New job decisions

Congratulations on your new job and for thinking about your retirement! At young adult age, you have a significant advantage: time. The power of compounding means that money you invest now has decades to grow.

Living your best life in retirement starts with careful planning today. Your employer may offer you a 401(k), 403(b), defined benefit, or another kind of retirement plan.

Here's a breakdown of how to approach picking funds for your 401(k) or 403(b). For this review (401(k) and 403(b) will be treated as the same type of retirement plan):

1. Understand Your 401 (k) or 403(b) (note: 403(b) plans are usually associated with non-profit organizations

• Access Your Plan Documents: Your employer should provide you with detailed information about your 403(b) plan, including a list of available investment options (often called a "fund lineup" or "investment menu"). This will likely be available through an online portal provided by Employer plan.

• Identify Default Investments: Some plans automatically enroll you in a default investment (often a target-date fund) if you don't make an election. While this is a starting point, it might not be the most optimal for your specific situation.

• Look for Fees: Pay close attention to the expense ratios of the funds. These are annual fees charged as a percentage of your investment. Lower expense ratios mean more of your money stays invested and grows.1 Employer plan lists expense ratios in their fund information.

• Understand Investment Categories: Funds are typically categorized by what they invest in:

  • Stocks (Equities): Represent ownership in companies.3 Generally offer higher growth potential but come with higher risk and volatility.

    • 1. Large-Cap Stocks: Companies with large market capitalizations (e.g., Vanguard Institutional Index Instl Pl, Vanguard Russell 1000 Growth Index I).4

      2. Mid-Cap/Small-Cap Stocks: Companies with smaller market capitalizations, generally higher growth potential but also higher risk (e.g., PGIM Jennison Small Company R6, Vanguard Extended Market Index Institutional Plus).5

      3. International Stocks: Companies outside the U.S., providing diversification (e.g., MFS International Equity R6, Vanguard Developed Markets Index Ins Pls).6

      4. Emerging Markets Stocks: Companies in developing economies, generally higher risk and reward
         
         

  • Bonds (Fixed Income): Loans to governments or corporations. Generally, offer lower returns but are less volatile than stocks, providing stability

  • Cash Equivalents/Money Market Funds: Very low risk, very low returns.

  • Target-Date Funds (TDFs): These are "all-in-one" funds that automatically adjust their asset allocation (mix of stocks and bonds) over time, becoming more conservative as you approach a specific retirement year (e.g., "Employer plan Target Retirement 2060 Fund"). This is often a good option for those who want a hands-off approach. Check fund fees

  • Asset Allocation Funds: Similar to TDFs, but often maintain a more static allocation based on a set risk tolerance
    
    

2. Determine Your Investment Strategy

At age 30s, with a long-time horizon until retirement (likely 30-35+ years), you generally have a high-risk tolerance and can afford to be more aggressive with your investments. This means a higher allocation to stocks.

• Growth Focus: Your primary goal should be long-term growth. Stocks historically outperform bonds over long periods. 

• Diversification: Don't put all your eggs in one basket. Diversify across different types of stocks (large-cap, small-cap, international) and include some bonds for stability, even if it's a smaller percentage. 

• Risk Tolerance: While you have time, understand your comfort level with market fluctuations. A higher stock allocation means more ups and downs.
  
  

3. Common Approaches for a 30-Year-Old

• Option 1: Target-Date Fund (Easiest)  ** Note: Good options for hands off approach)

  • Recommendation: If Employer plan offers a target-date fund corresponding to your approximate retirement year (e.g., 2055, 2060, or 2065), this is often the simplest and most effective choice. These funds are professionally managed to gradually shift from a more aggressive (high stock) allocation to a more conservative (higher bond) allocation as you near retirement.

  • Pros: Hands-off, automatically rebalances, diversified.

  • Cons: Less control over specific fund choices, may have slightly higher expense ratios than building your own portfolio with index funds.
    
    

• Option 2: Build Your Own Diversified Portfolio (More Involved)

  • If you prefer more control or want to potentially minimize fees, you can construct your own portfolio using a mix of index funds or low-cost mutual funds offered by Employer plan.
    
