Jump to content
TanP

What to do with funds after I cancelled National Life Group Annuity

Recommended Posts

I work for LAUSD, and I did not know much about 403b, 457b and retirement. I just knew that I had to save some extra money to supplement the pension. I have been doing some reading this summer about personal finance. 

For 403b, I made the mistake of signing up with the National Life Group Annuity (SP Platinum) but now I know better thanks to this forum. I have 10,656$ with them and the surrender value is 9,505$. This is my 4th year with  them, so the withdrawal charge is 12%. I cancelled the salary deduction with the district today.

What should I do with the funds from this account? Should I enroll in the CalSTRS Pension 2? Or can I transfer the funds to my 457b or 457b Roth? 

I have the traditional 457b with Voya through LAUSD, and I just enrolled in 457b Roth this summer.

I would appreciate some advice.

Share this post


Link to post
Share on other sites

TanP

I would get the paperwork for the CALSTRS 2 and enroll in the Vanguard funds they offer. Or if you have Fidelity or Vanguard you can do their index fund portfolios.

Don't worry about the surrender fee, you will make up any lost money quickly by paying the rock bottom fees you will get with Vanguard index funds or Fidelity Index Funds.

I speak from experience I've made the same mistakes so you can trust my advice. Stay away from most 403b offerings because they are simply not in your best interest. Don't be so hard on yourself for not knowing . Its a life lesson  and you can  now move on to a better option.

I can't comment your 457b plan because I don't know what you invested in from your post but you might want to put the 457 aside and concentrate on maximizing your savings in your 403b IF you can tap into Fidelity index or Vanguard index funds

Tony

Share this post


Link to post
Share on other sites

Thank Tony! I plan to contact CalSTRS tomorrow. I was wondering if the Pension 2 403b will be the same as my current 457b. If they are, I feel that it might be better to invest everything into one place? 

I still don't have a clear idea of what I'm doing with funds in 457b either. I have about $ 23,000, and I divided them into 4 pods:

25% American Funds Washington Mutual Investors (Large Cap)

25% Vanguard Growth Index Fund (Large Cap)

25% Vanguard Extended Market Index Fund (Mid Cap)

25% American Funds Euro Pacific Growth Fund R6 (International)

Share this post


Link to post
Share on other sites
9 hours ago, TanP said:

Thank Tony! I plan to contact CalSTRS tomorrow. I was wondering if the Pension 2 403b will be the same as my current 457b. If they are, I feel that it might be better to invest everything into one place? 

I still don't have a clear idea of what I'm doing with funds in 457b either. I have about $ 23,000, and I divided them into 4 pods:

25% American Funds Washington Mutual Investors (Large Cap)

25% Vanguard Growth Index Fund (Large Cap)

25% Vanguard Extended Market Index Fund (Mid Cap)

25% American Funds Euro Pacific Growth Fund R6 (International)

I would dump the American funds  as they cost more and do one of three things If I were you

1. A target fund with Vanguard close to your age of retirement.   This makes investing very easy. Its index fund based, it is cheap considering they manage it for you. You won't have to lift a finger.

2, Construct your own index fund portfolio and manage it yourself. A Total Stock Market Index, A Total International Index, An Extended market index, and a bond fund index would give you coverage of the total market . You would pick the proportions of each. I would go heavily into Total Stock market index, about 25% international. Lesser amounts in the extended market index and bond index fund. You will have to rebalance once a year to keep the allocation you want.

3. If available  to you take a look at Vanguard Life Strategy funds. They also are made up of index funds and the allocation does not change.

if your 457 is the same you can move your holdings to one of the funds mentioned above and consider part of your index fund allocation you choose.

I suggest a target fund. The are self managed for you , what's not to like. You won't ever need to work with an advisor again. Stay away from them any way. They are commissioned salespeople and not real advisors. They will try to complicate things so they can fool you into buying products they make money on. You don't need them anymore if you take our advice.

Best wishes

Tony

Share this post


Link to post
Share on other sites

One more thing. I have no idea how old you are. You must be dedicated to saving through thick and thin if you wish to build a significant stash of money for retirement. Saving in a low fee situation will make a huge difference over time but you must be dedicated to keep adding to the account. I see some fifty year olds putting only $100.00  a month away thinking they are doing all they need to do. i would suggest if possible raising the amount you invest every year as you get a raise at work. Always realize that Social Security and even teacher pension plans can be cut  down the road if things get financially tough for the  federal and state governments Its smart to have that third leg of the stool plump!!

