Brand new Teacher - 403b help/advice - Only thing offered

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gator1
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Brand new Teacher - 403b help/advice - Only thing offered

Post by gator1 » Tue Sep 03, 2013 6:43 pm

I'm a brand new Kindergarten Teacher in East Tennessee. I'm 23 years old and want to get started with investing. My school offers a 403b plan, and nothing else. The plan is run by Omni Group. They handed us all a piece of paper with a list of providers and could tell us or help us no more. This is all pretty confusing to me and it [stinks --admin LadyGeek] being handed it all and told to disappear and ask no questions because no answers are provided. I did ask if we could get any other companies added to the list(Vanguard) and they said no this will be it.

The following are the available providers(from my understanding none of these are very good):

*AIG VALIC
*AMERICAN FIDELITY ASSURANCE(This is the one company they pushed hard to get us all to go with)
*AMERICAN FUNDS SERVICE COMPANY
*AMERICAN SKANDIA
*AMERIPRISE
*HORACE MANN LIFE INSURANCE CO
*LIFE INSURANCE CO OF SOUTHWEST
*METROPOLITAN LIFE INSURANCE CO
*MODERN WOODMEN
*PHOENIX HOME LIFE INSURANCE CO
*PIONEER INVESTMENTS
*PRIMERICA FINANCIAL
*PUTNAM INVESTMENTS
*RELIASTAR LIFE INSURANCE CO
*SECURITY BENEFIT LIFE
*THE LEGEND GROUP
*VAN KAMPEN




Okay, now that we got that out of the way. I have to admit, I'm guilty of not ever hearing of ONE of these companies. Not one. It might be because I'm foreign to all of this, or because they are not reliable? I don't know.

But more about me, as said, I'm 23, first year Teacher. My first year pay is $35,000 and will increase in pennies as years go on. I'm eligible for retirement after 30 years of service where I will get a pension. If all goes as planned my pension will be around $2,400/mo until death. Also to note, the Pension replaces SS. This is why I want to invest and have quite a bit at retirement due to cuts in pensions, etc.

Do you think I should invest in this 403B thing or look into an IRA? I would be open to maxing out my IRA, but unsure if I should go Traditional or Roth. I would want to look into a Target Retirement Fund that way I don't have to keep many tabs on it as this is something I want to start and just monitor as minimal as possible.

I also have about $50,000 saved up from working over the years and was able to graduate with no student loans. I currently rent, have my car paid off, and no other debts what so ever. So i can dedicate quite a bit to investing starting out.

I should also ask, in your opinions, if investing $5,500/yr starting at 23 will provide enough at retirement(plus $2,400/mo pension). I'm cheap so I spend very little lol.

Thanks!

mbres60
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by mbres60 » Tue Sep 03, 2013 7:12 pm

Congratulations on your new job and trying to get the right answers to start investing early. I have only heard of a few of these companies. My experience with 403b's is that most are not good. I would check out Putnam investments and maybe American Funds. See what they offer for funds but most importantly look at the expense ratios and any fees being charged. If they are high (ask here and lots of people will be glad to tell you if something is high) then I would start off with a Roth IRA. The usual advise if you are not getting a company match in your 401k or 403b is to start with an IRA. Max that out first. Then if you have extra money you can either invest in the 403b if there is a fund that has low fees or just invest in a taxable account in a low cost Vanguard fund. The retirement funds would be fine as you said you wanted to set it and forget it. Good luck.

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Dutch
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Dutch » Tue Sep 03, 2013 7:23 pm

Congratulations! For a 23 yo you are in an excellent financial position.

Those companies all look like the usual suspects for high fees. Do some homework and make sure you understand what percentage of fees you will be charged by the different companies: fund expense ratios, 12b-1 fee, management fee, wrap fee etc.

Is there an employer match offered for the 403(b) ?

If the answer is no, then you are likely better off opening an IRA for yourself.

At your current income it's probably a toss-up between a Traditional IRA and a Roth IRA

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joe8d
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by joe8d » Tue Sep 03, 2013 7:28 pm

Am I correct to assume there is no match on the 403 b? If so,the IRA with Vanguard instead is a no brainer. TR 2050 or Lifestrategy Growth would be my choice for that.
All the Best, | Joe

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by sschullo » Tue Sep 03, 2013 7:36 pm

You're right. None are any good. Welcome to the 403b world. It was a mess 25, 35, and now 50+ years and still a mess, since the insurance industry and loaded mutual fund companies hijacked it.
You might check some of the funds for no loads (no commissions) but you have to be extra cautious about the annual expenses and a back end loads.
Check your state for a 457b plan. Many states have a state wide plan and make it available for all school districts.
Good luck,
Steve
Last edited by sschullo on Tue Sep 03, 2013 7:48 pm, edited 1 time in total.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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JMacDonald
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by JMacDonald » Tue Sep 03, 2013 7:44 pm

AMERICAN FIDELITY ASSURANCE(This is the one company they pushed hard to get us all to go with)
Just curious, if no help was provided, why was this company pushed?

