Retirement Planning in Academia.
Michelson, Stuart ; Schwartz, Lisa A.
Retirement Planning in Academia.
I. INTRODUCTION
After a lifetime of labor, many workers look forward to retirement.
Whether relying on personal savings, company sponsored pension or social
security, the dream of no longer having to work at a physically or
mentally demanding job is attractive. But, for some occupations,
retirement may not be as inviting. Jobs with flexible working conditions
or stimulating environments may provide the desire to continue working
well past the traditional retirement age of 65. Jobs in academia fit
this description. As a result, professors may continue to work as long
as they are physically capable, or retire from full-time employment only
to return to part-time employment. The question then becomes whether
retirement choice has an impact on retirement savings and investment.
This study surveys academics on their plans for retirement and their
financial preparations for retirement.
II. LITERATURE REVIEW
Studies on retirement savings find education level has an impact on
workers' retirement plans. McDonnell (2005) finds academic faculty
have different demographic characteristics from the general working
population. Academics tend to be older and more educated, and have
higher income. These factors have been shown to have a positive impact
on retirement financial stability. The Economist (2014) reports an
individual's level of education is important in workforce
participation, especially for adults between 62 and 74. Approximately
65% of men and 50% of women with professional or doctorate degrees are
in the workplace at this age. The higher education level usually relates
to higher pay and better health, so there is an increased ability to
remain in the labor force. These factors also increase faculty
retirement earnings when they do finally retire.
Planning for retirement is important to all workers. Knowing how
much to invest and where to invest can be intimidating to many in the
workforce. Jacobs-Lawson et al., (2005) conclude that increased
retirement savings can be linked to higher knowledge of financial
planning, longer time perspectives, and increased risk tolerance.
Dulebohn and Murray (2007) look at risk decisions in faculty defined
contribution funds. They find that behavior is more complex than
expected and that more emphasis needs to be placed on understanding
risk-preference and investment knowledge. They also indicate that
because academics have longer work expectancy and more job security,
they may take more investment risks than the general population.
Yakoboski (2006 and 2007) representing TIAA-CREF surveyed faculty
concerning retirement savings and highlighted the following outcomes.
Eighty-six percent of academic faculty are somewhat or very confident
that they will have enough money to retire. The faculty are more
knowledgeable than the general population about how much they will need
to live comfortably during retirement. Fifty-one percent expect to
retire at or before age 65 and 24% at 70+; however, 4% expect to never
retire. Of the faculty who expect to retire after 65, 62% indicated it
was because they enjoyed their work. This compares to Heim's (1992)
survey of faculty, other professional and non-professional staff, where
only 9% expected to retire after 70. Of those with doctorate or
equivalent degrees, 26% expected to retire before age 65 and 14% after
age 70. Health was the primary reason for retirement and medical
expenses were the main reason for retirement savings.
This research investigates perceptions of retirement preparation
and compares these perceptions to faculty actual retirement investment
portfolios. Further, the study investigates if those academics who feel
they are the most financially prepared are actually saving and investing
at higher levels.
III. DATA
The survey participants were solicited through email to complete a
SurveyMonkey based survey. There were 61 surveys returned, with 57 valid
respondents. Table 1 shows the age distribution of the respondents. The
largest group, forty percent, was 51-60 years old. Most of the
respondents, over 75%, plan to retire after the age of 66, with 11%
planning to retire after the age of 75. This is consistent with the
previous studies that find individuals with higher levels of education
are more likely to remain in the workplace.
Males make up about 61% of the respondents and slightly over half
are married, the others are single or divorced. The respondents are from
different academic disciplines, with the largest percentage coming from
Arts and Science (49%) and 27% from Business. Over half are at schools
with less than 5,000 students.
When asked if they are looking forward to retirement, 55% agreed or
strongly agreed with this sentiment (on a 5-point scale), see Table 2.
Seventeen percent disagree or strongly disagree with this statement.
This result is interesting relative to Table 1 that shows that
individuals are not planning on retiring young. So, even though people
are planning on working longer, generally, they are still looking
forward to retirement.
With respect to retirement, about 44% plan to work in some capacity
after retirement, with 30% planning on not working. Again, even though
they are looking forward to retirement, many are still planning to
remain in the workforce at least part-time. This may be voluntary to
stay active or because of financial needs. For those not planning on
working after retirement, savings are critical to quality-of-life during
the retirement years.
The majority of respondents indicate they are preparing financially
for retirement similar to the findings of Yakoboski (2006 and 2007).
