Rollin’ rollin’ rollin’
Hey-oh, we can finally check this one off our list! We successfully rolled over Mr. Adventure Rich’s 403(b) retirement account to a Vanguard Traditional IRA. It is a relief to complete this task and we wanted to share our reasons for the rollover and why we chose both Vanguard and VTSAX.
Mr. Adventure Rich was offered a job as a Maintenance Supervisor at his alma mater immediately after graduation. He started the job, checked a box that opted into the college’s 403(b) TIAA-CREF retirement plan and promptly forgot about his investments. As a result, he unwittingly invested starting in 2006 through the market downturn of 2008 and didn’t realize he had a retirement account until the balance was close to $10,000… win!
In a mixture of circumstances and luck, Mr. Adventure Rich did not take a loan out from the 403(b) when he and several friends were looking at starting a business (pre-Mrs. Adventure Rich!). Instead, he let it grow and began to up his contributions after his marriage to Mrs. Adventure Rich (coincidence? I think not… 😉 ). The result was a nice little nest egg by the time Mr. Adventure Rich left his job in August 2016.
Reasons to Roll Over the 403(b) to a Vanguard IRA
The expense ratio difference between the TIAA-CREF offerings and the Vanguard offerings is our biggest reason for the rollover. At TIAA-CREF, Mr. Adventure Rich’s investments would have continued to grow with expense ratios ranging from 0.61% to 0.79%. This is 15-20% higher than the expense ratio of 0.04% offered by Vanguard’s Total Stock Market Index Funds Admiral Shares (VTSAX)!
Initial Investment: $66,000
Additional Contributions: $0
Investment Return: 6%
Moral of the Story: Expense Ratios Matter!
*Note: Assumptions are based on a rounded balance of Mr. Adventure Rich’s entire former TIAA Cref balance. See Outlier section below for the, well, outlier.
While the TIAA-CREF 403(b) plan was decent, we wanted flexibility of an Individual Retirement Account. In an IRA, we have further flexibility to choose our investments, convert to a Roth IRA and plan for the future outside the constraints of the TIAA-CREF employer plan.
My (Mrs. Adventure Rich’s) 401k is in Vanguard, our small 529 Plan is in Vanguard, and now Mr. Adventure Rich’s IRA is in Vanguard. While we still have stray investments here and there (HSA in HealthEquity, Mrs. Adventure Rich’s company stock in eTrade, the “outliers” mentioned below in TIAA-CREF, etc.), we are now focused more on Vanguard, which leads me to my next point…
The Vanguard Difference
Oh, Vanguard, my love.
Admittedly, we are on the Vanguard fan-club bandwagon. Why? Well, there are a lot of reasons, but I’ll boil it down to the big points. John Bogle founded Vanguard with the goal of offering low cost index funds to investors. They offer one of the best assortments of fund for the common investor to choose from, boasting of very low expense ratios and low barriers to entry.
Furthermore, Vanguard is owned by the funds managed by the company. These funds, in turn, are owned by those who invest in the funds, Vanguard’s customers. Therefore, Vanguard is owned by its customers (the investors in their fund), not some set of Wall Street cronies who are worried about the profit margins and growth of the company. Pretty cool, huh?
Another bandwagon here! I recommend the articles listed at Budgets are Sexy here, The Power of Thrifty here and JL Collins here) for additional, but I’ll give you the basics. It is a total stock market index (surprise- it’s called the “Total Stock Market Index Fund”…), which means it is comprised of little pieces of over 3,000 companies that form the U.S. Stock Market. When the market goes up, this index goes up. When the market goes down, the index goes down. Once the funds became available in Mr. Adventure Rich’s newly minted Vanguard IRA, we transferred the entire balance into VTSAX.
Isn’t investing solely in a stock fund risky? In a way yes, in a way no. In high times, this fund will reap the benefits of the healthy returns and market growth. But when this beautiful bull market comes crashing down, we will need to test our backbone and watch our IRA balance drop, probably drop again (and again…), and eventually recover. Our current plan for the IRA is to let it ride for the foreseeable future, so we are not concerned with a 5-10 year market struggle because we are not planning to rely on the funds here for quite some time.
One of the funds Mr. Adventure Rich was invested in through his TIAA-CREF 403(b) was an annuity. Since this annuity has different rules than the stock market, bond market and target date funds in his 403(b), it cannot be rolled over in one lump sum. Instead, the ~$12,000 balance will be rolled over in equal increments over the next 10 years, with the first payment starting in July 2017. On our next Net Worth post, you will see TIAA-CREF show up as the “outlier” funds slowly transfer over to Vanguard.
So there you have it, we are now more heavily invested in low cost index funds (hooray!) with Vanguard (double hooray!)!
How about you? Anyone else on the Vanguard and/or VTSAX bandwagon? Anyone not a fan?
Always an Adventure,
Mrs. Adventure Rich