A 2020 study by Fidelity and the Chronical of Higher Education found that the COVID-19 pandemic had left university professors overworked, stressed, and exhausted. About a third or more of tenured professors said they had considered changing careers, changing jobs within higher education, or retiring. Although that study took place over a year ago, COVID-19 and its variants continue to place academe at risk. Will 2023 be the year you retire? If so, it’s time to understand how much you need to maintain your desired lifestyle, how to budget successfully, improve your cash flow, if needed, and be able to handle additional expenses as they arise.  

STEP 1: Before you stop working, start tracking your expenses. 

It’s easy to remember big numbers, like your mortgage, rent, or car expenses. But could you accurately say how much you spent last month? A recent study by Intuit found that 65% of Americans have no idea. That’s why – while you still have a paycheck – it’s important to understand how much you’re spending and what you’re buying. Doing so will help you realize:

• What your fixed and variable expenses are;
• How much fluctuation you have in your spending from week to week;
• Which expenses could be cut if needed to live comfortably in retirement; and 
• How much your retirement distributions will need to cover each month after you retire.

Get the process rolling by taking an inventory of all of your checking, savings, and credit card accounts. Next, analyze how and what you’re spending each month in each account. If you carry a balance on your credit cards, be sure to note it and whether the balance is going up or down each month.

You can use a simple spreadsheet to track your expenses, keep a handwritten log, or use a free app. As you do, assign a category to each expense so you can determine where you spend the most. This will also help you create a budget later. 

STEP 2: Create a budget to serve as your retirement roadmap.

Though tenured university professionals receive some of the most generous and secure incomes available, you may find it difficult to replicate that income once you retire. One way to understand and manage your income in retirement is to start by identifying your potential income sources. This may include a combination of Social Security, cash savings, pension distributions and/or defined contribution plans, and outside brokerage accounts; however, you may find it difficult on your own to determine which accounts to access first and how to manage risk and the tax implications of your decisions.

An independent financial advisor familiar with university benefits can review your options and work with you to create a tax-efficient plan and consistent income stream that will last throughout your retirement. Remember that fees and commissions can diminish your savings over time, so beware of high-commission products, such as annuities, or brokerage accounts that charge high fees per trade. 

Once you have an idea how much monthly income you will have, you can determine a budget based on the expenses you tracked while you were working. Start by plugging in your fixed expenses, including your mortgage, utilities, property taxes, and insurance. Then, refer to the categories you tracked, such as food, clothing, housing, transportation, entertainment, travel, and gifts.

Once you retire from the university system, you may need to replace benefits such as health insurance and life insurance. Some universities allow retirees to continue their health coverage, but you may need to pay your own premiums, which can be quite expensive. Private insurance plans can also be expensive compared to the group coverage you may have had while working. If you are 65 or older, you may choose to go on Medicare, but you will need to understand how the coverage differs from your previous insurance.     

If you had a group life insurance policy at the university, you will likely lose it when you retire; however, having a life insurance policy can be beneficial in retirement, particularly if you need long-term or end-of-life care. To get the most affordable coverage, you may wish to begin shopping for life insurance well before you retire, while you feel healthy. Life insurance policies often require a medical exam and an underwriting process, and premiums tend to be more affordable the younger and healthier you are.

STEP 3: If necessary, take steps to improve cash-flow in retirement.

Retirees have many options to help improve their cash-flow in retirement, including working longer, taking Social Security later, selling appreciated stock, relocating to a state with a lower cost of living, etc. Your financial advisor can help you choose the best investment options for your situation, but taking on a part-time job or consulting can help you stay connected to your community, keep your mind sharp, and provide a “play-check” you can use for the extras you desire, such as travel.

A recent study by Savant Wealth Management and Absolute Engagement found that among 750 investors, nearly half planned to take a glide path approach to retirement by transitioning either to part-time or volunteer work first. Women were especially likely to transition to part-time work before stopping work completely. 

STEP 4: Consider additional expenses.

Once you retire, it’s likely you’ll no longer need to budget for commuting costs or clothing for work. You may also be able to give up certain subscriptions or association memberships. But, you may face other expenses – for hobbies, increased travel, or entertainment – that could offset your gains. As part of your estate plan, you could also choose to leave financial gifts to children, grandchildren, or your university as part of your legacy. Your financial advisor and estate planning attorney can help you plan appropriately for these future expenses and incorporate them into your retirement budget.

Whether you’re considering retirement in 2022 or beyond, it’s never too early to begin working on a plan to sustain you and your family after you leave the university system. Focus on getting organized before you stop working to ensure you’ll have a long, happy, and fulfilling retirement.