Share this post


Link to post
Share on other sites

Hi TanP

Welcome to the forum. It is very good to see a fellow LAUSD teacher here. I am retired from LAUSD 12 years ago and I am a volunteer member of the advisory committee for the 457b plan. Congrats for stopping money going to that expensive and worthless annuity. I had two annuities way back and I got out and paid the surrender costs, and very happy I did. As I transferred the money into mutual funds that are genuine investments. As you found out, annuities are an insurance product that is NOT an investment, and the "adviser" who sold it to you is a salesperson, not a genuine adviser either. 

Congrats on starting with the district's 457b plan. Attached is the 457b plan with the fees that you will pay. Until you know a little more about asset allocation, I agree with Tony about selecting one of the Target Date Funds. 

You have a 100% stock allocation. That's fine if you are under 35 years old and can handle the volatility. 

Your allocation can be tweaked a little but there is no rush, as there might be some unnecessary overlap between you two large-cap funds. vanguard extended market index is a great fund. I have some of my money in that fund, as well as the total bond market index. Remember I am retired and most of my money is in bonds. I have a 30% stock allocation and 70% bond but that is appropriate for me but not for others. Everybody is different, different needs, different risk tolerance, different goals. My goal is for my money to last the rest of my life supplementing my CalStrs pension, so I have a very conservative portfolio that has been doing well. 

You also have Vanguard Wellington and Vanguard Wellesley. In the attachment, the table shows the allocation between stocks and bonds in Wellington And Wellesley. As a general rule of thumb Wellington is for younger investors and Wellesley is for older. I have some of my retirement money in Wellesley.  

Again welcome to the forum and its great to hear from an LAUSD teacher. 

Lets us know what you are thinking and we can help you decide your stock to bond allocation and your stock allocation. 

Steve

 

 

 

 

LAUSD457b_Fees_June_2020.png

Share this post


Link to post
Share on other sites

Thanks Tony and Steve. I'm so grateful to have found this forum. I'm 41 yo. Honestly, I have not been paying much attention to savings and retirement until this last couple of years. Since last summer, I have been determined to get rid of debts, and I will be paying off my mortgage and other loans by the end of 2020. Then I can contribute a lot more to the retirement funds. 

For the money that I have in the annuity, can I transfer the funds to the 457b that I have? Is that allowed? That way I can consolidate everything into one place. Or do I have to transfer them to another 403b account like CalSTRS Pension 2?

Thank you for your advice on the allocation. I couldn't find Vanguard Target Retirement Fund in Pension 2 or the 457b. I see that there's BlackRock Lifepath or Vanguard Wellington. I'm debating between pouring everything into one of these funds. Or divide it into 70% stock and 30% bond. What do you guys think about:

30% Vanguard Total Bond Market Index

50% Vanguard Institutional Index

20% Vanguard Extended Market Index

I read Dave Ramsey books and it says that some investment should be in the international market too. Should I allocate something like 20% to Vanguard Developed Markets Index and lower the contribution to one of the other funds, or is that unnecessary?

Share this post


Link to post
Share on other sites

Tan P

The Blackrock life path funds are excellent!! It will be properly diversified across all assets classes for you, is managed and rebalanced for you. It's the only fund you need and its made up of  index funds. I would do that MAYBE. Can you believe it? You can own one fund and be done!!  More funds is not necessarily a better approach. Often it's just the opposite.

Now if you can get a lower cost than. 0.32% I would explore other target funds or construct  a cheaper portfolio . I don't like that TPA fee because the Blackrock funds in my  Virginia 457b when I was working did not have that TPA fee. The toal expense ratio was only O.09% making it a truly outstanding value. But as you know 403b, and 457b's are not the same everywhere.

7 hours ago, TanP said:

For the money that I have in the annuity, can I transfer the funds to the 457b that I have? Is that allowed? That way I can consolidate everything into one place. Or do I have to transfer them to another 403b account like CalSTRS Pension 2?

I don't believe you can transfer a 457b to a 403b or vice versa while employed . But you can do a 403b to a 403b or a 457 to a 457 while employed Should you leave your job, at that time you can if i remember correctly or move it to an IRA

7 hours ago, TanP said:

What do you guys think about:

30% Vanguard Total Bond Market Index

50% Vanguard Institutional Index

20% Vanguard Extended Market Index

 

 This is a doable mix but a little international would round it out better maybe to the tune of 20-30% You could drop the extended index to 10% And the Vanguard Institutional to 40% and add 20% in an International index fund.