You may want to consider a Roth IRA since the 403b does not look like a good option.
Best Wishes, | Joe

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StormShadow
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by StormShadow » Tue Sep 03, 2013 8:15 pm

If your pay is $35,000 with minimal expected increase over the next few years, I'd first focus on getting a better paying job.

In the meantime...

With your tax bracket and age I'd definitely max out a Roth IRA every year.
Does your employer offer high deductible health insurance? If so, you could contribute to a tax deferred health savings account.
Think you might consider going back to school? If so, a 529 plan is another nice option (Tennessee doesn't defer state tax for 529's, so I'd pick a state like Utah's 529 since it is affiliated with Vanguard).
Contributing to a taxable account isn't a bad idea. With $50k to start, you'd likely be able to take advantage of tax loss harvesting in the near future.
Of course, keep on saving and live within your means.

Good luck.

tibbitts
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by tibbitts » Tue Sep 03, 2013 8:46 pm

You have a huge financial head start on almost everyone your age, and $35k is a very respectable income for anyone, particularly someone just starting out. This forum is somewhat skewed toward higher income earners, so you have to keep that in mind when you read some of the responses.

Contributing $5500 to an IRA would be a good accomplishment, and would be preferable to the 403b you described. If you do have a 457 available, that would be worth looking into. However, $5500 a year by itself is a solid retirement contribution - well, maybe not on this forum, but everywhere else.

You might want to calculate very precisely - or simply wait until year end - to see how your income fits with regards to the Savers Credit. Sometimes $1 difference in Roth vs. traditional IRA contributions can make a huge difference in qualifying for the different levels of the credit, which might be very valuable to you. Either way, a target retirement fund, or some other VG balanced fund, would be a very appropriate and cost-efficient investment. Just beware that the dates on the funds aren't a requirement. You might choose a different date based on what you guess - and that's all it would be at this point - your risk tolerance might be.

Also keep in mind that being young, you have lots of somewhat unpredictable big-expense items coming up, so there's no need to over-commit to retirement vehicles that would overly penalize you should you need to make early withdrawals. And enjoy some of your savings now - travel, etc. - while you have the opportunity.

If you don't have a graduate degree, certainly considering pursuing one as soon as possible, since that would open up additional career options for you.

Paul

a2z
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by a2z » Tue Sep 03, 2013 8:58 pm

I am a retired public school teacher and have contributed to both a state of MN 457 Deferred Comp Plan and a 403b plan. Both the 457 and the 403b have unique advantages and disadvantages. Compare both of them via these links-

http://www.403bwise.com/

http://403bwise.com/participants/getwise_457b.html

http://www.bogleheads.org/wiki/Category ... ment_Plans

Investigate whether or not your district employees have access to a 457 plan before you begin the 403b plan. I looked on the State of Tennessee website and they have Vanguard funds in their state 457 employee offerings at very low costs.

http://knoxcounty.org/retirement/pdfs/457_fund_list.pdf

Do pursue if you can contribute to the 457 plan. Fees do pile up over the years so take heed and avoid high fees and seek index funds to offset other management fees that will pile up in their coffers and not yours.

Best
Phil

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AustenNut
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by AustenNut » Tue Sep 03, 2013 9:03 pm

Your 403b situation sounds similar to the one I have. I had all the companies send me the information (though I found some companies didn't even realize they were still on the list). Most options were pretty horrible. Assuming you get no match due to your defined benefit pension, I would max out the Roth first. After that, see if your employer offers a 457. In my district there are 15 or 20 mediocre to bad 403b choices, but only one 457 choice (mediocre). The 457 would allow you to start pulling funds earlier (i.e. if you retire at 53 after 30 years of teaching). Best of luck to you!
StormShadow wrote:If your pay is $35,000 with minimal expected increase over the next few years, I'd first focus on getting a better paying job.
Welcome to the world of public education. Teachers in my state (Louisiana) get a $500/year increase. The salaries are a little higher than the OP's in TN, but not much. This is the 4th year in a row that we haven't goten that increase, which means that for the remainder of my career I will always be shorted $1500/year that I should be getting for those years of experience. People tend to go into this profession for altruistic reasons, not pecuniary ones. But feel free to support efforts to increase teacher's salaries; I certainly would not object.

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StormShadow
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by StormShadow » Tue Sep 03, 2013 9:33 pm

AustenNut wrote:People tend to go into this profession for altruistic reasons, not pecuniary ones.
Funny, people write the same thing in their med school applications. Go figure.

