Retirement account with 3.5% guaranteed return - a good option?

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JS-Elcano
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Retirement account with 3.5% guaranteed return - a good option?

Post by JS-Elcano »

I have been reading the forum for several months (thank you all for the invaluable insights and wisdom) and now I have my first question :D

My employer offers 403b and 457b plans (public) and recently added a Roth option to the 403b. I already max out my Roth IRA, but decided to take advantage of the additional new Roth space in th 403b because I plan on using Roth money to pay for most of my expenses during early retirement (@59) to keep my taxable income low. I used to max out the 403b (19.5k) with pre-tax money, but now some of that space (~60%) will be used for Roth contributions. In order to not reduce my pre-tax contributions I have started contributing to a 457b (public) which gives me space for an additional 19.5k, all pre-tax.

Now my question: In the 457 plan I am now invested in Vanguard Institutional Index Fund Plus Shares (VIIIX, 0.02% ER), but the plan also offers a liquid fixed account that currently returns 3.5% (3.5% is the lowest this account can go). My 403b is with TIAA and I have access to the various TIAA traditional accounts that currently vary from 1% - 3%, depending on how liquid my investments are, so is this 3.5% account in my 457b plan actually a better option for my fixed/bond portion of my AA than VBTIX and the TIAA trad, which I am using in my 403b now?

My AA across all my investments is 60/40 and all my bonds are currently in my 403b at TIAA; I am ~10-12 years away from my planned retirement date. My employer does not match any retirement contributions.

Thank you for any insights you might have :happy
Last edited by JS-Elcano on Mon Jul 27, 2020 10:05 pm, edited 1 time in total.
tibbitts
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Re: Retirement account with 3.5% fixed return - a good option?

Post by tibbitts »

JS-Elcano wrote: Mon Jul 27, 2020 9:35 pm I have been reading the forum for several months (thank you all for the invaluable insights and wisdom) and now I have my first question :D

My employer offers 403b and 457b plans (public) and recently added a Roth option to the 403b. I already max out my Roth IRA, but decided to take advantage of the additional new Roth space in th 403b because I plan on using Roth money to pay for most of my expenses during early retirement (@59) to keep my taxable income low. I used to max out the 403b (19.5k) with pre-tax money, but now some of that space (~60%) will be used for Roth contributions. In order to not reduce my pre-tax contributions I have started contributing to a 457b (public) which gives me space for an additional 19.5k, all pre-tax. Now my question: In the 457 plan I am now invested in Vanguard Institutional Index Fund Plus Shares (VIIIX, 0.02% ER), but the plan also offers a liquid fixed account that currently returns 3.5% (3.5% is the lowest this account can go). My 403b is with TIAA and I have access to the various TIAA traditional accounts that currently vary from 1% - 3%, depending on how liquid my investments are, so is this 3.5% account in my 457b plan actually a better option for my fixed/bond portion of my AA than VBTIX and the TIAA trad, which I am using in my 403b now?

My AA across all my investments is 60/40 and all my bonds are currently in my 403b at TIAA; I am ~10-12 years away from my planned retirement date. My employer does not match any retirement contributions.

Thank you for any insights you might have :happy
I lost track of your story - too many moving parts for me - but if I had a fixed 3.5% with no restrictions in any account I'd put all my money in it.
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JS-Elcano
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Re: Retirement account with 3.5% fixed return - a good option?

Post by JS-Elcano »

tibbitts wrote: Mon Jul 27, 2020 9:53 pm I lost track of your story but if I had a fixed 3.5% with no restrictions in any account I'd put all my money in it.
It does indeed not seem to have any restrictions and I can transfer money into it and out of it at any time. I am considering it at least for some of the fixed/bond portion (40%) of my AA. I think I may be able to roll pre-tax money from the 403b over into the 457. Investment options between the two plans are quite similar as well.
random_walker_77
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Re: Retirement account with 3.5% fixed return - a good option?

