403(b), TIAA-CREF v. Fidelity, WTF?
June 17, 2013 6:57 AM   Subscribe

I'm finally out of school and in the working world, and now in the midst of trying to orient myself I'm trying to figure out if/how I should sock money away in a tax-deferred account with either TIAA-CREF or Fidelity. Should/can I try to figure this out myself, or should I find myself an advisor?

I'm starting residency in a few days, and I'm given the option to put away whatever percent I wish in a 403(b). In addition, I'm given the option of TIAA-CREF and Fidelity. I've tried in the past to inform myself when it comes to investing, but I'm having a bit of a tough time trying to navigate all of my options and I'm feeling a bit in over my head with all the possible things I could read. I'm generally looking for resources where I can figure out the difference between the two and explore my options. Or is this the case where I should just get myself to a fee-based financial advisor?
posted by sciencemandan to Work & Money (10 answers total) 3 users marked this as a favorite
 
You do not need an advisor. Read the documents - they should lay out what the fees being charged are. Go with the cheapest option and invest in a broad based equity index fund.

If you are just beginning your career and this is tax deferred money you can't touch for decades you should be 100% in equities.
posted by JPD at 7:04 AM on June 17, 2013 [1 favorite]


Best answer: There will probably not be a very big difference between the two options. If you think you're going to be in education long-term, TIAA-CREF is nice because just about every educational institution has TIAA-CREF, so it's easy to keep all your stuff in one place. Non-teaching hospitals may not offer TIAA-CREF, but they won't necessarily offer Fidelity either; it doesn't matter a whole lot though because you can always roll your 403(b)s into another account later.

TIAA-CREF also has these nice have targeted retirement plans (called "Lifecycle") where you pick your estimated retirement date and they rebalance your asset allocation regularly.

A financial advisor might be a good idea if you have other financial goals you want to work on like paying off your loans, buying a house, etc., but you don't need one right now for deciding on a retirement plan.

As for how much to put in? As much as you possibly can. You're used to not having a lot of money right now. Money you start saving now is money you won't notice you don't have.
posted by mskyle at 7:15 AM on June 17, 2013


I think a TIAA-CREF Lifecycle fund is a perfect choice for you. Allows you to set it and forget it. The most important thing is to invest and invest regularly!
posted by ThePinkSuperhero at 7:17 AM on June 17, 2013


My workplace previously used TIAA-CREF for our 403(b) and switched to Fidelity. I prefer Fidelity over TIAA-CREF. I'd go with 100% of your contributions in FUSVX (or the equivalent in your plan - maybe FUSEX), which is their S&P 500 index fund. The expense ratio is a very low 0.05%. You could also go with a total market index fund like FSTVX/FSTMX.

As to how much to contribute, that's a trickier question that depends on your personal financial situation.
posted by mbd1mbd1 at 7:18 AM on June 17, 2013


Best answer: You should be able to sit down with someone from TIAA CREF and Fidelity to see how they compare. I have a TIAA CREF account and they regularly offer to sit down and talk things out, like whether I need to rebalance my portfolio and such. It's in their interests to help you with this stuff because you're a customer so give them the opportunity to explain why their products are better than the other guy's.

You may want to get one book just so you're not going in to such a sit-down totally blind. I read Suze Orman's The Money Book for the Young, Fabulous and Broke. It might be too dumbed-down for you but I liked it. She actually goes through various scenarios at one point, like you have a retirement account but want to start saving for a house or want to buy a car, what should you do, etc. She might rub you the wrong way but I like her a lot.

Finally, don't let any of these questions prevent you from starting to save ASAP. The biggest advantage that you have as a young person trying to save is time, so don't waste it.
posted by kat518 at 7:23 AM on June 17, 2013


Every big retirement management firm has lifecycle funds. Again, costs and the amount you save are the only things you have any control over - so focus on that.

Really costs. Everything else is secondary.
posted by JPD at 7:31 AM on June 17, 2013


Best answer: Your decision will not materially impact you one way or the other. Either one is good. I have Fidelity, I love their on-line tools and it's really easy to do business with them.

It really depends on your investment options within your employer plans. The Fidelity Freedom funds (Lifecycle funds) are one way to go. I like S&P Index funds, and again, that's my personal preference.

I recommend Suze Orman's books, so pick one up and check it out.

You don't have to be a guru, you just have to be willing to devote about an hour every quarter to review your stuff and to know where you are in your retirement planning.
posted by Ruthless Bunny at 8:09 AM on June 17, 2013


I agree with everyone else that you should do this. No advice on which option to choose. I do have a question, though: does your employer match contributions? If so, you should definitely contribute up to your employer's matching limit, because you're effectively getting an instant 100% return on investment.
posted by brianogilvie at 12:36 PM on June 17, 2013


Best answer: sciencemandan: "TIAA-CREF or Fidelity. Should/can I try to figure this out myself, or should I find myself an advisor?

It's really not that hard, and really worth it for a medical professional.

I'm generally looking for resources where I can figure out the difference between the two and explore my options. Or is this the case where I should just get myself to a fee-based financial advisor?"

You don't need a fee based advisor. There are simple retirement investing strategies that you can implement yourself. Retirement plans typically come with a lot investment options, mostly chaff designed to make the plan look better on paper and siphon money away from the clueless. The two types of funds you care about are equities (stocks) and bonds (loans).

As JPD emphasizes, the easiest and most effective thing to do is reduce costs. "In investing, you get what you don't pay for." You want the broadest, most diversified option in both of these categories. For equities, this typically means a passive managed fund that just buys S&P 500 portfolio. This is easily done by computer and makes few trades, so there's little room for brokerages to pack in fees. Similarly, for bond funds the Barclays' iShares Aggregated Bond Index is a the best benchmark I've found. This process should narrow your selections down to 2 from each brokerage.

Next you determine how to allocate your money between stocks and funds. JPD recommended a 100 percent stocks weighting, but I'll throw my hat in for 70 percent stocks, 30 percent bonds. It's done well historically, performs as well as lifecycle glide paths, the annual reallocating process inherently means you'll be buying low and selling high, and it's still equities biased. Once you've settled on a stock:bonds ratio, you can simply calculate a weighted average to figure out which plan is cheaper for your preferred strategy.

And you absolutely need to review the prospectuses yourself, as plans vary by company. The same brokerage will provide different selections and different fees to different companies. My old TIAA CREF retirement plan had much better fees than the TIAA CREF plan my current employer offers. I almost let their previous reputation as low expense broker cost me a substantial fee.
posted by pwnguin at 11:19 PM on June 17, 2013


Response by poster: Thanks for all the advice, everyone. Put the Suze Orman book kat518 recommended on hold at the library, and I'll get reading that as well as the details and fees of my plan options. Unfortunately, my employer doesn't match funds at this point, but I like mskyle's comment about saving money I won't notice is gone.
posted by sciencemandan at 6:47 AM on June 18, 2013


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