Managing Faculty Retirement

TIAA-CREF and the American Council on Education shared perspectives on “Trends in Managing Faculty Retirement in a Turbulent Economy” during a recent TIAA-CREF Institute webinar. A growing challenge facing many colleges and universities today is to how to facilitate timely retirement for their faculty and staff. This retirement transition affects both the individual and the institution. Older employees grapple with questions about their financial security in retirement, along with the psychological and social issues of this life-changing event. Meanwhile, campus leaders must address issues of productivity and their institution’s ability to attract junior faculty and provide them with advancement opportunities.

According to Roger Ferguson, president and chief executive officer of TIAA-CREF, managing retirement has come into sharper focus in recent years due to the financial downturn and a slowly recovering economy that has contributed to decisions by many faculty to delay retirement. With nearly 80 million baby boomers set to turn 65, faculty retirement concerns will be a driving issue for many years to come, notes Ferguson. Currently the most popular options to managing this transition are buyouts and phased retirement programs. Approximately one third of institutions have phased retirement programs and 40 percent have offered buyouts since 2000. One downside of buyouts is that they may end up encouraging the best senior faculty to leave, while phased retirement programs may lead to some to stay longer than they intended.

TIAA-CREF, in conjunction with the University of Iowa, conducted a two-year study on retirement programs and concluded that most colleges and universities pursue a piecemeal approach to managing faculty retirement and that few have developed strategic pathways for faculty. In short, there is a strong need for more creative programs to facilitate the retirement transition.

The Survey Data

A recent TIAA-CREF Institute survey (“Should I Stay or Should I Go? The Faculty Retirement Decision”) targeted senior full-time faculty, ages 60 and older, to understand the differences between those who expect to retire at a normal age and those who do not. The results indicate that 25 percent of this group expects to retire by age 66 (“traditional retirees”). However, 75 percent expect to work past age 66 (“reluctant retirees”). Within this segment, 20 percent would like to retire by age 66 but feel that they cannot. They are the “reluctantly reluctant,” compared to the other 80 percent of this group want to work this long—the “reluctant by choice.”

The reluctantly reluctant. Among the “reluctantly reluctant,’” the primary reasons cited for continuing to work include: the need to do so due to personal finances (76 percent), the need to maintain health insurance benefits (53 percent), and the personal sense of fulfillment from their work (54 percent). Among this group, 72 percent reported that the recession and crash in the financial markets caused a delay in their expected timing of retirement, and 44 percent of these expect a delay of five years or more.

Overall, “reluctantly reluctant” individuals have taken steps to better understand their financial situation. Among this group, 78 percent have conducted a financial evaluation of when they can afford to retire, and 53 percent have met with a financial advisor to do so. According to Paul Yakoboski, senior economist with the TIAA-CREF Institute, this group would be good candidates for a buyout or phased retirement program, but are unlikely to commit without a degree of certainty that the numbers make it doable. Furthermore, those who have not met with a financial planner may be making assumptions that could be wrong. This segment needs to understand how much money they will need in retirement and be confident that they will be financially secure.

The reluctant by choice. The primary reasons cited by this group for wanting to remain in their jobs include: a personal sense of fulfillment from their work (90 percent), remaining effective in carrying out their responsibilities (74 percent), and the simple fact that they do not see any reason to retire (48 percent). In conducting a self-evaluation of their performance, 77 percent indicate that they are “as good as ever,” and 22 percent believe they are “just below their best.” In reality, this evaluation may not coincide with the institution’s viewpoint.

As far as evaluating their retirement readiness, 37 percent have given considerable thought to when to retire. In addition, 49 percent have evaluated how they would spend their time if retired, and 14 percent of these did so with a life-planning advisor. So, only 7 percent of those reluctant by choice have done such an evaluation with the assistance of a life-planning advisor. As a result, many in this group have little if any idea about how they could spend their time if retired.

