Pension Options

[readyset]

Hey all,

First - thank you for taking the time to answer this very simple question, but I am new to almost all aspects of finance, save for checking and savings accounts

Anyway - I recently got a new job, my first "real" teaching job in NJ - and I need to set up my pension. I've asked other teachers for advice, but most can't tell my WHY they chose what they did, other than "my husband/wife/friend has it." So I guess I'm looking for a little more clarity.

I have the choice between a 403b and a 457b. So.. which to choose and why? or is there not really a difference? I understand that a 403b has a penalty for withdrawing before retirement and a 457 does not, but that's pretty much where my knowledge ends. I've read through some of the literature but again - I've very new to this and not sure what I should be looking for.

The school is STATE run, if that makes any difference. Most schools are not, but the one I'm in has had such bad performance that the state had to "step in" a few years ago.

Also, I have a choice of several different Financial companies - Most of the people in my district tend to go with Axa or Valic - Does anyone have any suggestions on that?

Again, thank you for time with this but I guess I just need someone to lay it out for me with out the sales pitch.

Thanks guys

edit: I should have mentioned I'm 26 and single, no kids, no mortgage. Just a car lease, rent and bills.

 

[Nssca]

l'd say ...NEITHER save your money...invest in Gold. DO NOT buy into any pension plan.

WHY?

BUY THIS BOOK: Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers (Amazon.com)
by: Ellen E. Schultz

 

[readyset]

I appreciate the input. I was actually going to look into gold investment on top of a pension.

So, pensions are really that much of a screw huh? Even if someone is as financially simple as myself?

 

[bigcat56]

not nearly enough info in your post to give any advice.

your decision should be based on "company" match % ( the "company" being your school), match limit, time until match is vested, investment options (index funds, bonds, mutual funds, planned retirement funds, etc), fees associated

pensions are absolutely NOT a waste if you are given a match. say your school matches 50% of your investment, that an IMMEDIATE 50% rate of return, tell me where else you can get that kind of return? even if your investment funds DROP by 20%, you still GAIN money because of the match

Lots of states are in financial crisis, in part because of the outrageous costs of the state pension funds available to educators... the pensions are such a cost to the state b/c they benefit the educators SO MUCH, hardly a waste

 

[readyset]

not nearly enough info in your post to give any advice.

your decision should be based on "company" match % ( the "company" being your school), match limit, time until match is vested, investment options (index funds, bonds, mutual funds, planned retirement funds, etc), fees associated

pensions are absolutely NOT a waste if you are given a match. say your school matches 50% of your investment, that an IMMEDIATE 50% rate of return, tell me where else you can get that kind of return? even if your investment funds DROP by 20%, you still GAIN money because of the match

Lots of states are in financial crisis, in part because of the outrageous costs of the state pension funds available to educators... the pensions are such a cost to the state b/c they benefit the educators SO MUCH, hardly a waste

right, well my state has just been going through this, and leaving politics out of it, It's not nearly as good as it was and will only get worse for educators.

My only real question is what is the difference between a 403b and a 457b. BUT i understand what youre saying and I will just keep doing research until I understand all this crap.

Thanks for your time guys, I really appreciate it.

 

[Nssca]

not nearly enough info in your post to give any advice.

your decision should be based on "company" match % ( the "company" being your school), match limit, time until match is vested, investment options (index funds, bonds, mutual funds, planned retirement funds, etc), fees associated

pensions are absolutely NOT a waste if you are given a match. say your school matches 50% of your investment, that an IMMEDIATE 50% rate of return, tell me where else you can get that kind of return? even if your investment funds DROP by 20%, you still GAIN money because of the match

Lots of states are in financial crisis, in part because of the outrageous costs of the state pension funds available to educators... the pensions are such a cost to the state b/c they benefit the educators SO MUCH, hardly a waste

It is one of the biggest money makers for many major institutions.
Far from crippling companies, many pension funds have helped enrich them. The greatest outlay has been for executive pensions and deferred-compensation packages that have spiraled in cost, at the expense of more modest retirement benefits for ordinary workers.
More troubling still, how companies have deceived workers about new accounting methods that cut pensions — and how companies skirted the law by secretly purchasing tax-advantaged life insurance policies on even low-level employees.
In the 90's Companies siphoned billions of dollars from their pension plans. They commonly paid severance benefits from the pension plan, which saved cash. This was a way for executives to shed a large portion of their older workforce. They also used pension assets to pay for retirees' health benefits, which helped lure people into retirement.