22twain
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by 22twain » Tue Sep 03, 2013 9:43 pm

tibbitts wrote:This forum is somewhat skewed toward higher income earners
...many of whom live in the Northeast or California, where average wage and expense levels are higher than in east Tennessee. :wink:
My investing princiPLEs do not include absolutely preserving princiPAL.

dewey
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by dewey » Tue Sep 03, 2013 9:54 pm

StormShadow wrote:If your pay is $35,000 with minimal expected increase over the next few years, I'd first focus on getting a better paying job.

In the meantime...

With your tax bracket and age I'd definitely max out a Roth IRA every year.
Does your employer offer high deductible health insurance? If so, you could contribute to a tax deferred health savings account.
Think you might consider going back to school? If so, a 529 plan is another nice option (Tennessee doesn't defer state tax for 529's, so I'd pick a state like Utah's 529 since it is affiliated with Vanguard).
Contributing to a taxable account isn't a bad idea. With $50k to start, you'd likely be able to take advantage of tax loss harvesting in the near future.
Of course, keep on saving and live within your means.

Good luck.
Teachers don't make a lot of money--despite much of the anti-teacher rhetoric out there. But believe it or not---the vast majority of teachers could do other things but opt for teaching because that's what they want to do. My sense is the poster wasn't complaining about the low salary but rather framing the issue so those giving advice could help with good investment decisions. Changing careers as advice simply doesn't apply to most teachers.
“The only freedom that is of enduring importance is freedom of intelligence…”

stkrtu
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by stkrtu » Tue Sep 03, 2013 10:00 pm

Max out a Roth for 30 years and you'll end up with approx. $500,000 (assuming 7% return and .2% expenses). Do the same thing with a 403b with 1.5% expenses and you'll end up with approx. $100,000 less (not considering tax benefit). Check out http://www.403bwise.com for good information and a very useful calculator.

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Ged
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Ged » Tue Sep 03, 2013 10:01 pm

It's an unfortunate selection. Really putrid. To be honest I think it's likely corrupt in some way.

My wife is contributing to Valic in a 457b plan. Miserable fees, although it's worth it because our combined late career income and NJ's high taxes just punish taking income right now.

The advice here to contribute to a Roth is probably about right. Later on you will hopefully be in a higher tax bracket so putting away money at a low tax rate is likely to pay.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by gwrvmd » Tue Sep 03, 2013 10:14 pm

I don't want to hijack this thread but for my information and others who read this thread: Is it common for school systems to be able to opt out of the SS system? Is that a local decision or on a state level? Are members of state university systems in the SS system?
A 403(b) with bad, expensive options is especially punitive if the employees are not in the SS system....Gordon
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JMacDonald
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by JMacDonald » Tue Sep 03, 2013 10:29 pm

gwrvmd wrote:I don't want to hijack this thread but for my information and others who read this thread: Is it common for school systems to be able to opt out of the SS system? Is that a local decision or on a state level? Are members of state university systems in the SS system?
A 403(b) with bad, expensive options is especially punitive if the employees are not in the SS system....Gordon
I can't speak for all school systems, but in California teachers do not pay into SS. While I was in college, I work for the VA. At that time, Federal employees did not pay into SS. I believe that Federal employees do now.

You are right that 403b plans are terrible as a rule. The insurance companies are the big winners. They were there first when 403bs started and still rule the roost. The experience that the OP is having in normal. A teacher has to be really aggressive to work his or her way through the system. So it is really amazing that the OP is on the ball as a first year teacher. I was clueless.
Best Wishes, | Joe

bbt
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by bbt » Tue Sep 03, 2013 10:50 pm

A fellow young teacher here, congrats on no student loans and huge savings for your age! I knew I wasn't the only 23 year old planning for early retirement ;)

While my 403b options weren't as limited, I did find them to be filled with insurance companies, annuities, and funds with high fees. I'm bringing in 42k and opted to max out Roth and a few hundred into my 403b. Definitely look deeper into your options in terms of fees and what the investments are, if not I like the Roth & taxable account route.

Changing careers is a funny suggestion as we got into teaching knowing full well our starting salaries wouldn't be impressive. I'd argue that teachers (in CA at least) make a decent amount throughout their careers considering their health care, pensions, and steady raises. It would be nice to make a bit more initially but I have no complaints, I love what we do and mental peace is worth a lot in my opinion.

Tommy

Helot
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Helot » Tue Sep 03, 2013 10:57 pm

Please post information regarding your specific district. In Tennessee, local boards of education are are authorized to establish and maintain 403b plans. If you post specific information regarding your district, or provide us a specific online link to the providers available to you, we will be able to assist you.

Also, regarding the Tennessee Department of State Treasurer 457 plan, public school teachers are not eligible to participate; however, your local school district may offer a 457 you can participate in.

So, again, if you can provide specific information. You'll get plenty of help.

Helot
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Helot » Tue Sep 03, 2013 11:03 pm

Is this the appropriate link for your 403b?

https://www.omni403b.com/PlanDetail.asp ... TaC2FNCoo=

If so, we'll still need information regarding which fund classes are available to you (A vs B vs C vs etc.) and what additional administrative fees are charged by Omni for administering the plan.

