Is Your Retirement Plan Ready for 2025? Essential Steps for University Faculty – As 2024 draws to a close, many people reflect on ways to improve in the upcoming year. Whether it’s committing to regular exercise or adopting healthier eating habits, the mindset of self-improvement takes center stage. For university faculty approaching retirement—particularly those five–10 years away—this is also the perfect time to get serious about financial planning.
Mark Twain is credited with saying, “The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks and starting on the first.” Retirement planning can feel daunting, especially for faculty with careers spanning 30 or 40 years. However, breaking it down into actionable steps can make the process more manageable. Here are five key steps to help you plan for your financial future as you prepare for retirement in 2025.
Maximize Contributions to Supplemental Retirement Plans
Sometimes, the simplest actions have the greatest impact. Increasing your retirement savings should be a top priority. The difference in financial outcomes between faculty who maximize their contributions and those who contribute minimally is striking.
Faculty members often have access to robust supplemental savings options. For example, a 403(b) plan allows you to contribute up to $23,500 annually, with an additional $7,500 catch-up contribution for those aged 50 and older. If your university also offers a 457(b) plan, you can contribute the same amounts to that plan as well, effectively doubling your tax-advantaged contributions.
These contributions are deducted directly from your paycheck, making it easy to save consistently. The more you save now, the larger your financial cushion will be in retirement.
Leverage Tax Benefits for Charitable Giving
Many university faculty members are deeply charitable, yet many fail to maximize the tax benefits of their generosity. Whether you’re giving small or large amounts, there’s likely a tax-efficient strategy you can use.
For example, if you’re making gifts from your cash flow but also have investments in a brokerage account, you may be able to eliminate capital gains taxes by gifting appreciated assets. If you’re required to take minimum distributions (RMDs) from retirement accounts, you might benefit from making Qualified Charitable Distributions (QCDs).
Strategies such as bunching donations into one tax year, using a donor-advised fund, or utilizing QCDs can enhance your tax efficiency. Keep in mind that QCDs must come from IRAs, not 403(b) or 457(b) plans, so work with a financial planner to help implement the best approach.
Develop a Tax Strategy for 2025
Tax planning is critical for optimizing retirement savings. Should you make contributions to your supplemental plans on a pre-tax or Roth basis? Will the favorable provisions of the 2017 Tax Cuts and Jobs Act, set to expire in 2026, be extended?
Predictable income streams make future tax planning more straightforward for many faculty members. Strategies such as Roth conversions, tax-loss harvesting, and gifting to family members up to the annual exclusion amount can all be advantageous. Don’t leave money on the table—take action before January 1, 2025, to ensure your tax plan aligns with your financial goals.
Create or Update Your Estate Plan
While the primary focus for many faculty members is ensuring they have enough money to retire, estate planning is equally essential. If you become disabled or pass away unexpectedly, having a clear plan can provide peace of mind for you and your loved ones.
Start by reviewing beneficiaries on all retirement accounts—this is a simple but crucial step, especially if you’ve worked at multiple institutions. Next, update key documents such as wills, power of attorney (POA), and trusts to ensure they reflect your current wishes and comply with current laws.
Faculty members often have significant tax implications tied to their estates and investments. Deciding which assets to leave to family members versus charities can greatly impact your plan’s effectiveness. If you own property in multiple states or plan to buy a vacation home, consider strategies to minimize the probate process for your heirs.
Plan Your Transition
Retirement isn’t just about leaving work; it’s about planning your succession and easing into your next chapter. If you’re a department chair or mentor to graduate students, think about how your departure will affect others and develop a transition plan that benefits all parties.
Many universities offer phased retirement programs, allowing faculty to gradually reduce their workload while receiving financial incentives. These plans often require several years of preparation, so beginning this process in 2025 can provide clarity and financial stability as you approach full retirement.
Final Thoughts
Even tackling one of these steps in 2025 can help impact your financial future. Retirement planning may seem overwhelming, but with a thoughtful, step-by-step approach, you can make informed decisions that set you up for your ideal retirement. Make 2025 the year you take control of your financial future!