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# Evaluating Your Retirement Options

As an employee of a public school, you likely have access to both a      pension and a retirement savings plan called a "403(b)"      plan.  Let's examine what a 403(b) plan is, and then go through the      choices you'll likely need to make if you decide to invest in a 403(b)      plan.

## What Is a 403(b) Plan?

A 403(b) plan is a type of tax-deferred retirement savings program that      is available to employees of public schools, employees of certain      non-profit entities, and some members of the clergy.  Because you do      not have to pay taxes on the amount you contribute to a 403(b) plan for      the year in which you contributed to the plan, investing in a 403(b) plan      can lower your overall tax burden — at least in the present.  You can      defer the income tax on your contributions until you begin making      withdrawals from your account — typically after you retire.  The      earnings on your account also grow tax-free until withdrawal.

## Investment Options

If you are eligible to participate in a 403(b) plan, you may have to      choose among different types of investments, depending on how your      employer structures the plan. It will be up to you to choose investments      that will best meet your financial objectives. 403(b) plans typically      offer fixed annuities, variable annuities, and mutual funds. Here is a      brief description of each:
|  | Fixed            Annuities are contracts with insurance companies that guarantee            that you will earn a minimum rate of interest during the time that            your account is growing. The insurance company also guarantees that            the periodic payments will be a guaranteed amount per dollar in your            account. These periodic payments may last for a definite period,            such as 20 years, or an indefinite period, such as your lifetime or            the lifetime of you and your spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | Equity            Indexed Annuities are a special type of contract between you and            an insurance company. During the accumulation period — when you make            either a lump sum payment or a series of payments — the insurance            company credits you with a return that is based on changes in an            equity index, such as the S&P 500 Composite Stock Price Index.            The insurance company typically guarantees a minimum return.            Guaranteed minimum return rates vary. After the accumulation period,            the insurance company will make periodic payments to you under the            terms of your contract, unless you choose to receive your contract            value in a lump sum. For more information, please see our "Fast            Answer" on Equity            Indexed Annuities, and read FINRA's investor alert entitled Equity-Indexed            Annuitiies — A Complex Choice.                                                                                                                                                                                                   |
|  | Variable Annuities are contracts with            insurance companies under which you make a lump-sum payment or            series of payments into a tax deferred account. In return, the            insurer agrees to make periodic payments to you beginning            immediately or at some future date. You can choose to invest your            purchase payments in a range of investment options, which are            typically mutual funds. The value of your account in a variable            annuity will vary, depending on the performance of the investment            options you have chosen.            
**Tip**:            Make sure that the features you're buying when you invest in a            variable annuity are worth the money you're paying. If you invest in            a variable annuity through a tax-advantaged retirement plan (such as            a 403(b) plan), be aware that you receive **no additional tax            advantage** from the variable annuity. Investors typically pay for            each benefit provided by any given product. Be sure you understand            the impact of these costs and all others fees and expenses.

  |
|  | Mutual            Funds are companies that pool money from many investors and            invest the money in stocks, bonds, short-term money-market            instruments, or other securities. Mutual funds come in many            varieties. For example, there are index            funds, stock funds, bond            funds, money market funds, and            more. Each of these may have a different investment objective and            strategy and a different investment portfolio. Different mutual            funds may also be subject to different risks, volatility, and fees            and expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

## What Questions Should I Ask About My Investment Choices?

The best tip we can give on how to invest wisely boils down to two      words: ask questions. Over the years, we've seen far too many investors      who suffered avoidable losses because they didn't ask basic questions from      the start. When it comes to planning your financial future, take nothing      for granted — ask questions, demand answers, and make sure you understand      the consequences of your choices before you commit your hard-earned money.

Although you may be eligible to participate in a 403(b) plan, don't      assume that your employer has checked out or approved any particular      investment product or any firm or professional that sells potential 403(b)      investments. School districts typically do not engage in that sort of      screening, and some states prevents school districts from limiting the      companies that can sell 403(b) plan investments. That's why it's so      important to do some homework on your own to assure yourself that the      choices you make as the best for you in light of your personal      circumstances and financial objectives.

For starters, be sure to ask at least the following three key      questions:
                    - Will I have to pay any penalties if I change my investment          choices? If so, how much?
> 
Make sure you know the answer to this critically important question        before you make your investment choices. The answer will depending on        the type of product you initially chose and when you purchased that        product in your account. For example, if you withdraw money from a        variable annuity within a certain period after a purchase payment        (typically within six to eight years, but sometimes as long as ten        years), the insurance company usually will assess a **"surrender"        charge**. A surrender charge is a type of sales charge that        compensates the financial professional who sold the variable annuity to        you. Generally, the surrender charge is a percentage of the amount you        sell or exchange, and it will decline gradually over a period of several        years, known as the "surrender period." For example, a 7%        charge might apply in the first year after a purchase payment, 6% in the        second year, 5% in the third year, and so on until the eighth year, when        the surrender charge no longer applies. Some variable annuity contracts        will allow you to withdraw part of your account value each year — 10% or        15% of your account value, for example — without paying a surrender        charge. 

Some mutual funds have a back-end sales load known as a **"contingent        deferred sales load"** (also referred to as a "CDSC" or        "CDSL"). Like a surrender charge for a variable annuity, the        amount of this type of load will depend on how long the investor holds        his or her shares, and it typically decreases to zero if the investor        hold his or her shares long enough. The rate at which this fee will        decline is disclosed in the fund's prospectus. 

A **redemption fee** is another type of fee that some funds charge        their shareholders when the shareholders redeem their shares. Although a        redemption fee is deducted from redemption proceeds just like a deferred        sales load, it is not considered to be a sales load. Unlike a sales        load, a redemption fee is typically used to defray fund costs associated        with a shareholder's redemption and is paid directly to the fund, not to        a broker. The SEC generally limits redemption fees to 2%.

Note:        The question of whether you must pay a penalty or other fees for        switching among investment choices in your plan is completely different        from whether you must pay a penalty for taking money out of your 403(b).        The tax laws generally impose penalties for early withdrawals from        tax-deferred retirement plans, such as 403(b) plans, IRAs, and 401(k)s.        Before you take money out of your 403(b) account, be sure to consult        with a tax adviser.

                    - What annual fees will I pay?
> 
As you might expect, fees and expenses vary from product to product —        and they can take a huge bite out of your returns. An investment with        high costs must perform better than a low-cost investment in order to        generate the same returns for you. Even small differences in fees can        translate into large differences in returns over time. 

For example, if you invested $10,000 in a product that produced a 10%        annual return before expenses and had annual operating expenses of 1.5%,        then after 20 years you would have roughly $49,725. But if the        investment had expenses of only 0.5%, then you would end up with        $60,858 — **an 18% difference**. It takes only minutes to use the SEC's        Mutual Fund Cost Calculator to compute how the costs of different        mutual funds add up over time and eat into your returns. 

For mutual funds and variable annuities, you can find information on        costs and fees in the prospectuses. For fixed annuities, check the sales        literature or the contract.

                    - Does my financial professional make more money for selling one          product over another?
> 
Regardless of how much you trust your financial professional, it is        always legitimate to ask how - and how much - he or she receives for        selling a particular product. For example, you could ask the following:
Do you receive a commission for selling              Product X to me? If so, how much?Do you get any other type of              compensation for selling Product X? If so, what? (This could              include a bonus or points toward some other reward, such as a trip              or a cruise.)Do you get more for selling Product X              over Product Y?Are there any other products that can              meet my financial objectives at a lower cost to me (even              if you do not sell those products)?
It will be critical for you to know in advance which products can        best meet your financial objectives and to identify a financial        professional who sells those products. Different        types of financial professionals sell different types of products, and        some financial professionals will offer only a limited number of        choices. When deciding what's best for you, shop around for the best        fit. When brokers or insurance salespersons stand to earn more        money for selling Product X over Product Y, they have a natural        incentive to steer you toward Product X — even if Product Y might        ultimately be a better choice for you.

Our online publication entitled Ask      Questions lists in greater detail the questions you should ask about      all of your investments. To learn how you can check out the background of      a financial professional (before you purchase products or as soon as you      finish reading this publication), be sure to read Check      Out Brokers and Advisers.

## For More Information 

For more information about the types of products available through      403(b) plans, please read the following SEC publications: 
                    - Annuities  — A brief description          of fixed, variable, and equity-indexed annuities.             
                    - Variable Annuities: What You          Should Know  — More information about variable annuities, including          the bonus credits, transfer issues, and fees.             
                    - Invest Wisely: An Introduction          to Mutual Funds  — Basic information about investing in mutual          funds. Much of this information applies to variable annuities, as          well.             
                    - Mutual Fund Investing: Look          at More Than a Fund's Past Performance  — Describes some of the          factors you should consider in choosing a mutual fund.             
                    - Mutual Fund Cost          Calculator  — Allows you to compare the total costs of owning          different mutual funds. 

## Where to Find Help with Questions or Complaints 

If you have a problem with investments in your 403(b) plan, you may      want to turn to several sources for help. We always welcome hearing from      you. Here's how contact us: 

Office of Investor Education and Advocacy       U.S. Securities and Exchange Commission 100 F Street, N.E.       Washington, D.C. 20549-0213       Fax: (202) 772-9295       Questions: Fast Answers       Complaints: Online Complaint Form 

If the problem involves a product that we don't regulate (such as fixed      annuities and many equity-indexed annuities), you should contact your state      insurance commissioner. Your state      securities commissioner may also be able to help.

For problems concerning the management of the plan — such as money      being credited to your account or being put in the wrong investment — be      sure to complain in writing to the firm that is handling your account. You      may want to send a copy of your complaint (or write a separate letter) to      the school district that provides the plan and your state attorney      general.

 

						Modified:																			June 9, 2008					STAY CONNECTEDTwitterFacebookRSSYouTubeFlickrLinkedInPinterestEmail Updates-  Site Map 
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