My initial impression is that your best option among the providers is American Funds. Target Date Funds are available. The 2045 fund has an net expense ratio of .79%. There is a Global Balanced Fund available for .91%

bogleenigma
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by bogleenigma » Wed Sep 04, 2013 12:32 am

Gator1:
It's great to see a fellow "East Tennesseean" on this forum. I sympathize with your predicament entirely. My wife (a teacher) and I recently "emigrated" to the great state of Maryland after having lived in Knoxville for a good number of years. Things are, shall we say, a bit more friendly toward education and teachers in general here. My mother retired as a teacher in East Tennessee (Roane County Schools) after 37 years teaching. It's unfortunate that the state has eliminated step increases for years of service and additional compensation for obtaining graduate and doctoral degrees. Others who are not familiar with the "political" situation there may not understand your comments regarding your salary increasing by "pennies as years go on".

I do think someone has given you incorrect information that you do not participate in Social Security. This is not the case in Davidson County Schools, Knox County Schools, Roane County Schools, or Anderson County Schools (systems that I have prior experience with), so I would find it odd that the particular system you are part of would opt you out of Social Security. Particularly given that you are part of the Tennessee Consolidated Retirement System. I am almost 100% certain that it is at the discretion of the state (at least in TN), not the local school system, to opt out of Social Security. Also regarding your pension -- Tennessee, for all of its foibles, has one of the most adequately funded pension systems in the United States, so in that regard you are in luck. I'm pretty certain that the Tennessee pension system never became enchanted with investing in private equity or hedge funds.

It looks like your fund options are not particularly great, though I would investigate each of the companies listed and determine if any of them at least offer a S&P 500 index fund. I would be surprised if one was not available. If an S&P 500 index fund (or other index funds, however unlikely) is available, then this vastly simplifies your long term asset allocation. This may prove to be less viable if the index fund offers a ridiculous expense ratio. I would suggest you look at some postings on the board that suggest that if the total expense ratio (including management fees) is less than 2% then said 401k is still preferable to taxable investing. None the less, given your present income it seems the most reasonable to max out a Roth IRA that you will hopefully start at Vanguard and then invest in the 403b in that order. 403B plans are not always terrible (though in your case it does seem to be). My current employer offers a 403B through T Rowe Price, and the expense ratio for the S&P 500 fund is 0.30%, which, while high by Vanguard standards, is very reasonable. My wife had access to a Vanguard S&P 500 index fund in her 403B in her school system last year, and has access to Vanguard funds in her 403B in her present school system. Regarding the 403B, also inquire as to whether a brokerage window is available. If so, though it may cost you a bit in extra fees, you would have access to other fund options.

I also echo Stormshadow's comment: "If your pay is $35,000 with minimal expected increase over the next few years, I'd first focus on getting a better paying job." I certainly don't agree that you need to change professions (we need all the good teachers we can get), but it would profit you to consider relocating to a state that is more favorable to education and teachers in particular. North Carolina and Virginia are far more friendly towards teachers (my wife taught in VA last year).

Regarding the $50,000 that you have saved up -- that's pretty incredible for someone your age! It sounds as if you are well on your way towards "Bogle-head-dom." I would suggest that you place at least 6 months of living expenses in a high yield savings account/I-bonds, and work towards gradually moving all of that into I-Bonds over the years (given the $10k limits). It is particularly important for you that you have a prudent emergency fund given that you are a teacher in Tennessee. Unlike in previous ages you are no longer entitled to a hearing, which is protective against arbitrary dismissal by school boards and superintendents. You are also now required to wait five years, rather than three years, for tenure. All the more reason to have a prudent emergency fund to protect against unlikely events.

Also, looking at your fund options, it does appear you have access to American Funds. American Funds 2055 Target Date Retirement Fund has an expense ratio of 0.79%, which isn't terrible. You would need to determine if sales loads are waved for 403B participants or what management expenses are from Omnigroup. Also, if the above poster is correct and this is your provider: https://www.omni403b.com/PlanDetail.asp ... TaC2FNCoo=
Then ING - Reliastar could be your best option. Last year my wife's 403B in Virginia was with ING, and the management fee was 0.4% and the fee for the Vanguard S&P 500 index fund was 0.05%, with a gross expense ratio of 0.45%, which was nothing to complain about. You may need to explore this. The Legend Group also does appear to offer Vanguard funds:
https://www.legendgroup.com/products-se ... nvestments
Also appears to have T Rowe Price (which has an S&P 500 index fund).
Anyway, things may not be as hopeless as they appear.

