I am a teacher in Indiana, and our corporation's 403b program offering is quite small.I have read a great deal of info about investing, and everything I've come across says to invest all you can in pre-tax offerings, if available.I, of course have opted to invest in their meager index offerings, which have no 12b-1 fees and lower management (.3-.4) than others such as American, Blackrock, etc., whose fees are almost 2%.I am currently investing the max ($15.5K) These are my allocations: Metlife Mid Cap 20%, Metlife Stock Index 25%, Russell 2000 20%, Morgan EAFE index 25% and Lehmman Index 10%.I am concerned that I am not diversified enough, and that even though these are pre-tax contributions, it may be better in the long run to invest outside of the 403b. I'm also worried about diversification because I realize some of these indices are related to others in the big picture. We are also close to the cap for IRA's so I'm not sure I can invest in other tax sheltered options.Any thoughts or ideas?Thanks so much for your time!Tammy
I, of course have opted to invest in their meager index offerings, which have no 12b-1 fees and lower management (.3-.4) than others such as American, Blackrock, etc., whose fees are almost 2%.I am currently investing the max ($15.5K) These are my allocations: Metlife Mid Cap 20%, Metlife Stock Index 25%, Russell 2000 20%, Morgan EAFE index 25% and Lehmman Index 10%.I am concerned that I am not diversified enoughThis looks like a diversified portfolio to me. Index funds are by definition diversified. Unless it's a sector fund.Not diversified is being invested only in your company's stock.I tried to run it through Morningstar's x-ray, but I think I'm too tired right now. Here's the link if you want to try it.http://portfolio.morningstar.com/NewPort/Free/InstantXRayDEn...Vickifool
I am currently investing the max ($15.5K) These are my allocations: Metlife Mid Cap 20%, Metlife Stock Index 25%, Russell 2000 20%, Morgan EAFE index 25% and Lehmman Index 10%.I am concerned that I am not diversified enough, and that even though these are pre-tax contributions, it may be better in the long run to invest outside of the 403b. I'm also worried about diversification because I realize some of these indices are related to others in the big picture. We are also close to the cap for IRA's so I'm not sure I can invest in other tax sheltered options.Any thoughts or ideas?My thoughts are that this sounds like a well-thought-out plan, and the diversification is good. I wouldn't worry about some of these things being related to others in the big picture ... in a big enough picture everything's related. (In a big enough picture of people, they're all related too!)If $15.5K is the max for you, then I see you are not yet old enough to use the additional $5K "catch-up" money. OK. But as you do approach 50 and 60, you'll want to move a bit out of stocks and into fixed income. (I like CD's myself. The money's there, and it'll be there when I need it, but it's not liquid enough that I might rationalize using it now). This also suggests that you have time on your side. It would be good to re-balance this portfolio, I think, as you go forward. And the way I think of re-balancing is by directing your annual contributions into the area that has grown the LEAST. This seems counter-intuitive, since we human beings want to ride the fast growers, not the plodders, but it's a good long-term plan. In retirement, I would reverse that, and draw from the areas that have grown the most. You end up buying low and selling high -- without having to try to "time" the market.I really like the 403b idea; it's a good example of "paying yourself first." You don't have to fight to save the money and then invest it. It comes right off the top of your take-home pay, so you never see it and you never miss it. In my view, the biggest obstacle to good investing lies in the individual investor: it lies in our human attraction to trying to time the market, score big by riding fast movers, etc. And it lies in the interference we all have from cognitive biases.http://en.wikipedia.org/wiki/Cognitive_bias http://www.sciencedaily.com/articles/l/list_of_cognitive_bia... --SirTas
Thanks so much SirTas for your input. The diversification issue just came up when I read in an indexing website (which of course I can't find at the moment) that says that investing in Russell, Mid Cap, and 500 indices was not technically "diversified" in that they tend to fluctuate together. At that point they brought up EAFE and other markets that tend to be more independent, and in essence, investing in an index or two outside of the norm was diversified in regard to an index portfolio. Unfortunately, the indexes I'm invested in are the only ones they offer.I, too, like your thoughts on investing in the slow man, so to speak. It is very difficult to curb the desire to do just the opposite. I have caught myself numerous times thinking about it.Again, thanks for your time and thoughts. Greatly appreciated them.
Thanks, Vicki, for the link. Inevitably I always find myself off on tangents two hours later after clicking on them! :)Tammy
My wife is also a teacher in Indiana.When 2009 finally gets here and the new rules are in place for 403bs, I plan to try and get Vanguard in for her school. Vanguard does offer a 403b program.Is the Metlife an annuity or a mutual fund offering?Your 403b (assuming decent fees) is going to be your most significant means by which to save for retirement. Additionally, you might be able to do a 457 on top of the 403b to double your contributions (been out of this market for too long to know if this still applies).
