Are You Planning and Saving for Retirement?
A survey sponsored by the TIAA-CREF Institute shows what our retirements look like compared to the rest of working Americans’.
By Paul Yakoboski
Both faculty members and their institutions benefit when faculty plan and prepare for retirement. Like all working Americans, faculty want to retire when they wish and enjoy the lifestyle they prefer, while colleges and universities want to manage their workforce. Well-designed employer-sponsored pension plans help faculty to achieve their goals, while also permitting institutions to attract and retain quality faculty and manage the orderly flow of faculty out of the institution. So how well are faculty members taking advantage of these plans and saving for retirement?
In 2005, TIAA-CREF sponsored its first-ever Retirement Confidence Survey of College and University Faculty to discover the answer to this question. The survey was conducted by the Employee Benefit Research Institute; Mathew Greenwald and Associates, a market research firm; and the TIAA-CREF Institute, the research unit of insurance provider TIAA-CREF. An additional objective of the project was to compare the survey’s findings for higher education faculty with those for all working Americans based on the annual Retirement Confidence Survey, a nationally representative survey of the attitudes and behavior of American workers and retirees toward saving, retirement planning, and long-term financial security.
Planning, Saving, and Confidence
The survey found that higher education faculty are more confident about their retirement preparations than individuals in the general working population. And this confidence seems to be well founded—faculty members appear to be doing a better job of planning and saving for retirement.
Thirty-five percent of faculty members are “very confident” that they will have enough money to live comfortably throughout their retirement years, and an additional 51 percent are “somewhat confident.” The remaining 14 percent categorize themselves as “not too confident” or “not at all confident” in their overall retirement-income prospects. By comparison, 34 percent of all working Americans say that they are either “not too confident” or “not at all confident” that they will have enough money in retirement; 40 percent are “somewhat confident,” and only 25 percent say they are very confident.
Ninety-five percent of faculty members have begun to save for retirement; among these, 91 percent are currently saving for retirement. By comparison, only 69 percent of all working Americans have begun to save for retirement.
In addition, higher education faculty are more likely to understand how much money they will need to live comfortably in retirement; 66 percent report having tried to determine that amount. That means, however, that a third of faculty members have no idea how much they will need. Still, by comparison, only 42 percent of all working Americans have even tried to do such a calculation.
Faculty also appear to be more realistic about how much of their preretirement income they will need to replace to live comfortably in retirement. Thirty-seven percent of faculty say they will need to replace 70 percent to less than 85 percent; 23 percent of all workers respond in this range. Forty-one percent of all workers say they will need 50 percent to less than 70 percent, and 18 percent estimate that they will need less than 50 percent. Among faculty, 31 percent and 9 percent, respectively, report in these ranges. Despite being more realistic than workers in the general population, many faculty members underestimate the amount of income they will need to replace in retirement; the general rule-of-thumb calls for replacing approximately 80 percent of one’s pre-retirement income to maintain one’s current standard of living.
From where do faculty expect to receive their retirement income, and what is likely to be the largest source of it? Forty-nine percent of faculty members expect an employer-sponsored defined-benefit pension plan to be a major source of income, and 35 percent say it will be their largest. Forty-nine percent expect a defined-contribution plan to be a major income source, and 30 percent anticipate that it will be their largest. These percentages are much higher than the corresponding figures for all working Americans, among whom only 27 percent expect a defined benefit plan to be a major source of income, and 16 percent say that it will be their largest. Thirty-four percent of working Americans expect a defined-contribution plan to be a major source of income, and 21 percent anticipate that it will be their largest.
Faculty are less likely than nonacademic workers to expect social security and employment to be significant sources of retirement income. While 18 percent of all workers expect social security to be their largest source of retirement income, only 3 percent of faculty expect it to be. Fourteen percent of all workers expect employment to be their largest source of retirement income, but only 9 percent of faculty think that it will be.
Investments
When making retirement savings and investment decisions, what sources of information do faculty use? Input from a spouse (if married) is the most common source used but not necessarily the most helpful. Ninety-one percent of married faculty members rely on their spouses for such information, but only 15 percent cite this source as their most helpful. The advice of a financial professional is most often cited as the most helpful (37 percent); 61 percent of faculty respondents report using such advice. Others sources used include print material from a retirement plan (67 percent), the advice of family and friends (53 percent), newspapers and magazines (48 percent), seminars sponsored by the retirement plan provider (47 percent), the Internet (44 percent), the Web site of a plan provider (41 percent) and the advice of colleagues (40 percent).
