By Paul Bullock
At Wellington Investment Advisors, we work with a lot of university faculty members, and what we have found is that college faculty members are smart, hardworking, and experts at what they do. But, they might not be experts in finance—which is where we can help.
Here we’ll look at three of the top retirement planning challenges of university faculty members so you can better understand how to avoid them and securely plan for your future.
1. How Will You Access Your Money in Retirement?
You’ve likely been contributing to your retirement plan for a long time now, but, as you prepare to retire, do you know how you’ll be able to access your money in retirement?
Most universities offer good retirement plans, but each plan is different, so it’s important to understand how exactly you will make withdrawals in retirement, when you can start receiving payments, and what costs, fees, and taxes are associated with your withdrawals.
For example, the Indiana University Retirement Plan for Academic and Professional Staff Employees is a 403(b) plan, which has different rules regarding contributions, contribution limits, vesting, investment options, and distributions compared to other retirement plans. You can find more details about this plan in the IU Retirement Plan Document—and we can help you decipher the fine print. (1)
2. Are You Planning for Taxes and RMDs?
In many cases, you will need to make the required minimum distributions (RMDs) from your retirement plan(s) by a certain age or risk substantial tax penalties. According to the IRS, your retirement plan may require you to begin receiving distributions by April 1 of the year after you reach age 72, even if you have not yet retired. (2)
Considering RMDs is especially important for college faculty members like professors because many professors continue teaching well into their 60s, 70s, and even beyond—at least part time. Planning for RMDs is not only vital to understanding your overall retirement financial future, but also to helping you avoid hefty tax penalties.
3. Are You Structuring Your Income Stream(s) to Reduce Tax Liability and Extend the Life of Your Money?
College faculty or not, every retiree wants to pay less in taxes and reduce the risk of running out of money in retirement. Fortunately, there are a few strategies we can help you consider that will aid in reducing your tax liabilities and extending the life of your money, including deciding to retire later or working part time.
Working part time and easing yourself into retirement may be a great option for college faculty members who want more flexibility but still desire the structure (and income) that a job provides.
And, continuing to work part time may allow you to delay distributions from your retirement plan.
Another income stream to consider is Social Security. Social Security is a significant retirement asset for many university faculty members, and when you receive these benefits will impact your income streams and tax liabilities. Here’s how:
- You can elect to receive Social Security benefits as early as age 62, but your benefit amount may be reduced.
- To receive the maximum benefit amount, you must delay your benefits until you reach full retirement age as determined by the IRS. (3)
- Social Security is a tax-free benefit as long as your combined income stays within certain limits. If those limits are exceeded, income tax will be charged on 85% of your benefit amount. (4) This is a very important point to consider because other streams of retirement income (like those coming from your retirement plan) can impact your tax liability if you’re not careful.
Lastly, you might have income from other investments outside of your retirement plan, including dividends, inheritance, and/or trust funds. These all play into your financial future and should be considered when planning for retirement.
Do You Understand Your College Faculty Retirement Plan?
Not only are college faculty members faced with unique concerns because of their university-sponsored retirement plans, but they also must consider their overall financial life when planning for retirement. Are you ready to talk about your retirement benefits to ensure you’re making the most out of your university-sponsored retirement plan? Schedule a no-obligation introductory meeting or reach out to Paul at paul@wellingtoninvestmentadvisors.com or by phone at (812) 333-0874.
About Paul
Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 32 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.
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(1) https://hr.iu.edu/pubs/books/retirement.pdf
(3) https://www.ssa.gov/benefits/retirement/planner/agereduction.html
(4) https://www.ssa.gov/benefits/retirement/planner/taxes.html