Only 12% disagreed or strongly disagreed with this statement, but when
asked if they have aggressively been putting money into retirement
accounts, 34% disagreed or strongly disagreed. The high negative
response to this question may be related to the fact that many
respondents are planning to retire later and continue some level of
employment after retirement. Additionally, because the majority of our
respondents are over 50, they are facing the fact that their retirement
portfolio is not at the level they desire for a comfortable retirement.
Forty-six percent agreed or strongly agreed that social security is
important to retirement income. The response to this question may be
related to the high level of respondents who have not saved aggressively
for retirement. This is of concern because the future of social
security, especially for younger respondents, is not as reliable as for
older respondents.
To better understand how respondents are saving for retirement,
several questions asked about monthly contributions and total
investments. The results are in Table 3. Twenty-nine percent are
personally saving $250 or less per month and 63% are saving $1,000 or
less per month. Household monthly savings are similar with 56% reporting
saving $1,000 or less per month. Only 19% are saving $2,000 or more per
month. Because 59% of respondents are older than 50, one would expect
much higher levels of retirement savings, especially given that
respondents feel they are financially prepared for retirement. This
could have a huge impact on future retirement plans.
When considering total individual retirement savings, 22% report
having $25,000 or less. Slightly over half have $300,000 or less in
individual retirement plans and 55% have $300,000 or less in total
household retirement plans. Only 16% have $750,000 or more in retirement
plans. Again, these levels seem low based on the age of the respondents
in the survey. Because many of the respondents are not planning to
retire early or are expecting to work after retirement, it could create
a lesser desire to save aggressively. Alternatively, it could be the low
amounts in retirement accounts are causing respondents to consider
retiring later or having to work during retirement. If individuals
retire earlier than expected, either by choice or medical need, they may
find they have limited financial resources and need to depend more
highly on social security funds. To understand more about the financial
preparation of academics, this research investigates correlations and
ANOVAs between the variables.
IV. RESULTS
The results of this study analyze the correlation between the
financial preparation variables and other related factors. Financial
preparation is measured using two statements: "I have been
preparing financially for retirement," and "I have been
aggressively putting money into retirement accounts." Table 4 shows
the correlation between these statements and demographic information.
There is a significant correlation between age and financial
preparation. Older respondents are more likely to agree they are
preparing. Married respondents are more likely to be preparing
financially for retirement than single respondents. Higher income for
both individual and household is significantly related to financial
preparation. This is expected, but as shown previously, overall savings
are still relatively low for most of the sample, thus many respondents
think they are preparing, where they are not as prepared as they
perceive.
Preparing financially for retirement is also significantly
negatively correlated with respondents' belief on the importance of
social security income in retirement. The respondents who are preparing
the most aggressively are less likely to think social security income is
important to retirement. The study also showed that only 18% disagreed
or strongly disagreed that social security income was important for
retirement, thus the majority of respondents are expecting to rely on
SSI during retirement.
The survey asked a variety of questions related to investment risk
preferences to allow a total risk score to be computed. The respondents
with the highest risk score were also the most likely to be preparing
financially for retirement. This suggests that those investors who are
most willing to take additional risk also the most likely to be
investing for the future. Doing a better job at educating educators
about investment risk and portfolio management may improve
investor's willingness to save more aggressively for retirement.
The survey also asked about employer matching policies to
investigate the relationship to financial preparation for retirement.
Results show that there is a significant relationship between being
financially prepared with employer match. Automatic enrollment in
retirement accounts would likely increase participations rates. Having a
default investment option, like a target retirement account, could also
help overcome risk concerns and alleviate the uncertainty of having to
select from a menu of investment options for those with limited
investment knowledge and experience.
This study further analyzes the relationship between financial
preparation and actual retirement contributions. Table 6 shows the
monthly contribution levels for both individuals and households are
significantly positively correlated to financial preparation.
Individuals and households with the highest monthly contributions are
those who feel the best prepared for retirement and indicate they are
more aggressively saving for retirement.
Total individual retirement savings and total household retirement
savings are also significantly related to financial preparation and
aggressively saving. The more that respondents have in retirement
accounts, the more likely they are to indicate they are financially
prepared and aggressively saving for retirement. Having other
investments is also significantly correlated with retirement
preparation.
According to the previous Table 3, 49% of respondents are
contributing $500 or less per month into an individual retirement
account, yet 47% strongly agree they are preparing financially for
retirement. Thus the perception of being financially prepared for
retirement does not match the actuality. Even though there is a strong
relationship between the amount saved and the perception of retirement
preparedness, there is still a need for academics to increase monthly
contributions and total retirement savings to reduce the reliance on
SSI.
Each survey response was developed categorically into groups to
allow an ANOVA to be computed to determine if there was a difference in
mean responses of the variables. The ANOVA contrast variables were
financially preparing for retirement and aggressively funding retirement
for each of the independent variables (questions). For example, on the
question "monthly investment", was there a significant
difference in the responses to "financially preparing for
retirement" for those in the different monthly investment level
categories. See Table 7.
With respect to preparing financially, there was a significant
difference between groups based on monthly investment categories and
total retirement savings categories. Income, both individual and
household, also affected how the respondents answered the question.
There was also a significant difference based on income categories. The
ANOVA results show that those that are investing more per month and have
more saved in their retirement plans indicate they are more financially
prepared for retirement (and the reverse, less invested per month, less
financially prepared for retirement). Those with higher incomes
indicated they were more financially prepared for retirement.
Employer match of retirement savings and those with other
investment accounts categories answered the question on financially
preparing for retirement significantly differently. Aggressively saving
for retirement and the risk profile questions groups also responded to
the question on financially preparing significantly differently between
groups. Those with employer match, other investment accounts, higher
level of aggressively saving, higher levels of risk profiles, all
indicate being more financially prepared for retirement.
Interestingly, the results were similar for groupings of
aggressively saving for retirement with respect to the variables
described above. See Table 8. Thus, those indicating higher levels of
investing per month, higher levels of investment in their retirement
plan, employer match, all indicate they are saving more aggressively for
retirement. The two key variables; preparing financially for retirement
and aggressively saving for retirement, both resulted in significant
differences between groups for each of these variables (i.e. the groups
for aggressively saving for retirement were significantly different for
each of the preparing financially groups and vice versa for preparing
financially for each of the aggressively saving groups). The ANOVA
results verify that those saving more aggressively for retirement
indicate they are more financially prepared for retirement and those
less prepared are saving less aggressively. The results of the
correlation analysis and the ANOVA results provide confirming evidence
with respect to financial preparedness, aggressively saving, reported
savings per month, and total retirement savings.
The results of both the correlation analysis and ANOVA indicate
that those who perceive themselves as preparing for retirement are
actually saving more and have more income than those who do not. There
were a few respondents who indicated they were aggressively saving, yet
were saving less than $250 per month and had less than $25,000 in total
retirement savings, but overall, those most confident were saving and
investing the most. Those with low levels of savings and lower levels of
retirement contributions are the most concerning. These respondents will
likely be very dependent on SSI and may have to continue working beyond
normal retirement ages.
V. CONCLUSIONS
This study reviews retirement preparation of academic faculty.
Faculty tend to have higher education, higher income and more
stimulating jobs than the general public. All of these factors have an
impact on retirement age and retirement savings, by increasing the
retirement age and increasing the funds in retirement accounts Results
of this study show that 75% of academics plan to retire after age 65,
which is higher than the general population, but expected for academics.
It also shows that higher income is positively correlated with higher
levels of retirement savings and investment. The study also indicates
that although relative savings level is higher, the actual amount of
savings might not be enough to fund a comfortable retirement and
respondents are more likely to be dependent on Social Security funds for
retirement.
Previous studies focused primarily on perceptions of financial
preparation. This study looks at perception as well as actual retirement
savings. It finds that academics who perceive they are financially
preparing and aggressively saving are actually saving at higher levels
than those who are not. Respondents at universities and colleges that
match retirement savings also report higher levels of savings. This
study also finds that those with higher risk tolerance measures also
save/invest at higher levels. Finding ways to encourage people with
lower risk tolerance to save and invest for retirement is very important
for their long-run financial security.
Another concern is that there are some respondents who perceive
they are saving aggressively, but are actually saving at the lowest
level. So, while they may feel their retirement contributions are
sufficient, their actual savings are actually quite low. This may
suggest that many individuals would benefit from better education on
retirement contributions and total retirement savings required to fully
fund their retirement. Additionally, schools may want to adopt an
opt-out policy for retirement savings, where all employees are
automatically enrolled in retirement savings accounts (generally 403b
plans). Universities should also include a default investment account,
such as target-date-retirement- accounts. Providing a default option
would alleviate some of the stress of investment portfolio selection by
employees who are not familiar with investing or are more risk-adverse.
REFERENCES
Dulebohn, J. H., and B. Murray, 2007, "Retirement Savings
Behavior of Higher Education Employees." Research in Higher
Education, 48(5), 545-582. http://doi.org/10.1007/s11162-006-9038-z
Heim, P., Teachers Insurance and Annuity Association, N. Y., NY.
College Retirement Equities Fund., and Michigan Univ., A. A. I. for S.
