A quick guide for public school employees.
The two most common investment options in school 403(b) plans include variable annuities and low-cost mutual funds.
- A variable annuity is an insurance-based investment in which a series of payments is made to a tax-deferred insurance account.
- A mutual fund is a type of investment company that pools money from many investors and invests it based on specific investment goals.
Why do these choices matter for educators?
Many school employees:
- Stay in the profession for decades.
- Contribute consistently over time.
- Rely on a combination of a pension (like WRS), personal savings, and Social Security.
Over 20–30 years, higher costs reduce how much your savings can grow. Paying 3.5% (or more) vs 0.28% annually in fees, for example, can significantly reduce your retirement savings.
Additionally, investing in a variable annuity offers no additional tax advantages. Investing in mutual funds, however, may offer cost-effective diversification and tax advantages.
Mutual fund advantages
- Your money is invested across a mix of assets based on a clear goal—growth, income, or both. It’s simple investing without the added insurance costs.
- In general, mutual funds make it easier to adjust your investments as your career or your goals change.
- Mutual funds are generally managed by investment advisers who are registered with the SEC.
Keeping costs low and growth potential over time can make a big difference in your final retirement nest egg.
| Variable annuities | Mutual funds |
|---|---|
| What they offer | What they offer |
| • Guaranteed lifetime income options • Death benefit protection • Risk management features | • Broad diversification • Transparency • Flexibility |
| Typical costs | Typical costs |
| • Insurance (M&E): ~1.0%–1.5% • Admin fees: ~0.1%–0.3% • Investment fees: ~0.5%–1.5% • Riders: ~0.5%–1.5% • TOTAL: ~2%–4% annually | • Index funds: ~0.03%–0.25% • Active funds: ~0.5%–1% • TOTAL: ~0.03%–1% annually |
| Other considerations | Other considerations |
| • Built-in commissions to advisors • Surrender periods with up to 10 years of fees | • Available with no commissions • No surrender restrictions |
| Summary | Summary |
| • Higher cost (2%–4%+) • More complex • Includes some guarantees • May be subject to surrender fees | • Lower cost (0.03%–1%) • Simple and transparent • Fully liquid • No guarantees |