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New Teacher needs help with 403b!

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Hello all. I would like to preface this by saying that I have very little knowledge or understanding of how 403bs work and  have been looking online for 403b resources, which led me to this forum.

Here is my backstory...

I have been teaching for the past 2 years and have been saving up in a Equi-Vest variable annuity 403b that was initially opened through AXA, which is now Equitable?

When trying to contact my advisor I eventually found out that she no longer works for the company and I was not notified. When my district sent out an email to set meetings with retirement specialist, I had a meeting with a different advisor that suggested I get out of the Equi-Vest annuity I am in now. He tried signing me up with National Life Group in a plan called LSW SecurePlus Elite 5. I told him that I wanted to do some more research before I made a decision.

I had stopped my contributions to my Equi-Vest 403b back in December since I realized I basically had no savings, which I am glad I did. Now I want to restart my contributions, but into a better plan if there is a better one for me.

I initially signed into the Equi-Vest annuity because it would allow me to borrow up to $50k from my own savings to purchase a home, which is my MAIN PRIORITY at the moment. It sounded good, I didn't know any better and kinda went with it because I figured it is better to start saving now.

My main question is, which of the plans offered by my district is the most advantageous to me and my situation? From lurking around the forum, it seems like Vanguard is the way to go? But I would like to understand why, if that is the case.

Also, how can I tell if the guy that was introduced to me by my district is legit?

Thank you all in advance!

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Hi Egg,

Welcome to the forum. Very happy you came here to get more information because you already knew something was wrong. You were about to be sold one of the worst plans for retirement. Most of us, including myself, were sold two annuities in the dark ages of the 1980s, and the same thing is happening 40 years later, and very little has changed. There is a long history of this website going back 20 years trying to inform colleagues. What happened to you is still happening to the vast majority of public k12 teachers in California and across the country. 

Looks like you are in California because you have CalSTRS Pension 2 and TIAA CREF. Both are the best that I can see from your long hideous list. Typical for California. The bad guys are getting very clever when they start using the two companies we love around here, Fidelity and Vanguard. I looked up Vanguard Fiduciary Trust Company, and they say they are a subsidiary to Vanguard. I think it's a red flag to avoid, but others here may know more. 

Your best plan is CalSTRS Pension 2. They have Vanguard. We love Vanguard because unlike an expensive and inappropriate annuity, Vanguard decades-old reputation is its low costs and broad diversification across the domestic and international stock and bond markets. If you are new to this, you can read up on John Bogle who started Vanguard back in the 1970s and read any of his books. You can also go to Bogleheads.org and visit their Wiki to learn more about indexing and John Bogle, which is the passive strategy for investing: https://www.bogleheads.org/wiki/Main_Page  Bogle just died last year at age 89. He was more than just an innovator, he always looked out for us, the regular investors. Vanguard has over 6 trillion in assets. I have my nest egg with Vanguard. 

Back to your question, as I said it looks like Pension 2 is where you can get started. https://www.calstrs.com/pension2 They have 3 types of portfolios, conservative, moderate or aggressive. 

Does your district have a 457(b) plan? Most California districts do. That's another option. In my district, Los Angeles Unified, the 457b plan has very low-cost target-date funds from Blackrock, which would be another place for you to start and begin learning to watch your money because nobody is going to do this better than you, educated in personal finance. 

Without knowing more about you and your current knowledge please let us know your thinking. We are here to help. We are not sales or advisers, but mostly teachers or spouses of teachers. I am a retired teacher from Los Angeles Unified. And I know your story all to well, and so do the others here. 

You are going to get great feedback from the smart people who frequent here.

Again Welcome! 

Steve

PS unless I am missing something, you do not have to talk to that salesperson again. Annuity salespeople are NOT financial advisers, they are salespeople that sell expensive products to get them a commission and ongoing high costs. Avoid them! 

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21 minutes ago, sschullo said:

Vanguard Fiduciary Trust Company,

From what I can gather  in my research this is Vanguard that we love and trust so you have a great choice among many losers. But hopefully Krow will step in if I am wrong.  Fidelity, if you stick to index funds is another great choice on your list. Always check the expense ratios.The lower the better.  Index funds are the best deal .

21 minutes ago, sschullo said:

CalSTRS Pension 2. They have Vanguard.

Steve is in California and would know so if he recommends CalSTRS Pension 2, you can trust his recommendation completely.

