featured image for podcast episodeBe Wise, Your Financial Future is at Stake | Dan Otter

Be Wise, Your Financial Future is at Stake | Dan Otter
Episode 279

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Posted by Choose FI

Episode Guide

Episode Summary:

Teachers often face challenges with their 403(b) investment options, which can be complicated and costly. Many are unaware of the high fees associated with these products, often sold by sales agents in a confusing marketplace. The episode highlights the importance of financial education and advocacy, encouraging teachers to seek low-cost investment options, like Vanguard. Dan Otter from 403B Wise shares his journey of helping educators navigate their retirement options. He discusses the need for more fiduciary responsibility from school districts and the potential for positive change through organized efforts. Tools like 403bcompare.com aid teachers in understanding their fees and making informed decisions. The conversation emphasizes the significance of community and collective action to advocate for better retirement plans for teachers.

Episode Timestamps

ChooseFI Podcast Episode Show Notes

Episode: Advocating for Teachers and Their 403(b) Plans

Episode Summary: This episode dives into the complexities and challenges educators face regarding their 403(b) retirement plans. Discussion focuses on financial advocacy and education through initiatives like 403 B Wise, aiming to empower teachers to secure better financial futures.

Key Topics and Takeaways

  • Introduction to 403(b) Challenges

    • Overview of how many teachers unwittingly select high-cost investment options due to misleading sales tactics.

  • Dan Otter's Journey

    • Dan Otter shares his experience as a teacher in '92 when he was approached by a sales agent, leading him to become an advocate for educators.

  • Understanding Investment Fees

    • Discussion on how high fees from poor investment options can erode retirement savings significantly. Teachers are often unaware of these fees.

  • Comparative Studies of Investment Choices

    • Illustrative case studies comparing investment outcomes between high-cost plans and low-cost options like Vanguard or Aspire Financial Services.

  • Advocacy and Educational Initiatives

    • Emphasizes the need for teachers to advocate for better retirement plan options and the importance of solidarity among educators.

  • Call to Action for Teachers

    • Invitation for teachers to join communities like 403 B Wise to gain knowledge and support in navigating their retirement options.

Actionable Takeaways

  • Check your current 403(b) vendor and assess the fees associated with your investment options.
  • Advocate for the inclusion of low-cost options like Vanguard or Aspire in your school district’s offerings.
  • Join the 403 B Wise Facebook group to connect with other educators and share experiences.

Key Quotes

  • "Be active. You are your greatest financial advocate."
  • "Join the movement to fix broken 403(b) plans for teachers."
  • "Let’s unite to demand better investment options for teachers."

Discussion Questions

  • What are the key differences between a 403(b) and a 457 plan?
  • How can teachers leverage community support for better investment options?
  • What advocacy steps can teachers take in their districts to improve retirement plans?

Episode Mentions

  • Episode 220: Nancy Bocchetti's Advocacy Work

Podcast Description

Explore the ins and outs of 403(b) retirement plans for teachers, learn about the challenges educators face with high-cost vendors, and discover how to advocate for better financial options. Join us to empower your financial future.

Brad: I would actually say that I'm an advocate first and foremost before I'm even like a five person. ...

Dan: Thanks so much guys. I really appreciate you having me on. ...

Dan: Be active. I always tell people, no one cares more about your money than you do.

Brad: You've been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time.

Understanding 403(b) Plans and the Challenges Teachers Face

The 403(b) retirement plan can be a daunting aspect of financial planning for educators, and unfortunately, many have been misled regarding the options available to them. As a teacher, you deserve to understand these complexities clearly to secure your financial future.

The Importance of Financial Education for Teachers

Teachers often enter their careers with a passion for education but lack training in financial literacy. Because of this, many educators fall victim to predatory sales tactics that lead them to high-cost investment options. Understanding the ins and outs of your 403(b) plan is not just advantageous; it is essential for your long-term financial health.

What Is a 403(b) Plan?