Post by random_walker_77 »

When something sounds too good to be true, it probably definitely is. Rate of return is compensation for risk or for liquidity. Or both.

Do you have a link to the name or to a prospectus. This sort of thing is invariably a game of "find the catch" in the small fine print.

Perhaps you're dealing w/ default risk: that there's a chance the company goes under and you risk losing principal.
Perhaps the rate of return includes return of your own capital, so 3.5% isn't a real 3.5%.
Perhaps it's in the form of liquidity, in that you can't cash out for a very very long time.

Googling around, I see something that sounds similar in the "Voya 457/401 fixed account": https://www.voyaretirementplans.com/fun ... r/4019.pdf

This one references liquidity issues -- if you want out, you might get withdrawn gradually over 5 years. It also references a Market Value Adjustment -- so your principal may also take a hit on the way out. If you can't pull your money out, and when you do, you take a haircut on MVA, that also increases the risk of defaults. If the company is sick, you can't get your money out, and that would be bad if they do go under. See, that extra-high 3.5% has to be compensating you for something. Otherwise, they wpuld be able to find someone else to give them the money for 2.5%...
random_walker_77
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Re: Retirement account with 3.5% fixed return - a good option?

Post by random_walker_77 »

JS-Elcano wrote: Mon Jul 27, 2020 10:03 pm
tibbitts wrote: Mon Jul 27, 2020 9:53 pm I lost track of your story but if I had a fixed 3.5% with no restrictions in any account I'd put all my money in it.
It does indeed not seem to have any restrictions and I can transfer money into it and out of it at any time. I am considering it at least for some of the fixed/bond portion (40%) of my AA. I think I may be able to roll pre-tax money from the 403b over into the 457. Investment options between the two plans are quite similar as well.
Read the prospectus carefully (which almost no one does, and they're counting on that!). There's got to be a catch somewhere -- you've just got to find it. Maybe this is it:

https://feelingfinancial.com/401k-fixed ... 0you%20out.

"Another risk of the fixed account is a Market Value Adjustment (MVA). If your holdings in the fixed account are liquidated (because your plan moves to a different provider, for example), you may lose money. Especially if interest rates have been rising.

With an MVA, your 401k provider reduces your balance in the fixed account to reflect losses they’ll take when cashing you out. Your employer might cover the MVA, or it might be your problem. Something to consider before loading up on the fixed account"
Topic Author
JS-Elcano
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Re: Retirement account with 3.5% fixed return - a good option?

Post by JS-Elcano »

random_walker_77 wrote: Mon Jul 27, 2020 10:08 pm When something sounds too good to be true, it probably definitely is. Rate of return is compensation for risk or for liquidity. Or both.

Do you have a link to the name or to a prospectus. This sort of thing is invariably a game of "find the catch" in the small fine print.

Perhaps you're dealing w/ default risk: that there's a chance the company goes under and you risk losing principal.
Perhaps the rate of return includes return of your own capital, so 3.5% isn't a real 3.5%.
Perhaps it's in the form of liquidity, in that you can't cash out for a very very long time.

Googling around, I see something that sounds similar in the "Voya 457/401 fixed account": https://www.voyaretirementplans.com/fun ... r/4019.pdf

This one references liquidity issues -- if you want out, you might get withdrawn gradually over 5 years. It also references a Market Value Adjustment -- so your principal may also take a hit on the way out. If you can't pull your money out, and when you do, you take a haircut on MVA, that also increases the risk of defaults. If the company is sick, you can't get your money out, and that would be bad if they do go under. See, that extra-high 3.5% has to be compensating you for something. Otherwise, they wpuld be able to find someone else to give them the money for 2.5%...
The account is with Nationwide. It states: "Nationwide Fixed: Nationwide declares a quarterly yield for the Nationwide Fixed Account prior to the beginning of each calendar quarter. If applicable to your plan, Nationwide may declare a guaranteed minimum yield for the Nationwide Fixed Account prior to the beginning of each calendar year. Guarantees are subject to the claims-paying ability of Nationwide Life Insurance Company." (underlining by me for emphasis)
So, it appears that when my retirement plan says the rate is not to fall below 3.5% that may only apply to the calender year, not *forever* like with TIAA trad.

