Jump to content
raido_me

Choice Of 403 B's

Recommended Posts

Hello all,

 

I've been reading this board for the last couple of weeks, trying to educate myself on the in's and out's of 403 b's. My story is unfortunately all too familiar. About 10 years ago I started teaching in a new district and got pulled in by the tendrils of the dreaded AXA representative into a high fee annuities plan.

 

I've since then realized the error of my ways and am trying to rectify my mistakes and educate my colleagues on the dangers/pitfalls of most of the plans my district in Massachusetts offers. Here is the break down:

 

American Funds

AXA(EquitabIe)

Fidelity

Galic

Great West Retirement Service (formerly ING)

MetLife

MFS Retirement Center SECI

USCM (Nationwide)

Unfortunately, 75% percent of the people in my district are using AXA. I'm hoping to change that. The sad part is, when I called our HR person and mentioned my concerns, she she asked who I was using. I told her AXA and her reply was "Oh..of course you want to switch" Grrrrrrrr. If they know its a horrible plan why are they using it?

So I guess my request is two-fold. 1). From reading the discussions here, I see Fidelity is my best bet. I plan on calling the rep and setting up a new 403 b. But I want to be as informed as possible when I sit dow with the Fidelity rep and try to avoid my past mistakes. What funds specifically should I be investing in? Are there any questions or concerns I should bring up when I do this. I already spoke with my AXA rep and he knows my plan as well. He didn't seem surprised, and actually sounded like he was trying to help me.

2). Could anyone here offer some insight to the other plans I listed above. I'd like to highlight the pros's and con's of these as well when I speak to my colleagues. It would help too if I decided to bring this up with the powers that be and try and get some better options for my district.

I've already learned quite a bit from stalking these discussions from the shadows, but now that I'm here, any and all information/advice you all gave would be GREATLY appreciated. Thanks in advance

Share this post


Link to post
Share on other sites

Fidelity is not only the only vendor on the provider list with low-cost index funds, Fidelity's 403b plan is a slightly lower-cost than Vanguard's. I don't think you can do any better. If you use 403bcompare.com to check out the offerings of the other 7 providers, I'm confident that you will find their offerings have very high fees.

 

The Fidelity funds I would use would be:

Total Stock Market Index

Total Bond Market lndex

Total International Stock Market Index

 

Fidelity does offer a very long list of managed (non-index) funds and sector funds that have high expense ratios, so stay away from them.

 

Congratulations, you are very fortunate to have Fidelity for your 403b!

Share this post


Link to post
Share on other sites

krow36, not all the funds you listed are available. Here is a list of the index funds available with my schools Fidelity plan with their ER. Ideas of which ones I should focus on?

 

Large Caps

 

Fidelity® 500 Index Fund - Premium Class

FUSVX .045%

Fidelity® Large Cap Core Enhanced Index Fund FLCEX .45%

Fidelity® Large Cap Growth Enhanced Index Fund

FLGEX .45%

Fidelity® Large Cap Value Enhanced Index Fund

FLVEX .45%

 

Fidelity® Nasdaq® Composite Index Fund

FNCMX .29%
Fidelity® Total Market Index Fund - Premium Class FSTVX .045%

 

Mid Cap

 

Fidelity® Extended Market Index Fund - Premium Class FSEVX .07%

 

Fidelity® Mid Cap Enhanced Index Fund FMEIX .6%

 

Fidelity® Extended Market Index Fund - Premium Class FSEVX .07%

 

Small Cap

 

Fidelity® Small Cap Enhanced Index Fund FCPEX .68%
Fidelity® Small Cap Index Fund - Premium Class FSSVX .07%

 

 

International

 

 

Fidelity® Emerging Markets Index Fund - Premium Class

FPMAX .14%

 

Fidelity® Global ex U.S. Index Fund - Premium Class

FSGDX .11%

 

Fidelity® International Enhanced Index Fund

FIENX .63%

 

Fidelity® International Index Fund - Premium Class FSIVX .08%

 

Specialty

 

