I’ve been helping others I interact with on a regular basis understand their retirement investment options and providing explanations for all that they are coming across. I have done my own research now for years into my own choices, and I always remind anyone I speak with that it’s a truly personal decision as to where or what they want to do with their money. Personal finance is personal.
Recently, I came across the SEC’s website on 403(b) plans, which many educators are a part of no matter what district I’ve worked in. I highly recommend reading through it, find questions they recommend asking, and check out their fund analyzer for how your costs may stack up.
I’m no fan of 403(b) plans, but that’s my personal opinion. I’ve tried to encourage adding Vanguard to our retirement options to no avail due to contracts and information sharing disagreements with other companies that Vanguard won’t comply with, and rightly so.
I feel the costs are too high for us at this time, and our investments are better suited elsewhere. You’ll have to assess your own situation, but for us, unless Vanguard is let in, I’m happy to steer clear and manage my own investments since we do not receive a match that would offset costs.
Expense Ratios, Load Fees, Management Fees
In the end, no matter where you invest, there are some key things to pay attention to when you’re considering a workplace 403(b) vs. a Roth IRA or a taxable investment account. One of the huge red flags for me is always the expense ratios if there are no whopping front-load, back-end, and redemption fees.
In layman’s terms, front-load fees you pay on the money you put in, and redemption fees you pay when you retire and withdraw. Too many fees!
Expense ratio fees are an ongoing fee to the funds you select as well. The higher the number, the more it’ll cost you in the long term.
Now, I’m no professional advisor here, but I know when I see expense ratios that are 0.04% VTSAX vs. 1.90% ACIDX makes me SMH.
Take a look at different options using this calculator to get an idea of how much you may stand to lose over time just from these fees alone. That doesn’t even include the investment risks of the market.
Most 403(b) companies do not reveal their expenses or costs associated until you are sitting down with one of their advisors to convince you to buy into their products. With the analyzer, I found I was able to get the information I needed without the meeting to go with it.
With that said, I’d recommend using it before meeting with your local advisor if you’re still interested, after running the numbers. Here are great questions to ask them when you do decide to meet with them.
Advocate for Your Money
In the end, unfortunately, you need to be your own advocate for your retirement accounts. Many companies will gladly take your money to benefit themselves in the here and now. Though you may not be able to retire when you originally planned because of their desires.
John Bogle explained it well in his book Enough, which I highly recommend you read if you are interested in learning more about Vanguard’s beginnings.
The more we wake up to the exorbitant costs they are putting upon us the more companies will add lower cost funds and options. In public employment, we are not lucky to have stock options or a variety of other options that many private employees do.
We also take far lower salaries due to the ‘benefits’ we are to receive via a pension. Sadly, many of us are unsure if those pensions will even exist upon retirement, so it’s even more important to be vigilant about what happens to your investments when you’re beyond debts and ready to invest.
Consider family, lifestyle, goals, and plans for those choices. For a single person in their 50’s the decision is far different from someone in their 20’s starting out or another who has a large family. Keep in mind your own goals, read more into it, don’t be afraid to ask questions and gain the knowledge you need to manage your own money. It can be as simple or difficult as you want to make it.
Start learning about it today. Don’t push it aside, because something else will always come along to push it off.
If you don’t believe me that the expenses matter, maybe consider learning about Warren Buffett’s 10-Year Index Fund vs. Hedge-Fund bet he recently won.