I recently put some money in the account and tranferred all of it out after a few month and there were no restrictions and no fees. But there is certainly the possibility of the fund issuer (Nationwide) going under at some point. Here is the link to their 'fact sheet' https://www.nrsflorida.com/iApp/rsc/pro ... d=10000002
Topic Author
JS-Elcano
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Re: Retirement account with 3.5% fixed return - a good option?

Post by JS-Elcano »

random_walker_77 wrote: Mon Jul 27, 2020 10:11 pm
JS-Elcano wrote: Mon Jul 27, 2020 10:03 pm
tibbitts wrote: Mon Jul 27, 2020 9:53 pm I lost track of your story but if I had a fixed 3.5% with no restrictions in any account I'd put all my money in it.
It does indeed not seem to have any restrictions and I can transfer money into it and out of it at any time. I am considering it at least for some of the fixed/bond portion (40%) of my AA. I think I may be able to roll pre-tax money from the 403b over into the 457. Investment options between the two plans are quite similar as well.
Read the prospectus carefully (which almost no one does, and they're counting on that!). There's got to be a catch somewhere -- you've just got to find it. Maybe this is it:

https://feelingfinancial.com/401k-fixed ... 0you%20out.

"Another risk of the fixed account is a Market Value Adjustment (MVA). If your holdings in the fixed account are liquidated (because your plan moves to a different provider, for example), you may lose money. Especially if interest rates have been rising.

With an MVA, your 401k provider reduces your balance in the fixed account to reflect losses they’ll take when cashing you out. Your employer might cover the MVA, or it might be your problem. Something to consider before loading up on the fixed account"
I will investigate this potential issue. Just last year, two providers exited this 457 plan. Would be important to know what would happen to the money in this fixed account if this were to happen. Thank you for finding this!
wootwoot
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by wootwoot »

I'd love to have a fixed option with a rate like this but have never had a plan with a guaranteed return.
random_walker_77
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Re: Retirement account with 3.5% fixed return - a good option?

Post by random_walker_77 »

JS-Elcano wrote: Mon Jul 27, 2020 10:33 pm
random_walker_77 wrote: Mon Jul 27, 2020 10:08 pm When something sounds too good to be true, it probably definitely is. Rate of return is compensation for risk or for liquidity. Or both.

Do you have a link to the name or to a prospectus. This sort of thing is invariably a game of "find the catch" in the small fine print.

Perhaps you're dealing w/ default risk: that there's a chance the company goes under and you risk losing principal.
Perhaps the rate of return includes return of your own capital, so 3.5% isn't a real 3.5%.
Perhaps it's in the form of liquidity, in that you can't cash out for a very very long time.

Googling around, I see something that sounds similar in the "Voya 457/401 fixed account": https://www.voyaretirementplans.com/fun ... r/4019.pdf

This one references liquidity issues -- if you want out, you might get withdrawn gradually over 5 years. It also references a Market Value Adjustment -- so your principal may also take a hit on the way out. If you can't pull your money out, and when you do, you take a haircut on MVA, that also increases the risk of defaults. If the company is sick, you can't get your money out, and that would be bad if they do go under. See, that extra-high 3.5% has to be compensating you for something. Otherwise, they wpuld be able to find someone else to give them the money for 2.5%...
The account is with Nationwide. It states: "Nationwide Fixed: Nationwide declares a quarterly yield for the Nationwide Fixed Account prior to the beginning of each calendar quarter. If applicable to your plan, Nationwide may declare a guaranteed minimum yield for the Nationwide Fixed Account prior to the beginning of each calendar year. Guarantees are subject to the claims-paying ability of Nationwide Life Insurance Company." (underlining by me for emphasis)
So, it appears that when my retirement plan says the rate is not to fall below 3.5% that may only apply to the calender year, not *forever* like with TIAA trad.

