(Spoiler- It's mostly because we don't know what we are doing!)
Most teachers never look at those deductions on their monthly checks, so if someone sets us up with a supplemental retirement plan, we might forget all about it.
A few years ago, some guy came to a staff meeting at my school in Durham and started talking about a “3-legged stool.” Two of the legs were Social Security and our NC Retirement System pensions, and the third leg was the annuity we were going to set up with him. He made it so easy! “Sign these forms and trust me.”
Luckily his advice was not too bad. Lots of us signed up, and most of us forgot about it.
But Who's In Charge of the Money?
I didn’t forget, but I also didn't understand how to manage my account and finding the information I needed was nearly impossible.
When I got a raise, I wanted to invest more, but I wasn’t sure how to increase my contributions (or stop them), and as a busy teacher taking care of three kids at home, I didn’t have the time to figure it out, so my extra savings just stayed on auto-pilot for years.
I eventually figured out that the difficulty I had accessing my account was not a flaw in the system, but part of the design.
When I changed employers, I realized my steady small deposits had grown into a nice little nest egg. I tried to contact that guy to ask what to do with it, but he'd moved on and was unreachable.
Getting My Hands on My Money Shouldn't be This Hard
I figured things out, but it sure took a while!
Luckily, I was able to find the original sign-up documents in a file cabinet in my attic. I contacted the company, and after some downloading and mailing and and notarizing and faxing, I got access to my account. I read the fine print and found a clause giving me a “continuity bonus” if I left my funds until a certain date. So I waited three more years before moving my money to a retirement account at Vanguard, where the help is free, the agents are easy to contact, and the fees are transparent.
Was He Teaching Me or Selling to Me?
And How Much Did I Pay Him?
Everything turned out fine, but I still have no idea how much of my money the disappearing broker skimmed off the top by selling the plan to me.
At our staff meeting, he sounded like he was teaching, but he was really selling. I’m sure he made a commission every month, as long as our money went into the fund he set up for us. No wonder he made himself scarce! It was a great business model. For him.
What I Could Have Done Instead
Most of us trust our Human Resources department to select quality services to present to us. But the choices they offer might not be ideal for your particular situation. Looking back, I would have had a better outcome if I had set up an IRA and funneled the funds into it instead. But I didn't know that at the time.
And if I had more than $6000/year to invest, I could have set up a 401(k) account with my employer and had more choices about where my money was being invested and what I could do with it when I left my employer. In fact, when I started working at my next job, I did set up a Roth 401(k). And when I retired from that job, I moved those funds to Vanguard, too.
Unlike Mr. Staff Meeting, I’m not an investment broker or a money manager. But I have learned to manage my own investments. I know I'm not alone. There are countless would-be investors who are ready for the knowledge to make clearer decisions than I was making 20 years ago. The world of investing is becoming more and more accessible, and with a little research, you can set up your own account, and know what you are paying and how much your investment is worth.
The annuity was certainly a better choice than not investing at all would have been, but it was not the best choice for me. Set-and-forget investing is a great strategy for building financial resources. But with a little knowledge, you can do it better than I did.