Nov 29, 2023
After a lifetime of service to the growing minds of America, teachers deserve a quality retirement. Educators looking to save money beyond their pension plan are being taken advantage of by predatory retirement plans, and I want to put a stop to it. On this episode, I’m breaking down how to avoid bad 403(b) and 457 retirement plans and steps you can take toward better retirement solutions.
You will want to hear this episode if you are interested in...
- The teacher retirement problem [1:33]
- What are 403(b) and 457 retirement plans? [3:41]
- Avoiding high costs and variable annuity retirement plans [5:58]
- Taking steps towards better retirement solutions [9:24]
Understanding the educational retirement dilemma
Teachers hold a special place in my heart, thanks to my mom's decades-long dedication to kindergarten education. They often go unrecognized for their hard work, especially in terms of retirement savings. In Connecticut and beyond, teachers have pension plans, but they're often taken advantage of by certain financial institutions pushing additional investment through high-fee retirement accounts. I recently spoke with a client whose daughter, a new teacher, was pitched a retirement plan at her school by an insurance company. These plans seem beneficial, but hide exorbitant fees in fine print that siphon away teachers' hard-earned money without their awareness.
403(b) and 457 retirement plans are not inherently bad of course. A 403(b) plan is a retirement savings option tailored for non-profit organizations, much like the 401(k) for other sectors. With a $23,000 contribution limit pre-tax (and the option for after-tax contributions), it's a way to save for retirement while potentially reducing taxable income. There's also a $7,500 catch-up provision for individuals over 50. The problem lies in the predatory fees charged by some of the institutions that offer them.
The real problem with variable annuity retirement plans
One of the biggest issues is that cities and school districts are not negotiating better retirement plan options for their teachers. Teachers across several states, including Connecticut, are facing a concerning trend in their retirement savings due to the proliferation of high-cost variable annuity retirement plans. These plans, often offered by companies like AXA, Ameriprise, and others, impose hefty fees, sometimes as high as 3% annually, eating into teachers' hard-earned savings before any growth.
The problem is exacerbated by additional charges like surrender fees, lasting up to 10 years, unique to these plans. What's alarming is that while other retirement plans have evolved to lower costs, these variable annuity plans haven't kept pace. These fees erode the potential for robust retirement savings and need urgent attention to protect teachers' financial futures. Listen to this episode for steps you can take toward better retirement solutions!
Resources Mentioned
- Retirement Readiness Review
- Subscribe to the Retire with Ryan YouTube Channel
- 403bwise