So you need to get out of that bad plan you are in and transfer it  over to the choices mentioned above. You can pick a simple 3 Fund Vanguard or Fidelity Index Fund ONLY Portfolio, or a  Vanguard  or Fidelity Index fund only Target fund if you want ultimate simplicity. and a hands off approach.

 

Ignore pretty much anything else on your long complicated list. You don't need to go there. It astounds me at the number of choices you have. It's a complicated mess and totally unnecessary as many of these vendors offer the same insurance type options that you want to stay away from.

 

Tony

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Hello, Eggbread.

I am in California, and that list is very close (maybe identical, I didn't check) to the vendor list at the community college where I teach.  Steve is correct, the "Life Group" salesperson is acting in his best interest, not yours, forget about that option.  (PS: take a look at that email from your district.  I wouldn't be surprised if upon inspection it isn't from the district at all, but instead sent by some salesperson adopting language about consultations you are entitled to by your district.   I have received such emails, and by design it would be easy for someone to think this came from your employer rather than a commission-based salesperson.) 

 We're all talking about a tax-favored retirement account for the long term.  However, if your main priority is a down payment for your home, you may be better advised to start a separate account, possibly a "regular" taxable account for that purpose.  (There is also a good argument for saving some money in low-risk investments as a reserve in case of emergency.)  A relevant question here is:  when do you expect to tap the money for the house purchase--one year?  Ten years? The answer to that will help us to suggest a strategy.  

The best options on your 403b list (and they are among the best options anywhere) are Fidelity and Vanguard.  If for some reason those don't suit you, CalSTRS Pension2 is also a not-bad option.  As Tony says above, "Ignore pretty much anything else on your long complicated list. You don't need to go there."

The main reason that the folks here prefer these vendors is their low cost.  Costs, especially when applied over a retirement saver's lifetime, make a surprisingly large difference in the eventual return on your investments.  With a retirement plan, you are dealing with fees charged to keep records of your account and the "expense ratio" of the funds that you invest in (there can also be additional invisible expenses eating away at your savings, having to do with trading by an investment manager, taxes, sales commissions or various shenanigans associated with some insurance products, but we will steer you clear of all of that). 

If you want to understand the importance of costs for investors, check out a PBS Frontline episode (I think it is freely available online) called "The Retirement Gamble," which features both Vanguard founder John Bogle and our own Steve Schullo, who replied to you above.  If you want more detail, read Bogle's "Little Book of Common Sense Investing."  

For the long term 403b or 457b, we can advise you on a simple, sustainable and super-low-cost fund or portfolio toward which you'll direct your contributions.  Fidelity is the very lowest cost provider, but there's a bit of a catch with Fidelity: like your district's vendor list, Fidelity's list of fund options is long and confusing.  They have excellent options, but you have to be very conscientious to find them: it seems to me that Fidelity is really hoping to trap their customers into more profitable (i.e., higher priced) funds, which often have almost the same names as the low-fee versions.  Once you've managed to set up your portfolio of index funds, though, they're great.  Vanguard charges slightly more than Fidelity, but the whole company was built as a cost-saving entity, so it is easier to set up a low-fee portfolio there.  

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Yes, Vanguard Fiduciary Trust Company is THE Vanguard that we all love! And Fidelity Management Trust is the excellent, low-cost Fidelity. Neither of these vendors will send reps to your school because they are internet based, with phone support. Their employees are salaried, and don't work on commission. Their 403b plans are not annuities, but are mutual fund based and are called custodial accounts. Either Vanguard or Fidelity would be an excellent choice for your 403b vendor. 

 

 

 

 

 

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4 hours ago, krow36 said:

Yes, Vanguard Fiduciary Trust Company is THE Vanguard that we all love! And Fidelity Management Trust is the excellent, low-cost Fidelity. Neither of these vendors will send reps to your school because they are internet based, with phone support. Their employees are salaried, and don't work on commission. Their 403b plans are not annuities, but are mutual fund based and are called custodial accounts. Either Vanguard or Fidelity would be an excellent choice for your 403b vendor. 

 

 

 

 

 

If I am confused after all of these years now I understand why newbies are so confused for months and years. I have never seen a discussion here, at M* discussion, or even at Bogleheads about VG Fiduciary Trust Company and Fidelity Management trust, NEVER! 

Learn something every day. 

Thanks,

Steve 

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16 minutes ago, sschullo said:

I have never seen a discussion here, at M* discussion, or even at Bogleheads about VG Fiduciary Trust Company and Fidelity Management trust, NEVER! 

It appears that these are sub-companies that work with institutions, pensions, etc.  If I recall correctly, when I rolled some 457b money into my Vanguard IRA a few months ago the check was made out to Vanguard Fiduciary Trust, per Vanguard's instructions (my name was on there somewhere, too).  I don't know whether that's new, but there have been changes at Vanguard--did you get the notice not long ago saying their physical mail will now go to an address in El Paso, Texas?

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50 minutes ago, whyme said:

It appears that these are sub-companies that work with institutions, pensions, etc.  If I recall correctly, when I rolled some 457b money into my Vanguard IRA a few months ago the check was made out to Vanguard Fiduciary Trust, per Vanguard's instructions (my name was on there somewhere, too).  I don't know whether that's new, but there have been changes at Vanguard--did you get the notice not long ago saying their physical mail will now go to an address in El Paso, Texas?

I believe I did but don't remember the specific city.

Yes, I knew that Vanguard's client's money is not directly with vanguard but it held in custodial accounts.  I believe their brokerage accounts are held by another firm.

But I never knew that these same companies can also receive direct contributions from employees. I have never seen either VG or Fidelity trust on a 403b list until now.  

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6 hours ago, whyme said:

If you want to understand the importance of costs for investors, check out a PBS Frontline episode (I think it is freely available online) called "The Retirement Gamble," which features both Vanguard founder John Bogle and our own Steve Schullo, who replied to you above.  If you want more detail, read Bogle's "Little Book of Common Sense Investing." 

I ordered a copy of the updated version of the book. I will try to read it by August in order to get a better understanding of 403b's in general before I restart my contributions with a new plan.

10 hours ago, sschullo said:

Does your district have a 457(b) plan? Most California districts do

I will look into this.

6 hours ago, whyme said:

A relevant question here is:  when do you expect to tap the money for the house purchase--one year?  Ten years? The answer to that will help us to suggest a strategy.  

I have been in the market for about a year, but have decided to wait until next year to purchase a house. My realtor's advice is to wait until all the government forbearance programs run out and see how the housing market looks then.

 

Between Fidelity and Vanguard, which is more beginner and user friendly, if there is such a measure?

I prefer to not have to worry and think about my money too much, but I am also beginning to get interested in investing in stocks and such. Is there an option to satisfy both needs, along with my house purchasing plan?

Edited by eggbread

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14 hours ago, eggbread said:

I  [...] have decided to wait until next year to purchase a house. My realtor's advice is to wait until all the government forbearance programs run out and see how the housing market looks then.

The stock market is the right place to invest for the long term.  But in the short term, it is volatile, sometimes wildly so.  Did you notice what happened earlier this year?  If you think you'll want the down payment in the next 1 to 2 years, I advise against putting that money in anything that has a risk of falling in value significantly before you want to withdraw it.  These days, with bond rates near zero, opening an FDIC insured savings account with an online bank that pays about 1%/year would be a good option.  Look at that house money as savings, not investment.

14 hours ago, eggbread said:

Between Fidelity and Vanguard, which is more beginner and user friendly, if there is such a measure?

I prefer to not have to worry and think about my money too much, but I am also beginning to get interested in investing in stocks and such. Is there an option to satisfy both needs, along with my house purchasing plan?

As I said above, I think the down payment should be separated from the retirement investments: the house payment is for use in the near future, it's not being invested for your retirement decades from now.  Someone else here may be able to identify an advantage to mingling those funds within a retirement account, but I can't think of any.

As to the easiest, no worries approach to the retirement account, I'd vote for Vanguard, and for investing in an all-in-one diversified fund--probably what is called a target date fund.  You'll need to pick the fund from a list (we can help) and how much per paycheck you'll contribute.  After that you can pretty much ignore it, though I hope you'll increase your contributions as the years go by, especially when you get raises.  The fund takes care of everything: it adjusts to become more conservative as you approach retirement age. 

PS: I wouldn't worry about the 457b plan.  Some states offer a great retirement plan in those, but California is not one of those states, so you are not likely to find any 457b options superior to Vanguard and Fidelity.  If your district is like mine, the 457B options are substantially worse than those two.

PPS: I should have said don't worry about the 457b YET. If you reach a point where you are contributing to the limit on your 403b, the 457 permits you to contribute even more to your retirement.  So it's good to know about--a nice option that school employees get that most people don't have--but for most people that's not an issue when you are just getting started.