I recently put some money in the account and tranferred all of it out after a few month and there were no restrictions and no fees. But there is certainly the possibility of the fund issuer (Nationwide) going under at some point. Here is the link to their 'fact sheet' https://www.nrsflorida.com/iApp/rsc/pro ... d=10000002
That fact sheet doesn't tell you much does it? Sounds like the juicy stuff is in the annuity contract, and you'd need to contact your benefits team to try and get a copy of it to understand the risks.

"Your contract may contain liquidation (exchange and/or transfer) restrictions. The unregistered group variable and fixed annuity contracts are issued
by Nationwide Life Insurance Company, Columbus, OH.
For more information about the group variable annuity contract issued to your plan, please contact your Plan Sponsor."
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JS-Elcano
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Re: Retirement account with 3.5% fixed return - a good option?

Post by JS-Elcano »

random_walker_77 wrote: Mon Jul 27, 2020 10:49 pm
JS-Elcano wrote: Mon Jul 27, 2020 10:33 pm The account is with Nationwide. It states: "Nationwide Fixed: Nationwide declares a quarterly yield for the Nationwide Fixed Account prior to the beginning of each calendar quarter. If applicable to your plan, Nationwide may declare a guaranteed minimum yield for the Nationwide Fixed Account prior to the beginning of each calendar year. Guarantees are subject to the claims-paying ability of Nationwide Life Insurance Company." (underlining by me for emphasis)
So, it appears that when my retirement plan says the rate is not to fall below 3.5% that may only apply to the calender year, not *forever* like with TIAA trad.

I recently put some money in the account and tranferred all of it out after a few month and there were no restrictions and no fees. But there is certainly the possibility of the fund issuer (Nationwide) going under at some point. Here is the link to their 'fact sheet' https://www.nrsflorida.com/iApp/rsc/pro ... d=10000002
That fact sheet doesn't tell you much does it? Sounds like the juicy stuff is in the annuity contract, and you'd need to contact your benefits team to try and get a copy of it to understand the risks.

"Your contract may contain liquidation (exchange and/or transfer) restrictions. The unregistered group variable and fixed annuity contracts are issued
by Nationwide Life Insurance Company, Columbus, OH.
For more information about the group variable annuity contract issued to your plan, please contact your Plan Sponsor."
Yes, very scarce. You are right, I will need to get the annuity contract to determine all potential limitation and risks before I put any substantial amount of money into it.
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JS-Elcano
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by JS-Elcano »

wootwoot wrote: Mon Jul 27, 2020 10:43 pm I'd love to have a fixed option with a rate like this but have never had a plan with a guaranteed return.
You know, when I read about other people's plans here I often think how much better their plans are than what I have, especially when people talked about their Roth 401k plans. I inquired about that possibility with my employer and it turned out that they were just starting a comprehensive assessment of their retirement plan offerings and ta-da!! now we have a Roth option in the 403b (I have no indication that my inquiry had anything to do with this outcome, but maybe it did :D ) It was a long process, but an inquiry usually doesn't hurt especially when plans at comparable companies or institutions already offer something you would like to see in your plan.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by sergeant »

I have a guaranteed 3.5% stable value fund in my public agency 457b account. I have close to 7 figures in it and it makes up about half of our fixed income. The only gotcha is that it is dependent on the stability of the provider. Our provider is MassMutual. I feel confident that MassMutual will be around way past my time here.

Research Nationwide. If you feel confident in their ratings then I see no problem putting money in the guaranteed account.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by fredflinstone »

If I had an oportunity to earn 3.5% guaranteed, here's what I would do:

1. borrow 10 trillion dollars, providing lenders a guaranteed rate of return of 3.4%.
2. deposit 10 trillion dollars in the account with 3.5% guaranteed.