A 403(b) plan is a tax-advantaged retirement savings plan designed for employees of public schools and certain tax-exempt organizations. It allows educators to set aside pre-tax money to grow for retirement, similar to a 401(k) plan.

The Case Against High Investment Fees

One pressing issue surrounding 403(b) plans is the presence of high fees associated with certain investment options. Teachers often do not realize how these fees can significantly diminish their savings over time.

Recognizing Investment Fees

Research shows that many teachers are sold high-cost investment products that can eat away at their savings by 2% to 3% annually. Little fees can accumulate over years, leaving you with substantially less upon retirement. For instance, if one teacher pays these inflated fees throughout a 30-year career, they could lose hundreds of thousands of dollars compared to a peer who opts for low-cost investments.

Choosing Low-Cost Investment Options

It's critical for educators to seek out low-cost 403(b) offerings. Companies like Vanguard and Aspire Financial Services often provide better cost structures and investment options.

Actionable Steps

  1. Assess Your Current Plan: Check your current 403(b) vendor and scrutinize the fees associated with your investment options.
  2. Advocate for Low-Cost Vendors: Engage with your school district to encourage the inclusion of vendors like Vanguard and Aspire, which can provide superior options for educators.
  3. Join Supportive Communities: Become a member of the 403 B Wise Facebook group to connect with other educators and share experiences.

Advocating for Change

Change in the 403(b) landscape needs to come from the ground up. Advocacy and education are critical in driving awareness and reform.

Building a Community of Advocates

By uniting with other teachers and professionals, you can create a voice demanding better investment options from school districts. Educator-led initiatives have the potential to change the narrative surrounding 403(b) plans, promoting transparency and accountability.

The Role of School Districts

School districts play a substantial role in the options available to teachers. A proactive approach in vetting vendors and providing educators with choices can greatly improve financial outcomes.

Encouraging Improved Practices

  1. Demand Accountability: Request that your school district reviews its vendor list and considers putting the plan out to competitive bidding.
  2. Educate Your Colleagues: Share your findings with fellow teachers, empowering them with knowledge to advocate for better investment options.

Exploring Alternative Retirement Savings Options

In addition to 403(b) plans, it’s important to consider other retirement savings vehicles like 457 plans.

The Advantages of 457 Plans

Those eligible for a 457 plan enjoy certain advantages that can improve retirement savings:

  • Access to funds without a tax penalty if you separate from service
  • Ability to double contributions three years before retirement

Final Thoughts

In closing, it's essential for teachers to take charge of their financial futures by becoming informed advocates for their 403(b) plans. You're in control of your financial well-being, and you have the power to initiate change.

Key Takeaways

  • You Are Your Own Advocate: Be proactive in understanding and managing your investments.
  • Seek Low-Cost Investment Opportunities: Look for vendors like Vanguard and Aspire Financial Services.
  • Engage with Your Community: Participate in groups aimed at improving financial literacy and investment choices for educators.
  • Utilize All Available Retirement Options: Explore both 403(b) and 457 plans to maximize your retirement savings.

By educating yourself about your 403(b) options and advocating for change, you can help transform the landscape of educator retirement plans for the better. Join the conversation, take action, and be the force for change in your financial future.

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Dan Otter

What You'll Get Out Of Today's Show

  • Teachers have been getting taken advantage of when it comes to their investment options. Thankfully, the internet and technology have made it easier to get the word out and help teachers wanting to do better.

  • During his first year of teaching, Dan Otter was asked if he cared about his financial future. He politely listened to a hardball sales pitch about an investment scheme he didn't fully understand.

  • Rather than blindly following other teachers at his school who had invested in it, Dan began to educate himself by learning about John Bogle, Vanguard, and low-cost investing.

  • He learned the salesperson who had approached him was trying to sell him a high-cost annuity inside a 403b and that it was a terrible product.

  • Unfortunately, most of his colleagues had signed up for these poor investment products despite having more than 100 options available to them, including Vanguard.

