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DrDaddy

403(b)

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My wife met with a Travelers Life & Annuity representative. He was offering her an annuity called Universal Annuity. It has a $30 annual contract charge and a 1.25% M&E as well as underlying fund expenses. Does anyone know if this is a good annuity to invest in? It looked pretty good, but I wanted to get others opinion.

Thanks!

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This would be a very costly option. Let's assume that the underlying fund's expense ratio is 1% (and I would make a pretty fair bet that it is substantially more than that). Setting aside the $30 annual contract charge, that means the total expenses would be 2.25% when M%E charges are added.

 

Fidelity index funds, by comparison have an expense ratio of .1%

 

Everyone on this board must think that I am some sort of math nerd with these comparisons, but they are the best way that I know to show the importance of expenses. So, here goes:

 

Travelers option: $10,000 invested for 30 years at 8% with 2.25% expenses: $53,507

 

Fidelity option: $10,000 invested for 30 years at 8% with .1% expenses: $97,868.

 

That's a difference of >$44,000.

 

The only problem is that your wife may not have a low cost option such as Fidelity, Vanguard, T. Rowe Price, or TIAA-CREF. She should check with her district office to see if one of these four is available to her.

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DrDaddy,

I agree with westerndad. This is a typical 403b product ripoff. Stay away from it. Instead seek a low fee company as westerndad suggested.

 

PS westerndad, FYI, I like your math. It shows what the heck we are talking about when it comes to the tremendous impact of excessive fees, expenses and commissions. Keep it up.

Best wishes,

Steve

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Thanks, Steve. I checked out the Travelers web site for this product, and it's pretty bad. Five years of surrender charges, insurance options from here to high heaven, etc. I hope that DrDaddy really checks out the 403bWise web site to learn about this stuff.

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I have been trying to do the numbers.. they just dont add up for me..

 

$10,000 investment

30 year time frame

8% int.

Total - $100,626.57

 

Simple, Time Value of Money exercise

 

There is no way that someone is paying 50K in fees.. sorry I dont believe it...

 

M and E Fees are taken out qtly. its nearly impossible to figure out the costs.

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Guest Sierra

gr8:

 

Here is the calculation:

 

8.00 percent minus 2.25 percent equals a net return of 5.75 percent per year for 30 years. $10,000 invested with these assumptions grows to $44, 162 after 30 years.

 

8.00 percent minus 0.10 percent equals a net return of 7.90 percent per year for 30 years. $10,000 invested with these assumptions grows to $97,869 after 30 years.

 

Please let us know when you have achieved the same arithmetic answer as westerndad and I have.

 

Peace and Hope,

Joel L. Frank

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bottom line - Metlife just bought Trav Life & Annuity from Citigroup for almost $12 billion. Don't waste your time even completing the enrollment form for the U.A.!

 

Also, does anybody know anything about spousal continuations upon death on a 403b? It's my understanding a spouse (and only a spouse) can choose to take a spousal continuation on the account instead of taking a lump sum/payout, etc. However an Attorney for a large ins. co. is saying no way the IRS won't allow it, maybe a new proposed regulation i don't know about yet?

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Guest Sierra

The surviving spouse beneficiary of a 403(b) may title the account/contract in his or her own name.

 

Peace and hope,

Joel L. Frank

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gr8:

 

I got the same calculation as you for an 8% return, but that is WITHOUT expenses.

 

I calculated the figures WITH expenses in the following manner:

 

8% - 2.25% = a return of 5.75%

$10,000 with an annual 5.75% return over 30 years = $53,507

 

8% - .1% = a return of 7.9%

$10,000 with an annual 7.9% return over 30 years = $97,868

 

If this is an incorrect way of calculating, I will certainly stand corrected. What does the rest of the board think?

 

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The 2.25% appears to be incorrect. There is a 1.25% M&E, and the average underlying expenses are .75%. That makes the total charge of 2% with a $30 admin fee. This is the info that is in the Prospectus. The school district does not have TIAA-Cref of T Rowe Price. It has only annuities. WE liked the fact that we were going to get annual reviews with free rebalancing. I nor my wife have the time to watch the market. If we want full service, do you really think that paying 2% is too much? If so, do you have any ideas where we can invest the same amount of money? My wife was planning to max her 403(b).

Thanks,

DrDaddy

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Dr,

 

With an 8% return and 2% expenses (i.e., a 6% return), the hypothetical $10,000 investment returns $57,434 after 30 years.

 

This compares to Fidelity's 8% return and .1% expenses (i.e., a 7.9% return) returning $97,868 after 30 years.

 

Is paying 2% too much? That is entirely up to you. It's not too much if you feel like you are receiving a substantial amount of value from annual reviews, free rebalancing, and whatever other services you may receive.

 

Free rebalancing is not really that big of a deal, though. You could accomplish that automatically and without extra charge by using a target retirement fund. However, it looks like you do not have any no load funds to choose from. What you may be able to do is transfer the money to a no load group, but beware of surrender charges.

 

 

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Guest Sierra
WE liked the fact that we were going to get annual reviews with free rebalancing. DrDaddy

As you can see these annual reviews and rebalancing is costing you 200 basis points plus $30.00. DON'T LET ANYONE TELL YOU IT IS FREE!

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