Everything I am going to tell you is to the best of my knowledge true. Everything I am going to tell you is to the best of my knowledge true


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Everything I am going to tell you is to the best of my knowledge true.

  • Everything I am going to tell you is to the best of my knowledge true.

  • You are responsible for verifying any information I present.

  • You are responsible for any investment decisions you make.

  • Much of the information has been simplified



You all know what a 403(b) is and how it can help you save for retirement.

  • You all know what a 403(b) is and how it can help you save for retirement.

  • You understand the importance of choosing the right provider.

  • You gain some insight into how to choose the right provider for you.

  • You make saving for retirement a priority.





  • A Mutual Fund is an investment in the stock (or bond) market that invests in a number of stocks (or bonds) at one time.

  • Example: The S&P 500 Fund invests in the 500 largest companies in the United States





Every Mutual Fund with every company has a fee called the Expense Ratio

  • Every Mutual Fund with every company has a fee called the Expense Ratio

  • The Expense Ratio is the percentage of your assets every year that the Company you invest with takes as payment for them to “manage” the Mutual Fund and invest your money.



Typically, an Annuity is a contract with an Insurance Company in which you give a bunch of money to them, and they agree to pay you money back over time. Typically until you die. Once you die, they typically keep whatever money is left. It is a type of insurance policy.

  • Typically, an Annuity is a contract with an Insurance Company in which you give a bunch of money to them, and they agree to pay you money back over time. Typically until you die. Once you die, they typically keep whatever money is left. It is a type of insurance policy.

  • There are MANY different types of annuities.

  • If you currently have a 403(b) with an Insurance Company, the annuity you probably have is a deferred variable annuity which is a type of insurance policy often packaged within a 403(b).



During your working years you contribute to your 403(b) TSA. This is called the “accumulation phase” of the annuity and the money grows tax deferred.

  • During your working years you contribute to your 403(b) TSA. This is called the “accumulation phase” of the annuity and the money grows tax deferred.

  • The amount your money grows varies depending on how your investments do. That’s why it’s called “variable”

  • After you stop contributing and you want to start getting payments back, they figure out how much you will get each year, month etc. and they start paying you.

  • The “Deferred” part refers to the fact that you don’t actually “Annuitize,” (start taking payments) until long after you actually sign the contract.











Invest $2000 a year at 8% growth, retire at 65

  • Invest $2000 a year at 8% growth, retire at 65

  • The investor who started at age 25 has over $585,000

  • The investor who started at age 35 has just $250,000

  • The investor who started at age 45 has just $98,800

  • The investor who started at age 55 has just $30,700

  • This example assumes no fees, taxes, or inflation and 8% growth



Mutual Fund Company

  • Mutual Fund Company

  • Vanguard



Annuities are confusing

  • Annuities are confusing

  • All Investment products have fees, some are higher than others

  • Small differences in fees can have a huge effect on your investment

  • You have choices in Wayne

  • Time means everything





A government program to relieve the financial stresses placed on the Federal Government by retirees.

  • A government program to relieve the financial stresses placed on the Federal Government by retirees.

  • The term 403(b) refers to the section of the tax law explaining the rules of this type of investment

  • Established in 1958 as a way to encourage employees at non-profit institutions to save for retirement. Only “Tax Sheltered Annuitiesalso called 403(b)’s were allowed.

  • In 1974 the Law was changed to allow direct mutual fund investing called “Custodial Accounts” or 403(b)(7)’s





Ex: Suppose you earn $70,000 per year

  • Ex: Suppose you earn $70,000 per year

  • When you approximate your income taxes take 25% of 70,000.

  • .25*$70,000 = $17,500 in taxes

  • If you contribute $4,000 to your account

  • $70,000-$4,000=$66,000*.25=$16,500 in taxes

  • You save $1,000 of your income simply by investing or the $4000 you saved only cost you $3000.



When you sell a stock for more than you pay you get taxed on the difference. This is called Capital Gains.

  • When you sell a stock for more than you pay you get taxed on the difference. This is called Capital Gains.

  • When a stock pays dividends it pays out a portion of it’s profits to it’s shareholders.

  • The rules can be complicated, but to simplify, at the end of the year, you must pay taxes on Capital Gains and Dividends.

  • When investments grow tax-deferred, you do not pay (defer) the taxes on Capital Gains and Dividends until you take the money out at retirement!!!