  • Dan began to speak up and asked pointed questions when other teachers began to talk about their sales agent in the teachers' lounge. Though he had never done it before, he started looking at their statements and showing them how much the fees were.

  • Appreciating Dan's insight and help, it was suggested that he put on workshops. After thinking about it, he bought the domain 403bwise, and with help from a friend, they built and launched the website in March 2000.

  • The mission of the website was education and advocacy, where teachers and school employees could come and learn about the 403b in a non-sales environment and also advocate for low-cost options like Vanguard.

  • Although this was 20 years ago, Dan says the problem with 403b persists today. Teachers usually find 403bwise after they have been sold one of these expensive products.

  • Dan says that not all 403b's are created equal. After working in different environments where 403b's are available, they were largely terrible in the public school systems with many different vendors. Private schools generally have just one vendor, as do universities, like Fidelity, TIAA-CREF, or Vanguard.

  • 403b's fall outside of federal oversight, specifically ERISA regulation, so the employer does not have the same kind of fiduciary duty. Just being on the list signifies tacit endorsement, however, the vendors are not vetted by the school districts.

  • Just because you aren't paying money out of pocket, doesn't mean there are no fees. Vendors make the fees hard to find.

  • Teachers all over the country can get fee information on the website, 403bcompare.com.

  • Dan says to look for costs in two places, Mortality and Expense Charge, and then look at the mutual funds that are part of the annuity. If you find out that you are in a bad product, you may also have to pay 7% of your balance just to get out of it.

  • Using the hypothetical example of a relatively new teacher earning $50,000 per year who expects to retire after 30 years, the difference between investing in one of these terrible annuity products versus one found after learning more from 403bwise can be $200,000.

  • Over 35 years, a teacher contributing $250 a month earning 6% will earn $185,391 when investing with one of the lunchroom sales agents, while the teacher investing the same $250 a month earning 6% interest with a low-cost company will have $343,000 at the end of 35 years.

  • Dan was able to visit the Vanguard campus as a guest of their 403b unit and says they are very focused on this market and getting on vendor lists.

  • A good fee for a 403b is 0.5, or 50 basis points, or less. Companies like Fidelity, Vanguard, and Aspire Financial Services are good. In California, CalSTERS, the state pension agency, created their own 403b after and is on most vendor lists.

  • Do not confuse Fidelity with American Fidelity Assurance, which is a high-cost company.

  • A 457 may be an even better plan than the 403b.

  • The National Tax Deferred Savings Association is a well-funded lobby with an interest in maintaining a high cost, multi-vendor 403b environment.

  • Montgomery Country schools in Maryland is one of the few school districts to put their 403b plan out for bid. They reduced the number of vendors down to just one, Fidelity, and plan participation and contribution have increased.

  • Dan would like to see every district do what Montgomery County did, but it needs to start with the teachers from the ground up.

  • The 403wise website has three main sections, education, advocacy, and community. Under the Quick Start Guide, the tool, Find a Good Vendor, on the home page allows teachers to search within their own school district.

  • 403b compliance is often outsourced to third-party administrators who bring in vendors who yield them revenue.

  • Even one of the big national unions, the NEA, has an endorsement deal with a financial company called Security Benefit, which offers a product called the NEA Value Builder with load fees of 5%. After being sued, they offer a fantastic and unadvertised product called NEA Direct Investment.

  • Anyone who would like to try and make a difference in their school district should reach out to 403bwise because they are building a network of advocates.

  • In addition to joining the Facebook group, reviewing the website, and learning about the 403b vendors available to you, check to see if a 457b plan is also available.

  • A 457b works similarly to a 403b but has a few more amazing benefits. If you separate from service, you can access the money in a 457b tax and penalty-free. Also, when just three years before retirement age, you may double contributions. And finally, 457b's requires more fiduciary oversight.

Resources Mentioned In Today's Conversation

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