UK Faculty: Get a Late Start on Retirement Saving?

It is far from uncommon for faculty to get a late start on their retirement saving. A Master’s program followed by a Doctoral program followed by a long and daunting dissertation process and then, maybe, even a post-doc somewhere. Finally, when you get that first teaching gig then the real work starts, right? The long and challenging process to earn tenure when the hours are long and the pay is not. As a result, when other 35-40 year-olds already have 10-15 years of saving for retirement under their belts, a university professor may only have a handful.

So, fast forward to 50 or 60, ages when we naturally start to think about retirement. Are you on track for retirement? Have you saved enough to sustain your current lifestyle through retirement? If not, what can be done now?

Have I saved enough?

A financial plan developed specifically for you and your circumstances can answer those questions that we need to ask but never quite find the time to explore.  Here are the broad steps we take:

1. Compile your current expenses and inflate them to the age when you would like to retire;
2. Determine the Social Security Administration’s estimate of your monthly payments in retirement;
3. Subtract your estimated Social Security benefits from your annual expenses, what is left over?
4. That amount is the income that must be generated by your retirement account(s) in order to maintain your current lifestyle throughout the rest of your life.

I recently heard a UK faculty member explain that students today have access through their phones to virtually any information they want or need. So, the challenge to faculty is not to simply convey information, but help students interpret that information. That is exactly what Moneywatch does for our clients. While information about retirement is available widely, we interpret that information, apply it to our clients’ individual situations and make clear and concise recommendations. We tell clients, "You focus on X and Y, we will focus on A through Q, and you can rest assured you are on the right track to accomplish your goals."

Am I invested right?

A financial plan will tell us how you need to be invested to achieve your goals. For instance, if a client got a late start we may need to keep the pedal down for a few more years. If you’re close to retirement we may ease up on the gas a bit to protect against a potential market drop where your investments decline in value right before you need income from them. A well-thought out investment plan will also guide which funds are best for you and your situation. With 260 fund choices through Fidelity alone at UK, we know which ones have performed the way they should.

How can I catch up?

While the UK retirement plan, where you contribute 5% of your pre-tax salary in order to receive the 10% match from UK, is incredibly generous compared to other Lexington-area employers, it may not produce enough for your specific needs. Remember, UK pays that match as part of their analysis of what the marketplace demands, not because they’ve calculated how much you need to save to retire. Here are some options at UK for catching up:

1. 403(b): It is the main saving vehicle for UK faculty and staff and, in addition to your 5% contribution, you can also contribute up to $18,500 each year to this plan;
2. If you are 50 and over this year, you can contribute an additional $6,000 this year to your 403(b) for a total of $24,500 – all above the initial 5%;
3. 457(b): Now, here is where UK really stands out. In addition to contributions to your 403(b), you can also contribute $18,500 this year to a 457(b). If 50 or over, you can also do the catch-up $6,000 contribution. UK won’t match contributions to this account but, saving to both the 403(b) and 457(b) at the same time essentially allows you to save two years’ worth for every year you work.  
4. Early withdrawals: Another advantage for contributing to a 457(b) is that withdrawals prior to age 59 ½ won’t receive the 10% penalty that early withdrawals from a 403(b) incur.

Since Moneywatch began in Lexington 38 years ago, we have served UK faculty and staff more than any other employer and, as a result, we know the retirement plans, the investment options and the challenges that are unique to faculty.

Steve Byars