Another influencing factor for members of this group is their perception about retirement. According to TIAA-CREF research, 50 percent of those who are “reluctant by choice” report that the majority of their colleagues work beyond the normal retirement age and that only 10 percent of their retired colleagues were much happier after one year into retirement. As Yakoboski notes, institutions need to create a framework for faculty and staff to better understand what retirement could mean for them and what doors it could open for the future. Given the strong peer effect on campus in terms of what their colleagues are doing, it is essential for campus leaders to help shape the accepted norms and behaviors about retirement. Ideally the discussion should be built into the fabric of the institution and discussed throughout an employee’s career so that he or she receives a consistent message as advancement progresses, notes Yakoboski.

University of Minnesota’s Encore Transitions Program

The University of Minnesota is a good example of an institution that has created an innovative program to assist with retirement planning. Their Encore Transitions course helps later-career faculty and staff create pathways through transition and prepare for a successful post-career life by focusing on personal, professional, and social satisfaction, as well as timely financial questions.

According to Mary Nichols, dean of the university’s college of continuing education, these “encore transitions” are defined as the major passages to second, third, and even fourth acts during the second half of adulthood. They are marked by significant work/life changes and involve self-reinvention. The course that the university has developed takes a holistic approach to retirement planning and seeks to nurture a generation of older adults who can keep contributing after their primary careers end.

One impetus for creating the course was that the University of Minnesota, like many higher education institutions, is facing the reality of a rapidly aging workforce. Currently 5,000 of the university’s employees are eligible for retirement. The Encore Transitions program grew from a number of efforts taking place across the campus simultaneously, including faculty research on emerging retirement trends, an initiative by the college of continuing education to develop programs aimed at older employees, and an effort spearheaded by university human resources to develop a holistic approach to retirement planning for faculty and staff.

The program, designed to provide ample opportunities to talk with colleagues, engages participants in discussions centered on clarifying values, strengths, and interests; positive aging, including issues of health and wellness; options for post-career work; and opportunities for volunteering. When rolling out the course, the university communicated program details to department heads and contacted all retirement-eligible staff, making a concerted effort to make the program very visible on campus while stressing that course participation was voluntary.

Pilot course results. The course was first offered in the fall of 2010. Of the 46 retirement-eligible employees who participated—ranging from 50 years of age to 73 years of age (average age of 60)—one third of participants were faculty members, who had, on average, 25 years of service. Participants who took the course did not regard financial issues as being their top concern about retirement. Rather, a primary concern was assurance of a meaningful post-campus life.

Even though financial concerns were not paramount among this group, when asked about their financial questions, they raised the following issues:

• When should I start taking Social Security?
• What should I do about Medicare, especially if I work past 65?
• How will I make my money last over my lifetime, especially if I live a long time?
• What should I be asking my financial advisor?

After participants completed the course in December 2010, the university conducted a survey in June 2011 to gather feedback from this group. A significant motivator in taking the course was to seek a “purposeful life” post-retirement; to avoid feelings of loss, depression, and isolation; and to come away with a plan for their next phase of life, says Andrea Gilats, a senior fellow for the college of continuing education and one of the course developers.

Reducing employees’ fears and concerns about retirement is a key factor in helping them move toward a fulfilling post-career future. Of the 46 employees who participated in the university’s inaugural Encore Transitions course in December 2010, 11 had set a retirement date of no later than January 2012. All 11 employees commented that the course had a direct impact on their decision to retire. The university now plans to offer the course on an annual basis and is seeking to have an impact beyond its own campus by sharing its research to assist other institutions with managing their faculty and staff retirement.

Purpose-Filled Retirement

As TIAA-CREF’s data show, managing retirement will require thoughtful attention from institutional leadership for many years to come. To facilitate this process, institutions should have a firm grasp of what is happening on their campuses regarding retirement-eligible faculty and staff and what they identify as primary concerns regarding retirement decision making. In addition to offering savings programs and encouraging employees to save throughout their careers, institutions would be well-served to provide venues for employees to discuss retirement at key intervals throughout their tenure. As employees approach retirement age, encouraging them to meet with a financial planner and to conduct both a financial evaluation and a personal evaluation to identify potential options of interest post-retirement can go a long way toward helping employees feel ready to retire.

Nancy Maguire is a project management specialist at NACUBO. E-mail: nancy.maguire@nacubo.org.