retirement surrender!! and HELP!

behaviorkeltonJune 8, 2007

Looking over my girlfriend's finances, I see that she is invested in ultra-safe-but-low earning investments in her retirement fund... it's a steady 3%!!! yuck.

So, I called her investment company and asked if there were any surrender fees given that she has had this investment since 1997.

They said "yes... and we decrease the fee 1.5% for every year that she has been with us. So, since this is her tenth year she would only have to pay 10%."

Holly cow! What a racket! She's a school teacher that does a stellar job with her students, but she is financially naive. To be more accurate, I should say that she simply doesn't care much about money (or cars or jewerly or other stuff)... she was simply told by her employer that it was "good" to invest for retirement and she complied with the first saleman that nabbed her.

The school system allows these racketeers to hang out in the teacher's lounge and, when teacher's pass by, these guys jump on them. Schools should screen for this kind of BS!

I want to get her moved into Vanguard, but I don't know if it's worth the 10% damage!

Vanguard money market funds easily pay 4.9 to 5%+ in interest. My plan would be to dump her money into that and then trickle funds from the money market into a balanced stock index fund within Vanguard.

DANG! I do NOT want to give her old investment company the satisfaction of earning the thousands in surrender fees! I'm hoping there is way to cut that fee back a bit.

Here we have a truly driven, high performance teacher that has been subjected to a retirement scam by her own employer...which only adds insult to her already low retirement prospects. If you knew her, you'd understand why I'm upset.

Can they really get away with it?.. and

Do you think it's advisable to take the 10% beating and move over to Vanguard?

We're talking about a 403b here.

Thanks for any advice!

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Chemocurl zn5b/6a Indiana

They said "yes... and we decrease the fee 1.5% for every year that she has been with us. So, since this is her tenth year she would only have to pay 10%."
That does not sound right. I think I would try and get that in writing from someone. 1% sound more like it...maybe it was a slip of the tongue to not loose a investor.

Below is a link that might be of interest. I would think there would be other things with that same investment company that would give a better return. Surely she is not locked in on how it is invested.

I know when I worked, my 401K was/is with Fidelity. There were numerous choices of how I wanted the money invested and could switch them around at any time.


Here is a link that might be useful: 403B FAQs

    Bookmark   June 8, 2007 at 7:01PM
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She should probably make an appointment with her benefits coordinator. It's NOT the school's job to screen financial salesmen. Is Vangaurd on the list of approved groups? I don't remember it being on ours, but it might be. I also picked a dog for my 403b (Thrivent and it was high risk stuff) and couldn't roll it from that company into a IRA until I stopped working. I would have been happy with 3% for this thing. (note to self--change that thing) Even the program she is in there should be different securities in which she could put her money.

You don't mention her age, how many years until retirement, etc. all of which will make a difference. She's only been in these funds for 10 years and I know some of mine are just now coming back up. Is there any other retirement program with her state?

She can stop the money going into her current investment and sign up with a different company for future earning months. You can then look to see if there are better performing securities within the old company so that you don't have to pay withdrawl penalties and can get a better rate.

My 403b is with 3 different companies. I'm going to let two of them sit and roll one. She isn't limited to just doing a withdrawl.


    Bookmark   June 8, 2007 at 8:36PM
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I'm certain that 10% is the correct number. Even on her statement it gives the "surrender fee" amount. I called the company just to see if they would say something like, "'s a 403b? Well, in that case there is a smaller fee." Something like that. Guess not.

The company is ING and it's an annuity. I don't think they have many options, and none of them are mutual funds. I asked. In fact, this might be their only option.

On both of her 403b investments, she is getting mugged.

Live and learn. I'm talking to Vanguard about making the change. Perhaps I'll just transfer only half of her investment out of the ING account just so it doesn't hurt as much.


    Bookmark   June 9, 2007 at 1:29PM
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behaviorK - funny you mention a teacher getting into an annuity as part of her retirement planning. Just last week on Suze Orman, a teacher in CA called about this very thing. She was told the 403b was her only option and the caller didn't feel right about it. Suze told her not to contribute to it.

At what age does this annuity mature? In the caller's case, it was at 85 YO, which is ridiculous.

You may want to get your GF to suck up the 10% or just leave it and stop contributing to that 403b altogether. In the caller's case, she had not started contributing and Suze advised her not to. If she sucks the 10%, you should help her try to find a bit more aggressive fund in which to replace it and try to earn back some of the funds she lost in the surrender.

Depending on her age, she can still invest in ROTH, traditional IRA's and have a nice nestegg. That is what Suze recco'd to the caller - to divert the money she would have allocated to this annuity to much more reasonable retirement savings.

Whatever you do, she needs to stop the contributions to the annuity pronto and find another avenue - be it Vanguard or whatever else.

I think the episode ran last Saturday, which means it repeats tonight with the new episode. If you have TIVO, record all SUze Orman shows and see if the ep with the specific question aired again.

Like you, I"m surprised that the employer has such a crappy retirement plan.

    Bookmark   June 9, 2007 at 2:15PM
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If the surrender fee is 10% now, would it have been 90% after only 1 year??? Geez.

I'm always angry about how teachers and academics are shoehorned into annuities as their only retirement options. They're starting out underpaid to begin w/, usually, and this only adds insult to injury.

If nothing else, make sure she stops contributing to this crappy plan and get her into something better somewhere else. And maybe go to the next school board meeting and complain about the crummy retirement choices.


    Bookmark   June 11, 2007 at 3:34PM
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Chemocurl zn5b/6a Indiana

I did some searching of 'ING and found this link...listed below


Here is a link that might be useful: ING

    Bookmark   June 11, 2007 at 5:11PM
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Actually, she *does* have choices... it's just that I'm annoyed that she, not being a "money person" was exposed to this junk. Given that schools are expressing concern about getting teachers to invest wisely, I would have thought that they would have screened these salemen before letting them hang out in the teacher's lounge.

Oh well... I suppose what's done is done.

I've already set her up with Vanguard's retirement...probably gonna go with one of those preprogrammed retirement funds (consisting of various index funds).

Thanks for letting me vent. I suppose salemen need to make money somehow.

    Bookmark   June 11, 2007 at 10:06PM
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Behaviour I wonder if you have not misunderstood the nature of the account your girlfriend had with ING.

In 1974 I was working for a company which had a pension plan which took 5 years to vest partially and a full 10 years to vest in full. At that time inflation was very high. The payout was based on the final six months worked. A union then organized the workplace and after a lengthy strike gave away the pension plan as part of the settlement, on the grounds that nobody stayed around long enough to vest the pension. With the higher union wages turnover dropped off dramatically. In practice the union had given away a substantial benefit. People who had the discipline to save for their own retirement were probably better off. People who were irresponsible are likely to have little for retirement.

    Bookmark   June 13, 2007 at 12:16AM
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I see what you are saying. Still, I suspect that the enormous profit has something to do with this policy.
It was an annuity.

    Bookmark   June 14, 2007 at 3:15PM
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