    

  • Common Allocation for a 30-year-old:

    • 70-90% Stocks:

      • Domestic Stocks (U.S.): Aim for broad market exposure. Look for a "Total Stock Market Index Fund" or a combination of "Large-Cap Index Fund"

      • International Stocks: Crucial for diversification. Look for an "International Index Fund" or "Developed Markets Index Fund"

    • 10-30% Bonds:

      • Look for a "Total Bond Market Index Fund" for broad exposure to the bond market.
        
        

  • Why Index Funds? They aim to replicate the performance of a specific market index (like the S&P 500) and typically have very low expense ratios. If you prefer to only pick one fund (with low fees, the S&P 500 would be a good fund to pick.
    
    

4. Key Considerations and Next Steps

• Employer Match: This is FREE money! Contribute at least enough to your 403(b) to get the full employer match, if offered. This is usually the first and most important step.

• Contribution Rate: Aim to contribute at least 10-15% of your income towards retirement, including any employer match. You can increase this over time as your salary grows.

• Roth 403(b) Option: See if your plan offers a Roth 403(b). With a Roth, your contributions are made with after-tax money, but qualified withdrawals in retirement are tax-free. At 30, you're likely in a lower tax bracket now than you will be in retirement, making Roth contributions very attractive.

• Review Regularly: Review your investments at least once a year, or after major life changes (e.g., salary increase, marriage, children). You'll want to rebalance your portfolio to maintain your desired asset allocation.

• Don't Panic During Market Downturns: Investing for retirement is a long game. Market downturns are normal. Resist the urge to sell your investments during these times. In fact, they can be opportunities to buy more shares at lower prices.

• Employer plan Resources: Employer plan offers various resources for plan participants, including webinars, calculators, and potentially access to retirement planning consultants. Utilize these resources! Look for sections like "Retirement Outlook" or "Your Retirement Outlook" on their portal, which can help you track your progress

• Consider Professional Advice: If you feel overwhelmed, or your financial situation is complex, consider consulting with a fee-only financial advisor. They can provide personalized guidance tailored to your specific goals and risk tolerance.

By taking these steps, you'll be well on your way to building a solid foundation for your retirement!

Company retirement plan(s)

Depending on whether and when your company offers a retirement plan and a matching contribution, you may need to make decisions about the plan and funds immediately upon starting your job. Therefore, it is good to know all your options before your meeting with the Human Resources department.

Below is a list of the popular and large Brokerage Firm if your company offers any of these brokerage accounts, then you will have many options.

If you haven't already, choose a brokerage with low fees and good research tools. Some popular choices:

• Charles Schwab  https://www.schwab.com 

• Fidelity  https://www.fidelity.com/ 

• Vanguard  https://investor.vanguard.com/ 

• TIAA  https://www.tiaa.org/public 

However some companies offer brokerage firms that have limited funds and choices. In this case you will need to carefully select the appropriate fund(s) for your situation.

For an example of what some companies may offer smaller brokerage account that has limited fund options, I am giving the example of Transmerica management company (TAM).  This insurance company my offer funds with higher fees and limited options.

• TAM mutual funds overview

• TAM professionally managed funds

Being proactive 

Understanding your retirement plan options before your HR meeting is an excellent strategy. It allows you to:

• Ask informed questions: Instead of passively receiving information, you can come prepared with specific questions about the plan's details, fund offerings, and employer contributions.

• Make timely decisions: Some plans have deadlines for enrollment or initial fund selection. Knowing your options beforehand helps you meet these deadlines and start contributing as soon as possible, maximizing the power of compounding.

• Avoid default options that may not be optimal: Many plans automatically enroll you in a default investment (often a target-date fund) if you don't make an active choice. While target-date funds can be a good hands-off option, knowing your preferences allows you to choose an investment strategy that aligns better with your risk tolerance and goals.

• Understand the employer match: This is crucial! Knowing the specifics of the employer match (e.g., how much they match, vesting schedule) allows you to plan your contributions strategically to take full advantage of this "free money."