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14 minutes ago, whyme said:

The stock market is the right place to invest for the long term.  But in the short term, it is volatile, sometimes wildly so.  Did you notice what happened earlier this year?  If you think you'll want the down payment in the next 1 to 2 years, I advise against putting that money in anything that has a risk of falling in value significantly before you want to withdraw it.  These days, with bond rates near zero, opening an FDIC insured savings account with an online bank that pays about 1%/year would be a good option.  Look at that house money as savings, not investment.

Currently I have an Equitable Equi-Vest variable annuity 403b plan that I have contributed to for a few years, with about $24k. The plan was to borrow that money from myself for the down payment on my house. I think I should be looking into moving the money elsewhere. Where do you suggest the house down payment money be held? Or are you suggesting that I cash it out and hold it in a savings account? The financial advisor guy was trying to get me to transfer it to National Life Group but I said I wanted to think about it.

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I'm reluctant to advise you because I don't know about that annuity plan.  Sometimes those annuities have big "surrender" fees if you pull the money out early.  You need to determine what the cost to you will be if you pull it now, and whether that would be notably different if you withdraw it in a year.  Do you have any paperwork related to that investment?

Another issue is taxes, assuming the annuity is in a tax deferred 403b account.  You'd likely have to pay full income tax plus a hefty penalty if you pull the cash out of there.  I know there is a provision to withdraw some retirement money for a house purchase under some circumstances, but I don't know much about it. 

In other words, I'm not familiar enough with the particulars of either the tax laws or the annuity rules to responsibly offer guidance, beyond urging you to learn more before making any move with that annuity.  If you have a tax accountant, that might be a good person to consult.  

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Eggbread, this is an addendum to my previous post.  I just reread that one and I see that I overlooked your idea of borrowing and repaying from the 403b annuity.  I have no experience with such a loan, but it does make a little more sense as a way to avoid taxes and penalty fees when opposed to the option of just cashing out the policy, which would likely cost you thousands.  Still, that scenario makes me nervous.  I have to wonder: are you sure you're in a financial situation where you can afford to buy a house or condo?  If you were advised to buy this 403b annuity as a way to buy a house, I'm afraid you got some bad advice from a salesperson. It would be advantageous if your 403b funds could remain in a 403b (or IRA) as part of a retirement fund, and the money to buy (and maintain) a house is unencumbered by tax or fee restrictions.  FWIW, in my experience, you'll need more money than you think when buying a place--there are a lot of expenses in those first couple of years. 

As I said earlier, it would be good to talk the specifics of your situation through with an accountant or other tax-savvy professional.  If you want to seek more specialized advice on a free online forum, I recommend you try posting at the Bogleheads site.  It is much like this site, but not focused only on 403b/ school employee concerns.  It has a large community of users, including retired (and current) lawyers and accountants who sometimes jump in to address questions.  The more specifically you can state the problem, the more precise the advice you are likely to find there. 

A couple of years back, I was shocked to get a letter from the IRS telling me that I owed $10,000+ in unpaid taxes.  This was out of the blue: turned out it was due to a paperwork error by a broker when I rolled over some retirement funds a year or two earlier.  Bogleheads told me exactly what I needed to provide in a letter to the IRS.  Problem solved, zero tax owed, for the price of one or two postage stamps.

Identifying and starting a good long-term 403b plan is easy, it doesn't really require much research, and is something I am confident that folks here can walk you through.  But it looks to me as if you have more complicated financial planning needs involving taxes, budgets, mortgages , insurance, etc.  Those may call for more expert attention.

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Whyme, do you teach English? You sound like an English professor. Krow sounds like a math teacher.  I have to wonder what impression I make when I write with all the grammar mistakes I make and  that I am often too lazy to clean up. I probably sound like someone who has just had a few drinks. Glad to see you contributing again.

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2 hours ago, tony said:

Whyme, do you teach English? You sound like an English professor. Krow sounds like a math teacher.  I have to wonder what impression I make when I write with all the grammar mistakes I make and  that I am often too lazy to clean up. I probably sound like someone who has just had a few drinks. Glad to see you contributing again.

I have two commercial writing style grammar checks, Grammarly checks for spelling as I type here. But you have to pay for these programs. The free programs are crappy. The other one is Style writer, that I use when I write blog articles and when revising my book. 

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