Retirement Plans

The Forbes Financial Take on 403(b) Retirement Plans

It’s a good time for all 403(b) holders to review account structure and examine ways to improve performance and expense ratios.

For years, insurance companies have infiltrated the 403(b) market and sold annuity products to company employees.

At Forbes Financial Planning, we believe the more educated employees are about annuity products, the less inclined they will be to use them for retirement needs.

Variable annuities are insurance products. They contain additional bells and whistles that may or may not be attractive. Attached to each of these parts in the annuity contract are various fees that the investor may not be aware of. A large percentage of annuity contracts have a surrender penalty.

When it comes to service, non-profit employees have been a forgotten class. There has been too much “sales” and very little in terms of “service”. It’s time to change that. Working with a Certified Financial Planner™, clients can reduce expense, receive a higher level of expertise and service in a variety of financial areas, and become educated about what steps are needed to reach financial goals.

Mutual Funds vs. Variable Annuities in your 403(b)

403(b) Accounts Mutual Funds Variable Annuities
Mortality Expense No Yes
Surrender Charge No Yes (typically up to 10 years)
Contract Fee No Yes
Administrative Fee No Yes
Tax Deferral Yes Yes
Death Benefit No Sometimes
Investment Expense Yes Yes
Active Management Yes Not Typically
Insurance Product No Yes


John and Jane, both age 30, work for 30 years, contributing $8,000 per year to their 403(b) retirement account. John and Jane both generate a gross return on their investments of 8% using the exact same investment strategy over the course of their working lives. John uses a variable annuity investing in sub-accounts as his investment vehicle. With a variable annuity, he is subject to Mortality Expense, Contract Fees, and Sub-Account Fees. His total yearly expense with all of these fees is 3% per year. For her 403(b), Jane uses no-load mutual funds, managed by an investment professional. Her yearly expense is 1.5%.

At retirement, John will have accumulated $531,510 in his 403(b) account.
At retirement, Jane will have accumulated $691,000 in her retirement account.

By simply using a different investment vehicle to hold her retirement assets and removing the unnecessary expense of a variable annuity, Jane was able to accumulate $160,000 more over the same time horizon and using the same investment structure. Jane also had access to a professional advisor at all times, and she was never subject to a surrender penalty should she have chosen to liquidate her account for any reason.

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