As the new academic year approaches, there are probably several things on your to-do list: finalizing new syllabi, straightening up the office, course prep, and putting the finishing touches on your summer writing projects. But whether you are still in graduate school, starting a shiny, new post-doc, out on the tenure-track, or further along in your career, this is a also a good time to take stock of your finances. Specifically, before you get into the throes of a new term, you should take a look at your retirement account(s) and make sure that you are where you need to be in saving for the future.
It can be disorienting and strange to think about retirement when you begin your academic career. Retirement seems like another lifetime from now, something in the far off distance that we can worry about later. But when I began my current position, I was determined to learn about financial planning. I had managed to avoid major pitfalls by not spending money I didn’t have, but moving from graduate school to full-time employment presented me with new opportunities and new complications: health insurance, retirement planning, flex-spending…When I was confronted with all of this information at faculty orientation a few years ago, I was overwhelmed. In addition, retirement planning can be intimidating for many academics in no small part because we get a later start on saving than most due to the years we spend in graduate school living paycheck to paycheck. Maybe you were one of the lucky few who could contribute to a retirement plan while living on a graduate stipend, but many graduate students consider themselves lucky to have broken even upon filing the dissertation. Others might not have been so lucky and need to begin paying back their student loans.
Depending on where you work, you might have different options for your retirement plan. Most colleges and universities offer faculty a defined contribution plan. My college’s plan is offered through TIAA-CREF. Other schools might work with another financial institution such as Fidelity or Vanguard. Generally, these plans are structured so that if an employee contributes a certain percentage of her salary, the employer will match that contribution. Sometimes it is an even match, meaning that if an employee puts in 5%, then the employer matches 5% yielding a 10% total contribution. Sometimes the match is less balanced: if you contribute 3%, your employer might match 7% or as much as 10%. Be sure to check with your human resources office to find out the figures on your campus.
If your employer offers this benefit, if at all possible, you should absolutely contribute the requisite amount to obtain the match. Rather than a benefit, I think of this fund as part of my salary albeit part of my salary that I can’t touch for a few decades. If I didn’t make this contribution, I would basically be throwing away free money. Another way to look at it would be to think that you are giving your employer a 5% discount on your services. I am all for getting discounts, but I’m not such a fan of giving them especially at the expense of my future self.
If you work for a public institution, you might have the option to choose whether you want to invest in the state pension plan—a defined benefit plan—instead of a defined contribution plan. The downside of these plans is that in many cases they are not portable. In other words, unlike the defined-contribution plan outlined above, you can’t take these plans with you if you take a different job at another institution unless your fund has vested (usually after 5 years). These plans vary from state to state, and in some cases, from institution to institution, so if your college offers this kind of plan as an option, it is a good idea to talk to HR personnel as well as some of your colleagues about whether it might be a good fit for you.
If you have opted for the defined contribution plan (or if, like me, that choice was made for you), you still have to decide how much to contribute and how to allocate your contributions. I’ve already suggested that you should contribute at least the minimum required to secure your employer match. But if you can, most financial advisors recommend contributing more, and taxes should be deferred on any monies that you contribution until you withdraw the funds upon retirement. How much you should contribute is a personal decision, which will depend on whether or not you have a one- or two-income household, your number of dependents, your desired retirement age, and your current financial health and obligations. A general rule of thumb I’ve learned from reading various financial columnists is that you should be putting between 10-15% of your take-home income towards your retirement account(s).
How to allocate your contributions: With TIAA-CREF, you have two options. You can choose your allocations yourself, deciding what percentage you would like to dedicate to equities of various stripes (large-cap, mid-cap, small-cap, value or growth), and how much to contribute to more conservative investments like bonds. This option is generally recommended for those who are more aggressive in their investments or who like to keep an eye on their nest eggs and manage the funds themselves. The other option is to elect to have the good folks at the financial institution manage the funds for you. In this instance, you simply tell them when you plan to retire (35 years, 30 years, 15 years), and leave the rest to them. This option is recommended for those who are less comfortable with risk or who want to let someone else worry about the details. There is no single correct answer to this question—the right answer is the one with which you and your family are most comfortable.
Ask questions: Whichever company you are working with, you should not be afraid to ask for advice. Often, at the beginning of the academic year, HR will offer employees the opportunity to meet with a financial advisor so that you can ask questions and make sure that you are where you want to be in planning for the future. If your situation is especially complicated, you might find it worthwhile to hire a financial advisor, but if you just have basic questions about whether or not you are saving enough to meet your retirement goals, you might start with the free consultation and see whether it is sufficient.
Check back occasionally: You’ll want to keep tabs on your funds every once in a while, but constantly monitoring the market’s ups and downs especially with the current volatility is a recipe for unhappiness. But that doesn’t mean that you should set up for fund and forget about it. Instead, you should check in once a month to make sure that your investments are in line with your expectations. You might want to make adjustments once you have had a few months with your allocations.
If you want to see how much you should be saving towards your retirement or whether or not you are on track, you might visit the planners provided by CNN Money. In addition to CNN Money, you also might check out the following financial websites: Get Rich Slowly, SmartMoney, and MSN Money.
Are you on track with your retirement? What advice do you have for those just starting to build their nest eggs? What is the one thing that you know now that you wish someone would have told you back then? Please share in the comments section below.Return to Top