Many teachers are paying high fees for their retirement accounts. David Parke teaches them what they need to know to achieve financial freedom.
Teachers often pay more than they should for expensive 403(b) plan retirement options. However, many teachers don’t realize that they are paying too much or even know how much their fees are. In an effort to address this, David Parke is a teacher and licensed financial advisor who is on a mission to educate teachers and help them to retire with their financial freedom.
Although 403(b) plans are similar to private sector 401(k)s, they are exempt from the protections offered by the Employee Retirement Income Security Act. While there is a push to secure further protections for 403(b) plans, it’s important for teachers to understand the position that they are in currently. While 401(k) providers are required to put the investor’s interests first, no such requirement exists for owners of 403(b) plans. They are sold directly to individuals, instead of through employers, which means the salesperson is the one whose interests get priority.
Three-quarters of $1 trillion in 403(b) plans are in annuities, a product that enjoys record sales. Insurance salespeople receive a high commission from their sales of annuities, which typically come with high fees, including a management fee and high surrender fees. Many teachers may be paying an annual fee of around 2.5%, which will have an adverse effect on their retirement accounts compared to low-cost plans.
The SEC (Securities and Exchange Commission) is investigating some of the investment companies that are not acting in the customer’s best interest. The House Financial Services Committee was collecting testimony relating to this in 2019, with teachers speaking up about their experiences and their opinions.
Parke suggests three important steps that teachers should take when meeting with their advisors. This is his advice:
1) Ask your advisor how they are paid
Financial advisors should be explaining this to their clients, but I find that in many cases, teachers do not know what they are paying in fees on their retirement accounts. If you were going to have a house built, you would ask your architect how much the plans would cost. It is the same thing when meeting with your advisor. When building your financial future, you need to know the costs involved.
2) Get a written financial plan
Most people do not have any idea how much money they will need in order to retire. When I meet with clients, I put together a detailed and customized plan for them that acts as the blueprint for their retirement.
3) Meet yearly with your advisor to update your plan
When we are taking a long trip by car, we are consistently checking with our GPS apps that give us the estimated time of arrival while updating us with changes in traffic patterns. When we’re planning our retirement, we need to consistently check in to make sure we’re on course as well.
Many times, advisors working with teachers will only reach out to them to talk about increasing their contributions to the account. While this is important, having a written working plan is essential to meeting your retirement goals.