Teachers and Annuities

February 8, 2011

in 401K,403b,Investing,Retirement

Why is it that every teacher I know, or whom I meet with professionally, has one or more annuities in their 403b?  The answer is commissions.  The only people hanging around campuses to provide investment advice are commissioned sales reps.  Fee-only planners don’t hang out there because there is no money to be made.  Access in some cases is controlled by teachers unions who get rewarded in some fashion for approving vendors.  I have reviewed some of these annuities for teachers who have asked and I have yet to find one that I would recommend.  First, why put a tax-deferred investment inside a tax-deferred account?  Annuities can make sense if you have maxed out other opportunities for tax deferral, but only then.  Second, the high fees will stifle your investment performance.  Third, surrender charges will limit your freedom to change your mind.  Fourth, you don’t need them.  My best advice is to never purchase an annuity inside your 403b.  Instead, look at your mutual fund choices and pay for an hour or two of a fee-only advisor’s advice to construct a low-fee diversified portfolio to meet your needs.  For .5% to .65% you can get ongoing monitoring and advice from someone acting in your best interest, an investment fiduciary.  Teachers, this is a no-brainer, just do it!

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