My profit would be 0.1% per year, or $1 billion per year.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by tibbitts »

fredflinstone wrote: Tue Jul 28, 2020 2:40 am If I had an oportunity to earn 3.5% guaranteed, here's what I would do:

1. borrow 10 trillion dollars, providing lenders a guaranteed rate of return of 3.4%.
2. deposit 10 trillion dollars in the account with 3.5% guaranteed.

My profit would be 0.1% per year, or $1 billion per year.
You would be limited by your annual employment-related contributions. That plus the somewhat restrictive (I know, not so restrictive if a 457) nature of retirement plans and annuity contracts, has probably been what has made these plans work well in the past.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by tashnewbie »

I don’t know much about 403b or 457, but I think 457 accounts have more favorable withdrawal features.

What are your current marginal tax brackets (federal and state)? What do you expect them to be in retirement? Will you have a pension in retirement? Asking these questions to get more information so that others can offer advice about whether it makes sense to contribute any money to Roth 457.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by aristotelian »

One option for 3.5% guaranteed return is US Treasury EE Bonds. You need to hold for 20 years but there is no annuity contract fine print.

I have about half my bond allocation in TIAA Traditional but not sure I would put the same trust in Nationwide. And you definitely need to read the fine print of that annuity contract and grill the sales rep if you have any questions.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by rterickson »

sergeant wrote: Tue Jul 28, 2020 1:24 am I have a guaranteed 3.5% stable value fund in my public agency 457b account. I have close to 7 figures in it and it makes up about half of our fixed income. The only gotcha is that it is dependent on the stability of the provider. Our provider is MassMutual. I feel confident that MassMutual will be around way past my time here.
I too split my fixed income between a 4% guaranteed MassMutual General Account and Hartford Total Bond.

Does your plan place any restrictions on withdrawals or transfers out of the Stable Value account? Mine says that up to 1/6th can be transferred per 12 month period.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by gbp98 »

Following this closely as I have the same fund with substantial tax-deferred dollars in it. My husband passed away 3 years ago quite unexpectedly at a young age. He had transferred all his 457 money into this fund two weeks prior to his death and I have left it there. I considered it as a "bond fond" in my overall portfolio but have had questions about it as well. I've entertained the idea of transferring the entire amount to my Vanguard 401K but have been reluctant to pull the trigger in either an up market or a down market :) I'm sure part of this is sentimental as it was his last trade but I know I need to make a decision on how to proceed. With this fund being grouped with my other bond funds, I am at a 40:60 split stocks-to-bonds.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by grabiner »

rterickson wrote: Tue Jul 28, 2020 9:52 am Does your plan place any restrictions on withdrawals or transfers out of the Stable Value account? Mine says that up to 1/6th can be transferred per 12 month period.
If only 1/6 of the current balance can be withdrawn each year, that gives the account an effective duration of six years. If the entire balance can be withdrawn over six years, that gives the account an effective duration of 2.5 years (withdraw 1/6 today and every year until five years and one day from now). The delayed withdrawals create interest-rate risk, as if rates rise and you want to withdraw, part of your money will be locked up at a below-market rate.

This is fair, because the yields on these accounts are also based on longer-term bond yields. TIAA, for example, offers a higher yield on the versions of the traditional annuity which can only be withdrawn over 7 or 10 years than on the fully liquid versions.
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JS-Elcano
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by JS-Elcano »

rterickson wrote: Tue Jul 28, 2020 9:52 am
sergeant wrote: Tue Jul 28, 2020 1:24 am I have a guaranteed 3.5% stable value fund in my public agency 457b account. I have close to 7 figures in it and it makes up about half of our fixed income. The only gotcha is that it is dependent on the stability of the provider. Our provider is MassMutual. I feel confident that MassMutual will be around way past my time here.
I too split my fixed income between a 4% guaranteed MassMutual General Account and Hartford Total Bond.