Also, provided that #1 -- Omnigroup doesn't have wretched management fees #2 -- one of the providers mentioned above has index funds for you to use, then it could benefit you to figure out how much of the $50,000 you want to use for an emergency fund, and then max out your Roth IRA and your 403B (Traditional or Roth 403B) contributions for this year, and use some of the $50,000 for living expenses. Consider the following: It seems that you are firmly within the 15% tax bracket. Tennessee has no state income tax. You will also be receiving a pension upon retirement. It could be in your best interest to contribute to the max for your Roth 403B and your Roth IRA. This could mean that you could contribute a max of $23,000 in after-tax money for this school year ($17,500 Roth 403B + $5,500 Roth IRA). This may be your only opportunity in your teaching career (unless you marry someone with a higher income than you) to max out both retirement vehicles. This may not be viable for you, of course, for a variety of reasons. It is also worth considering in future years, once you exceed the 15% tax bracket, to contribute to a Traditional 403b to the amount to keep you in the 15% bracket and contribute the rest to the Roth IRA.

Please tell us which school district you hail from so that we can better help you understand your options. What grade are you teaching? Where did you go to college?

anonenigma
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by anonenigma » Wed Sep 04, 2013 8:36 am

Unfortunately, those are all high expense providers. Avoid annuities. Watch out forfront end loads, wrap fees, advisory fees and high expense ratios on mutual fund platforms.

Also, look to 403bwise.com for guidance. CalSTRS' http://www.403bcompare.com will also be helpful.

Probably Roth IRA.

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swimirvine
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by swimirvine » Wed Sep 04, 2013 9:24 am

What a difference becoming a Boglehead makes:

3 years ago my wife and I signed her up for her 403b and 457b plans which we are currently maxing out. She's a teacher in Maryland.

When I first received the list of available funds for the 403b there was a check box on the bottom of the sheet that said "Guided Portfolio Services - GPS" How great does that sound!?!?!? The description was something like "check this box to have a professional allocate your funds ... ." Basically, it made it sound like an easy way to have you money invested where you wouldn't have to worry about it. It also made it seem like they would have your best interests in mind.

Fast forward 1 year after I had read a few books by Bogle and Solin, a few dozen articles online and a few hundred bogleheads.org posts. I look back at my wife's 403b and see that not only does "GPS" have us invested in a bunch of overpriced actively managed funds (ERs 1.0 to 1.5) but that the "GPS" service itself (i.e. having an adviser look at the account maybe once a year and re-balancing and/or reallocating) adds an additional 0.68 ER to the total account!!!! We were paying almost 2%!!!

The good news is, I think there must be a Boglehead working at the teachers union that did the negotiating with this 403b company. Hidden among all of the over priced funds with 12b-1 fees, "record keeping" (revenue sharing) fees etc. are these 4 gems:

FUSEX - Fidelity Spartan 500 Index Fund - ER - 0.10%
VMISX - Vanguard Mid Cap Index Fund - ER - 0.10%
VSISX - Vanguard Small Cap Index Fund - ER - 0.10%
FSIIX - Fidelity Spartan International Index Fund - ER - 0.20%

We're currently using these four funds exclusively in the 403b and we have cumulative ER of less than 0.13%. We also have my retirement accounts, back door roths, etc where we have bonds and REITs etc. So we're balancing across multiple accounts most of which are at Vanguard.

But I never would have noticed these funds among all the other overpriced ones if I had not become a boglehead. Not all 403b plans are terrible and we've been told that these funds are relatively new options so changes can be made to existing 403b plans. With a brand new job at 23 years old, it probably seems like a daunting task to "take on the establishment" but if you take the time to educate yourself on low cost index investing and even educate some of your co-workers, I'm sure you could get enough people interested in petitioning the union/school board to offer more low cost options.

... The 457b plan has even worse options. The only reasonable option for us in that account is a "target retirement date" fund with an ER of 0.68% :-/ not terrible but still 0.50% higher than Vanguard's option.
The way I invest my money is not the right way to invest, it's the right way for ME to invest.

mah001
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by mah001 » Wed Sep 04, 2013 10:05 am

Section 218 (of the social security act)----

Feds and State enter into an agreement
Lots of agreements occurred in mid 1980's?
See ssa.gov
See IRS Pub 963 for some info but maybe mostly the contact information for the various State Coordinators.


Savers Credit, IRC section 28B is a thing of beauty when the numbers are right. It's tricky, in part because it's a nonrefundable credit. For OP it doesn't seem worth the bother to go out of way to qualify. See Form 8880 for nuts and bolts.
Maximum credit is $1,000.

Someone posted Omni 403(b) specs. Distributionwise, looks like loans and hardship distributions are allowed; otherwise can get funds after leaving employment with that employer or at age 59 1/2. Can transfer to another 403(b) provider, if ever become eligible for any. Not too long ago, a lot of 403(b)'s required attainment of 59 1/2, even if employee had left employment. By now, just about all employers (including governmental and church) need to have a written legal plan document, similar to a 401(a) qualified plan. For people who do have funds in a 403(b), it's a must have. Again, a summary plan document is not the same as the legal Plan Document. Also, see IR Regulation section 1.403(b) in q and a format.

Am assuming the pension will be a defined benefit pickup plan under section 414(h) and that OP is mandated to contribute a minimum of 7 percent or so of their pay. It's part of the section 218 agreement. Employee contributions to a pickup plan under 414(h) are pretax but aren't part of the elective deferral limit.

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graveday
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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by graveday » Wed Sep 04, 2013 3:05 pm

I would agree that not all 403b offerings are bad, but most are. It takes effort to get good offerings. The usual offerings though, and the vendors who push them, to me amount to predation on teachers, who usually have little time or expertise to distinguish the good from the bad.
As an older retread going from clinical laboratory work into teaching, I was surprised at the people who showed up at my classroom door right after the classroom emptied to offer me financial 'services'. Prominent were vendors from AIG/Valic and private firms who had not one no-load offering.
It took a long time to see past their smiles, I'm sorry to say.
Further, when I retired, I learned that the money I had payed into Social Security at my previous jobs would be dinged forty percent due my having a pension from California's State Teacher's Retirement System. I figured I payed that SS money fair and square so I remain nonplussed about that little kick in the rear.
Finally, as a teacher in California, one could bump ones pay by taking summer classes and earning units. I have three bachelor's degrees, so I already had plenty more units than someone with only one, but that was immaterial and I was paid the same and treated the same regardless.
Teachers certainly don't do it for the money, they do it for the torture, heh.

To the OP, go for the Roth first. Talk to your financial office about how to get some no-load funds. Explain you don't like people taking advantage of your disadvantage.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Professor Emeritus » Wed Sep 04, 2013 3:29 pm

gator1 wrote:I'm a brand new Kindergarten Teacher in East Tennessee. !
If no one has told you all day long, Teachers are wonderful people. At my state university we have a long tradition of supporting our teachers. If a question comes in from a teacher We get it an answer. I have to say the questions from the primary kids are the best. So take an Attaboy/girl out of petty cash

Best question from a third grader "if blowing on fire makes it bigger, and blowing on a candle blows it out, how many candles would it take on a cake so you couldn't blow it out "

it took three PhDs an hour to decide they would have to run a lot of tests. But they all wanted to recruit the kid
Last edited by Professor Emeritus on Wed Sep 04, 2013 3:33 pm, edited 2 times in total.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Professor Emeritus » Wed Sep 04, 2013 3:30 pm

mdpsychcrnp wrote:Gator1:
It's great to see a fellow "East Tennesseean" on this forum. I sympathize with your predicament entirely. My wife (a teacher) and I recently "emigrated" to the great state of Maryland after having lived in Knoxville for a good number of years. Things are, shall we say, a bit more friendly toward education and teachers in general here.
:sharebeer

Made my day

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by Professor Emeritus » Wed Sep 04, 2013 3:50 pm

graveday wrote: Further, when I retired, I learned that the money I had payed into Social Security at my previous jobs would be dinged forty percent due my having a pension from California's State Teacher's Retirement System. I figured I payed that SS money fair and square so I remain nonplussed about that little kick in the rear.
You paid it but the benefit you want was not "earned" by the money you put in.

Before 1983, people who worked mainly in
a job not covered by Social Security had their
Social Security benefits calculated as if they
were long-term, low-wage workers. They had
the advantage of receiving a Social Security
benefit representing a higher percentage of their
earnings, plus a pension from a job where they
did not pay Social Security taxes. Congress
passed the Windfall Elimination Provision to
remove that advantage
http://www.ssa.gov/pubs/EN-05-10045.pdf

in the 1960s and 70s every Federal employee i knew , including my father, had a small side job that paid just enough to get SS.
The return on contributions was often 500%

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by runner9 » Wed Sep 04, 2013 3:56 pm

I know it's been mentioned, but are you sure there is not a 457 offering? Here in Ohio there's a state program (www.ohio457.org) that very few teachers have ever heard of. I never had until reading the fine print in my wife's health benefits packet last open enrollment. It's a much, much better program than an 403b I've seen, and fees are even lower than I can get at Vanguard on my own.

I googled "Tennessee teacher 457" and got some responses, but I have no idea the geography or government structure to know if any are options.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by snyder66 » Wed Sep 04, 2013 4:36 pm

First. Contact your HR and see if they can add Vanguard. If not, Call Vanguard and see if they can be used in your 403B. Vanguard will not punch their products in schools, like these insurance companies like too. Try to do some fishing on your own. It may not work, but, Worth a shot.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by carorun » Wed Sep 04, 2013 6:28 pm

Others have given great advice. I'm a former East Tennessean, and while yes your salary is low relative to the coasts, so is your cost of living. I think you could easily max a Roth IRA every year and be in the 15% bracket, then take the 50k savings and make a nice 30-50% down payment on a house when ready. Is leading extracurricular activities, teaching AP classes, or summer school an option for increasing income? They may be worth a look. If not...there shouldn't be a lot of summer job competition if you need one. Good luck and go vols :)