I have read a great deal of info about investing, and everything I've come across says to invest all you can in pre-tax offerings, if available.I've never seen competent justification for such a move. Here's an example of better advice on priority of investment:http://www.fool.com/Retirement/Retirement02.htmSince you don't mention any match I'll assume that you don't get any. Roth should be your priority. Do all you can per your MAGI (403B contribution lowers your MAGI so you can contribute more to the Roth) and the income limit per: http://www.investopedia.com/ask/answers/176.asp
Looks like it no longer applies: (from wiki)The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made a number of changes in how governmental 457 plans are treated. The most notable of which is the coordination of benefits limitation was removed. This allows a person whose governmental employer has a 401(k) or 403(b) and a 457 to defer the maximum contribution amounts to both plans instead of coordinating the total and only being able to meet a single limit amount. Thus a participant can contribute the maximum $15,500 for 2007 into their 401(k) and also the maximum $15,500 into their 457 plan. If that person is over age 50 they can contribute the additional catch up amount into each plan also, meaning an additional $5,000 into the 401(k) and another $5,000 into their governmental 457 (catch-up contributions are not provided for non-governmental 457 plans). The total would then be $41,000 deferred instead of the $20,500 that would have been allowed if the coordination of benefits provision had not been repealed in regard to the governmental 457 plan. As a result, many governmental employers have now set up 457 and 401(k) plans for their employees, and non-profit employers have set up 403(b) and 457 plans each allowing their employees to invest in both. Some state universities and school districts have access to all three tax-exempt plans. However, the total combined annual contribution to 401(k) and 403(b) plans is subject to the $15,500 limit and $5,000 catchup limit.---------It was a VERY nice loophole while it lasted.
Metlife is an annuity.The school corp I work for just went through an entire revamping due to the new legislation. Supposedly some group in the district made the choice as to what companies were going to be offered starting in September. If our current investment company was not one of the chosen, they you have to leave it where it is and start anew or roll it over with penalties, unless you've been invested for 10 years. I am 38 in my second year of teaching, and fortunately Metlife was "chosen." My big question was who made the decision, and how were they qualified to do so? They claim to have made it in part on the number of people already invested with certain companies, and I'm assuming this was done so there was very little turnover. Just to let you know, the teachers had no say, whatsoever, in what is now offered. It was a mess, and the teachers I work with were very confused. One gal broke out in tears because she simply didn't know what to do. We were given 2 weeks notice to decide.Just thought I'd give you a heads up as to what is to come for your wife. Hopefully here corporation will be a little more flexible.I have to look into the 457. Never heard of it, but I noticed a few replies to this, so someone may have volunteered this info.Fortunately I have time on my side and can do more research. Tammy
Yes, there is a match....2.5% (whoopee!) which will increase.The taxes I would pay on that $1200 a month if I didn't invest pre-tax adds up to a significant amount lost in one year (let alone 20.)Even with my MAGI adjusted after the 403B deduction, we are close to the cap for Roth ($165,000 joint filers?)Have to look into the links! Thanks!Tammy
fortunately Metlife was "chosen." I think you mean unfortnately.My big question was who made the decision, and how were they qualified to do so? They claim to have made it in part on the number of people already invested with certain companies, and I'm assuming this was done so there was very little turnover. Just to let you know, the teachers had no say, whatsoever, in what is now offered. It was a mess, and the teachers I work with were very confused. One gal broke out in tears because she simply didn't know what to do. We were given 2 weeks notice to decide.I think part of the new rules require the school corp to have greater legal liability over such decisions. As such, that might be added leverage for them to allow lower fee options than this annuity.Check with the experts at www.403bwise.com to know for sure. I do know that if they force you into a few high fee options, that they will likely face some legal action in the future. Some school corps are already facing such.Since you are in Indiana and I am a bit familiar with these circumstances, is the Metlife account you are talking about the VEBA & 401A accounts or your 403b? You should still have more than Metlife for your 403b while your VEBA and 401a will go to a sole company (which is what happened to my wife - Metlife too).I went to the meeting where Metlife was selected for my wife's school. The rumor was that ISTA was getting some sort of kickback in the form of lower fees on their accounts if they picked Metlife. Apparently, Metlife even has a few employees in the ISTA building. I know that the school admin picked a different provider and my wife's union only came with VALIC (AIG) and Metlife as their choices.As I previously stated, I plan to take action early next year to correct this issue. I don't imagine it will be easy but at least by then, I think I will have a bit more leverage.
We have gone from 21 vendors (which included Vanguard, but none of our paperwork ever told us this, and I combed through it like crazy) to just 3....Metlife, VALIC and what they call the 403b ASP platform, consisting of some randomly chosen companies (JHancock Lifestyle retirement funds...whatever..., Federated Prime Cash Series, Pimco Total Return, etc.) a complete mishmash of 12 other funds. which they chose with intent to diversify the offerings. Ugh.Metlife? Yes, I would definitely choose other companies if it was up to me, but I was fortunate in that my money is there and I don't have to change the allocations or revamp my entire portfolio, which is what some people are having to do.Just to let you know, too, that I read over all of the information they gave us when this came about a month ago, and they did hire "independent" consultants and lawyers to decide the offerings with our union reps here at the school. Maybe if your wife tugs at their ear, Vanguard may be an option. We were not invited to the meetings and had no say. Sad, but true.Keep at it...Just a heads up...I just received my statement this summer from TRF which calculated my pension based on my average salary AFTER my annuity deductions ($21.5K instead of $37.5K) and of course that sent me into a fit.....it translates to a loss of 1000's/year during retirement....in which I would have to net 40% or more on my investments to break even. Check your wife's most recent TRF statement and see if they are doing the same to her. I'm curious if it's been flying under the radar because most people are making much smaller contributions.I have been going back and forth with TRF for the past 2 months, with the only explanation being "well, your annuity contributions SHOULDN'T be deducted from your annual average salary...." No one is giving me a straight answer and it's about to get ugly on my end. Thanks so much for the advice/input. Get back to me if you notice any irregularities in your wife's average annual salary TRF is reporting.Tammy
My wife is out on an extended maternity leave (leave of absense) so she is not currently contributing (or getting a salary) for a few more months. We stopped adding to her 403b prior to that.I won't know if that is the case with her until she goes back to school and until we start adding to a 503b again (we opened an American Funds account with Teacher's Credit Union which is mutual funds only - but we don't know if it will survive the cut).
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