California Teacher 457 options

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huntred1
Posts: 3
Joined: Wed Jun 20, 2018 4:02 pm

California Teacher 457 options

Post by huntred1 » Wed Jun 20, 2018 4:18 pm

First year teacher trying to set myself up for success but fairly new to investing so I would love some help.
Looks like I have very few and very poor options for my 457 plan: https://tdsplans.org/forms_PD.aspx?orgID=5692

American United Life Insurance Co. - 457 
Calpers DeferredCompensation Prgm - 457 
National Life Group (LSW) - 457 
Security Benefit - 457 

The only one that catches my eye is the "Calpers DeferredCompensation Prgm - 457" plan.
Does anybody have any experience with this plan and if so what do you think?

After some digging I found the fact sheet for this plan: http://calpers-sip.com/PDF_InvestmentOp ... rmance.pdf

Does not seem great but not awful either. My initial thought since I am so green in investing would be to go with one of the Target Funds listed. Thoughts?
Any help would be much appreciated.

billfromct
Posts: 781
Joined: Tue Dec 03, 2013 9:05 am

Re: California Teacher 457 options

Post by billfromct » Wed Jun 20, 2018 5:04 pm

I'm not familiar with the difference between the 403b & 457 plans, but Vanguard is listed as one of the 403b offerings.

Being your first year of teaching & probably in a low (probably the lowest tax bracket of your career), why not go with a Roth 403b using Vanguard?

bill

ExitStageLeft
Posts: 978
Joined: Sat Jan 20, 2018 4:02 pm

Re: California Teacher 457 options

Post by ExitStageLeft » Wed Jun 20, 2018 5:10 pm

Welcome to the forum! Do you have any other investable assets? Are you enrolled in the 403b plan as well?

If you can only participate in the 457b plan, the target date funds look as good as anything else. If you can participate in the 403b you should max that first, since you have a much better selection of providers. Both Fidelity and Vanguard offer a broad range of indexed funds with much lower expense ratios than the funds offered in your 457b plan from CalPERS.

huntred1
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Joined: Wed Jun 20, 2018 4:02 pm

Re: California Teacher 457 options

Post by huntred1 » Wed Jun 20, 2018 8:22 pm

So sorry, I need to clarify that my SO is an engineer and his income will take care of expenses, 401k and IRA's. So my income will all be saved. The plan is to max out the 403b using either vanguard or calstrs pension 2... I am still deciding on that. But they both look like decent options.
That's why I came here to ask solely about the 457 options since after doing some research I was still clueless about those options.
From the sounds of things I wouldn't be killing myself with fees by going with the CALPERS 457 plan

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: California Teacher 457 options

Post by ExitStageLeft » Thu Jun 21, 2018 2:10 pm

The target date funds in the CalPERS document you linked will be a convenient way to kick off your reirement savings. If you and your SO end up buiilding a substantial portfolio, which it sounds like you will do in short order, you may wind up wanting a little more control over the allocation of your assets. You would have about the same expense ratio and performance if you were to invest in 40% State Street Global Ex-US All Cap, 40% State Street Russell All Cap, and 20% State Street US Bond.

The State Street Target 2050 fund has an initial allocation of 37% US equities, 43% international equities, 10% US bonds, and 10% real estate. Performance of the target 2050 fund will comparable but not identical to a 80/20 allocation with 55% of stocks in international. The reason to set it up with your selection of funds would be to facilitate managing your entire portfolio across multiple accounts and enabling easy re-balancing of assets to keep your portfolio on the desired track.

huntred1
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Joined: Wed Jun 20, 2018 4:02 pm

Re: California Teacher 457 options

Post by huntred1 » Fri Jun 22, 2018 9:52 am

ExitStageLeft wrote:
Thu Jun 21, 2018 2:10 pm
You would have about the same expense ratio and performance if you were to invest in 40% State Street Global Ex-US All Cap, 40% State Street Russell All Cap, and 20% State Street US Bond.
Thank you for your great answer. You've inspired me and I will look more into how exactly to split my portfolio in this 457 plan. I know that my SO's 401k is all in a S&P500 so this is a great opportunity to balance out our portfolio with some international funds.

Doctor Rhythm
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Joined: Mon Jan 22, 2018 3:55 am

Re: California Teacher 457 options

Post by Doctor Rhythm » Fri Jun 22, 2018 10:34 am

I wasn't able to find details about your plan's Target Date funds. The expense ratios are not great, but not terrible either, compared to other TD funds. Normally that would dissuade me from investing in those funds, but your alternatives are expensive as well: the expense ratios > 0.4% for index funds are unusually high. But it is what it is, so...

If you are comfortable being hands-on, I would invest in the three fund portfolio (State Street Russell All Cap, Ex-US All Cap, and US Bond) that's often advocated here and rebalance once per year. The allocation is up to you, but if you are just starting out in your career, I'd go 50-70% US stock, 20-40% international stock, and 0-20% bonds. If you want to tilt towards international funds to balance out your SO's all-US fund, that's fine. However, it might make more sense for him to balance out his account - since it's a tax-deferred 401k, there won't be any tax on the re-balance.

If you prefer to be hands-off, I'd invest in the target date fund that matches your desired allocation.

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: California Teacher 457 options

Post by ExitStageLeft » Fri Jun 22, 2018 11:56 am

Doctor Rhythm wrote:
Fri Jun 22, 2018 10:34 am

If you prefer to be hands-off, I'd invest in the target date fund that matches your desired allocation.
Doc's point is worth considering. The target date fund is set and forget. At this stage the impact of your allocation choices will be swamped compared to the amount of your annual savings. You could just set and forget by selecting a TD fund. Either option will work for you as long as you are saving to the max.

Normally doing a DIY allocation saves a little bit in fees compared to the expense ratio of a target date fund. In your plan the expense ratios are nearly identical, so there won't be any discount to you by creating and manging your portfolio allocation. But it will give you more control of your finances, something many engineers seem to appreciate. 8-)

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