Author Topic: Valic 403b plan: keep or dump?  (Read 28252 times)

Midwestexpat

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Valic 403b plan: keep or dump?
« on: May 16, 2014, 01:30:29 PM »
With great trepidation I have just joined the community here . . . knowing that I'm outta my league as a relatively new mustachian, but hoping for a bit of advice from you friendly and knowledgeable folks. 

My husband (school administrator) fell for the school district's very convincing Valic snake oil salesman 11 years ago and chose Valic for a 403b plan to supplement his regular retirement plan (pension).   He was sure it was all a great deal and we were too busy with work, babies and paying off two big student loans to take the time and really research things.  Full disclosure: we're both major right-brainers (or at least what used to be thought as right-brainers).  Big on creativity, expression, ideas . . . but both of us would rather have a root canal than have to sort through dry, boring, financial mumbo-jumbo.  So I think that just having someone sit down with us early in our marriage and assure us that if we just went with their particular 403(b) plan we'd be ship-shape financially by retirement made us feel as if we'd done our homework.  (Now I know much better . . . hindsight always being 20/20 and such).

Over the last five years we've been coming gradually into Mustachianism by paying off all debt (mortgage is all that's left now), getting out of a nightmarish rental house ownership situation, and learning to live much more fully by spending less.  During this entire time, we've been contributing to that Valic 403b: total contributions to date (2003-2014) have been $47,000, current account value is $77,463.    I don't know if I need to share the whole breakdown of the plan: Socially Responsible Fund, Midcap Index Funds, Stock Index funds make up more than 50% of the account.  Anyway, the more I read now about these tax-sheltered annuity plans and the companies that offer them, the more confused I get.  The general consensus that I've found online is that Valic stinks (mainly due to fees) and that one should get far away from them, in spite of surrender fees (for us that would be 5% or more until age 59 1/2, but 10% can be transferred annually penalty-free).  My husband is 53, so it will be six years until he can move all the money without paying a surrender fee.

Questions: Our school district now offers a Vanguard 403b plan.  Looks better in terms of fees (of course), plus we know now about how Vanguard operates and would really like to have our money with them. (Plus, we hate getting constant phone calls and emails from the smarmy Valic account manager). Should we move this money over to Vanguard gradually, 10% at a time?  Bite the bullet and pay the surrender fee now to transfer it all?   We also know it's time to open a Roth IRA.  Should we keep the 403b money where it is now and just open an IRA with Vanguard and contribute to both?  Not sure if we can max out a Roth IRA each year and keep contributing to the Valic 403b, but just wondered if anyone had some general advice based on their experience with Valic and/or 403b plans. 

Many apologies for my lack of in-depth knowledge and not knowing all the correct lingo (I'm trying to get up to speed in this area, honest!).  Thanks in advance for any wisdom offered to this lowly neophyte. 

 

aj_yooper

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Re: Valic 403b plan: keep or dump?
« Reply #1 on: May 16, 2014, 01:44:18 PM »
Welcome!

I had Valic and Vanguard for my 403b.  Vanguard is way better so I would sign up for that option.  On the Valic, I would leave it alone and choose funds that have low expenses and are more total market index; I would move it to Vanguard when you can move it all at once.  When I retired, I moved my Valic to Vanguard by using the Vanguard concierge service.  Very helpful. 

*I looked at some of the fees:  you could get a S&P500 Index for .18 (Iowa Valic offering), which is not bad.

Don't be shy here.  Lots to be learned from others.  My favorite books on investing are Rick Ferri's All About Asset Allocation and William Bernstein's Four Pillars of Investing.
« Last Edit: May 16, 2014, 02:27:48 PM by aj_yooper »

brewer12345

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Re: Valic 403b plan: keep or dump?
« Reply #2 on: May 16, 2014, 01:51:54 PM »
I would put all new money in the Vanguard 403b option.  As you have noticed, Valic (IMO) sucks the big, hairy one-eye.  The decision to take the beating up front and eat the 5% charge or transfer over time depends on the difference in fees.  If you transfer 10% a year it will take you a decade to transfer everything.  Build a spreadsheet that shows how much extra you will pay in fees over the 10 years assuming a modest growth rate (5%?) and see what the cumulative difference in fees.  If it is comfortably over the 5% surrender charge, I would move the money all at once.

clutchy

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Re: Valic 403b plan: keep or dump?
« Reply #3 on: May 16, 2014, 02:04:42 PM »
I don't know why you're calling it snake oil.  That implies he sold you total useless shit.  You in fact have substantially increased your wealth on top of your defined benefit plan. 