Fidelity® Real Estate Index Fund - Premium Class FSRVX .09%
Fidelity® Four-in-One Index Fund FFNOX .11%

 

Bonds

 

Fidelity® Inflation-Protected Bond Index Fund - Premium Class FSIYX .09%
Fidelity® Intermediate Treasury Bond Index Fund - Premium Class FIBAX .09%

 

Fidelity® Long-Term Treasury Bond Index Fund - Premium Class FLBAX .09%

 

Fidelity® Short-Term Treasury Bond Index Fund - Premium Class FSBAX .09%

 

Fidelity® U.S. Bond Index Fund - Premium Class

FSITX .05%

Share this post


Link to post
Share on other sites

Actually your list does show the funds Krow suggested or did I miss something?

 

 

The Fidelity funds I would use would be:

Total Stock Market Index-Fidelity Total Market Index

Total Bond Market lndex- Fidelity U.S Bond Index Fund

Total International Stock Market Index-Fidelity International Fund

Or you could do Fidelity 4 in 1 Index Fund which pretty much has the four funds above.

Tony

Share this post


Link to post
Share on other sites

Thanks for clearing that up, Tony. Because the first one suggested had the word Total in the Title, I was looking for specifically for that in the Bond Market and International Market.

Share this post


Link to post
Share on other sites

If the names of funds confuse you use the ticker so you get the fund you want right

 

 

 

The 4 in 1 Index Fund Looks Good To Me if you are not too close to retirement. Here is the breakdown. I would consider just buying this fund to keep it simple and it contains pretty much the same funds Krow suggested. Here is how the fund is composed:

Domestic Equity Funds
60.04%
International Equity Funds
25.21%
Investment-Grade Bond Funds
14.73%
Cash & Net Other Assets
0.02%
NET OTHER ASSETS
0.02%

Share this post


Link to post
Share on other sites

raido_me, as Tony mentioned, whether the Fidelity® Four-in-One Index Fund FFNOX .11% fund is appropriate for you depends on what your desired asset allocation (AA). 85/25 stock/bond seems fairly aggressive to me, appropriate for someone in the 20s. Have you decided on your AA? That's the first step. Remember if we have another downturn like we had in 2008, that 85% stocks could cause the portfolio to drop by over 40%! Were you invested in 2008-2009 and how did you react? As you get close to retirement I would want to be no riskier than about 60/40. Others may disagree.

 

The next decision is to decide on the percentage of stocks you want to be international stocks. Anything from 0% to 40% is commonly used and recommended, but it's a personal decision. I think 20% to 30% is the most common recommendation although John Bogle prefers 0% and Vanguard itself uses 40% in their Target Retirement and Life Strategy funds. I'm about 10% myself.

 

Once you decide on these 2 ratios, it's easy to work out the percentages using those 3 Index funds. I believe the Fidelity® Global ex U.S. Index Fund - Premium Class FSGDX .11% includes emerging markets and N. America which Fidelity® International Index Fund - Premium Class FSIVX .08% does not. I'd pick the more diversified FSGDX.

 

 

Share this post


Link to post
Share on other sites

Thanks, Krow36. I am currently 39 so I've got some time to work with before retirement but not like that of a 20 year old. I was invested during the 2008 downturn but honestly, I wasn't watching it all that much at the time. Did you mean 85/15 split seems aggressive. 85/25 would be 110%. I'm trying to figure out my AA at the moment. I do have some time so I don't mind being a little aggressive in my approach but I'm definitely not investing like a 20 year old. However, I would like to make up some the time/savings I have lost by being enrolled with AXA for the last 10 years. Maybe a 75/25 split?

Share this post


Link to post
Share on other sites

OOOOPS! I meant 85/15 which is what the Four-in-One Index fund is. 75/25 for a 39 yr old seems reasonable to me. What are your thoughts on the percent of stocks you want to be international? Are you contributing to an IRA? If so hopefully it’s at a low-cost provider like Vanguard or Fidelity etc? Do you have a 457 plan available in your district? If you have a working spouse, the 457 plan can be very useful for adding to the family's tax-deferred retirement savings.

