Higher Ed. Faculty Need Retirement Income Guidance

October 9, 2013 (PLANSPONSOR.com) – Eight in 10 (82%) preretiree higher education institution faculty members (ages 55 and older) are confident they will have enough money to live comfortably in retirement.

However, only 17% have taken action to create a retirement income plan, according to findings from Fidelity Investments’ Higher Education Faculty Study. Three-quarters of preretiree faculty report needing some form of financial guidance, and they are asking for help in developing a retirement income plan (31%), choosing specific investments (36%) and assessing an overall financial plan (30%).

John Campbell, vice president of Plan Sponsor Marketing for Fidelity Investments Tax-Exempt Marketing business in Covington, Kentucky, told PLANSPONSOR: “Developing an income plan requires help from an expert, so plan sponsors should arrange with providers to make financial guidance available to older faculty, to understand where they are with accumulation and help them with income planning.”

According to the study, older faculty are nearly twice as likely to have a formal investment plan than a retirement income plan, but there is still a need to increase the number of faculty who have both plans. Only 17% of faculty younger than 55 have a formal investment plan in place. In addition, 61% of younger faculty report they often worry about their financial situation.

The study found younger faculty are more focused on short-term expenses, such as paying daily living expenses (26%), than they are about long-term financial goals, like saving for retirement (21%).

“I think the challenges the older faculty are experiencing relative to being confident but not having a plan are highlighting for sponsors the need to provide guidance for and work with younger faculty to maximize planning for the future,” Campbell said. “As they have worked with older faculty, institutions have realized the benefits landscape for younger workers has changed, and they will have different resources in the future; pensions and fully subsidized health benefits may not be available. This is driving plan sponsors to make retirement planning and guidance programs available to all faculty with different focuses—for younger faculty it’s about accumulation, maximizing their savings rate having the proper investment allocation.”

When considering future medical expenses such as day-to-day health care, the study found 81% of older faculty are confident they can cover these costs. However, when it comes to planning for long-term care expenses—such as those associated with assisted living—preretiree faculty have less confidence, with only 54% confident they will have enough money to pay for them. Only 52% of younger faculty are confident they can pay for future medical expenses.

There is an expectation among preretiree faculty that long-term health care benefits will be provided by their employer; 72% said it is important for an institution-sponsored faculty retirement program to include retiree health care benefits. Of the older faculty members who currently have an institution-sponsored retirement incentive program, 60% think it is important to the health of their institution, and 83% agree they would appreciate it if their institution offered assistance for the transition to retirement. Compared to their older peers, an even greater number of younger faculty (84%) report that retiree health care benefits are the most important feature for an institution-sponsored retirement program.

“Clearly the need to account for health care costs is a big consideration in retirement income planning,” said Campbell. However, Campbell said he was surprised to see such high expectations of employer-provided retiree health care benefits from younger employees. “This is a subtle message to plan sponsors,” he stated, noting that plan sponsors may not be able to deliver, but contending that it indicates the benefits landscape will continue to change.

Fidelity Investments recently unveiled its new Retirement Transition Services, designed to help both employers and their preretiree employees navigate the health and wealth decisions people face as they transition into retirement, such as how to create lasting retirement income, claim Social Security, and find and pay for quality health care coverage (see “Fidelity Releases Retirement Transition Services”).