Back to school time is signifies a new start. New year, new goals, new you. For professors, this is a great time to think about important financial decisions.
Most schools have an online portal in which you can see your benefit elections. This is also the same place where you can make changes. For others, you may need to reach out to your HR department to get this information and make adjustments. A few changes may need to wait until open enrollment. A new semester is a fresh start. It’s also a time to consider these 5 back-to-school money moves for professors…
Adjust Your Salary Deferral
Do you contribute to your institution’s 403(b) plan? You should. Employer retirement plan contributions at higher ed institutions are among the best around. Make sure that, at a minimum, you’re contributing enough to receive the full match.
If you’ve recently received a raise, consider increasing your savings rate. Are you already maxing out your 403(b)? Look into contributing to a Roth IRA or a brokerage account. If you work at a public school, you may be able to max out a 457, too.
Traditional vs. Roth Contributions
Do you have any tax flexibility with your retirement assets? While pre-tax deferrals through traditional 403(b) contributions are great, have you considered Roth contributions? I don’t believe in rules of thumb and everyone’s situation is different. Lowering your taxable income may benefit many professors (especially if you are on income-based student loan repayment). For others, post-tax Roth contributions are ideal.
Many start feeling the pain of required minimum distributions when they reach age 70 ½ and wish they would have had Roth assets. Eventually, Uncle Sam comes calling when you have traditional 403(b) assets. You deferred taxes for years and now Uncle Sam wants to get access to that money. Roth 403(b) assets do not have RMDs because you have already paid taxes on it and can’t get taxed twice.
Take a Second Look at Your Health Insurance
Most institutions offer many different health insurance plans. Have you had many health issues the last few years? It might be time to choose a plan with a lower deductible. Have you been healthy and not needed to use your health insurance? You may want to find a plan with a higher deductible to keep more money in your pocket. Evaluate if your health insurance plan still makes sense for your family.
Do you have a high-deductible HSA plan? Individuals often don’t realize that they can invest the money they have been contributing. This is a great time to take a deeper dive into your HSA account. If you aren’t maxing out your plan, you may want to adjust your contribution level. This will lower your taxable income in the contribution year.
Re-evaluate Life Insurance
Has your family dynamic changed over the past year? It may be time to decrease or increase your life insurance. Do you know how much you need? If you’ve never had a life insurance needs analysis done, you should do so. A needs analysis will act as a life insurance audit. Thus audit ensures that you have the right amount that is also the right type at the right price.
Back-to-school is a great time to analyze the cost of your voluntary (or supplemental) life insurance. Professors opt into these policies because they don’t require underwriting. They are inexpensive while you’re young. Yet, most don’t realize that these policies can get expensive as you age. Ask your employer about the cost of your voluntary insurance, through either 5-year bands or by cost per thousand. You may be surprised by what it costs as you age.
Asset Allocation Review
Most of the potential clients that I meet with tell me that they are conservative investors. Yet, when looking over their household portfolio, they are often extremely aggressive. Your investment allocations change over time with market performance. It is important to have an investment policy that guides your decisions and then stick to it.
Markets right now are trading near all-time highs. If you hold equity (or stock) heavy accounts, they may be more aggressive than intended. This is due to the tendency for stocks to grow at a faster rate than bonds. As stocks outpace bonds during times of immense growth, your stocks eat up a bigger percentage of your portfolio. While robust returns are great, you now have more volatility risk in your accounts. When a market correction comes, your accounts may get hit harder than you’d like. You may be well served to “sell high” and rebalance your accounts.
Conclusion: Back-to-School Money Moves for Professors
Back-to-school is an exciting time. It is a great time to take charge of your benefit elections and financial planning. Some of these items cannot be adjusted until open enrollment but it’s best to prepare ahead of time. Good luck and have a fantastic new semester!
You may also like: The Ultimate Guide to Naming 403(b) Beneficiaries