Share this post


Link to post
Share on other sites

I was thinking 20% international. I do have a roth IRA, but my contributions to it have been sporadic at best. That is next on the to-do list once i get the 403b figured out. It is with American Funds. My brother-in-law help me set it up about 15 years ago back when i had no idea what i was doing but knew I wanted to start saving for retirement. I'm not sure what I am paying for fees with that.

 

We do have a 457 plan, but I do not have a spouse. The index based funds in the 457 plan seem to have a low ER as well, but I haven't looked at it too much.

Share this post


Link to post
Share on other sites

OK, 75/25 stock/bond and 20% of stocks in international. That works out to:

60% US stocks

15% international stocks

25% bonds

It’s good that you have at least started a Roth IRA 15 years ago. Folks on this forum think that the biggest problem with American Funds is their 5.75% loads. Their expense ratios are usually between about 0.5% and 0.75% which is high compared to Vanguard and Fidelity and a few other providors. So it would be a good idea to move your Roth IRA to either Vanguard or Fidelity and since you’ll have your 403b with Fido, I’d move the Roth there. You don’t have to deal with the AF broker that has the Roth now, just call up Fido and have them pull the account out for you. You might want to go to sell the AF at the brokerage. Fido can tell you whether it’s cheaper to sell at the AF brokerage, or at Fido after the transfer. The move will be a trustee to trustee transfer that has no tax consequences.

The State 457 looks like an excellent plan with rock-bottom fees. You should probably consider the advantages of a 457 vs a 403b plan. The big appeal to a 457 plan is that you can take penalty-free distributions from it after terminating with your employer regardless of age. With a 403b the age is 55 and with an IRA it’s 59. The early distribution fee is 10%. The 457 fits in well with plans for an early retirement. Teachers often have burn-out problems and so having choices is a plus. Of course you can contribute to both a 403b and a 457, up to 18k to each!

Share this post


Link to post
Share on other sites

Krow

 

I don't want to complicate things but here is a few thoughts

 

1.If radio me stays in education and has a defined pension and SS, according to Bogle a more aggressive position into stocks is an acceptable position. I was 100% stocks forever. Now at age 62 I'm 50/50. I doubt I will go any more conservative.I have been retired about five months now and we are easily (wife and me) living on our pensions alone. I even have a son in college!!! No SS or taping into our savings which is substantial. Radio me , a good move for you is to get married to someone who also has a defined pension plan. Of course marry for love but finding that perfect partner is a good financial move.

 

2. American funds are o.k but the loads make them something to avoid. Always go rock bottom on fees. Fidelity has what you need.

 

3. I have maybe 17 % of my allocation to Internationals and I am not crazy about them but believe having some exposure is probably wise.

 

4. Try to keep your allocation simple as possible with few funds. Thats why I like the 4-1 fidelity fund

 

5. I would invest 40% tax deferred 40% Roth IRA (or even better Roth 457 or 403b) and 20% taxable (outside of a retirement plan) for flexibility and loss harvesting.

 

Tony

Share this post


Link to post
Share on other sites

tony, I think your slightly different point of view is just what is needed! Not everyone’s “sleep well at night” AA is going to be the same. Not all of us have nerves of steel! Our retirement income is made up of about equal parts pensions (I bailed out after 16 years), SS and RMDs. We were about 50/50 for the first 10 years of (early) retirement, after that 40/60. Assuming raido_me has a pension and SS waiting, I agree with your #5. A taxable account increases the choices you have approaching and in retirement. That excellent MA 457 really does offer a lot of future flexibility.

Share this post


Link to post
Share on other sites

Haha. Thanks Tony. I'll add "must have a well defined pension plan" to my next social profile. I do have a Mass Teacher Retirement plan as well as my 403 b and my Roth IRA. Participation is mandatory for Mass Teacher's as we do not put into or receive Social Security benefits. Our Mass Teacher's retirement is a substitute for SS.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...