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~Why Horace Mann may be Bad News for your Retirement~

 

The answer is simple:  math.

 

 

Horace Mann offers investments in some high quality mutual funds from Vanguard.  That's great, but the problem is that Horace Mann tacks on an incredibly high fee for the privilege of investing in Vanguard funds.  Horace Mann charges 1.25% of your portfolio every year.  This is on top of the fee that is embedded in the Vanguard fund itself and on top of the regular account maintenance fee.  So if you want to invest in a Vanguard fund for retirement, there really is no reason to use Horace Mann as your 403b provider because you can just invest in the Vanguard fund directly through a 403b with Vanguard itself.

 

This 1.25% fee sounds small, but just for some perspective, if one were able to earn the long-term return of the stock market of 10% per year on average, hypothetically speaking, one would have $986,000 in 30 years if contributing $200 per paycheck.  When paying a 1.25% annual fee to Horace Mann, one would have $757,000, all else equal.  And it doesn't stop once you retire.  If you were to retire with $757,000, you'll be paying Horace Mann almost $10,000 per year just to hold this Vanguard retirement fund.  That is insane.  

 

These are the costs of saving for retirement through Horace Mann:  having to retire later, taking fewer vacations in retirement, being less financially secure in retirement, having less money to leave to loved ones, etc..  

 

Regardless of the rate of return you end up earning on your investments, one will simply end up with less money in retirement than you would otherwise, all else equal, due to Horace Mann's fees.

 

It's just math.  If you have any doubt about what I'm saying, just ask a Math teacher in your building.

 

Lastly, if you look at independent ratings of retirement plans, you will see that Horace Mann rates very poorly:  https://403bwise.org/advocacy/rating_system.  Lincoln, another popular 403b provider for school employees, is also rated very poorly.  Metlife is another poorly rated insurance company that Cape employees use for their 403b.  

 

In general, buy insurance from an insurance company, but consider saving for retirement through a company that specializes in providing low-cost, high-quality retirement funds like Vanguard and Fidelity.  You'll thank yourself later on.