Last week we described the 403(b) system for teachers as broken. The current system is fraught with duplication, very expensive products, and conflicts of interest. It needs to be changed and modernized. Teachers in Pennsylvania need to demand reforms. But, what do those reforms look like? Here’s a recommendation. Rather than have a list of ten “endorsed” providers, have a list of three as follows:
1. Offer a company like Vanguard. Perfect for teachers who are comfortable making their own investment decisions and who like to monitor their account over time. The funds offered from a company like Vanguard are inexpensive because they are marketed directly, cutting out the salesperson. This type of person represents about 21% of the investing public.
2. Offer one insurance company issued solution where a teacher can buy a fixed annuity. Great option for older retirees who don’t want to take any risk.
3. Offer a fee-only advisor option to help teachers make smart retirement decisions. They would offer help on the pension option selection, lump-sum distribution, social security filing, tax planning, and estate planning etc. Fee-only advisors don’t sell products. They are paid based on hourly or project fees. Or, they are paid through assets under management. But, be sure the fee-only advisor performs ongoing financial planning and not simply investment management. The ongoing planning is what most teachers need and the handcuffs come off in retirement! More about that next time!
We would love to hear your ideas and thoughts about the present system and possibilities for reform!