Teachers have much to learn about investing
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My wife and are 54 and recently moved to be with our son and grandchildren after 31 years of teaching in Florida. We now have our Illinois teaching certificates and will teach there until we are 67 and can collect Social Security plus a retirement plan from the Illinois school system. There’s no way we can live on the $237,000 we have in our 403(b) annuity plans. A broker in Chicago has advised us to cash in our 403(b) to an Individual Retirement Account and invest this money in five different high-yield bond funds and reinvest the dividends. The funds he recommends are Alliance Bernstein High Yield, Seligman High Yield, Legg Mason Partners High Yield, Phoenix High Yield and Van Kampen High Yield. These funds average about 6.8 percent yield and the broker would have us reinvest all the dividends for 15 years, at which time according to the “Rule of 72” they would be worth $635,000. He says we could take the income, which would be (6.8 percent times $635,000) $43,000 every year. This money, plus our Social Security, plus the future Illinois retirement, plus what we should be able to save, would give us a comfortable annual income for many years to come. Please give us your thoughts and opinion of this plan.
F.L., Galesburg, Ill.
Dear F.L.:
In the past year, after reviewing myriad 403(b) plans, I’ve sadly concluded that teachers may be among the dumbest investors in all of creation. That speaks poorly for members of this noble profession, who won’t do their financial homework but will fail students who don’t do their school homework!
Candidly, after 31 years of teaching, it’s pathetic that all you and your wife have to show for your work is a total of $214,000 in your 403(b) plans. What you are describing isn’t a retirement plan; it’s a disaster plan. Your broker is dumber than a bowling shoe. Please drop him like a hot rock before he burns a huge hole in your retirement future.
Those high-yield funds may be among the worst you can buy. Each pays the salesman a 4.75 percent commission for giving you the privilege of participating in its beggarly performance. Not one of those funds has a 10-year average annual return that exceeds 5 percent, and each of those stinky high-yield funds has lowered its dividends at least three to five times in the past decade. The share price of those fulsome funds is 30 percent to 50 percent lower today than they were 10 years ago.
Seligman, Legg Mason, Phoenix, Van Kampen and Alliance all are impressive names, and each of them has multiple billions of dollars under its management. They’re good equity managers, but they haven’t a sprinkling of an inkling of what it takes to manage a high-yield portfolio. And though you may not like my attitude, I’m disappointed that neither of you thought to do your homework. Shame, shame, shame on you.
I’m going to make things simple for you. Don’t ever talk to that broker again.
Visit another brokerage firm and move your 403(b) to an IRA. Have that broker ring me, and I will tell him to put that money in three variable annuities: one-third in MetLife, one-third in Equitable and one-third in Ohio National. Each has a minimum 6 percent guarantee, each has superb sub-accounts (I will select the mutual funds in the sub-accounts), and each has an annual step-up basis that can lock in an appreciated value. Keep these annuities for 15 years, and when you turn in your teaching certificates, each annuity will pay you an attractive guaranteed quarterly income that you will never be able to outlive. Don’t you dare do anything else. If you do, considering your investment IQ, it will probably fail.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.
© Copley News Service
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