Imagine your only option for a retirement plan option is terrible. I don’t mean something trivial like having to use Fidelity instead of Vanguard. I’m not even talking about having your preferred index fund or ETF. What would you do if your 403b option was truly terrible?
Asking for a friend.
Well, actually, I’m asking for my husband.
I’ve danced around sharing our investment choices on the blog for years, mainly because there hasn’t been much to write home about. There isn’t bad news, per se.
There’s just a whole lot of indecision.
For the past three or four years, we’ve maxed out Roth IRAs with Vanguard. We also contribute a negligible amount of money to a taxable account — it’s really equal parts experiment in risk tolerance and medium-term savings account more than it’s an investment to help with retirement, though.
What’s been shockingly absent from our blog for years is any news about 403(b) contributions. Why? They’re awful. So awful, we’ve essentially opted out. But I’m not sure that’s the right call.
My 403(b) Plan
There is good news here. My district does now give us the option to open accounts with Fidelity. So I now contribute a small amount of each paycheck to a very low-fee fund. I’m happy, and I think I’m going to add another $50 a paycheck.
Normally, this is where a financial blogger would tell you how much they’ve contributed and what they’ve earned.
But I am not most financial bloggers. This also has nothing to do with anonymity. It’s because I opened the account a few months before the stock market took its first tumble last year. And I’m pretty sure it’s been a colossal bloodbath since.
So I just haven’t looked. Because I know myself well enough to know that if I don’t like what I see, there’s a good chance I’ll switch my paperwork to contribute less instead of more.
(I’m also a bad blogger and haven’t filed my taxes yet. It’s on my to-do list for next week, so I’ll know the gory details then.)
As it stands currently, I’m set to contribute $3900 a year. It’s not much, but it’s also not nothing. That’s something I’m really happy about. Hooray for change in the right direction.
The Terrible 403(b) Option at My Husband’s Work
Option, not options. Option, as in one.
My husband doesn’t have a 403(b) yet for the same reason that I don’t have a 457 plan. We only have one option: variable annuities with AXA.
The account fees are high. The surrender fees are stupid. And why in the world do I want an annuity on top of a pension?
(Trick question: Pensions in the state of Illinois are only partially funded. Ours is currently sitting at 40%. So when I’m old and gray and pension-less, I might regret that last paragraph.)
The Fees Would Take a Big Bite
The numbers don’t lie. Fees suck.
The Securities and Exchange Commission released a bulletin that reminds investors that 1% fees can reduce a portfolio by almost $30,000 compared to a .25% fee. Honestly? If the fees were only 1%, we would have enrolled.
I don’t want to do the math on the bloated account fees plus the surrender charges and money god knows what else they hide in the fine print on those AXA annuities.
Lucky for me, I don’t have to do the math. A whole bunch of other people already have. 403b rip off yields over 7,000,000 Google results. 403b fees yields over 49,000,000. That’s a whole lot of people saying essentially the same thing. Most 403(b) options are terrible because of the fees.
The New York Times rolled out this piece, aptly placed in the “Public Sacrifice” category in 2016. They followed it up with the fact that even math teachers can’t really understand the annuities they’re offered. The series ricocheted around the interwebs…but then not much changed. Two years later, CNBC says 403bs still aren’t making the grade and a bunch of teachers like Millionaire Educator have really taken up the cause online. 403b reform is happening, but the pace is glacial.
But Now We Aren’t Saving at All?
The question is what do we do in the meantime. Currently, we’re sitting out.
That means we’re not paying any fees.
But that also means that my husband is not investing. More precisely, he’s not investing in any retirement vehicles outside of his (questionable) pension and personal Roth IRA. I have my 403b on top of those other two options, which is excellent news for me, but it makes our married finances feels a little lopsided.
(But I mean, I guess I could retire to a beach while he teaches and coaches a few extra years. That’s counts as a financial plan, right?)
So I guess the one thing that feels like it’s missing from all the people revealing how terrible 403(b) options are…is what to do about it. Knowledge is power, but I can’t take knowledge to the bank.
What Would You Do with Terrible 403(b) Options?
We intend to contribute to our Roth IRAs for as long as we can (Can you imagine two teachers making too much income to contribute? ::crosses fingers::). Additionally, we both make the required 9.4% contribution into our pensions. We have a robust emergency fund that we could use to float another maternity leave (purely hypothetical, not an announcement, Mom!). Should our family expand, we know we’d have to push pause on some of the saving and investing due to daycare expenses, but that would only be temporary.
We need something to fill the investing void. If your 403b options were this terrible, what would you do?
I can continue to avoid them entirely like we are currently doing. Or maybe we grin and bear the fees for some trial and error (though it feels so definitive knowing that the surrender fees are so hefty).
Of course, we are going to continue to talk with our colleagues and HR about what it would take to expand our 403b and 457 plan options. But bureaucracy is slow. In the meantime, perhaps there is an alternative that we’re overlooking.
So Tell Me…What would you do with terrible 403(b) options?