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What Every Teacher Should Know About Their 403(b): Surrender Charge Basics

How does it Work? Surrender charges usually come in two flavors: Fixed Period: Where the surrender charge is based on when you start the annuity. For example, if you started the annuity in 2017, the annuity could be free of surrender charges by 2024. In this example, the annuity has a seven-year surrender schedule. The number of years will vary depending on the insurance company. Another variable is the percentage, which represents the actual fee on the withdrawal. If you dig in the prospectus of an annuity, you will probably see something that looks like this- 8%, 7%, 6%, 5%, 4%, 3%, 2%. This indicates the annuity has a seven-year surrender period with an 7% surrender charge in the second year, 6% charge in the third year, and so on until the eighth year.

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Looking Beyond the Balance

For anyone that has a TSA for their 403b, you can multiply your balance by 2.5% and that would give you a rough estimate of the total cost of your 403b per year (please understand there are many fees imbedded in a TSA so your personal account can be higher or lower than my estimate above). This means, if your 403b account value is $100,000, then you are paying approximately $2,500 per year in fees! If you want to get a more accurate estimate of cost, please see my new calculator by clicking 403b Calculator. This is a great tool to see how cost will impact your account balance over time. If you have a statement in front of you, it should take you about 5 minutes to enter in the data.

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Are You Really Getting The Right Help With Your 403b

Most teachers know they have to plan for their financial security far in advance of their retirement years. While there are several good options to choose from, many teachers will only look at the most common service providers and make their decisions based on convenience. This is a common occurrence with the 403b retirement plan.

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