if I pick a target date fund, do those funds allocate and diversify within the fund? Meaning, would my entire allocation be to one target date fund which would then allocate for me, or, would I need to choose a target date fund and pair that with multiple other options of my choosing? If it is the later, what are the primary consideration in the decision process?

All you really need is the TR fund--you don't need to have other funds in the account. VG TR funds have stock and bond funds that cover domestic and international.

 

403bwise on Target Retirement funds: http://403bwise.com/k12/content/59

Vanguard has lots of good educational material on investing—it’s worth prowling around their website. Links on Target Retirement funds: https://investor.vanguard.com/mutual-funds/target-retirement/#/ Click on a particular bar to get a details. You should choose a TR fund based on the asset allocation you want, not the retirement year.

I agree with the other posters that Aspire is a good choice for you. You're making progress already!

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NJ

 

A target fund pretty much contains all the stocks in the universe and all the bonds in the universe. Don't let salesman or anyone else fool you into thinking one fund is better than another. When you own an index you pretty much own everything. I like index funds now. I didn't like them much when I was younger. I didn't understand them. The reason we have thousand upon thousand of mutual funds is because companies make money off of them. In one way or another in different weights they own the same stocks and bonds that you would own in an index.

 

A target fund will be very diversified and it really is all you need. Plus it is managed for you by pros internally.

 

At your age I wouldn't worry about an advisor. You can learn as you go. Pros messed me up. Had I stayed away from them I would have done better. I am retired now. Once I went to index funds and low costs my money did very very well.

 

 

keep it simple-you won't regret it.

 

 

Tony

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Just a quick update that confirms my decision to switch and the reason for my frustration with Met Life. Just got off the phone with one of their representatives and the surrender penalty is $1,622 for a one time full account change; otherwise they have a 12 year surrender schedule. My interest rate was also 3%. Simply absurd. I feel foolish for having signed up but am so glad to have come across the resources on here so this did not continue for the next 30 years. Will definitely be sharing this information with my colleagues.

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Hi nj,

 

As the others have said, congrats for finding us early in your career and getting yourself straightened out.

 

I paid $6000 in surrender fees 20 years ago for two of those worthless, ripoff annuities, and transferred them into no loads, fidelity, and then to Vanguard when I retired.

Never looked back, and I was a lot older than you at the time.

 

Also show your colleagues the NY Times 5-part series.

Just curious, are you aware of the recent NY times 403(b) articles? http://www.nytimes.com/2016/10/23/your-money/403-b-retirement-plans-explained.html

 

Best of fortunes,

Steve

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