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by AustenNut » Wed Sep 04, 2013 8:54 pm

mdpsychcrnp wrote:Then ING - Reliastar could be your best option. Last year my wife's 403B in Virginia was with ING, and the management fee was 0.4% and the fee for the Vanguard S&P 500 index fund was 0.05%, with a gross expense ratio of 0.45%, which was nothing to complain about. You may need to explore this.
ING is not the same across the country, or even across the same state. In my school district ING charges a straight 0.8% off the top as their administrative fee. My spouse, in the neighboring district, had ING charging them either 1.25% or 1.5% off the top. These fees are before the ERs on the mutual funds. There are no Vanguard mutual fund options for us from ING down here, either. The lowest cost index funds start off at around 0.40. The neighboring district also had a different option for some kind of guaranteed annuity that would never pay less than 2% and that had no administrative fee. So, this is definitely a situation where YMMV.

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by gator1 » Fri Sep 13, 2013 9:55 am

Hey everyone. Thanks for all the congratulations and responses. Sorry it took me a little bit to get back. We've been really busy at school.


*You guys are correct...there is no company match at all. The only thing we get is the pension and we have to contribute 6% to it every paycheck.*

StormShadow wrote:If your pay is $35,000 with minimal expected increase over the next few years, I'd first focus on getting a better paying job.

In the meantime...

With your tax bracket and age I'd definitely max out a Roth IRA every year.
Does your employer offer high deductible health insurance? If so, you could contribute to a tax deferred health savings account.
Think you might consider going back to school? If so, a 529 plan is another nice option (Tennessee doesn't defer state tax for 529's, so I'd pick a state like Utah's 529 since it is affiliated with Vanguard).
Contributing to a taxable account isn't a bad idea. With $50k to start, you'd likely be able to take advantage of tax loss harvesting in the near future.
Of course, keep on saving and live within your means.

Good luck.
Getting a better paying job isn't an option. Unfortunately this is the pay for Teachers. I didn't go into Teaching because I wanted a better paying job. My health insurance is covered by the district. I do have to pay for dental, vision, etc. but the health is covered as part of my contract.



tibbitts wrote:You have a huge financial head start on almost everyone your age, and $35k is a very respectable income for anyone, particularly someone just starting out. This forum is somewhat skewed toward higher income earners, so you have to keep that in mind when you read some of the responses.

Contributing $5500 to an IRA would be a good accomplishment, and would be preferable to the 403b you described. If you do have a 457 available, that would be worth looking into. However, $5500 a year by itself is a solid retirement contribution - well, maybe not on this forum, but everywhere else.

You might want to calculate very precisely - or simply wait until year end - to see how your income fits with regards to the Savers Credit. Sometimes $1 difference in Roth vs. traditional IRA contributions can make a huge difference in qualifying for the different levels of the credit, which might be very valuable to you. Either way, a target retirement fund, or some other VG balanced fund, would be a very appropriate and cost-efficient investment. Just beware that the dates on the funds aren't a requirement. You might choose a different date based on what you guess - and that's all it would be at this point - your risk tolerance might be.

Also keep in mind that being young, you have lots of somewhat unpredictable big-expense items coming up, so there's no need to over-commit to retirement vehicles that would overly penalize you should you need to make early withdrawals. And enjoy some of your savings now - travel, etc. - while you have the opportunity.

If you don't have a graduate degree, certainly considering pursuing one as soon as possible, since that would open up additional career options for you.

Paul
Thank you for the nice response. Because I've been going to school for so long I want to take a break. I figure in 4 or 5 years I will go back and get my Masters(I would still be under 30 when I finished). My ultimate goal is to become a Principal but for now I want to keep Teaching.



AustenNut wrote:Welcome to the world of public education. Teachers in my state (Louisiana) get a $500/year increase. The salaries are a little higher than the OP's in TN, but not much. This is the 4th year in a row that we haven't goten that increase, which means that for the remainder of my career I will always be shorted $1500/year that I should be getting for those years of experience. People tend to go into this profession for altruistic reasons, not pecuniary ones. But feel free to support efforts to increase teacher's salaries; I certainly would not object.
Lol. Exactly. I knew what the pay was going to be going into it. It's always funny when someone recommends going into a different profession when we knew what we were going into. If someone goes into Teaching thinking they are going to make a lot of money then they are completely wrong. I invested close to $2,000 of my own money to get my career started this year(driving hours to interviews, staying the night in a hotel, classroom supplies, etc.) But, I did it because I busted my butt for 4 1/2 years to get my degree and have a career doing what I enjoy doing. I wasn't going to let $2,000 detour me from that.