Others here have offered excellent advice.  My advice is to drop that victim language and own your future. Who calls free money snake oil....  Sounds complainy pants to me.

Midwestexpat

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Re: Valic 403b plan: keep or dump?
« Reply #4 on: May 16, 2014, 02:31:35 PM »
Thanks so much to all for the advice. Greatly appreciated!

Clutchy, thanks.   You're right, and this is where I get confused.  See, everything I read online about the way 403b plans are sold resonates with our experience.  My husband was new to the district, inexperienced with financial planning (our fault), and the Valic guy was an extremely persuasive, facile, smooth salesman.  I fully own that we bought his whole deal, hook, line and sinker (including the insurance he was also selling).  The fees at the time as I looked over them seemed reasonable to me, but again, I didn't know any better.   But now everything I read here, there, and everywhere about this particular company's 403b plans tells me that we were suckers, drawn in by the smooth sales pitch.  Yet when I see the numbers on our actual account, in my very basic understanding of all of this . . .I fully agree with you, it looks like a quite decent return on our investment. 

That's why the question(s) came up and I gathered together my courage to ask here. . . in spite of all my research to the contrary, should we stay with this company based on the raw data of how our money has grown with them, or jump ship (to Vanguard) based on what everyone else seems to be doing/advising?

Sorry, not trying to come across as a victim.  We've screwed up countless times in our financial lives based on our own lack of research/knowledge/attention, etc. and totally admit that, and we're moving forward with pride and hope. 

clutchy

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Re: Valic 403b plan: keep or dump?
« Reply #5 on: May 16, 2014, 09:18:19 PM »
Thanks so much to all for the advice. Greatly appreciated!

Clutchy, thanks.   You're right, and this is where I get confused.  See, everything I read online about the way 403b plans are sold resonates with our experience.  My husband was new to the district, inexperienced with financial planning (our fault), and the Valic guy was an extremely persuasive, facile, smooth salesman.  I fully own that we bought his whole deal, hook, line and sinker (including the insurance he was also selling).  The fees at the time as I looked over them seemed reasonable to me, but again, I didn't know any better.   But now everything I read here, there, and everywhere about this particular company's 403b plans tells me that we were suckers, drawn in by the smooth sales pitch.  Yet when I see the numbers on our actual account, in my very basic understanding of all of this . . .I fully agree with you, it looks like a quite decent return on our investment. 

That's why the question(s) came up and I gathered together my courage to ask here. . . in spite of all my research to the contrary, should we stay with this company based on the raw data of how our money has grown with them, or jump ship (to Vanguard) based on what everyone else seems to be doing/advising?

Sorry, not trying to come across as a victim.  We've screwed up countless times in our financial lives based on our own lack of research/knowledge/attention, etc. and totally admit that, and we're moving forward with pride and hope.

it's a great start you'll be fine.

people sometimes refer to 403b's/401k's as a blanket.  They shield/wrap the earnings tax deferred until you take it out.  Whether the investments that are inside your "blanket" are good or not is another matter.  The 403b itself is just a vehicle so that you don't pay tax on earnings/cap gains/divs until you actually start withdrawing money way down the line.


Another Reader

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Re: Valic 403b plan: keep or dump?
« Reply #6 on: May 16, 2014, 10:16:34 PM »
There are a lot better blankets than that Valic wrapper.  I would put the new money in the Vanguard account, as long as it is not another annuity.  403b's are great, but they should be invested in something other than an annuity.  Then do the math on the transfer.  Maybe transfer the 10 percent per year until you can move the remainder without fees, but let the math decide.  Socially responsible funds tend to underperform and have high fees.  I would choose the best quality, least expensive funds for any money you leave with Valic.  Open those IRA's if you can do both the 403b and the IRA's, but open those directly with the provider.

Then use your caller ID to send the Valic guy to voice mail.

TomTX

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Re: Valic 403b plan: keep or dump?
« Reply #7 on: June 08, 2014, 08:26:30 PM »
Is it possible to do a direct rollover to the new Vanguard 403(b) without triggering taxes or penalties?