Planning Lessons for Educators:
Addressing Your Financial Issues:
Page 1 of 2, see disclaimer on final page
Being an educator demands significant expertise and
requires that you stay current on developments in
your field. However, that level of ongoing attention
can make it difficult to find the time to stay on top of
issues that affect your finances, or to put together a
comprehensive financial plan. Whether you work
directly with students or focus on research, whether
you are just starting your career or have achieved
distinction in your field, you can benefit from working
with a financial professional who understands an
educator's special concerns. Here are some issues
that may not have been at the top of your to-do list,
but that can affect your long-term comfort and
happiness.
Addressing tax issues
Many educators, particularly contingency or adjunct
faculty members, have multiple sources of income.
For example, you may teach at several institutions,
and/or earn consulting fees or royalties on your work.
Welcome as that income doubtless is, it also may
complicate tax planning and preparation. Other tax
issues you may need help with include the
deductibility of student loan payments, tax issues that
arise from pursuing an advanced degree, and the
taxation of employer-provided benefits such as faculty
housing.
Getting tenure is cause for celebration, but it also is
likely to affect your tax situation. Moving into a higher
tax bracket could mean it's time to make or rethink
decisions about how much you need to save for
retirement, the immediate and long-term benefits of
various retirement savings accounts--both taxable
and tax-advantaged--and how your retirement
savings are invested.
Planning for retirement and beyond
The key to any successful retirement plan is starting
early. The sooner you can put a well-thought-out plan
in place, the better your chances of financial security.
Saving for retirement is like building up an
endowment; it gives you the freedom to expand your
horizons. Because academic salaries tend to remain
relatively predictable (at least compared with
corporate salaries) once you've gotten tenure, you
have an advantage when it comes to retirement
planning. Why? Because you may be able to make
more accurate forecasts of your lifetime earning
capacity than people in other professions, which can
in turn help you make more informed decisions about
how you should manage your money now. Statistical
analysis tools can estimate the likelihood that a given
financial strategy will be adequate to meet your
long-term needs.
Take full advantage of the tax benefits of any
employer-sponsored retirement savings plan, such as
a 403(b) plan (either traditional or Roth) or a 457(b)
plan. For 2011, you may contribute up to $16,500 or
100% of your gross compensation each year,
whichever is less. For those 50 or older, the limit is
$22,000 pretax.
Beyond employer-sponsored plans, you may also be
able to use other tax-advantaged retirement savings
vehicles, such as a traditional or Roth IRA. In 2011,
the annual contribution limit for traditional and Roth
IRAs is $5,000 (plus an additional $1,000 if you're 50
or older).
Investing responsibly
An understanding of investing fundamentals is
essential to making informed decisions with your
money. A financial professional can help you
understand not only the mechanics of investing, but
demonstrate why a given strategy might be
appropriate for you. Most common investing
strategies are derived from a wealth of research on
the historical performance of various types of
investments. Though past performance is no
guarantee of future results, it can pay to understand
the various asset classes, the way each class tends
to behave, and the function each fulfills in a balanced
portfolio. You might find assistance especially useful if
you are the recipient of a lump sum, such as a cash
award, prize or grant for your work.
Do you have ethical concerns about investing?
Socially conscious investing has entered the
mainstream, and there are many investment options
that allow you to address your financial needs and still
support your convictions.
Even if you're an experienced investor, you'll need to
adjust your strategy periodically as your
circumstances change over time--for example, after
you receive tenure or as you near retirement. The
sooner you establish a relationship with a
professional, the sooner you'll benefit from the
expertise of someone who deals with financial issues
daily.
Creating an estate plan
A will is the cornerstone of every estate plan; without
it, you have no control over how your assets will be
distributed. You also should have a durable power of
attorney and a health care directive.
If you've amassed substantial outside business
interests or intellectual property assets (e.g.,
copyrights, patents, and royalties), an estate plan is
particularly important. Managing those assets wisely
while you're alive can make an enormous difference
in your ability to maximize their benefits for your heirs.
Estate planning also can further your legacy in other
ways. Charitable giving to your heirs, your
educational institution, or another nonprofit
organization can both further your philanthropic goals
and be an effective tool for minimizing taxes. For
example, by establishing a trust, you may be able to
benefit from an immediate tax deduction as well as
provide an ongoing income stream for you or the
charitable institution of your choice.
Protecting your assets
You also might want to think about whether you and
your family are adequately shielded from
emergencies. Types of insurance you should consider
include:
• Life insurance
• Disability insurance
• Liability insurance (particularly if you're involved in
applied research projects or consulting
engagements)
Managing debt
Being in debt can make managing all other financial
issues more challenging. If you're in the early part of
your career, you may still be facing years of student
loan payments; if you're more senior, you may be
trying to pay off a mortgage and eliminate all debts
before retirement. Balancing debt with the day-to-day
demands of raising a family, seeking support for your
work, finding good housing, and saving for your
children's education and your own retirement can be
a formidable task.
Handling debt wisely can have dramatic
consequences over time. Having someone review
your finances might uncover some new ideas for
improving your situation. It also can help you
understand the true long-term cost of any debt you
incur.
Whether you have a specific concern or just want to
be better prepared for the future, a financial
professional can help.
Forefield
No comments:
Post a Comment