Teachers 5-Step 403b Retirement Shopping Guide

Savvy Shopping – The New Past-time for Teachers

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When you begin working as a teaching professional, your school district will likely offer you the opportunity to save for retirement through a 403b Retirement Plan.

Like any good leisure activity, a little retail therapy can improve mood, boost confidence, and relieve stress. Shopping for a 403b retirement plan shouldn’t be different! You may be surprised at the release of endorphins when you make an informed decision and choose a low-fee, tax deferred retirement plan. However, your shopping experience could feel overwhelming with confusing options on the shelf, or missing price tags leading you tobuy products based on word-of-mouth. Know that acquiring an expensive product can potentially cost your future self some serious coin!

So grab your bag, and let’s explore the 403(b) marketplace.  Read on for super shopper tips that could potentially set you on track for higher returns and higher security in later years — but understand, comparing the deals is an enormously critical part of the process! If you get overwhelmed, don’t just close your eyes and grab the same product your friend chooses. Always seek out professional guidance, because here, it’s the savvy shopper that earns the deal!


Shopper Tip #1: Find your TPA

 If OMNI is your TPA, visit www.omni403b.com:
• Click on the ‘Participants’ button.
• In the bottom left corner find where it says Employer Plan Info and then select your state.
• Type in your employer name and select it.
• Click submit. BOOM! You just found your menu of participating providers!

Step #1 – Finding Your TPA ( 403b Marketplace )

Where to shop? Imagine the TPA as your marketplace with a map of all the shops—or providers—that your district has made available to you.

A TPA (Third Party Administrator) aggregates 403b plan provider choices for district clients much like a mall hosts a variety of stores for you to shop in.

OMNI is one of the largest TPAs that organizes 403(b) options for teaching professionals and provides a site in which to manage the initial designations you’ll make when you sign up for an account. New York and may other states use OMNI and as a teacher, you will go to the OMNI site to set up your account.


Step #2 – Compare Providers

Once you find your TPA (403b marketplace) you can look at the list of participating providers your district has made available to you.

Shopper Tip #2: Take your Time
Take your time determining which providers are insurance companies offering insurance products (called annuities), and which providers are custodial retirement accounts offering mutual funds. Note that some are hybrids.

You may feel overwhelmed looking at a list of 20+ providers to compare. You may see some providers you recognize and some you don’t. AXA, Voya, Metlife, Vanguard, FTJ Fundchoice, Aspire Financial, Fidelity and many more. Which store to hit first? Do bigger brand names mean that have better quality products? Not necessarily.

Neither your school district, nor TPA, can tell you which provider to use. You must comparison shop on your own. Just as a mall contains stores, but doesn’t tell you which to go into, OMNI is a TPA that prides itself on the variety of providers it offers.

The important thing to takeaway here is there are two main types of providers

  1. Insurance companies offering annuities -or-
  2. Custodial retirement accounts offering mutual funds.

Now let’s talk products!


Step #3 – Compare Products

Shopper Tip #3 – Don’t Be Pressured
Do not just choose a product because the salesman bought you lunch at the teacher’s lounge. As with any purchase, be wary of relentless sales pitches that pressure you into buying a product quickly or a deal that seems too good to be true.

403b Products

After you have perused the menu of providers, you should brush up on what kind of products they offer. It’s up to you to research which companies offer good value products. Remember, the product choices are NOT equal and this is not one size fits all! If you aren’t sure, consider consulting an independent financial professional —aka “personal shopper” to help you weed through the racks.

There are two main types of 403(b) products available for participants to consider.

  1. MUTUAL FUNDS (also called a 403(b)(7) custodial account): This type of product allows participants to invest their contributions in mutual funds. This type of account is not an annuity or a life insurance product. Returns on contributions depend on the performance of the mutual funds selected.
  2. ANNUITIES:
    An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. You buy an
    annuity either with a single payment or a series of payments called premiums.
    Annuities are often marketed as tax-deferred savings products and come with a variety of fees and expenses, such as surrender charges, mortality and expense risk charges and administrative fees. Annuities also can have high commissions, reaching seven percent or more.
    Variable Annuity Product
    Fixed Annuity Product
    Equity Indexed Annuity Product

What features and benefits of a plan are important to your retirement goals? What risks are associated with each plan? What are the benefits versus the costs of these options? Does it make sense to mix insurance with your investments? What are your investment objectives and which companies are the best fit to help you pursue those goals? These are just some general questions you should ask yourself before committing to a product.


Step #4 – Compare Fees

Shopper Tip #4:  Find the Price Tags

There are potentially three layers of fees and charges that participants should be aware of.
• 403(b) product fees (vendor fees)
• Investment fees
• Employer/third-party administrator fees


You are so close! But wait, did you pick a product that is missing a tag? Before you hit the register you must determine what it will cost to invest in your future. And it’s not always easy to compare different products, especially when fees can be hard to find.

You can’t escape investment fees. The average mutual fund fees and expense ratio is 1.02% a year, according to the Investment Company Institute. On the other hand, the annual fees on variable annuities usually start at 2% and go up from there, according to FINRA. And that’s in addition to the fees that are charged by the mutual funds that make up your sub-accounts.

Remember, a 1% fee over 30 years can cause a significant reduction in your savings later. So we recommend digging in, shopper, and doing the hard work. Because just clicking away, will likely add up to buyer’s remorse!

The state of California makes available a resource called 403bCompare which allows visitors from any state to learn fee and withdrawal information for many individual 403(b) products.

Get out your magnifying glass and ask to see the prospectus or contract. All mutual funds and variable annuities are required to produce a document called a prospectus, which details specific information about investment cost, objective, risk, performance, and operating rules. Fixed-annuity products do not have a prospectus. Instead, they have a contract that details operation of the annuity. If you can’t make heads or tails of it…ask an independent financial professional before you sign on the dotted line.

It is important to understand all of the fees associated with your plan before you begin contributing to any 403(b) investment. Additionally, some investments impose surrender charges or restrictions on withdrawals.

More on fees: http://403bwise.com/k12/content/61
https://www.403bcompare.com/Fundamentals403bAnd457b#Fees


Step #5 – Contribute Paycheck %

Shopping tip #5: Buyers Remorse?
Did you already choose a plan but now have buyer’s remorse? Don’t worry, similar to shopping, there is the possibility to exchange a product. You will need to determine if there are any surrender charges or fees before doing so.

Ask a Question

Once you have done your research, selected a provider, and shopped a plan—the smart way—you can begin contributing a part of your paycheck to start your nest egg. You can access a Salary Reduction Agreement through your TPA. No amount is too small – you are doing something great for your future by making savings a priority! The important point is to START SAVING NOW!

Because the income funneled into your account is tax-deferred, the IRS does set a capped amount for 403b contributions each year. There are other options for increased savings based on age and employment so if you can…be sure to max out your savings!

 

 

403b Teachers Shopping Guide

If Shopping Isn’t Your Thing, Don’t Go It Alone!

Everyone knows, shopping is much better with a friend! This process can be time-consuming, sometimes confusing, and the mistakes can be costly. Working with a financial advisor (aka personal shopper) is an option to consider carefully. If you have any questions, we are here to help.

Download our printer-friendly 403b Shopping Guide >>

 

 

 

 

 

 

 

 

 

 

 

 

 


Investing involves risk including loss of principal.

Investing in mutual funds involves risk, including possible loss of principal.

Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. They are not suitable for all investors. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Equity Indexed Annuities permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. EIAs typically do not allow for participation in dividends accumulated on the securities represented by the index.

Warwick Valley Financial Advisors and LPL Financial are not affiliated with any of the other referenced entities.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice.