A significant percentage of university executives and senior faculty members are set to retire within the next 10 years. If you are among them, deciding when to retire can be difficult. It can involve a mix of emotions associated with leaving colleagues and your chosen profession that make it all too easy to delay making a decision. But the prudent course is to start your retirement planning process months —or even better, a year— in advance of your retirement date. This will give you the time you need to prioritize and make smart decisions in a methodical, well-reasoned way.
Consider the fact that most senior college and university academic and administrative officers have been employed over the course of their careers in senior-level positions at more than one institution. They typically have accumulated assets within qualified and non-qualified retirement plans with both their current and former institutions. And some have participated on outside boards. These individuals, their accountants, and financial planners often need time to fully understand the differences in plan rules and to evaluate the array of possible retirement income strategies and the resulting income tax implications.
This article suggests a retirement planning process for academic and administrative officers to follow as they move toward retirement.
Key Considerations as You Approach Retirement
1. Determine Your Retirement Income Needs
Projecting monthly income in retirement can be a challenge. Determining when and how to take Social Security income or distributions from retirement accounts is not as simple as it once was, especially with life expectancies on the rise.
An appropriate first step is to perform a basic retirement needs analysis. Use the following guide as a starting point.
|Projected Income||-||Projected Fixed Expenses||-||Projected Discretionary Expenses||=||Projected Surplus or Gap|
2. Determine Your Retirement Income Strategy
Once you have estimated your retirement surplus or gap, you can begin to think about a course of action. If you expect a surplus, you can focus more on wealth management considerations and less on meeting your lifestyle needs. On the other hand, if you foresee a shortfall in your projected retirement income versus expenses, you’ll need to determine how to fill the gap.
3. Implement Your Retirement Income Strategy
Deciding how best to distribute your assets requires a careful look at your overall financial condition, your health and your risk tolerance. It’s important to consult experts in retirement planning, taxes and law to help you identify gaps in your financial plan and help you create an appropriate strategy.
4. Evaluate Your Insurance Coverage
As you prepare for the financial changes of retirement, it’s a good time to work with an insurance specialist to help evaluate the strength of your existing policies and to explore how insurance fits into your longer-term plans.
You might be able to save money on health insurance by increasing deductibles or switching policy types. Consider purchasing a supplemental policy for coverage until Medicare kicks in. Next, assess your life insurance needs to determine whether you need to modify coverage in order to provide liquidity to your estate, provide for loved ones, or simply serve as a vehicle for tax-deferred build-up of the cash value.
5. Plan for Incapacity or Death
Estate planning is an important part of your financial plan. The contractual provisions of your retirement accounts are as important as your will or trust. If you become incapacitated, your loved ones do not have an automatic right to make plan decisions on your behalf. You should consider formally appointing someone to act as your agent under a Durable Power of Attorney so they can make investment decisions or withdrawals for you. It is also important that your retirement plan, IRA and life insurance beneficiary designation forms be precisely coordinated with your Will or trust provisions. Otherwise, the assets might be distributed in a manner that is contrary to your wishes.
6. Monitor Your Progress
Review your plan regularly - at least once a year. As your financial situation and income needs change, you may need to adjust your goals, reassess your risk tolerance, rebalance your assets, or modify your strategy.
The tax information herein is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Examples included herein, if any, are hypothetical and for illustrative purposes only. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
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