R.,1992, Survey of TIAA-CREF Annuitant Households--Accumulated Net Worth
and Current Savings Patterns. Retrieved from
http://ezproxy.wingate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=trueanddb=ericandAN=ED370460andsite=eds-live
Jacobs-Lawson, J.M., and D.A. Hershey, 2005, "Influence of
Future Time Perspective, Financial Knowledge, and Financial Risk
Tolerance No Retirement Saving Behaviors." Financial Services
Review, 14(4), 331-344.
McDonnell, K., 2005, "Benefit Cost Comparisons between State
and Local Governments and Private-Sector Employers." EBRI Notes,
26(4) (Employee Benefit Research Institute, April 2005);
(http://ebri.org/pdf/notespdf/0405notes.pdf).Mayer, R.N., Zick, C.D.,
and Marsden, M. (2011). Does calculating retirement needs boost
retirement savings? Journal of Consumer Affairs, 45(2), 175-200.
Pfau, W.D., 2014, "The Lifetime Sequence of Returns--A
Retirement Planning Conundrum." Journal of Financial Service
Professionals, 68(1), 53-58.
Statman, M., 2013, "Mandatory Retirement Savings."
Financial Analysts Journal, 69(3), 14-18.
Yakoboski, P., 2006, "Retirement Plans and Retirement
Confidence in Higher Education." EBRI Notes, 27(3). Retrieved from
http://papers.ssrn.com/sol3/papers.cfm? abstract_id=891820
Yakoboski, P., 2007, "Are You Planning and Saving for
Retirement?" Academe, 93(3), 31-33.
Stuart Michelson (a) and Lisa A. Schwartz (b)
(a) Roland and Sarah George Professor of Finance
Stetson University, DeLand, FL 32723
smichels@stetson.edu
(b) Professor of Finance, Porter B. Byrum School of Business
Wingate University, Wingate, NC 28174
lschwart@wingate.edu
Table 1
Demographic information
Age of respondents Under 21 21-30 31-40 41-50 51-60 61-70 70+
Percent of Respondents 0% 7% 16% 18% 40% 14% 5%
Expected Retirement Under 50 51-55 56-60 61-65 66-70 71-75 75+
Age
Percent of Respondents 0% 7% 5% 12% 40% 25% 11%
Gender Males Females
Percent of Respondents 61% 39%
Marital Status Single Married Divorced
Percent of Respondents 32% 53% 16%
Arts &
Academic Discipline Business Sciences Education Music
Percent of Respondents 27% 49% 7% 4%
University Enrollment 0-5K 6K-15K 16K-25K 26K-35K
Percent of Respondents 51% 21% 4% 12%
Gender
Percent of Respondents
Marital Status
Percent of Respondents
Academic Discipline Other
Percent of Respondents 13%
University Enrollment 36K-45K 45K+
Percent of Respondents 5% 7%
Table 2
Distribution of respondents to retirement questions
Strongly Strongly
Agree Disagree
5 4 3 2 1
I am looking forward
to retirement
Percent of respondents 31% 24% 28% 3% 14%
I plan to work at some
level after retirement
Percent of respondents 28% 16% 26% 19% 11%
I have been preparing
financially for retirement
Percent of respondents 47% 19% 22% 5% 7%
I have been aggressively
putting money into
retirement accounts
Percent of respondents 31% 17% 17% 22% 12%
Social Security is important
to my retirement income
Percent of respondents 21% 25% 37% 7% 11%
Table 3
Retirement account contributions
Individual monthly contribution to designated retirement accounts
Dollar Amount 0-250 251-500 501-750 751-1000 1001-1500
Percent of respondents 29% 20% 9% 5% 14%
Household monthly contribution to designated retirement accounts
Dollar Amount 0-250 251-500 501-750 751-1000 1001-1500
Percent of respondents 29% 11% 11% 5% 9%
Total individually invested in all retirement accounts
Amount in Thousands 0-25 26-50 51-75 76-100 100-200
Percent of respondents 22% 7% 4% 4% 7%
Total household invested in all retirment accounts
Amount in Thousands 0-25 26-50 51-75 76-100 100-200
Percent of respondents 22% 7% 4% 4% 7%
Individual monthly contribution to designated retirement accounts
Dollar Amount 1501-2000 2001-3000 3001-4000 4001-5000
Percent of respondents 5% 11% 2% 2%
Household monthly contribution to designated retirement accounts
Dollar Amount 1501-2000 2001-3000 3001-4000 4001-5000
