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Financial Planning For Coaches

The career path of a coach requires a different view of financial planning.  More times than not where you live is temporary, your benefits vary among institutions, your salary does not follow a continuous path, and employment opportunities are scarce.  Having a specific long term plan allows you to remain in control of your future in an uncertain industry and to focus your energy towards achieving your lifelong dreams.

Most workers have the opportunity to make their own retirement plans; on their own terms and at their own time.  Coaches do not.  The world of coaching will retire you.  Long gone are the days when a coach has the long-standing support needed to retire on their own terms.  If Bobby Bowden and Philip Fulmer can be forced out less than ten years removed from a National Championship then you can to.  Understanding the reality of the business you are in is essential to creating your financial plan.

Another important difference in the world of coaching is that your prime earning years often fall in the middle of your career.  Whether it is true or not, in many cases once a coach reaches fifty years of age there is a perception that the game has passed them by and they are often forced to take jobs that fall beneath their experience level.  You cannot rely on catching up to retirement later in your career simply because the salary level cannot be counted on.

Because of these dynamics, it is important that coaching families remain ahead of the curve when it comes to retirement.  This involves saving more than you might other save and living a lifestyle that is well below that of your stated salary.  Rich people don’t get rich spending money, and a high income has no bearing on your retirement lifestyle.  Your savings plan will be the largest single factor in determining what type of lifestyle you have during retirement.

University coaches have among the best retirement options available to any type of employee in the country.  Technically as state employees, you have access to the same retirement plans as the state legislature who certainly allow for generous retirement options.

For instance, the IRS limits the amount of voluntary retirement contributions for private sector employee to $17,000 in 2012.  For state employees, that amount is doubled to $34,000 when combined with a 457 deferred compensation plan.

In addition, most private companies will match an employee’s contribution to a maximum of 3% but only when combined with employee voluntary contributions, while most universities have a mandatory contribution of 12% or more, combined employee and employer contributions.  This is important because any retirement plan contribution that is mandatory does not count against your voluntary limit ($17,000.)  Thus, in many cases university coaches (and politicians) can save in excess of $60,000 compared with $17,000 in the private sector.  It is important to take advantage of these unique opportunities.

Another area where coaching families must have a different view on financial planning is determining whether to buy or rent a home at their present location.  There are many variables to making this determination but it is important to realize that the one thing you need in order to reduce the risk of losing money in a house is ‘time’ which is the one unknown in the life of a coach.

It is true that buying a house provides tax benefits and the potential to make money in appreciation, but it is also a major responsibility with potentially immense costs associated with it.  Realize that the first 6% of appreciation in your home ($18,000 on a $300,000 home) goes to your real estate agent when you sell the home.  Also remember that when news comes down that you need to relocate, this usually occurs quickly with little time to go through the sales process properly.  This ultimately can lead to accepting a low offer just to get rid of the home.  It is important to take all these factors into account when assessing your future housing options.

If you alter your view on financial planning as a coaching family, you can more easily address the financial issues that you face.  Understand that your current location is temporary, your income and job is ‘rented,’ and you may not ever make as much money as you currently make.  By accepting the harsh reality of being a college coach, it will better prepare you to take advantage of the opportunities available to you.

 

 

 

Understanding Your University Retirement Benefits

If you’ve ever enrolled in a university retirement system, you may have been overwhelmed by the choices and restrictions associated with these plans.  In many cases, employees must make their elections within a month of their hiring and while these decisions can dramatically affect your long term financial plan, most do not take the time to fully understand the benefits made available to them. 

First and foremost, all plans differ between institutions.  Plan options, contribution rates and limits, vesting schedules, and investment choices are among the factors that vary widely between schools.  It is important to fully understand the options made available to you prior to making any decisions regarding your elections.  Remember that the Human Resources department is always available to answer any questions you may have. 

Plan Options:  There are two primary categories of retirement plans: pensions and optional retirement plans.  For an in-depth review of these options, please visit our Pension vs. ORP article.  Voluntary options may also include a 403(b) plan (also known as a Supplemental Retirement Annuity or SRA) and public institutions may also have a 457 plan, also known as a deferred compensation plan.  Each of these plans is administered by an investment firm such as TIAA CREF or VALIC, to name two, and you will want to understand the differences between the providers prior to making your elections. 

Contributions:  The contributions to your retirement accounts can be divided between mandatory and voluntary contributions.  The IRS limits the amount of voluntary contributions, but any contributions made by the employee as a condition of employment are excluded from these limits.  Mandatory contributions can be made into either 401(a) or 403(b) accounts, depending on how the plan is set up.  Voluntary contributions are typically made into 403(b) plans with a limit in 2011 of $16,500/year or $22,000 if over age fifty.  Since 457 plans are not technically retirement contributions but instead deferred compensation, it has an additional limit of $16,500 or $22,000 if over age fifty.   

Vesting Schedules:  Vesting schedules pertain to how long you must be employed in order to receive employer contributions to your retirement plan.  Pension plans typically have more restrictive vesting schedules than optional retirement plans with many having schedules of ten years.  Vesting schedules can be “graded” or “cliff” schedules.  In a graded scale, an employee may receive 20% per year for five years while cliff schedules go from 0% to 100% on a specific date.  It is important to coordinate your expected tenure with the vesting schedules made available to you to ensure you do not leave any money on the table. 

Investment Choices:  Investment choices vary widely among plan providers.  Since you do not have control over how your money is invested within a pension plan, this is only a concern for optional and supplemental plans.  You will want to check the choices made available to you prior to making your decision and you can check the performance of the fund on independent websites such as Morningstar.  The investment choices are often what differentiate good providers from bad ones.  High fees and habitual underperformance can derail your financial plan.