22twain wrote:
...many of whom live in the Northeast or California, where average wage and expense levels are higher than in east Tennessee. :wink:
Yeah, let's put it this way.....I would rather live in a place making $35,000 where rent on a 2 bed 2 bath condo with a garage is $700/mo and a brand new starter house is $150k vs live where I might make $50-$60k but rent is $1,500 for a studio and buying a house would never be an option in a million years. Oh, not to mention gas is $3.10 here today. :)



dewey wrote:
Teachers don't make a lot of money--despite much of the anti-teacher rhetoric out there. But believe it or not---the vast majority of teachers could do other things but opt for teaching because that's what they want to do. My sense is the poster wasn't complaining about the low salary but rather framing the issue so those giving advice could help with good investment decisions. Changing careers as advice simply doesn't apply to most teachers.

Right. I wasn't complaining just stating that I won't be getting an increase worth mentioning every year. Yeah, a career change isn't an option. Thank you for stating these.



bbt wrote:A fellow young teacher here, congrats on no student loans and huge savings for your age! I knew I wasn't the only 23 year old planning for early retirement ;)

While my 403b options weren't as limited, I did find them to be filled with insurance companies, annuities, and funds with high fees. I'm bringing in 42k and opted to max out Roth and a few hundred into my 403b. Definitely look deeper into your options in terms of fees and what the investments are, if not I like the Roth & taxable account route.

Changing careers is a funny suggestion as we got into teaching knowing full well our starting salaries wouldn't be impressive. I'd argue that teachers (in CA at least) make a decent amount throughout their careers considering their health care, pensions, and steady raises. It would be nice to make a bit more initially but I have no complaints, I love what we do and mental peace is worth a lot in my opinion.

Tommy
Thank you! I love what I do as well. Sure, there is stress. But what job doesn't have stress? I'm glad I am doing what I am doing. I love being out on the weekends and running into my students and their families at different events around town.

I am a bit surprised you can afford to live on 42k in California though.




Helot wrote:Please post information regarding your specific district. In Tennessee, local boards of education are are authorized to establish and maintain 403b plans. If you post specific information regarding your district, or provide us a specific online link to the providers available to you, we will be able to assist you.

Also, regarding the Tennessee Department of State Treasurer 457 plan, public school teachers are not eligible to participate; however, your local school district may offer a 457 you can participate in.

So, again, if you can provide specific information. You'll get plenty of help.
Well the county is Hamblen. That's who we work for. As far as who is over the plans it's Omni.


Helot wrote:Is this the appropriate link for your 403b?

https://www.omni403b.com/PlanDetail.asp ... TaC2FNCoo=

If so, we'll still need information regarding which fund classes are available to you (A vs B vs C vs etc.) and what additional administrative fees are charged by Omni for administering the plan.

My initial impression is that your best option among the providers is American Funds. Target Date Funds are available. The 2045 fund has an net expense ratio of .79%. There is a Global Balanced Fund available for .91%
That's it. How did you figure that out? lol. How would I figure all that information out? They literally gave us a piece of paper with all those companies names on it, and told us to figure it out on our own. Calling the school board isn't an option because they will say they don't know anything about it.


runner9 wrote:I know it's been mentioned, but are you sure there is not a 457 offering? Here in Ohio there's a state program (http://www.ohio457.org) that very few teachers have ever heard of. I never had until reading the fine print in my wife's health benefits packet last open enrollment. It's a much, much better program than an 403b I've seen, and fees are even lower than I can get at Vanguard on my own.

I googled "Tennessee teacher 457" and got some responses, but I have no idea the geography or government structure to know if any are options.
Yeah it's not an option. Only 403b.



vachica wrote:Others have given great advice. I'm a former East Tennessean, and while yes your salary is low relative to the coasts, so is your cost of living. I think you could easily max a Roth IRA every year and be in the 15% bracket, then take the 50k savings and make a nice 30-50% down payment on a house when ready. Is leading extracurricular activities, teaching AP classes, or summer school an option for increasing income? They may be worth a look. If not...there shouldn't be a lot of summer job competition if you need one. Good luck and go vols :)
That's been the plan with the 50K saved so far. I want to eventually use some of it for a nice down payment on a starter home.

I do coach a sport for a little bit of extra pay and I think summer school will be an option. I may try to find a babysitting gig too. When I was in college I babysat every summer for a professor and they paid me $2,000/mo. Not bad.







**So it seems like right now my best option is to max a Roth at $5,500, and if/when I go up to the next tax bracket, contribute whatever it takes into a 403b(with low fees) to get me back down into the 15% bracket?**

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Re: Brand new Teacher - 403b help/advice - Only thing offere

Post by graveday » Fri Sep 13, 2013 11:28 am

If you can find, or goad them into providing, a decent 403b, oxymoronic as that is, one nice thing is it will be payroll deduction, so you never 'see' the money and get by without it while it hopefully adds up. It is maybe the only nice thing. The money will still be at risk.

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