Retirement Planning For Teachers

Retirement Planning For Teachers

Planning for retirement is hard enough, but retirement planning for teachers can be even harder.  If you are a Baltimore City Public Schools teacher, you may be confused about your 403b options.   That is why it is so angering to know that average 403b fees are up to 3 times more expensive than equivalent mutual funds, and they may even have sales loads and surrender fees associated with them.

Providing an even starker contrast, there was recently a barrage of headlines that both Charles Schwab and TD Amertrade were doing away with ETF commissions.  Investment costs haven’t hit zero, but it is getting really close. Except for teachers.

How is this possible?  Tony Isola, a 403b expert, recently wrote an article that does a phenomenal job of explaining the various factors.  I’m not going to rehash those reasons but it is a good read if you have the time. The short answer is that the regulations are weaker than the regulations for 401ks.  

Baltimore City School 403bs are no exception.  8 of the 11 403b providers are insurance companies.  This usually means higher fees. It also means you have to work with a rep that can try to sell you junk you don’t need. Don’t blame them because it’s their job to sell you things but that doesn’t mean you have to buy any of it.

BCPSS teachers are lucky though. 1 of those 11 403b providers is Vanguard.  The fact that there are 11 providers in the first place makes no sense. Do yourself a favor and strongly consider using Vanguard.  They are among the lowest cost providers available to investors anywhere and you shouldn’t have to deal with insurance cross sells.

True to form, I cannot access all the fees for each plan.  You must contact the rep to get that information. Since I cannot make a spreadsheet of all the fees, I cannot say for sure that Vanguard is the lowest cost option.  What I can say is that using Vanguard would be a wise choice and I would be surprised if they aren’t the lowest cost option.  As a Fee-Only advisor, I have no affiliation with Vanguard whatsoever.

Baltimore County Public School teachers don’t appear to be as lucky.  Vanguard is not an option for them.

For those teachers that don’t have any good 403b options and want to save, consider the following:

  1. If there is a match on your contributions, contribute enough to get the match and not more.  Even with extremely high fees you are coming out ahead solely because of the match.
  2. If you want to save more or don’t have a match, consider contributing to an IRA.  You can use a Traditional IRA or a Roth IRA. The right choice for you depends on your tax situation and is beyond the scope of this article.  You can contribute up to $6,000 in 2019, or $7,000 if you are age 50 and over.
  3. If you want to save more, consider putting more into a spouse’s plan if they have one and it has lower fees than yours.  
  4. If you want to save more and your spouse’s plan isn’t an option, you’re probably best to go back to the 403b and contribute even if it’s high fees.  But you should also start contacting your union rep to get a good plan option.

Maybe most importantly, consider rolling over old 403b plans to either a better plan or an IRA. 

I am also offering a complimentary fee review of any 403(b) plan.