Briale opened a Variable Annuity inside a 403b at work when she was 23. She has 17 years to go before retirement. As an elementary school teacher, her pension will be $6,000 per month. Should she stop contributing to the annuity and contribute to a Roth IRA instead?
Debi has an extra $1,000 each month and isn’t sure where to save it. She also has $10,000 in a CD which will reach maturity in August 2021. Her goal is to buy a residence in the next five years. Should she save this all for a downpayment?
Dominique is concerned about her parents retirement portfolio. Their advisor charges a fee of 1.5 percent assets under management. Her parents are frugal and they don’t realize how much they’re paying. Should she talk to them, or drop the issue?
Sarah isn’t sure whether she should put more of her savings towards a Roth 401k or a 529 fund for her future kids. Which option is best if she wants financial flexibility?
Hunter put a credit freeze on his two children’s credit, which required sending each credit union documentation via mail. Experian and TransUnion confirmed the credit freeze, but Equifax didn’t. Upon calling, the representative gave Hunter a different mailing address for the documents. What should he do?
My friend and former financial planner Joe Saul-Sehy joins me once again to tackle these questions. Enjoy!
Briale asks (at 2:45 minutes):
When I was 23, I opened a Variable Annuity inside a 403b at work. A salesperson came in and the rest is history. It wasn’t until later, when I started learning more about finance, that I questioned if this was the right retirement vehicle for me.
The annuity has an expense ratio of 1.05 percent and has approximately $80,000 in it. I contribute $250 per month to this tax deferred account. This is my 23rd year as an elementary school teacher, and I have 17 years left until I have a total of 40 years in the teaching system. Assuming that my pension stays intact, it’ll be $6,000 per month.
With 17 years left until retirement, I don’t feel like I can afford to make a mistake. Should I keep this account going, or should I put the $250 toward a Roth IRA? I’ve yet to max out my IRA – it has about $50,000.
I’m also in a high tax bracket, which makes me wonder if the tax situation will only go up in my early 60s.
Although there are many downsides to annuities, the one upside for me is that the money is taken directly out of my paycheck every two weeks, before I can squander it on something else. I also pay for Bloom, which is supposed to make sure that my money is invested in the lowest fees possible while in the annuity.
What are your thoughts? If you think I should keep the annuity, how should I use it upon retirement?
“Dominique” asks (at 28:13 minutes):
My parents are frugal and have probably saved appropriately for their entire careers. They use the same financial advisor as my grandparents.
Judging from what I’ve seen online, I believe their fee is 1.5 percent assets under management. I know the advisor manages their IRAs, brokerage accounts, and also includes an annuity and a whole life insurance policy in their portfolio.
Outside of the advisor, they have work retirement plans, a small union pension, and a home with a mortgage. They have 10 years until retirement, and they’ll probably have 40 or 50 more years where this money will be invested.
They’re hands-off with the management of their portfolio, and I don’t think they’d feel confident enough to self-manage it as the advisor has made their asset allocation so complicated. I’m fairly confident that they’ll have a good retirement either way, but since I know how frugal they are, it’s hard for me to grapple with their hands-off approach.
They don’t even know how much they’re paying for the service, or how much of an impact that 1.5 percent fee has on their portfolio.
I know personal finance is personal, but do you think it’s worth having a conversation with my parents about this? How do I express my concerns and suggest alternatives like moving to a fee-based advisor, using a lower-cost managed account at Vanguard, or using target date retirement funds to reduce their fees?
Debi asks (at 47:36 minutes):
I’m 31 and I’d like to buy a house or a condo in the next five years. The downpayment for a house will be significant as I live in an expensive city. My long-term plan is to buy rental properties.
I have $100,000 in a Roth IRA, $40,000 in Vanguard ETFs, and I contribute the maximum to my government thrift savings plan. I have $10,000 in a savings account and $10,000 in a Robinhood account to play around with. I also have $10,000 in a CD that will reach maturity in August 2021.
I have around $1,000 per month left to save. Where should I put this money? Additionally, what do you think I should do with the $10,000 in the CD once it reaches maturity?
Sarah asks (at 56:53 minutes):
Should I increase my 401k contribution?
As background, I’m 27 and I earn a little over $100,000 per year. My job is in high demand, and I expect my income to increase significantly in the next five years. I contribute six percent of my income to my 401k, and my employer contributes 10 percent. I max out my Roth IRA, and my employer maxes out my HSA. My only debt is a househack which more than pays for itself, even with maintenance and capex.
I’m looking for another rental property, which should leave me with reserves for the properties and an emergency fund, but not much else.
I love my job and my goal is financial flexibility, rather than retiring early.
What should I save for next?
I’d like to purchase a single-family home in the next two to five years, so part of my savings will go towards that. However, I’m considering using the rest of my savings for Roth 401k contributions, with the idea that this would allow me to contribute less toward my 401k in the future, when I expect my expenses to be higher. In my mind, this would give me the tax benefits of a retirement vehicle, but I’d still have flexibility by way of reducing future 401k contributions down to the employer match.
Alternately, I’ve thought of contributing to a 529 fund since I plan to have kids in the next five years. In theory, I could touch these funds much sooner than a 401k.
What are your thoughts?
Hunter asks (at 1:09:34 minutes):
I recently put a credit freeze on my children’s credit.
Requesting a credit freeze for a minor requires that you mail in documentation. I did that, and shortly after, I received confirmation from TransUnion and Experian stating that they froze my children’s credit.
However, I didn’t receive anything from Equifax. When I called their customer service line, they gave me a different mailing address than the one I found on their website (Equifax.com). The representative didn’t have an explanation for this. I feel nervous – my trust in Equifax is already low given the data breach that occurred years ago. Should I re-send the documentation to the new address? Or should I leave it be since two out of three credit unions are good enough?
Resources Mentioned:
- Ask Paula: What The F**k are Annuities? | Podcast
- The Tax Risks That Could Blow Up Your Retirement Plan, with Ed Slott | Podcast
- How to Talk to Friends About Money, with Erin Lowry | Podcast
- Broke Millennial Talks Money, by Erin Lowry | Book
- Morningstar
- Planning for Retirement | Vanguard Articles
- How much does an advisor add to your portfolio? | Vanguard PDF
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