However, If you're already receiving a pension, you're fairly safe — the pension is insured by the Pension Benefit Guaranty Corporation — although there have been some situations recently where that has not been the case. [In the case of some bankrupt airlines] some of the pilots who had already retired discovered that because the plans were so underfunded and they were under age 65, the PBGC reduced the amounts they were already receiving.
Beware...do your homework... don't assume when people like the above tell you simple generalities regarding pension plans, that they truly know the big picture.

 

[bigcat56]

Nssca,

I actually think we agree on a lot of this.

However, you're talking mostly about corporations... where the "executive" can prosper at the expense of the "common worker" and appropriately warning the OP that as a teacher, which would be perceived as a "common worker" he could be taken advantage of.

However when looking at the OP's situation is a bit different as he will be working for a public school, hence the pension is backed by his state government. Therefore his position as a teacher is much more like that of the "executive" while the common tax payer is the "common worker." This is exactly what I was eluding to by pointing out that several states are having major budgeting issues (California for example) due to incredibly bloated state pension plans. While politically i don't like the system, the OP should do whats best by him, and that is to enroll and prosper at the expense of the tax payer....

OP,

here is a link with a helpful table that compares these plans to a 401k:

Comparison of 457(b) Plans, 401(k) Plans, 403(b) Plans, and Deemed IRAs

They really aren't all that different, and there certainly isn't a cut and dry answer like "457b is always better than 403b" it really comes down to the different aspects of the options available to you as described in my previous post.

An example of how things can be unclear:

someone i know personally is employed by a state university. in comparing the available 403b to the available 457b the 457b had superior offerings but did not vest for 7 years, the 403b vested after 2 years. They do not intend on staying in this job for 7 years, but do plan on staying for 2 years so they chose the 403b.

Sorry, this stuff is complicated and really someone needs to sit down and look at all the paperwork with you to be able to give you solid advice

 

[Nssca]

Nssca,

I actually think we agree on a lot of this.

However, you're talking mostly about corporations... where the "executive" can prosper at the expense of the "common worker" and appropriately warning the OP that as a teacher, which would be perceived as a "common worker" he could be taken advantage of.

However when looking at the OP's situation is a bit different as he will be working for a public school, hence the pension is backed by his state government. Therefore his position as a teacher is much more like that of the "executive" while the common tax payer is the "common worker." This is exactly what I was eluding to by pointing out that several states are having major budgeting issues (California for example) due to incredibly bloated state pension plans. While politically i don't like the system, the OP should do whats best by him, and that is to enroll and prosper at the expense of the tax payer....

OP,

here is a link with a helpful table that compares these plans to a 401k:

Comparison of 457(b) Plans, 401(k) Plans, 403(b) Plans, and Deemed IRAs

They really aren't all that different, and there certainly isn't a cut and dry answer like "457b is always better than 403b" it really comes down to the different aspects of the options available to you as described in my previous post.

An example of how things can be unclear:

someone i know personally is employed by a state university. in comparing the available 403b to the available 457b the 457b had superior offerings but did not vest for 7 years, the 403b vested after 2 years. They do not intend on staying in this job for 7 years, but do plan on staying for 2 years so they chose the 403b.

Sorry, this stuff is complicated and really someone needs to sit down and look at all the paperwork with you to be able to give you solid advice

The fact is:
most state governments are run by ex/former/Prior/Previous and presently active corporation heads...so no...I stand firm in what Ive said.
If you give someone your money...they will use it more to their own advantage than yours...

Invest in Gold or international currencies. The dollar is slowly dying.
This country is being DE-industrialized. The banks(Wal-street) remains unregulated (OBAMA has done nothing to prevent the banking/savings and loan industry from doing the same as it has for the last several years) and will for always...Prices go up because the value of the dollar goes down.

Everyone is taking what ever they can take from the average Joe employee. The US DOLLAR will totally collapse and your future pension funds that the state promised you...well..."we are sorry but the State of NJ is filling for bankruptcy"....BYEEE BYEEE PENSION FUNDS.

If you don't trust corporations with your money... then trust anything associated with State or Federal Government even less...
BUT....
There is always your social security and food stamps:headbang: