Teachers need a reliable map to guide them through the minefield of terrible 403(b) choices.
Recently I covered this with Morningstar Magazine. Charles Keenan interviewed me for this piece.
We discussed the various inequities in teachers’ plans and, more importantly, our solutions. The big news – Vanguard decided to join us in the fight. Hoping they could make a difference by helping us provide low-cost fiduciary advice and inexpensive investment choices to our nation’s public school teachers.
Keenan quoted me, “It’s a social issue. We have an opportunity to change an industry.”
In that vein, here are ten rules for how teachers can move the needle right now.
- Ask how your adviser gets paid. Nothing in life is free. Except, of course, if you ask an annuity salesperson about 403(b) fees. Unless the insurance company experienced the finance version of The Immaculate Conception and converted itself to a non-profit, you’re likely paying high commissions, annual fees, and surrender charges. Get the numbers and get them in writing before signing anything.
- Tune out the advice of most of your colleagues. We wouldn’t be in this mess if teachers didn’t unwittingly participate. Most teachers have no idea about the differences between mutual funds and annuity products. Asking your neighbor across the hall is asking for trouble.
- Avoid Scare Tactics. Teachers are notoriously conservative investors. Salespeople train to take advantage of this trait. They disguise expensive insurance products as “protection products.” The markets have never experienced negative returns in any two-decade period. The only guarantee of a fixed rate product over this time is you will lose money. After inflation and taxes, this is what happens. Teachers need to be scared of this, not the long term returns of the stock market.
- Ignore the free Pizza. Salespeople use these tactics as bait for trapping teachers in expensive and unnecessary investment products. Eating this “free” Pizza will be the most expensive meal you will ever imagine.
- Beware of the guy lurking in the teacher’s lounge. Common sense dictates if a stranger interrupts your lunch to try to sell you an investment product – something is rotten in Denmark. Beware of that strange smell coming from the teacher’s lounge. It’s not the tater-tots on plastic plates.
- Protect your outside investments. Salespeople have an insatiable appetite for their next commission. They’ll ask about other investment accounts and insurance policies, probing for opportunities. Don’t fall for it. Quarantine your outside accounts from the retirement plague of high investment fees.
- Don’t assume your pension is enough. Many teachers ignore funding their 403(b)s. Mistakenly believing, their pension will cover all of their retirement needs. Most pensions don’t adjust for inflation and are back end loaded. Meaning to qualify for full benefits, teachers need thirty plus years in the classroom. Some states have massive budget gaps jeopardizing future benefits. Your pension is tremendous but not bulletproof.
- Seek out the lowest cost option. Schools provide far too many investment choices. Most are terrible. Fortunately, companies like Vanguard and Aspire are on thousands of lists. 403(b) investors get what they don’t pay for.
- Nice guys may not give the best advice. We’ve heard this on numerous occasions. “The salesperson was so nice.” Exactly! The cardinal rule of salesmanship is likability. People don’t buy stuff from people they hate, including expensive variable annuities.
- Sign up! Less than thirty percent of teachers participate in their school plans. Once you’ve found a low-cost option and, hopefully, a fiduciary advisor, take advantage of the most potent force in the universe- compound interest. You won’t regret it.
Our goal is to make these rules part of every teacher’s retirement lesson plan.
Help us by sharing this with as many teachers as possible.
Josh and I discussed these points in greater detail on The Compound.
