Fidelity: Advisor insights on university faculty retirement

Pressure, lawsuits and the withholding of funds have created budgetary pressures at American colleges and universities, places in which faculty often enjoy well-funded retirement plans.

As institutions grapple with potential funding changes, advisors may need to work with professors and other university employees who may see reductions in their benefits.

That’s especially true as new research from Fidelity highlights key ways university professors’ financial behaviors and preparedness differ from the broader population, offering insights that can help advisors tailor strategies for this unique client segment.

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To better understand this group, researchers evaluated the retirement readiness of nearly 110,000 faculty and staff members across 20 higher education institutions. Here are four essential insights advisors should consider when working with university faculty.

Professors aren’t rushing to retirement

Like many workers, university professors are increasingly choosing to delay retirement.

Among faculty, baby boomers represent about a quarter of the active workforce, and nearly half continue working beyond age 65, according to Fidelity. 

Researchers found that almost half of higher education employees who retired in the past three years did so after age 70. On average, faculty retirees stepped away at 73, following a 35-year tenure.

Deon Strickland, a financial advisor at Scholar Financial Advising in Winston-Salem, North Carolina, and a professor at the Wake Forest University School of Business, pointed to two key reasons driving that trend.

“First is freedom. In academia, you get to choose what you work on and when you work on it,” Strickland said. “That level of intellectual freedom is rare — you’re spending your time on things you actually find interesting.”

Another factor is the pace of the academic calendar, he said. Summers and holiday breaks offer true flexibility for travel, research or personal time, but during the academic term, schedules are far less flexible.

“For a lot of faculty, the job just doesn’t feel like something they’re racing to leave,” Strickland said. “My wife likes to joke that it’s unfair that part of my finance professor job is reading the Wall Street Journal — but that’s the nature of the work. It’s intellectually rich, and that keeps people going longer.”

Professors’ retirement portfolios often differ from the norm

For most workers, the key question approaching retirement is “Do I have enough?” Advisors say that’s rarely the case for professors. With average direct contribution balances around $1.6 million at retirement, the answer is clear. Still, faculty have unique considerations that advisors should keep in mind when managing their retirement portfolios.

Beyond balances, university faculty tend to have a significantly more aggressive equity allocation compared to the overall population, according to Fidelity.

James Holtzman, CEO of Pittsburgh-based Legend Financial Advisors, noted that while he hasn’t seen this trend among his own university clients, faculty who rely heavily on target-date funds — without guidance from an advisor on risk tolerance — often end up with higher equity allocations than they might have otherwise chosen.

Advisors should also be mindful of how delayed retirement affects required minimum distribution requirements for professors.

Kevin Millard, a partner and financial advisor at Philadelphia-based Emeritus Wealth Management, said that professors can often benefit from additional compounding in their later years due to delayed RMDs.

“You have to start taking those at 73, but a lot of these professors, if they’re working into their late 70s or 80s, as long as they’re working for the institution that they have their retirement funds with, they can defer, and they don’t have to take those required minimum distributions until they sever ties with that university,” Millard said. “So what you see is they actually are compounding their retirement longer than most people who are retiring because they’re not having to take out these large required minimum distributions.”

Exciting academia can be difficult

Many workers form part of their identity through their jobs, but advisors say this is particularly true for university professors.

Fidelity’s research supports that. Among faculty members delaying retirement, factors like identity, status, job satisfaction and intellectual stimulation all rank as major considerations.

For advisors working with university faculty, helping clients preserve that identity into retirement is crucial.

“I think the key is helping them see that retirement doesn’t mean sitting at home doing nothing,” Strickland said. “In most cases, they’re still going to be doing the same types of things — reading, writing, thinking, engaging in their interests — but on their own terms and maybe while traveling.”

“A lot of the planning is around how to make the most of the time they didn’t have before — those 30 weeks a year tied up by the academic calendar. What have they been putting off? For some, it’s travel. For others, it’s community involvement,” Strickland added. “It’s less about identity loss and more about redirecting that energy into other meaningful areas.”

Rougher roads ahead for professors

While Fidelity’s research shows faculty are financially well-positioned, some advisors question whether universities can sustain the current levels of pay and benefits in the future.

Millard, who works with university professors as a niche, said many of his clients have voiced concerns about the impact of university cuts on their finances. Holtzman shared their concerns.

“With funding issues and everything else being what they are, I wonder if we looked at this study in two years, you know, with new data, I tend to think the numbers aren’t going to be as good,” Holtzman said.

With tighter budgets and lower salaries, professors could find themselves struggling to maintain the same savings rate that they currently have, he said.