Percent of respondents 11% 11% 4% 0%
Total individually invested in all retirement accounts
Amount in Thousands 200-300 300-500 500-750 750-1000
Percent of respondents 11% 18% 11% 7%
Total household invested in all retirment accounts
Amount in Thousands 200-300 300-500 500-750 750-1000
Percent of respondents 11% 18% 11% 7%
Individual monthly contribution to designated retirement accounts
Dollar Amount over 5000
Percent of respondents 4%
Household monthly contribution to designated retirement accounts
Dollar Amount over 5000
Percent of respondents 9%
Total individually invested in all retirement accounts
Amount in Thousands 1000-2000 2000+
Percent of respondents 7% 2%
Total household invested in all retirment accounts
Amount in Thousands 1000-2000 2000+
Percent of respondents 7% 2%
Table 4
Significant correlations with demographic information
I have been preparing
Correlations (Panel A) financially for
retirement
Age Pearson Corr. .335 (*)
Sig. (2-tailed) .011
Marr_Div Pearson Corr. .307 (*)
Sig. (2-tailed) .021
AnnIncomeIndiv Pearson Corr. .392 (**)
Sig. (2-tailed) .003
AnnIncomeHouse Pearson Corr. .397 (**)
Sig. (2-tailed) .002
SS_ImpInRetr Pearson Corr. -.351 (**)
Sig. (2-tailed) .008
Sum_Risk_Quest Pearson Corr. .373 (**)
Sig. (2-tailed) .004
I have been aggressively
Correlations putting money into
retirement accounts
Age .335 (*)
.011
Marr_Div .191
.159
AnnIncomeIndiv .297 (*)
.025
AnnIncomeHouse .344 (**)
.009
SS_ImpInRetr -.032
.815
Sum_Risk_Quest .328 (*)
.013
(*) Correlation is significant at the 0.05 level. (**) Correlation is
significant at the 0.01 level (2-tailed).
Table 5
Significant correlations with university matching policy
Correlations (Panel B) I have been preparing
financially for
retirement
EmplMatch Pearson Corr. -.357 (**)
Sig. (2-tailed) .006
PercentMatch Pearson Corr. .204
Sig. (2-tailed) .288
MatchPartic Pearson Corr. -.453 (**)
Sig. (2-tailed) .004
I have been
Correlations aggressively putting
money into retirement
accounts
EmplMatch -.263 (*)
.048
PercentMatch .468 (*)
.010
MatchPartic -.202
.225
(*) Correlation is significant at the 0.05 level. (**) Correlation is
significant at the 0.01 level (2-tailed).
Table 6
Significant correlations with monthly and total investment
I have been preparing
Correlations (Panel A) financially for
retirement
InvestMth Pearson Corr. .567 (**)
Sig. (2-tailed) .000
InvestMthHouse Pearson Corr. .494 (**)
Sig. (2-tailed) .000
TotRetPlan Pearson Corr. .398 (**)
Sig. (2-tailed) .003
TotRetPlanHouse Pearson Corr. .433 (**)
Sig. (2-tailed) .001
OtherInv Pearson Corr. -.389 (**)
Sig. (2-tailed) .003
I have been aggressively
Correlations putting money into
retirement accounts
InvestMth .735 (**)
.000
InvestMthHouse .673 (**)
.000
TotRetPlan .626 (**)
.000
TotRetPlanHouse .627 (**)
.000
OtherInv -.350 (**)
.008
(*) Correlation is significant at the 0.05 level. (**) Correlation is
significant at the 0.01 level (2-tailed).
Table 7
ANOVA results
ANOVA with Contrast Variable "Financially
Prepared for Retirement" F Sig.
InvestMth 7.242 .000
InvestMthHouse 5.413 .001
TotRetPlan 3.881 .008
TotRetPlanHouse 4.594 .003
MatchPartic 4.200 .007
OtherInv 3.043 .025
RetrEmploy 2.565 .049
AnnIncomeIndiv 4.931 .002
AnnIncomeHouse 3.914 .007
AggresvFundRetrAcct 13.700 .000
SpouseLkgForwRetr 4.045 .008
SS_ImpInRetr 2.132 .090
Sum_Risk_Quest 5.243 .001
Table 8
ANOVA results
ANOVA with Contrast Variable
"Aggressively Funding Retirement
Account" F Sig.
InvestMth 18.474 .000
InvestMthHouse 10.879 .000
TotRetPlan 8.905 .000
TotRetPlanHouse 8.796 .000
OtherInv 3.583 .012
AnnIncomeIndiv 3.299 .018
AnnIncomeHouse 3.021 .026
SpouseLkgForwRetr 4.680 .004
Sum_Risk_Quest 4.396 .004
Retr_LookingForw 3.266 .018
PrepFinancRetr 12.999 .000
COPYRIGHT 2018 Premier Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2018 Gale, Cengage Learning. All rights reserved.