Facts About Retirement and Investing in a 403b
ü CalSTRS will replace approximately 56% or your pre-retirement income.
ü When looking to start a 403b ask these questions before you decide to work with a financial advisor;
- Are you acting in a fiduciary capacity?
- What is your education and background?
- How long have you been practicing?
- Are you registered with the Securities and Exchange Commission?
- Are you registered with the California Department of Corporations?
- Do you have an insurance license?
- What credentials have you earned?
- Have you ever been disciplined for unethical or illegal conduct?
- Are you limited in the types of products and services you can recommend to me? If so why?
- Do you have any securities licenses? If so, what?
- Tell me about your investment philosophy and typical clients.
- May I see a list of references?
- Do you have any conflicts of interest here?
- If I do decided to with you, how often will we need to meet, and will I meet with you or an assistant?
Check on their fees and how they get paid;
- Are you employed by a particular 403(b) or 457 plan vendor or are you an independent agent?
- How will you be paid, flat fee, fee-based, hourly, or/and do you receive commissions on the products you sell?
- Do you represent a specific mutual fund company or insurance company?
- Do you receive any other consideration from the companies you represent or the vendors whose products you recommend, such as bonuses or finder’s fees?
- Please disclose, in writing, all fees, direct or indirect, that are included in the product(s) you are recommending to me.
ü Become informed on the products you are buying, before you buy anything.
ü Define your goals
- When do you want to retire
- How much money do you need to take home each month to pay your expenses
ü Compare different investment options
- Filed annuities
- Offered by insurance companies
- Provides an annuity or fixed income to you for life (or other period, such as the life of you and a dependent) or lump sum
- Generally offers two interest rates; a guaranteed rate for a set period of time and current interest rate
- Guarantee of you principal
- May offer a bonus rate
- Contributions are invested in the insurance company’s general investment portfolio- usually high-grade bonds and government securities
- Can only be sold by a licensed insurance agent
- Often includes surrender fees
- Regulated by Department of insurance
- Equity-indexed annuities
- Contract between you and insurance company
- There is a guaranteed minimum interest rate and an additional rate tied to an index
- There many different indexing methods used
- Regulated by state Department of Insurance
- If index drops, they make up company profits next period from your profits
- Sold by licensed insurance agents, not a financial advisor
- Variable annuities
- Sub-account options- check types of investment funds (stocks, bonds, money market, etc.)
- Mortality & expense fee or a death benefit provision that pays the beneficiary the greater of the account value or total contributions
- Review surrender fees or contingent deferred sakes charge
- Ratings of financial strength and stability of insurance company
- If you have decided to invest in the market (mutual funds sub-accounts), why not invest directly in mutual funds and avoid the insurance company fees?
- You can purchase an annuity with your 403(b) or 457 savings when you retire and avoid paying insurance company fees whiles you’re building you savings
- 403(b)(7) Custodial Accounts- Mutual Funds
- investments that pool money from investors and invest in stocks, bond and or other securities such as money markets
- the investor owns shares in the mutual fund
- liquidity: Shares can be sold quickly and with no price discount
- Mutual funds may be actively or passively managed
- Expertise & resources of professional money mangers
- Immediate diversification (although some funds are less diversified that others)
Check out CTA’s investment website for more information. CTAinvest.org