Does your plan place any restrictions on withdrawals or transfers out of the Stable Value account? Mine says that up to 1/6th can be transferred per 12 month period.
No, it doesn't have any restrictions whatsoever as to withdrawals or transfers. It is liquid and can be transfered out of and into as often as desired. That is what makes it seem so attractive.
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JS-Elcano
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by JS-Elcano »

sergeant wrote: Tue Jul 28, 2020 1:24 am I have a guaranteed 3.5% stable value fund in my public agency 457b account. I have close to 7 figures in it and it makes up about half of our fixed income. The only gotcha is that it is dependent on the stability of the provider. Our provider is MassMutual. I feel confident that MassMutual will be around way past my time here.

Research Nationwide. If you feel confident in their ratings then I see no problem putting money in the guaranteed account.
I am confident enough to have my 457 investments with them. However, I just got off the phone with Nationwide and found out that while the 3.5% rate hasn't changed in many years, it is always only guaranteed for a year. They admitted that in the current ultra-low interest environment it is possible (i.e., 'likely' :wink: ) that this rate may go down in 2021, though strangely enough they could not tell me when this decision is made or when and where I would be able to find out about it other than my quartely statement or on the fact sheet on their website. So, I am torn about using it for a chunk my bond/fixed allocation going forward. I might just stick with TIAA trad.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by JS-Elcano »

tashnewbie wrote: Tue Jul 28, 2020 7:31 am I don’t know much about 403b or 457, but I think 457 accounts have more favorable withdrawal features.

What are your current marginal tax brackets (federal and state)? What do you expect them to be in retirement? Will you have a pension in retirement? Asking these questions to get more information so that others can offer advice about whether it makes sense to contribute any money to Roth 457.
I am currently in the 24% federal tax bracket and will most likely remain there until I retire; there's no state income tax where I live. Based on 2020 tax brackets I estimate to be in the 22% bracket in retirement and I am not planning to move, so still no state income tax. I won't have a pension, and plan to delay taking SS until 70. My reason for ramping up Roth contributions is mostly to keep my taxable income low during the 5-6 years in retirement before I qualify for Medicare (age 59-64).
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by BolderBoy »

JS-Elcano wrote: Mon Jul 27, 2020 9:35 pmbut the plan also offers a liquid fixed account that currently returns 3.5% (3.5% is the lowest this account can go). My 403b is with TIAA and I have access to the various TIAA traditional accounts that currently vary from 1% - 3%, depending on how liquid my investments are, so is this 3.5% account in my 457b plan actually a better option for my fixed/bond portion of my AA than VBTIX and the TIAA trad, which I am using in my 403b now?
Doesn't sound like a good deal to me. Sounds like a good deal for the custodian.

VG Total Bond Market is up 7.69% YTD, for example (VBTLX, total return).

Historical inflation has been 3.22% average annual from 1900-2015.

I'm by no means an expert at this stuff.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by sergeant »

rterickson wrote: Tue Jul 28, 2020 9:52 am
sergeant wrote: Tue Jul 28, 2020 1:24 am I have a guaranteed 3.5% stable value fund in my public agency 457b account. I have close to 7 figures in it and it makes up about half of our fixed income. The only gotcha is that it is dependent on the stability of the provider. Our provider is MassMutual. I feel confident that MassMutual will be around way past my time here.
I too split my fixed income between a 4% guaranteed MassMutual General Account and Hartford Total Bond.

Does your plan place any restrictions on withdrawals or transfers out of the Stable Value account? Mine says that up to 1/6th can be transferred per 12 month period.
No restrictions with our plan.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by sergeant »

gbp98 wrote: Tue Jul 28, 2020 10:23 am Following this closely as I have the same fund with substantial tax-deferred dollars in it. My husband passed away 3 years ago quite unexpectedly at a young age. He had transferred all his 457 money into this fund two weeks prior to his death and I have left it there. I considered it as a "bond fond" in my overall portfolio but have had questions about it as well. I've entertained the idea of transferring the entire amount to my Vanguard 401K but have been reluctant to pull the trigger in either an up market or a down market :) I'm sure part of this is sentimental as it was his last trade but I know I need to make a decision on how to proceed. With this fund being grouped with my other bond funds, I am at a 40:60 split stocks-to-bonds.
I would be reluctant to transfer it from 457b to 401k as the withdrawal rules favor the 457b. If 40/60 is your desired AA I would continue to treat it as part of your fixed income side of your portfolio. A brief check of Nationwide's ratings show it is very stable. Sorry to hear about your husband.
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Re: Retirement account with 3.5% guaranteed return - a good option?

