Higher Education Faculty Need Help With Investing

Both faculty and non-faculty members say they feel confident they will have enough money to pay for basic expenses in retirement—87% for professors and 80% for non-faculty members, according to Fidelity Investments’ 2017 Higher Education Faculty Study.

However, while both groups are good savers, they still face their own issues when preparing for retirement. For faculty, when it comes to grading their own financial literacy—from budgeting to investing—this group of educators admits they’d give themselves a “B” grade. And, while professors prioritize saving for retirement, non-faculty members’ top saving priority is paying off debt (38%), followed by paying daily/monthly household expenses (24%).

“We weren’t sure exactly how professors would grade themselves,” David Martin, vice president, Tax Exempt Client Analytics & Research at Fidelity Investments tells PLANADVISER. “We actually thought they would give themselves a higher grade, but the fundamentals of what they are doing would not reflect that, but they actually gave themselves a good grade.”

While professors feel comfortable with many fundamental financial concepts, there are other areas where extra study is needed. For example, nearly three in 10 (29%) professors aren’t sure of the investment mix of their retirement savings, suggesting they don’t know if the investments they selected align to a specific financial goal and timeline. The study found as faculty members age, their financial wisdom increases slightly: Boomer professors (born from 1946 to 1964) give themselves a “B+” grade.

The study identified three important insights about how educators feel about their financial knowledge and areas where they would welcome help:

• Despite Advanced Degrees, Many Professors Feel Like Novice Investors: While they have mastered certain subjects in their professional lives, when it comes to investing, 37% of professors see themselves as “beginners.” This sentiment is greater for younger professors with 47% of Gen X faculty (born from 1965 to 1980) feeling inexperienced. Martin says this finding was a bit of a surprise also.
• Worried Retirement Savings Won’t Make the Grade: While saving for retirement is the top financial priority for professors (42%), and their reported average total savings rates for retirement (employee and employer contributions) is a strong 15%, more than half (54%) of faculty members are concerned that they could outlive their retirement savings.
• Extra Help Needed: When asked about where they need financial help, the top responses for professors are understanding Medicare/health care costs (34%) and choosing specific investments (32%).

Martin says there are a few things plan sponsors and advisers can do to help faculty with savings and investment decisions. First, they can provide a solid plan design that will help participants contribute enough so that their savings rate (employer plus employee contributions) is 15% of salary. He explains that the higher education market does, in general, exhibit better savings rates and behavior. But, part of that is generous employer contributions, and a lot of employees think that’s enough and are not putting any of their own money in the plan.

Martin also suggests partnering with a provider to get good communication and education to participants—websites, email campaigns, webcasts, on-demand workshops and tools they can use. In addition, plan sponsors can work with providers to increase the use of on-site planning guidance. “In the tax-exempt market, most providers have on-site registered representatives,” he says.

Fidelity’s research finds that the broader higher education community wants help assessing their overall and day-to-day financial picture in addition to retirement savings. When it comes to the financial wellness of non-faculty employees, 64% say they often worry about their financial situation, compared to 44% of professors. Despite that, non-faculty members are still actively saving for retirement—with a reported total savings rate of 13%.

According to Martin, many providers have also developed overall financial wellness programs that span a range of issues. Budgeting is really the first thing to take care of even before saving for retirement, he says. Also, credit and debt management and insurance protections can help employees with their overall financial wellness picture.

“The main thing we’ve seen most as most effective is when plan sponsors and provider partner together with a good partnership and connection to get participants on the right track,” Martin concludes.

An infographic of key findings from the Higher Education Faculty Study is at http://go.fidelity.com/7d3h. In addition, a whitepaper that speaks to plan design in higher education retirement plans can be found at https://communications.fidelity.com/pdf/higher-education-plan-design-white-paper.pdf.