  • This is a great thing! There are not a lot of ways to get tax-deferral. 403(b)’s, IRA’s and 401(k)’s and Variable Annuities are a few.



You can’t get your money out of a 403(b) without penalty until you turn 59½ years old. At 70½ you must start taking out the money.

  • You can’t get your money out of a 403(b) without penalty until you turn 59½ years old. At 70½ you must start taking out the money.

  • When you take out the money you WILL PAY TAXES on the original contributions, the capital gains and the dividends at ordinary income rates..



There are 2 Types of 403(b)’s

  • There are 2 Types of 403(b)’s

  • 403(b) a.k.a. Tax Sheltered Annuity

  • 403(b)(7) a.k.a. Custodial Account



The Insurance Companies Major Offering is the 403(b) Tax Sheltered Annuity

  • The Insurance Companies Major Offering is the 403(b) Tax Sheltered Annuity

  • Some Insurance Companies as well as some “Money Management” Companies also offer a 403(b)(7) Custodial Account

  • Some Companies only offer the 403(b)(7) Custodial Account



403(b)’s and 403(b)(7)’s both offer…

  • 403(b)’s and 403(b)(7)’s both offer…

    • Tax Deductible Contributions
    • Tax Deferred Growth
    • Access to the stock market
    • Access to the bond market
    • Automatic payroll deductions (dollar cost averaging)


In a 403(b), you purchase a “Deferred Variable Annuity,” which is a financial product that has…..

  • In a 403(b), you purchase a “Deferred Variable Annuity,” which is a financial product that has…..

    • Tax Deferred Growth
    • A Death Benefit
    • The opportunity to “Annuitize” your investment
    • The opportunity to take out a loan against your account balance.
  • A Variable Annuity is not included in a 403(b)(7)





Tax sheltered growth. (Oops, you already have that)

  • Tax sheltered growth. (Oops, you already have that)

  • Loan Provisions : You can take out a loan against your account

  • A Death “Benefit”

  • The opportunity to Annuitize your account at a later date.

  • A representative who you can meet face-to-face.



Most variable annuities are expensive.

  • Most variable annuities are expensive.

  • The surrender charges are far too high

  • The death benefits are small, rarely used and carry a big price tag.

  • http://www.forbes.com/sites/stuartrobertson/2012/02/17/why-variable-annuities-have-no-place-in-your-401k-plan/#2d9d2aa13caf



“It’s absurd to put a tax-sheltered investment like a variable annuity into an IRA, which is already tax sheltered. The only person who makes out on this deal is your broker.”

  • “It’s absurd to put a tax-sheltered investment like a variable annuity into an IRA, which is already tax sheltered. The only person who makes out on this deal is your broker.”

  • Lani Luciano, MONEY, January 1997, p.141



With variable annuities, if you die, your beneficiary will receive the greater of,

  • With variable annuities, if you die, your beneficiary will receive the greater of,

  • a) the current value of your account

  • b) a check for the total amount of money you have invested over time, also called your principal



Assume for 10 years you have invested $10,000 each year into your 403(b)

  • Assume for 10 years you have invested $10,000 each year into your 403(b)

  • Your Principal is therefore $100,000

  • What happens if you die?



If your 403(b) account is worth more than $100,000, your beneficiary will inherit the entire amount

  • If your 403(b) account is worth more than $100,000, your beneficiary will inherit the entire amount

  • This is the most likely outcome.

  • Even if you had a 403(b)(7) rather than a 403(b), your beneficiary would still get the entire amount.



If your account is worth less than $100,000, your beneficiary will receive a check for $100,000. This is not true in a 403(b)(7).

  • If your account is worth less than $100,000, your beneficiary will receive a check for $100,000. This is not true in a 403(b)(7).

  • What is the probability of different losses?





Ron Panko, “Can Annuities Pass Muster?,” BEST’S REVIEW, July 2000 at 103

  • Ron Panko, “Can Annuities Pass Muster?,” BEST’S REVIEW, July 2000 at 103

  • When Hartford Life was asked in the discovery process how much in death benefits the company had paid in the 17 years the San Diego and Los Angeles plans had existed, “Hartford claimed it had paid a single death benefit totaling only $119 in San Diego and no death benefits in Los Angeles.”