• Compare plan features: If your employer offers multiple retirement plan options (e.g., a 403(b) and a 457(b) for some hospital employees), understanding the differences in terms of contribution limits, withdrawal rules, and investment options is vital for choosing the best fit.

Here's how to best prepare before your HR meeting, specifically for a 403(b) with Transamerica:

1. Look for Pre-Enrollment Information:

   • Company Website/Intranet: Your new employer might have a section on their internal website or a public "careers" or "benefits" page that provides an overview of their retirement plan offerings.

   • Recruitment Materials: Sometimes, general information about benefits is included in job offer letters or recruitment packets.

   • Direct Contact (if appropriate): If you have a specific HR contact person, you could politely inquire if there are any online resources or summary plan descriptions available before your official orientation. Frame it as wanting to be prepared for the meeting.

2. Anticipate the Information You'll Need:

   • Plan Type: Confirm it's indeed a 403(b). (You already know this, which is great!)

   • Employer Match Details:

     • What is the matching percentage (e.g., 50% of your contribution up to 6% of your salary)?

     • What is the vesting schedule (how long do you have to work before the employer's contributions are fully yours)?

   • Contribution Options:

     • Traditional (pre-tax) vs. Roth (after-tax) 403(b) – understand the tax implications of each. For a 30-year-old, a Roth 403(b) is often very appealing due to potential tax-free withdrawals in retirement.

     • Maximum contribution limits (IRS limits, plus any plan-specific limits).

   • Transamerica Portal Access: How do you log in and set up your account? What kind of resources are available on their platform (fund fact sheets, performance data, planning tools)?

   • Investment Options (The Fund Lineup):

     • Request a complete list of all available funds and their corresponding ticker symbols.

     • Crucially, ask for the "expense ratios" or "fees" for each fund. This is often the most important factor in long-term investment success. Low-cost index funds are generally preferred.

     • Look for the specific types of funds mentioned in the previous response:

       • Target-date funds (e.g., Transamerica Target Retirement 2060 Fund)

       • Broad market index funds (e.g., S&P 500 index, Total Stock Market index, International Stock index)

       • Bond index funds

   • Investment Guidance/Tools: Does Transamerica offer any online tools, calculators, or access to financial advisors (either live or robo-advisors) as part of the plan?

   • Enrollment Process: What are the steps to enroll and make your initial investment selections?

During the HR Meeting:

• Take Notes: Jot down key information, especially regarding the employer match and how to access the Transamerica portal.

• Ask Clarifying Questions: Don't hesitate to ask for explanations if anything is unclear.

• Express Your Intent: You can mention that you've already done some research and are particularly interested in understanding the fund options and the Roth 403(b) if offered. This shows initiative and helps HR guide you to the right information.

By doing your homework, you'll be empowered to make the best decisions for your financial future right from the start of your new job!

Below is a fund that has low fees and follow the S&P 500 index.  If TAM offers it, it will be a good fund to start with.

Transamerica Stock Index

Invests in a portfolio of assets whose performance seeks to match the performance of the S&P 500® Index.

R| TSTRX | 04/21/2017 R4 | TSTFX | 09/11/2000

https://www.transamerica.com/mutual-fund/transamerica-stock-index/tstfx/89360t699 

Transfer retirement funds when you leave a company

When you leave a company and start a new job with a different retirement plan, you have options for your old retirement funds. You can transfer the funds out of your previous company's plan into either a personal Individual Retirement Account (IRA) or, if your new employer's plan allows it, into your new company's 403(b).

To complete this process, you will typically need to fill out a form (which may be available online or as a paper document). It is crucial to arrange for a direct transfer (often called a rollover) to ensure the funds move directly from one retirement account to another. This prevents the funds from being considered a taxable distribution, allowing them to remain tax-deferred (or tax-free, in the case of Roth funds) within a qualified retirement account.

Below is a sample form pdf showing some of the options.

https://www.transamerica.com/sites/default/files/forms/e070d/403b_distribution_form_12172024.pdf