~Free Yourself from High-Cost Investments~
In the corporate world of 401k's, you rarely see employees investing through deferred annuities and other high-cost investments. However, insurance companies got their claws into public education decades ago. As a result, 403b's in public education are rife with high-cost, low-performing deferred annuities and other types of expensive investment options......
Consider the table below.
Each row shows an investment fund through Horace Mann compared to a similar investment in a low-cost index fund at Vanguard.
The 10-year return column shows the actual rate of return each investment has made over the past 10 years, as of March 28, 2024.
The 10-year, 20-year, and 30-year columns show what investing $200 per paycheck would grow to if it grew at the 10-year rate of return for each period of time. So the 20 and 30-year columns are hypothetical, but they provide some context for the long-term impact of what look like relatively small differences in the percentage rates of return.
So if you look at the first two rows in the table, if one were able to invest $200 per paycheck in Horace Mann's Fidelity Freedom target date fund at the rate of return over the past 10 years, one would have $548,877 in 30 years. On the other hand, in Vanguard's low-cost target date fund, one would have $704,378 in 30 years. That's a remarkable difference.
Next, consider Horace Mann's S&P 500 fund in the next set of funds. This is just an S&P 500 fund that is held in a high cost account. This is clear when you compare this to simply owning the Vanguard S&P 500 fund directly through Vanguard. After just 10 years, the Vanguard fund outperformed Horace Mann's S&P 500 account by $10,000. Extrapolated over 30 years, this amounts to a $600,000 difference. Of course, we don't know what the rates of return will be over the next 30 years, but we do know for certain that investing in an S&P 500 fund with very high fees through Horace Mann will yield significantly lower returns to the investor than an S&P 500 fund through a low-cost provider.
So if you are investing through Horace Mann or Lincoln, consider moving your investments to a low-cost provider like Fidelity or Vanguard. Yes, it will take some time and effort, but it will eventually pay off in the long run, and quite possibly in a very big way.
And if you've been investing with Horace or Lincoln for a long time and figure it's just not worth moving your investments at this point, think again. Even if you're 60 years old, that means you may have another 30 or more years of investing ahead of you, so those last two columns in the table still apply to you.
Of course, before getting out of an investment like an annuity, be sure to check with the annuity company to determine if there are any fees (for example, "surrender charges") associated with transferring your money to a low-cost provider like Fidelity or Vanguard. Sometimes surrender fees can be significant, but they generally decline to zero after 7-10 years of holding the annuity. And of course, just because there are fees for exiting an investment, that doesn't mean that you shouldn't move your account. One should compare the fee for leaving to the cost of staying, which based on the table above, can be quite high. Consult a fee-only fiduciary for help in determining how and when to get out of an annuity or some other high-cost investment account.
If you want to check out these results in the table for yourself, here's the data:
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