403b no match

Investing
#1

Hello all, I am a new grad and recently just got hired. I was going through my company’s benefits and they do offer a great pension and an additional 403b plan but no match (due to the pension).

I am currently over 50k in student loan debt and trying to follow the steps outlined by PFC: How to prioritize your money (The phases of investing) – Personal Finance Club as well as PFC’s ultimate investing checklist.

My question is should I still contribute a minimum amount (6% of my salary) to the 403b while aggressively paying off my debt?

or should I focus solely on phase 2 of paying off any non mortgage debt before contributing to my 403 b and other investments?

the link(s) posted here are purely for reference and is not intended for advertising or promotional purposes

#3

After reading through the phases Jeremy suggests going through each phase before investing but I’m not sure I 100% agree.

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#5

Thank you for the response.

Based on the phases Jeremy has outlined I think I will contribute the minimum of 6% even though there’s no match. That way I will be able to complete phase 1 & 2. This plan should be adequate enough to pay off my debt very soon while investing early!

#6

@rafu22 congrats on getting started on this path so early, great work!

To add to your review, check out this post. It says (and I agree) to contribute to a Roth IRA before your 403b. The main reason is that you have MANY more options and typically lower fees in an IRA than 403b, typically.

I advise to first set a savings rate - i.e. how much of your money you can sweep to savings each month. This is a fun tool for that: Early Retirement Calculator

Then use both of the posts mentioned here to guide where you direct that money each month/paycheck.

i.e. first, decide how much goes to the general “savings” category. Maybe this is $1000 per mo. Then direct that savings as per the phase/checklist; all $1000 to paying off debt, or you can blend the phases if you feel more comfortable ($800 to paying off debt, $200 to IRA).

Good luck!

#7

Thank you for the response and compliments Peter.

Are you saying since the 403b has no match that the Roth IRA’s post tax contributions would be more beneficial than the tax deferred advantages of the 403b? If so, that would be a good point.

However, I was looking into reducing my taxable income with the 403b, while contributing to my retirement. Doing a quick calculation of both scenarios however makes both options still pretty close.

I was just recently informed that I am automatically enrolled into the 403b @ 6% by default. I am going to compare the fees of the 403b to the IRA options in my fidelity account, which as you said should be typically lower. Then I’ll see if I can unenroll from the 403b plan, or decrease my contributions to 1%.

Without getting too detailed, I actually do have a plan to contribute somewhere between $3.5-$4k towards my debt and hope to be done within 13-15 months. Then I was going to take that same amount and contribute towards an emergency fund before fully investing based on that checklist that we both cited.

Still on the fence about doing a blend of the phases, but I think focusing on debt first (especially with the student loan repayment period still delayed) will be the best choice!

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#8

Correct. Only thing to clarify is that the IRA (Roth or Traditional) is typically advantageous to 403b since you can invest in ANY fund or stock or ETF instead of just a handful chosen by your employer. Whether you choose Roth or Traditional IRA (pre-tax or post-tax) is all about whether you think you will pay more in income taxes now or in retirement. All of this is very over simplified, but should get you on the right path.

Other than that, agree - knock out the debt as a primary focus, but contribute to IRA to gain the experience/familiarity along the way!

#9

Just saw this new post on Roth vs Traditional to help you out - Roth is typically preferred for younger people…

#10

The 403b offered through my employer actually offers target date funds through Prudential. However, I am not sure what the expense ratios are yet.

I’m aware of how IRAs work and I favor Roths. However, I think I would rather focus on each goal individually as outlined by the two articles we cited. It just makes the goals seem more attainable and realistic and it will keep me motivated to keep going. However after the debt is paid off in a year, maybe I’ll revisit and consider blending saving and investing simultaneously! Thank you again so much for your input!

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#11

Great plan, go knock it out!

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