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~Poorly Rated 403b's~

 

I've written about this before, but I think that this topic is so important for school employees that it deserves continued attention.

 

Take a look at the 403b options that the Cape Elizabeth school department makes available to employees:

https://www.tsacg.com/individual/plan-sponsor/maine/cape-elizabeth-school-department/

 

Next, take a look at the ratings of 403b plans nationwide:

https://403bwise.org/advocacy/rating_system

 

While it is fortunate that Cape offers the two best rated plans (Fidelity and Vanguard), what you'll also notice is that almost all of the other 403b plans that Cape offers are rated very poorly.

 

 

Why are most of the plans rated so poorly?  High fees and poor investment options.

 

The math is pretty simple.

 

Historically, the return in the stock market has been about 10% per year.  That's the average compounded rate of return.  No one gets that every year, and no one can tell you that it will be 10% in the future.  But let's use that number as a reference point.

 

Suppose that a hypothetical school employee works for 30 years and is able to earn 10% on their investments.  Let's say they contribute $200 per paycheck.  After 30 years, at a 10% rate of return in this hypothetical, they would have amassed $986k for retirement.

 

Now, let's say that the employee chose an expensive 403b plan with poor investment options.  And let's say that due to the fees and underperformance, this 403b plan ended up returning 2% less per year over 30 years.  In this hypothetical example, the employee would have amassed only $650k for retirement - a $336k reduction in retirement assets. 

 

To put it another way, choosing a low-cost retirement savings plan can mean the ability to retire early, to take more vacations in retirement, to give more to charity in retirement, etc.

 

And if you have been saving for retirement for a long time in a poorly rated 403b, you may be thinking that it's just too late to switch.  But it's not.  Even if you are on the verge of retirement, you have to keep in mind that you may still have another 30 years of investing in front of you.  And investing with a low-cost provider could still make a huge difference in your family's quality of life.

 

It can be a bit of a pain to transfer a 403b to a new provider, but it is very doable.  And one relatively easy thing to do first is to simply stop your contributions to the old provider and start contributions to a new provider.  Then you could work on getting your existing funds transferred over.  Before making changes to your retirement accounts, always consult your financial advisor.  You can contact Mark if you need any help with this.

 

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November 22, 2024