Filbrandt Reports

Do You Know Your Path to Financial Independence?

Volume 18, Issue 2

Executive Summary:

In this report, you will learn the following:

  • Most professors’ common path to financial independence
  • Why many professors don’t plan for retirement
  • Reasons why you may decide to leave the university, even with tenure
  • Why it’s important to discuss your financial independence number with your adviser

By Michael J. Filbrandt,  CLU®, ChFC®

Chairman of the Board, Filbrandt & Company

Retirement planning is one of the many financial planning components of The Filbrandt Total Solution©, offered to university professionals by Filbrandt & Company. However, many professors don’t think about it because they don’t want to retire. In fact, because they have tenure, they don’t have to retire.

I remember one occasion when a professor seemed to be drifting off while we were discussing retirement planning over a lunch meeting. When I mentioned he didn’t seem to be interested, he replied, "I'm not. I don't plan on retiring any time soon." This professor was in his mid to late 60s.

I got his attention by using a different descriptor: “Why don't we talk about financial independence?"

He brightened up and asked, "What does that mean?"

In short, it is the level of savings, assets and income required to make a tenured professor feel very secure about leaving the university due to:

  • Illness
  • The desire to change careers
  • Dissatisfaction with a new dean
  • Any other reason

The professor was very interested in that. He wasn't going to retire any time in the near future, but he was very interested to know whether or not he was financially able to walk away from the university if he wanted to at some point.

Financial Independence Not a High Priority For Some

Our Path to Financial Independence graphic above shows the pathway for professors as they work toward retirement. Tenure track is when professors should start identifying their goals for what they want to achieve in retirement. But most people we talk to at a young age haven’t determined their retirement goals. This particular group of people is so focused on their work and what they want to accomplish in their work, they don’t think about when they're going to retire or their retirement goals, when they are young.

The idea of financial independence doesn't seem to be a high priority for them. When they get to an older age and start to recognize that, because of health concerns or other reasons, they may have to actually leave the university, it dawns on them that they need to be more aware of what their financial circumstances are.

Once they've achieved tenure, that's when professors should be actively involved in building their portfolio and their assets -- the earlier, the better.



Do You Know Your Path to Financial Independence?

Two Sources of Income

Our philosophy is there are two sources of income: you at work earning an income from your job, and your money at work. Even if you're a Ph.D. student or a resident physician, the more of your income you can save while you're in that position, the sooner you will be able to be financially independent. Then when you can't work at being a physician or a researcher, those dollars will provide the income that you once provided for your family. Even though you may be a ways away from a tenured position or maybe you don't even get a tenured position at a university, the sooner you can put dollars away and get those dollars working for you, the better.

A few years ago, I was visiting a professor who was in his early 80s and had a sizeable amount in his retirement account. He was working in the law school and he was very well respected.

He wanted access to his retirement account money, to give some of it to individuals and charities. But neither TIAA-CREF nor the university would allow that, he told me.

He had between $3 million and $4 million in his retirement accounts. He had some other personal money, but the retirement money was the bulk of his accounts. He wasn't retired, and therefore couldn't access his retirement money for these other purposes.

“I know you don't want to retire and you don't plan on retiring soon,” I told him. “But that's the reason you can't get this money, so why don't you do this? 

"Put in the paperwork to retire, but simultaneously, I suspect that they will sign a side agreement with you that you can do your class or do your consulting at the university for the same amount of money, but perhaps under a different arrangement where you're not a full-time employee. It seems like the university likes you."

Do You Know Your Path to Financial Independence?

We'll Clear Your Path of Unanticipated Hazards

He didn’t care how it was set up. He wanted his retirement plan money right then, and also wanted to be able to finish out the two, three years of his class and research. As it turned out, it worked. He retired. He didn't want to retire, but he retired, got full access to all of his retirement money, and at the same time, kept on doing what he wanted to do at work for another three years at the university.

Financial independence has different meanings to different people. What doesn’t change from professor to professor is the importance of having the discussion about your “financial independence number” with your financial adviser. Knowing it and planning for it is a great way to plan for unforeseen contingencies in your personal and professional life.

We recommend making an appointment with your adviser to have this important discussion, no matter at which point along the path to financial independence your career currently sits. There is no template or chart for this, because every professor’s goals and circumstances are different. You may think you have a number in mind, but you may not be aware how much taxes and changing markets can gouge from that number once you achieve it.

If you don’t have an adviser who can serve as your financial independence pathfinder, give us a call at 800-431-9740. As we have done for many of your colleagues, we will map out your path, and clear it of unanticipated hazards.

Volume 18, Issue 2

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