I was listening to a podcast recently featuring Meir Statman, an academic who has long focused on the field of behavioral finance. While the topic itself was interesting, one thing Statman said that stood out to me was that he had no worries about money. He went on to explain that he had worked his whole life in academia, and even though his initial earnings were paltry, every school he had worked for had a generous retirement plan. As a result, after decades of work, he had more money than he needed for retirement.

Emory Retirement Plan

My experience lines up with Statman’s when it comes to working with clients who have university retirement plans. Public universities offer either a pension plan or defined benefit plan with an employer match, and while private universities don’t offer defined benefit plans, their matches tend to be rich. Here are a few examples from local institutions:

  • Emory – in the Emory retirement plan, the university contributes 6% of a plan participant’s salary regardless of whether employee contributes to the plan. In addition, if the employee does make contributions to the plan, Emory will contribute up to another 3% of salary if the employee makes a contribution of just 2%. All told, the total employer contribution can be up to 9%. Beyond the basic retirement plan, Emory also offers a 457b for highly compensated employees. Although there is no employer match, the 457 is another avenue high earners can use to reduce taxable income by making tax deferred contributions to the plan.To give some idea of how all of this can add up, let’s look at the fictional example of Alice, a 53 year old physician who earns $200,000 per year. Alice can contribute $24,000 of her salary to her 403b. Emory will contribute another 9% of her salary to the plan, or $18,000. Lastly, if she elects to contribute to the 457b plan, she can set aside another $18,000 for a total of $60,000 in contributions towards retirement.
  • Georgia Tech – Georgia Tech is part of the University System of Georgia, and employees can participate in the Teacher’s Retirement System pension, which is a lucrative pension that contributes 16.81% of an employee’s salary and requires the employee to contribute 6% (a previous column on the TRS pension is here). However, for various reasons – most frequently the 10 year vesting period – employees may opt out of the pension system. For those employees, the alternative is the Optional Retirement Plan, a defined benefit plan that requires employees to contribute 6% of their salary in exchange for an employer contribution of 9.24% of salary. Thus, at a minimum participating employees save over 15% of their gross salary per year.Georgia Tech also offers supplemental retirement plans in addition to the TRS pension or Optional Retirement System. Options include either a 403b or a 457b, both of which allow employees under 50 to set aside an additional $18,000 per year, while employees over 50 can contribute $24,000 annually.

By way of comparison, many corporate 401k plans offer a match of 4% or less of salary and they do not offer any supplemental retirement plans beyond the 401k. Our hypothetical 53 year old earning $200,000 a year could save $32,000 under such a plan, versus $60,000 in the Emory retirement plan, and $66,480 at Georgia Tech.

Over time, the difference in the amount set aside for retirement are dramatic, particularly when market growth over time is considered. These savings differentials are one big reason that those that work in the academic arena for their entire career have a good chance of being well situated when it is time to retire.

Minerva Planning Group is a fee-only financial advisory firm based just outside Atlanta in Decatur. You can contact them here.