The survey also asked faculty about how likely they were to use employer-provided professional advice, both specific investment recommendations for asset allocations while saving for retirement and advice regarding withdrawal strategies from their retirement accounts once they reach retirement. Seventy-six percent of faculty said they would be “very likely” or “somewhat likely” to take advantage at retirement of employer-provided professional advice regarding withdrawal strategies if the advice was offered in person; 60 percent would be likely to use it online; and 28 percent would use it by phone.
The figures for use of employer-provided advice on professional asset allocation are somewhat lower. Fifty-six percent of faculty would be “very likely” or “somewhat likely” to use such investment advice if it was offered in person; 46 would be likely to use it online; and 19 percent would use it by phone.
Retirement Expectations
Eleven percent of faculty members expect to retire before age sixty-two; 13 percent expect to retire between sixty-two and sixty-four; and 27 percent expect to retire at age sixty-five. Eighteen percent expect to retire in their later sixties, and 24 percent expect to retire at age seventy or later. Four percent of faculty members expect never to retire. By comparison, among all workers, 26 percent expect to retire between the ages of sixty-six and sixty-nine, and 24 percent expect to retire at age seventy or later.
Faculty who anticipate working past age sixty-five were asked to identify the most important reasons for doing so. Sixty-two percent said they would continue because they enjoyed their work, 29 percent said they would need the income from it, 16 percent replied that they would need employer-sponsored health insurance coverage, and 9 percent reported that their spouses would need the health insurance coverage. Another common reason for working past sixty-five was not being eligible for full social security benefits until age sixty-six or sixty-seven; 13 percent of respondents cited this reason.
The survey also asked respondents about the likelihood of their using a phased-retirement option if one were available. (The survey defined phased retirement as a formal or informal arrangement allowing one to reduce the number of hours of work over time rather than stopping all at once.) Forty-eight percent of the respondents said they were “very likely” to take advantage of a phased-retirement program; 30 percent reported being “somewhat likely” to do so.
Seventy-four percent of faculty think they will work for pay after retiring, compared with sixty-six percent of all working Americans. Among faculty expecting to work in retirement, 32 percent anticipate working as teachers, 34 percent think they will work in some other role within the field of education, and 34 percent report that they will do something completely different.
Conclusion
Results of the inaugural Retirement Confidence Survey of College and University Faculty suggest that America’s higher education faculty are confident in their prospects for a comfortable retirement and that, relative to all working Americans, they are doing a good job of preparing for retirement. Higher education faculty tend to be older than the general working population in the United States, and they have higher incomes and educational levels. No doubt, all of these factors account for some of their better preparation and greater confidence. But they also benefit from the retirement systems in place within the higher education community. Defined-benefit or defined-contribution plans are available to most faculty. In addition, the defined-contribution plans in higher education differ fundamentally from employer-sponsored 401(k) plans available outside of higher education in some important ways. Under defined-contribution plans in higher education that are primary plans, worker participation is mandatory, and employee and employer contribution levels are specified to result in meaningful account accumulations.
Although the findings of the Retirement Confidence Survey of College and University Faculty indicate that many faculty members are on the right track in planning for retirement, some caution flags do exist. For example, at least one-third of faculty members do not seem to know how much they need to accumulate for retirement, and many of the 42 percent of faculty expecting to work past age sixty-five say that they must do so. Adequate financial planning and preparation are necessary so that faculty members, or any other workers, can achieve a financially secure retirement.
Paul Yakoboski is a principal research fellow with the TIAA-CREF Institute, the research unit of TIAA-CREF, a provider of savings products and services in the academic, medical, and cultural fields. His research focuses on issues related to retirement income security, including saving and planning for retirement and funding retiree health insurance. An earlier version of this article was published in October 2005 in the TIAA-CREF Institute report Trends and Issues. Yakoboski’s e-mail address is pyakoboski@tiaa-cref.org.
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