Why I Stopped My Contributions to 403b for Teachers.

From the author: In this post, I will list 5 reasons why I stopped my contribution to teacher’s 403b plan.

Hi there! This is quite an intimidating topic to write about. You see, I’m not a numbers girl, but I do go far and beyond my uncomfortable situation about numbers to find out where my pennies are going. Being aware of how your money is spent has nothing to do with stinginess or even frugality. I would say it’s a trend that everyone is following now. For me, it’s looking for bargains, finding natural products for a reasonable price, appreciating simple things and getting off the consumer society bandwagon.

Let’s talk about teacher’s 403b story. Teachers in many states are bombarded with offers to save for the rainy day and put away money in a “smart” way. What I saw in 403b by EQUI-VEST when I was introduced to the offer is the opportunity to arrange a money flow to the account that would later benefit me when I retire. I was sold on the idea of my money working for the sake of my grand retirement. As for the numbers the agent talked to me about, they didn’t sink in as correct or incorrect. I honestly didn’t understand the whole picture and how those percentages and fees and annual growth would work together and benefit my retirement. I didn’t want to feel stupid, so I refrained from asking too many questions. And honestly, I didn’t know what to ask about, so I opted in. After I signed the contract, I promised myself to learn a bit more about this 403b monster and find out whether what I sign up for was a cat in a bag. I googled, read articles, blog posts, books, and eventually, I have decided to stop my contributions to 403b. In this post, I explained all the reasons why I said goodbye to my 403b.

1.All that glitters is not gold

Let me start with an example that made me ponder. Well, let’s take a regular teacher with a salary of $40, 000 (depends on your salary; let me say that the starting New Jersey teacher’s salary is about $55, 000 with Master’s degree in ESL) who saves 6% (this, I believe, was my percent of contribution) of her salary over 40-year career. (Hmm, let me stop here. I am 35, and I just started my career as a teacher. A 40-year career will make me a 73-year-old woman. I don’t think 40-year example applies to me. Therefore, we are talking about a ten-year chunky cut, more like a 30-year career.) But let’s get back to the example: so, a hypothetical teacher would retire after a 40-year career with about 175, 000 when paying annual fees of 2 percent, assuming a 4 percent return after inflation. But she would have 25 percent more, or a total of nearly $218, 000 if fees had been 1 percent. So, the mere difference in fees has produced an amount of $43, 000 that has gone to the company for handling my investment in a “smart way.” Now I am curious about the fees themselves.

2. If I don’t understand how much I pay for the service, I’d rather not have the service.

I read through all the materials available to me about fees (company brochure, included in the introductory package) and this is what I learned:

1)    Mortality and expense risk charge: 1.25% per year.

2)    Administrative fees: 0.15% per year.

3)    Underlying fund expenses imposed by mutual funds (have no idea what it is and why I have to pay them)

4)    Daily separate account charge: 2.00%

5)    Charge for taxes: the percentage is not specified but is designed to approximate certain taxes that may be imposed on your company in my state. So, am I responsible for company’s taxes too? (LOL) Hmm……

Once again, I am not a number girl, but from looking at these numbers, something doesn’t feel right. It seems like too many fees for my little basket of eggs that I am hoping for.

3. The online account I created to track my 403b contributions made me feel I have no idea about what’s going on with my money.

Don’t take it wrong, a lot of financial stuff is confusing in itself, and I understand this. How can an ESL teacher be good at interpreting graphs and numbers and think financial language?  It requires a lot of interpretation and can probably be easier to understand if your work with some financial advisor. I assumed that having an account will allow me to understand some questions I still had about the fees and the general concept of how money is invested. It didn’t. I visited my account twice or three times, and every time I would have more questions than answers. Isn’t the purpose of a personal online account for the general public to explain clearly and demystify the language of finance and investment? Is there a 101 course on how to understand the 403b? Why do I feel so dumb looking at my investment strategy? What I also found uncomfortable is that my account did not have a detailed description of fees. That was disappointing.

4. Examples provided by the company are too generic and dull.

One more example that struck me was demonstrated in the company’s brochure (the one that usually comes in an introductory package). The hypothetical example assumes a $500 monthly contribution and 3% return annually. It does not account for taxes, fees, charges. (Oh boy….) In a nutshell, the picture shows $459, 725 account value over 40 years. Let’s analyze it. My monthly investment is not $500. I am 35 now. Having 40 years of work for me is 75 years old age. Let’s say more like retiring at 60 or even 55? It leaves me with 20-25 years or employment. Let’s say 20 years. My potential account value is $163, 830 NOT INCLUDING TAXES AND FEES AND CHARGES… But I mentioned at the beginning that my contributing monthly amount is not $500… So, this number even lower than 163, 000. And then taxes, and fees, and charges. Is it $ 80-90, 000 by the time I retire? What if I still have a mortgage and taxes to pay? Failure…

I was determined to find more info about 403b investing, and this New York Times article “Think Your Retirement Plan is Bad? Talk to a Teacher” gave me more insight into the issues I was researching.

Let me know what you think!

5. A company by men for men.

I’ve been thinking whether my understanding of  403b’s could have been different if I had talked to a woman instead of a man. Nothing wrong here with gender preferences. By the way, the advisor I spoke to was a man, and he was extremely cautious and helpful in answering my fundamental questions. However, my most significant questions about the fees and whether I really win by putting my eggs into this basket have been unanswered, and that’s what led me to stop my contributions. If I have no control over the market, over the tax bracket I will be in future, and I will be changed fees and penalized for withdrawing from my account before 100 years old.., why do I need to give my money away? Can I manage it better? Myself? Can I make better choices? And once again, if there had been a woman to talk to about my 403b investment, would I have been more comfortable to ask stupid questions, dig dipper, establish trust, relate to, find accurate advice? I believe a lot of issues for women do come from the fact that a lot of companies are built by men and for men. Ordinary women like me are just starting to navigate the world of investing. And what matters a lot to me personally is not how aggressive my stocks will be or how future me can potentially see some money, but how I can trust someone? How can I relate to someone with my personal story? How can I avoid penalties and still rely on the money I put in in case of emergency? I believe there should be better options for women. Something I could quickly explain to my daughter in future and not make a fool of myself. I will keep exploring.

The takeaway today is here:

1. Consider your current 403b and talk to someone about it, be it your advisor, agent or anyone who sees more sense of investing than you do.
2. You shouldn’t feel confused or stupid when you seek questions to your answers. If something doesn’t feel right, drop it!
3. Read and learn about money investment yourself. Even pure introductory knowledge about money can drastically change your understanding of many things.
4. Having learned from one of my favorite authors Tony Robbins, I can advise reprogramming your thinking about your future, your life. You are the best person who can make decisions that will influence your life, well-being, wealth and happiness. Start today!

Talk to you later!

Disclaimer: All opinions expressed in this article are my own. I am not an investment professional, and I talk only from my own experience.