Post by grabiner »

BolderBoy wrote: Tue Jul 28, 2020 12:56 pm
JS-Elcano wrote: Mon Jul 27, 2020 9:35 pmbut the plan also offers a liquid fixed account that currently returns 3.5% (3.5% is the lowest this account can go). My 403b is with TIAA and I have access to the various TIAA traditional accounts that currently vary from 1% - 3%, depending on how liquid my investments are, so is this 3.5% account in my 457b plan actually a better option for my fixed/bond portion of my AA than VBTIX and the TIAA trad, which I am using in my 403b now?
Doesn't sound like a good deal to me. Sounds like a good deal for the custodian.

VG Total Bond Market is up 7.69% YTD, for example (VBTLX, total return).
The difference between these two numbers is that stable-valuue funds such as the TIAA traditional annuity return their quoted rates, regardless of what happens. Bonds return their interest rate, plus gains or losses according to the change in bond prices, and in the last year, with interest rates falling, bond prices have risen.

The best expectation of next year's bond returns is this year's yield. The current yield of Total Bond Market is 1.19%, which means that you will earn 1.19% if you buy all those bonds and hold them to maturity. If the yields on those bonds are the same next year, then next year's return will be 1.19%; if yields rise or fall, the return will be different.
Historical inflation has been 3.22% average annual from 1900-2015.
And stable-value fund yields are reset over time. When inflation is high, the yields on the investments underlying the stable-value fund (mostly bonds) are high, so the stable-value fund will offer a higher yield. The way this is done varies by fund. TIAA, for example, offers a different yield depending on when funds were deposited in the account (and thus on when it bought the underlying bonds), so if rates rise in the next few years, it might offer 5% on money deposited in 2022, 4% on money deposited in 2021, and 3% on money from 2020 or earlier.
Wiki David Grabiner
MikeG62
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Re: Retirement account with 3.5% fixed return - a good option?

Post by MikeG62 »

tibbitts wrote: Mon Jul 27, 2020 9:53 pm
JS-Elcano wrote: Mon Jul 27, 2020 9:35 pm I have been reading the forum for several months (thank you all for the invaluable insights and wisdom) and now I have my first question :D

My employer offers 403b and 457b plans (public) and recently added a Roth option to the 403b. I already max out my Roth IRA, but decided to take advantage of the additional new Roth space in th 403b because I plan on using Roth money to pay for most of my expenses during early retirement (@59) to keep my taxable income low. I used to max out the 403b (19.5k) with pre-tax money, but now some of that space (~60%) will be used for Roth contributions. In order to not reduce my pre-tax contributions I have started contributing to a 457b (public) which gives me space for an additional 19.5k, all pre-tax. Now my question: In the 457 plan I am now invested in Vanguard Institutional Index Fund Plus Shares (VIIIX, 0.02% ER), but the plan also offers a liquid fixed account that currently returns 3.5% (3.5% is the lowest this account can go). My 403b is with TIAA and I have access to the various TIAA traditional accounts that currently vary from 1% - 3%, depending on how liquid my investments are, so is this 3.5% account in my 457b plan actually a better option for my fixed/bond portion of my AA than VBTIX and the TIAA trad, which I am using in my 403b now?

My AA across all my investments is 60/40 and all my bonds are currently in my 403b at TIAA; I am ~10-12 years away from my planned retirement date. My employer does not match any retirement contributions.

Thank you for any insights you might have :happy
I lost track of your story - too many moving parts for me - but if I had a fixed 3.5% with no restrictions in any account I'd put all my money in it.
+1 (all my fixed income anyway).
Real Knowledge Comes Only From Experience
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