Ian MacLachlan retired to start his third career in December 2015 after thirty years as a geography professor. This is the second of a monthly series relevant to the retirement plans of an aging professoriate for University Affairs.
So how did I decide that I could actually afford to retire at 63? A voluntary retirement scheme at my university was the catalyst to consider my own retirement needs and ambitions. This scheme prompted me to do some careful planning and financial calculations, gradually coming to realize that I could negotiate the terms of my own retirement and concluding that retirement was feasible.
The idea of negotiating retirement is alien to most faculty members. And since most of those who succeed in their negotiations disappear from the university scene, there may be few models of best practice. Many faculty members seem unaware that once appointed, the only truly independent deal that they can arrange with some autonomy is their termination. Retirees have to live with the terms of these agreements for the rest of their lives, so it is important to get this right.
Employers’ flexibility and generosity in retirement negotiations varies across faculties and institutions, in accordance with budgetary vicissitudes, and depending on whether a voluntary retirement incentive package is in effect. Many faculty members are not entirely sure about the appointment, tenure or grievance processes that govern their employment, let alone how the collective agreement deals with their exit. To negotiate a deal, faculty members need to understand their institution’s termination provisions and to work creatively within them. To do this well, members should consider a number of issues.
The first step is to collect information, and this will take considerable time. Faculty need to have a deep understanding of their current compensation package and how it is likely to change. They also need to understand their family finances, potential income from all sources, debt repayment, future obligations to family members, the possibility of an inheritance and the tax implications of all these things. Long before making any retirement decisions, faculty ought to attend the retirement workshops offered by most universities and to discuss their situation with faculty association staff to get a sense of local termination issues as well as with a financial advisor to consider how best to structure retirement incentives. More importantly, members need to have some frank discussions with partners and family members about retirement and the pros and cons of retiring early or working late. Single members, especially women given their longer life expectancy, should also consider these issues. If you have an employed partner, is it desirable to retire at the same time?
Retirement planning has come to resemble the dreaded SWOT analysis (strengths, weaknesses, opportunities and threats) that is the foundation of every university’s strategic plan. Knowing your monthly gross pension income for a range of retirement scenarios helps in this process. Most university pension plans offer an online pension modeling program that permits faculty to do a “what-if” type of analysis based on current salary, anticipated salary increases, years of service, age at retirement and whether a survivor’s benefit for your partner is chosen. This was a useful exercise in my retirement planning.
Many faculty members are not well informed about the benefits in their current compensation package or how much it will cost to purchase equivalent coverage when they are no longer employed. For most, a prescription drug plan is likely to grow in importance as we age. In my own case, my spouse requires costly medication for a chronic health condition and this was an important expense to factor into my retirement calculations. On the other hand, replacing any insurance policies provided through your employer may be an unwarranted outlay given your entry into the Third Age.
Which benefits must now be purchased? Which benefits are no longer required? Which will be less costly if the member self-insures? What will it cost on a monthly basis to purchase all the desired benefits? Careful consideration of these expenses could motivate some faculty members to continue working until age 65 when they become eligible for Old Age Security and may qualify for provincial senior’s health care benefits.
Balance your anticipated expenses and pension income against the assets you bring to retirement negotiations. Many faculty considering retirement tend to discount their true bargaining position. For people who are modestly inclined, it is natural to underestimate their value to the institution and the extent of their control over their professional destinies. If you are even thinking about retiring, you are probably earning a lot of money. You have leverage that you may not even recognize: the stream of earnings that the university is obliged to pay you every month until you decide to leave. Faculty may also have intangible assets which could be useful bargaining chips in negotiating an exit. For example, you may have accrued some years of credit towards a sabbatical leave which might be assigned some value in determining a retirement allowance.
A careful evaluation of your current financial position, potential retirement income and value to your employer is essential to understanding whether retirement is feasible and what inducements must be negotiated to make an attractive exit package.