The average annuity death benefit, a portion of your M&E expenses, costs about 1% of the total assets in your 403(b) account.

  • The average annuity death benefit, a portion of your M&E expenses, costs about 1% of the total assets in your 403(b) account.

  • The cost of your annuity on your $100,000 is therefore around $1000.

  • I pay around $700 per year for a $1,000,000 life insurance policy!

  • Compare term life rates to annuity costs to get an idea if you are getting a good deal.



Variable Annuities typically charge you in at least 3 ways

  • Variable Annuities typically charge you in at least 3 ways

    • Management Fees : Around .25%
    • Expense Ratio: Around .75%
    • M&E Fees : Around 1.25% (www.sec.gov)
    • M&E stands for Mortality and Expenses. This fee includes paying for the death benefit, advertising for the company and paying your rep. There could and probably are other fees not listed.


Expense Ratio Fees (varies by fund) average probably around 1.25%

  • Expense Ratio Fees (varies by fund) average probably around 1.25%

  • Asset Management Fee: Around 0.9%

  • Optional Premier Management Fee: 1.3%

  • Custodial Fee: around $20 per account



Expense Ratio Fees (varies by fund) average is around 0.6%

  • Expense Ratio Fees (varies by fund) average is around 0.6%

  • Custodial Fee: around $20 per account

  • There are no other fees associated with an investment product at Vanguard



It’s impossible to know!

  • It’s impossible to know!

  • No one can predict which funds will do better than any other.

  • Most companies use Vanguard Funds or possibly a collection of proprietary funds



403(b)’s are a great way to save for retirement.

  • 403(b)’s are a great way to save for retirement.

  • Annuities are confusing and expensive

  • The Death Benefit is a scam

  • Don’t put an Variable Annuity inside a Tax-Deferred Plan

  • It’s impossible to know whose funds are best

  • Know your fees!























Mutual Fund Company

  • Mutual Fund Company

  • Vanguard



You will almost certainly pay higher fees this route than any other way.

  • You will almost certainly pay higher fees this route than any other way.

  • You will be able to meet with your sales rep.

  • You’ll pay for things you don’t need.

  • You will probably be put in an investment plan that corresponds to your age and risk tolerance.



3 Different Plan Options

  • 3 Different Plan Options

    • Participant Directed: All Vanguard Funds. Potentially cheaper than Vanguard because of Admiral Shares, you do everything yourself
    • Client Custom Portfolio: You have a financial advisor overseeing your portfolio. Costs a little under 1% of assets per year.
    • Asset Management: The “professionals” at Lincoln manage your portfolio. Costs around 1.3%


If you go with Vanguard, you will not be able to meet with anyone face-to-face.

  • If you go with Vanguard, you will not be able to meet with anyone face-to-face.

  • You will have to choose your funds on your own or with the help of someone else.

  • They have excellent phone service but they shy away from giving advice.

  • You will almost certainly pay the lowest fees this way except maybe Lincoln Participant Directed



If you are really scared to invest on your own, consider going to a fee only financial advisor to help set you up. They will charge a one-time fee of a couple hundred dollars and you probably won’t have to do anything for years.

  • If you are really scared to invest on your own, consider going to a fee only financial advisor to help set you up. They will charge a one-time fee of a couple hundred dollars and you probably won’t have to do anything for years.

  • NAPFA: National Association of Personal Fee-Only Advisors www.napfa.org



If you are going to invest in Mutual Funds, all other thing being equal, invest in the least expensive one!

  • If you are going to invest in Mutual Funds, all other thing being equal, invest in the least expensive one!



Your knowledge is the only thing that will protect you.

  • Your knowledge is the only thing that will protect you.

  • Don’t be afraid to call your rep and ask the questions that need to be asked. They can not lie to you about facts regarding your account, nor would they want to.

  • This is your money, protect it!

  • Don’t do anything you don’t fully understand!!!



www.403bwise.com

  • www.403bwise.com

    • The Mother of 403(b) sites


Don’t be afraid of investing.

  • Don’t be afraid of investing.

  • Investing is confusing until it isn’t.

  • It is not that difficult to gain a basic understanding of investing and develop a well balanced diversified risk appropriate portfolio.

  • The most important part of investing is doing it as early and often as you can.

  • It is never too late to start. And never to late to start doing it right.




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