 

 

Share this post


Link to post
Share on other sites
3 hours ago, TanP said:

Thanks Tony and Steve. I'm so grateful to have found this forum. I'm 41 yo. Honestly, I have not been paying much attention to savings and retirement until this last couple of years. Since last summer, I have been determined to get rid of debts, and I will be paying off my mortgage and other loans by the end of 2020. Then I can contribute a lot more to the retirement funds. 

For the money that I have in the annuity, can I transfer the funds to the 457b that I have? Is that allowed? That way I can consolidate everything into one place. Or do I have to transfer them to another 403b account like CalSTRS Pension 2?

Thank you for your advice on the allocation. I couldn't find Vanguard Target Retirement Fund in Pension 2 or the 457b. I see that there's BlackRock Lifepath or Vanguard Wellington. I'm debating between pouring everything into one of these funds. Or divide it into 70% stock and 30% bond. What do you guys think about:

30% Vanguard Total Bond Market Index

50% Vanguard Institutional Index

20% Vanguard Extended Market Index

I read Dave Ramsey books and it says that some investment should be in the international market too. Should I allocate something like 20% to Vanguard Developed Markets Index and lower the contribution to one of the other funds, or is that unnecessary?

Your new allocation looks fine. The problem with me is that the Vanguard Developed Market index invests in developed markets only, and not emerging markets. Unfortunately, an international fund index is not available on the 457B plan. Since I am retired I cannot access the brokerage window account, you might be able to get the Vanguard International Index fund through the Self-Directed Brokerage Account. Look for the ticker symbol: VGTSX. This international fund is popular. I have some of my money in this fund (not through the 457b as I am retired). But watch for additional costs. OR you could fund your Roth IRA with Vanguard International index fund. And leave the asset allocation above alone. 

No, you cannot transfer from a 403b to a 457b plan but YES you can transfer to Pension 2. 

Share this post


Link to post
Share on other sites

Ah so if I have to maintain both 403b and 457b, I am thinking I will do Easy Choice Portfolio 2040 for 403b. So I will not have to worry about this one in the long run.

Then for 457b I will do the allocation you recommend. I don't see the Vanguard International Index fund in the Roth 457b. The list of funds is exactly the same as traditional 457b. Or maybe I'm not looking at the right place? 

Share this post


Link to post
Share on other sites
4 hours ago, sschullo said:

The problem with me is that the Vanguard Developed Market index invests in developed markets only, and not emerging markets.

Tan P

Honestly I don't see that as a problem at all with using it  ( Vanguard Developed Markets)in the portfolio in lue of Total International. Emerging markets are the most volatile stocks in an international fund. Developed markets would be more stable international companies and could be used for your international allocation. It could work at giving you adequate international exposure.

 

Share this post


Link to post
Share on other sites
5 hours ago, TanP said:

Ah so if I have to maintain both 403b and 457b, I am thinking I will do Easy Choice Portfolio 2040 for 403b. So I will not have to worry about this one in the long run.

Then for 457b I will do the allocation you recommend. I don't see the Vanguard International Index fund in the Roth 457b. The list of funds is exactly the same as traditional 457b. Or maybe I'm not looking at the right place? 

The Roth IRA that's outside the plan. The one you have to write a check or do an electronic purchase from your checking account to Vanguard. The max is $6000 per year and $7000 if over 50.

Share this post


Link to post
Share on other sites

Here is a  numbers comparison between Total International Fund vs Developed Market Index.  As you can see International Funds have added very little to a portfolio's performance  although it does add diversification. That doesn't mean it can't be the next big performer so its good to have some internationals in the mix.

I personally barely have 20% internationals in my portfolio and I really don't care to have much more than that.  If you go with the Vanguard Institutional Index, most of those companies already have international exposure. John Bogle if I remember correctly wasn't crazy about international funds and I tend to agree with him although Vanguard today advises about 30% allocation.

Overall these two funds look and act very similar.

https://personal.vanguard.com/us/funds/vanguard/compare?navigatingFrom=5

Share this post


Link to post
Share on other sites

And so does total stock market index and the s&p 500 are highly correlated, but I always and I mean always want as much diversification as possible. Not looking for a return, that's up to the Gods, fate, luck etc, etc, it is about risk reduction. That is not up to the Gods! 

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...