Need financial wizards: GGA VS. 403(b)

Discussion in 'After Hours Lounge (Off Topic)' started by Pamela, Feb 4, 2005.

  1. Pamela

    Pamela Supporting Actor

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    I currently contribute to an optional 403(b) account at work. My employer matches 50%. They now have a Guaranteed Growth Account, which they will also match 50%.

    I have been reading over the material, but I still don't know if I should switch. I am soooo confused!

    Any financial wizards out there who can help me understand which is better?

    Many thanks.
     
  2. Justin Lane

    Justin Lane Cinematographer

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    Pamela,

    What do you invest in within your 403B currently... Stocks, bonds, index funds, mutual funds, etc.?

    By guaranteed growth account do you mean a fixed income offering within your 403b is now being offered?

    Depending on your age, I would invest at least the minimum to ensure the employer match (50% on the dollar up to whatever amount they have set), and if your retirement horizon is quite sometime off, probably invest in a stock index or mutual fund depending on your offerings.

    J
     
  3. CameronJ

    CameronJ Stunt Coordinator

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    Pamela,

    The difficulty here is that the term "Guaranteed Growth Account" is not a standard term - therefore it's going to be hard for anyone to help you out without more info.

    What exactly is the "GGA"? Are they giving you a guaranteed return over a period of time? Or are they guaranteeing a minimum return - i.e. guarantee that you won't lose money? Whenever someone says "guaranteed" it means that they are willing to take some of the risk, meaning that your potential return (long-term) is less.

    Who is the administrator of your 403(b), and do they offer a wide-range of investment vehicles? Do you have the same range of choices in the GGA?
     
  4. Pamela

    Pamela Supporting Actor

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    My current 403(b) is a mix of index funds and mutual funds.

    The new plan says:
    The GGA is a combination of pension and a matched savings plan. The guaranteed benefit is the pension.

    The GGA pension-based on your age, you are credited with a specific percentage of pay each year (5%). The retirement benefit grows over time and is credited with interest (6%).

    The GGA savings plan allows to to save pretax dollars and receive an matching contribution ($1 for every $2). You decide how that will be invested. (I can stick with my current administrator (Valic) to invest my funds).

    I currently have the standard company pension plan, along with my 403(b). I guess the pension part is a big difference of this plan.

    I currently get a 65% match with my 403(b) (based on my years of services). If I switch to the GGA, I get a 50% match.

    They have classes coming up, but I wanted to try and figure this out, now. I am very impatient!
     
  5. CameronJ

    CameronJ Stunt Coordinator

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    ok,

    So it sounds like the plan is basically a hybrid, with part a defined contribution plan (like your current 403(b)) and part a defined benefit plan.

    I can't give you any specific advice - there's a lot to deciding which is better. I will however say that, over a long period of time, you will most likely do better than 6% investing in stocks.

    It basically comes down to your risk tolerance. If you are older (less time to recover from bad years), have other risky investments (so this would balance those out a bit), are very risk-intolerant, the GGA might be for you. If you're younger, don't have any other investments, or love to take risks, the current 403(b) may be better.

    Sorry I can't be more help - however most 403(b) plans (and I'm pretty sure VALIC fits this description) are sold to your employer by an agent. In most circumstances, the agent is available to answer questions, help you with more specific planning advice. I'd recommend spending some time with this person.
     
  6. Eric_L

    Eric_L Screenwriter

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    The trouble with young investors is that when they are willing to invest they most often do not know what their goals are in specific terms. (not just 'retirment' but when and at what income)

    You need to see a competent local financial advisor. For a nominal fee one will create a financial plan that outlines these important details.

    for ex;

    you determine you want to retire at age 63. you presume you will receive social security at age 67. You will need an income equal to $5000/month in today's dollars. To do so you will require $1.x million dollars. If, for the next x years, you save $500 monthly and invest in a moderate volitility portfolio you have a 70% chance of success. However, if you invest in a slightly more agressive portfolio, or if you increase your countributions to $750 monthly you will have a 90% chance of success.

    (sorry for so many variables, but I cannot give specific advice online, and certainly not for free!) [​IMG]

    I will agree that finding a good advisor is difficult. I could write a book on how (and am seriously considering it)

    At the end of the day the best retirement savings vehicle is whichever one that gets you to your goals within your comfort level.

    So long as you make a plan, monitor it and adjust it when you can afford to you are light years ahead of most investors. I will only caution you to not get scared into saving more than you can afford to. A good advisor will consider not only your current income and your retirement goal, but also your future income growth....

    Good luck.
     
  7. Pamela

    Pamela Supporting Actor

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    Thank you all for your sage advice. Yeah, I know I have to sit down with my financial advisor. I'm just trying to get my arms around this new option.



    I'm not that young! :b
     
  8. Scott Merryfield

    Scott Merryfield Executive Producer

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    Based on this, you'll be starting from behind if you switch to the GGA, since it will be underfunded compared to your 403(b) due to the reduction in employer contributions. If your current 403(b) offers a decent mix of funds, including some fixed income bond funds, you should be able to achieve a decent "guaranteed" return (nothing's guaranteed) on part or all of your investment if you are adverse to risk. In any case, your investment strategy should be diverse anyway to avoid a downturn in one aspect of the economy affecting your portfolio too much.

    Personally, I would have a difficult time turning down the additional income from employer matching funds and possible loss of control of where my money gets invested.

    Have you considered working with a financial planner? We started using one about 10 years ago, and it was the best financial decision we ever made.
     

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