Teachers Stacking 10's

Tag: 403b

  • Vanguard is our new best friend.

    Vanguard is our new best friend.

    It’s happening! The TA and I are going to be getting Vanguard as a 403(b) vendor in the New Year! Wait, you aren’t as thrilled as we are? You should be. This is great news!

    What’s the big deal Professor?

    Well, everybody loves saving money! This is what Vanguard is going to do for us. Most teachers don’t realize that a 403(b) vendor charges fees to “advise” you on how to invest your money. Depending on your vendor, these fees can range from $100’s to even $1,000’s of dollars per year. This can cost you MASSIVE amounts of money over the course of your teaching career. Our current vendor charges a fee of 1% to manage our money. I have about $70,000 in my account, so they charge me $700/year! Vanguard charges a $5/month record keeping fee, so my yearly cost will be $60! That’s a savings of $640/year! No matter how much money I add into my account, I will still only be paying $60/year!

    There has to be a catch? 

    Yes. The “catch” is that you can only purchase Vanguard funds. This is fine with the TA and me since we are big fans of Vanguard’s low expense ratio funds. We both actually hold them outside of our 403(b) in personal IRA and taxable accounts.

    Friend with benefits

    Not only will we save money with Vanguard as our provider, but we will also have more control of where our money goes. With our current vendor, we have to talk with our adviser about where we want our money. We have to tell them the percentages and then we have to listen to them try to “persuade” us to invest in high expense ratio funds. We can log in to see our accounts, but we have ZERO direct control over anything that happens in the account. We have to contact our adviser to make changes. With Vanguard, we will be able to log in and set our investment profile directly. 

    A typical conversation with my 403(b) rep.

    Don’t get me wrong. My adviser is a nice guy and I know he means well, but I’m an intelligent investor and the person I trust most with my money is me. I hope that doesn’t come off as arrogant, but I have put the time in to learn about good investing strategies. You can do it too! Just go back and read our post on understanding stocks, ETFs, and funds.

    Remember, an adviser makes his money by telling you what to do with your money. Even if you aren’t confident in making your own money decisions, there are three key questions that need asking.

    • What is your company’s expense ratio?
    • What is the expense ratio of the funds you are recommending?
    • Is there a penalty for moving money from one fund to another?

    The first two questions will give you an idea of how much of your money you are losing. If the answer to either of these questions is over 0.50%, then you are being charged too much.

    If the answer to the third question is yes, RUN! This will mean your money is in some kind of annuity. These are bad! You should NEVER be penalized or required to keep your money in a fund for a certain amount of time.

    The Hurdle

    The one hurdle that you have to get past is having limited options when it comes to 403(b) vendors. Every school district has a list of approved vendors. You cannot choose anyone outside of this list to administer your 403(b). The TA and I did not have a great list of vendors available to us, so we decided to ask our school if Vanguard could be added. We were lucky, for us it was simple. We are a small school district, so we don’t use a 3rd party administrator to oversee our 403(b). Our school board quickly approved adding Vanguard. You can try the same thing with your district. Show them the comparisons between a company like Vanguard and your current choices. It can be a powerful influence to show them the amount of money that their employees could be saving.

    I just wish I would have learned this 20 years ago!

    Keep Stackin!

  • What Kinds of Benefits Do Teachers Have?

    What Kinds of Benefits Do Teachers Have?

    So far we’ve looked at what you need to do when you meet with the business office. One area that we did not discuss were the benefits. This post will just give the big concepts of these benefits and we will follow up in the future with a more detailed analysis of each one.

    There are a few big areas that you need to focus on:

    • Health Insurance
    • 403(b)
    • Life Insurance

    Health Insurance

    Whether or not you use health insurance benefits from your school will depend on your relationship status and the amount your school pays toward your health insurance premiums. Some schools will pay only a fixed cost for employee health insurance. This has actually become more common with the quickly rising costs of health insurance. Larger districts may cover the full cost. Our district will pay $400/month to the cost of insurance. If we decide to take coverage through a spouse, like I do, we are just out that $400/month. It’s a benefit that I decline because it would cost me more than it’s worth. See my example below.

    For example, my wife works as a nurse. The company she works for requires us to pay $450/month in health insurance premiums. Sounds like a lot of money, BUT if I were to get a family plan through our school, we would have to pay over $1,200/month for premiums since our district will only cover $400 worth of costs. Now if we didn’t have our kids on our health insurance, I might take the school insurance since the cost for a single premium would be $100/month, and my wife would be able to get a single premium at her work for $150/month. This COULD be more cost effective depending on our health condition. We will deep dive into health insurance in a later post.

    Your health insurance premiums could vary wildly depending on the plans available to you. Details of these different plans will come in a later post.

    Life Insurance

    Some schools will also have a small life insurance policy, usually under $50,000, for their employees. These policies are usually covered completely by your district, or requires a very small payment from the employee. If you join the union, your state association or the national association may also have a small policy paid as part of your dues. The T.A. and I do not have life insurance policies at our school, but we do have $25,000 policies through the national union.

    403(b)

    This will be a brief overview of the 403(b). The 403(b) benefit is one where the school district will match a portion of your contributions to this retirement investment. An important part of this idea is that the district will deposit this money into your account ONLY if you put money in yourself. Our district will match up to $700 for any teacher. So the minimum you would want to designate would be $700 or you would be giving up that 100% return on your investment. One of our colleagues didn’t contribute anything to his 403(b) his first year. Needless to say, the T.A. and I assigned him many detention sessions for his misbehavior!

    Now contributing to this 403(b) account involves a little more than just filling out the form and putting the money in. You will have to meet with an advisor from a 403(b) company and figure out where this money is going to go. We will cover this important area in its own post in the future.

    In Review

    These benefits may not seem very important when you get your first job. Everyone focuses on the salary, but the sooner you learn about them and use them to your advantage, the earlier you will be on the path to financial freedom.

    KEEP STACKIN!