Author Topic: FIRE in a University?  (Read 5354 times)

El TD

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FIRE in a University?
« on: July 14, 2016, 01:42:24 PM »
Hello Mustachians,
I will soon be starting a position with the University of California. Does anyone have experience with the UC system or with large university systems and FIRE? Care to drop some knowledge on how to best approach it?

One of my main questions is, of course, the retirement accounts. As of July 1, the UC system offers two options for retirement savings. http://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/index.html One is a pension and the other is "401k-style", by which they presumably mean a 403b. I think the latter is the better choice. I can see myself staying there for 5 years (to vest in the pension plan) but probably not the 20 or so it would take to actually retire officially from the UC system.

The FAQ section on "Which option is best for me?" seems to lean (in my case) towards the 401k-style, too. http://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/faq.html#4_8

I'd love to hear other pointers on how to make FIRE work in a University setting. I've already seen tricks like the Mad Fientist's getting a free education from a top quality school http://www.madfientist.com/free-ivy-league-degree/ and I'll be availing myself of all the perks http://hr.berkeley.edu/compensation-benefits/perks within reason. But, it would be great to hear what else y'all can come up with.

Thanks in advance.

forummm

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Re: FIRE in a University?
« Reply #1 on: July 14, 2016, 02:32:08 PM »
I don't know what it's like now, but the UC used to have great retirement benefits. You could save both in a 403b (similar to 401k), a 457, and another account, as well as a pension. So you could put away up to $57k (or whatever the limit is) pre-tax each year. And the pension and health plans were good too.

jjcamembert

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Re: FIRE in a University?
« Reply #2 on: July 14, 2016, 02:43:40 PM »
I personally chose the 401a option (basically same as 401k) for the similar reasons you mentioned. If I quit sooner I know how much money is in my retirement account and like everyone on this forum I can calculate how much it will earn me in retirement per month. I also trust my investment choices instead of putting money in a "black box" and hoping there's some left for me in the future. I can't withdraw until age 59.5 but if/when I FIRE I'll just let that money keep growing while I live off my taxable and Roth IRA money.

You'd have to run the numbers, but the only upside of the pension plan might be you could possibly earn more in retirement the longer you live?

mammothunder

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Re: FIRE in a University?
« Reply #3 on: July 14, 2016, 06:12:07 PM »
DH and I both work for a large state university, and we had a similar choice.  We did not go with the pension because we are not tenure-track.  We chose the defined contribution plan that looks like your "Savings Choice" plan.  We're required to contribute 5%, and the university contributes 9.29%.  In addition, we can each contribute 18k to a 403(b) and another 18k to a governmental 457(b).  That's a total of 14.29% plus 72k.  We aren't able to save that much, so we've been prioritizing the 457(b) because you can withdraw without penalty as soon as you terminate employment with the university.  Definitely check out the 457(b).

We get 75% off tuition, so DH is pursuing his master's degree.  We have the choice of a low-deductible health plan versus a high-deductible health plan.  I have a chronic illness, so I chose the low-deductible.  DH has the HDHP, and the university automatically puts $400 into an HSA for him.  The only rule is that I can't have an FSA while he has an HSA.

Beyond the big benefits, there are other perks.  The bus system and the bike paths are amazing, so we have one car.  We rent out a bedroom in our house to a postdoc, and his rent covers 1/3 of the mortgage.  We go to free events on campus.  I can check a book out of the library for an entire semester and then renew it indefinitely.

Personally, I think you should go with the "Savings Choice" plan.  Contribute whatever is mandatory, and then go all out with the 457(b).  Make sure you confirm that the 457(b) is governmental.

jjcamembert

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Re: FIRE in a University?
« Reply #4 on: July 15, 2016, 12:57:11 PM »
Well now I'm looking into 403b and it looks like you can withdraw early without penalty if:

"The distribution is made as part of a series of substantially equal periodic payments beginning after separation from service and is made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least five years or until the employee reaches age 59.5, whichever is the longer period.)"

http://www.investopedia.com/university/retirementplans/403b/403b3.asp#ixzz4EVMdh5Z8

So it sounds like you could pay yourself from the plan even if you retired in your 40s.

lightmyfire

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Re: FIRE in a University?
« Reply #5 on: July 15, 2016, 01:40:31 PM »
I work for a large university, and the only option we have is a pension. They automatically take around 9% out of my paycheck as my contribution, and the university contributes around 11%. It's a good tax hedge, but I'm not vested until 5 years, so the university's contribution would be completely lost if I left before then (I've been here 4 and really don't like this feeling of being held hostage for at least another year, even though I like my job well enough). Also, I don't fully trust the pension benefits to exist as promised by the time I can touch them...at age 65. I would definitely choose a 403b if I had a choice.

El TD

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Re: FIRE in a University?
« Reply #6 on: July 15, 2016, 05:08:03 PM »
Thanks for all your replies! It's definitely helpful.

@jjcamembert I just read this post from Mad Fientist about different ways to get access to one's tax-advantaged accounts early. http://www.madfientist.com/how-to-access-retirement-funds-early/ It was the first time I'd heard of a SEPP; seemed to be a solid option.

StarBright

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Re: FIRE in a University?
« Reply #7 on: July 15, 2016, 05:46:24 PM »
My DH works for a state U in a non tenure track position.

We chose the 401a option due to the lack of tenure and immediate vesting vs. the defined contribution plan or pension which both took 5 years to vest.

He's required to invest 14% of his paycheck and the U puts 10% in to him and 4% into the pension plan (weird state thing, even when people aren't in invested in the pension the state requires the school to divert 4% of the match to the pension fund - I believe their pension was in major trouble a few years ago).

We're planning on taking advantage of the free degree for me and both kids if we remain here. There are also HSAs, dependent care FSAs, and super cheap daycare (it has a waiting list). The pay is not spectacular so the perks really help. Also, don't ignore travel discounts. Some of the ones my DH gets are pretty substantial. We taking the kids to an indoor waterpark soon that I would NEVER pay full price for, but we get a 40% discount. It will be a nice summer mini break.

csprof

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Re: FIRE in a University?
« Reply #8 on: July 15, 2016, 09:30:40 PM »
Hello Mustachians,
I will soon be starting a position with the University of California. Does anyone have experience with the UC system or with large university systems and FIRE? Care to drop some knowledge on how to best approach it?

One of my main questions is, of course, the retirement accounts. As of July 1, the UC system offers two options for retirement savings. http://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/index.html One is a pension and the other is "401k-style", by which they presumably mean a 403b. I think the latter is the better choice. I can see myself staying there for 5 years (to vest in the pension plan) but probably not the 20 or so it would take to actually retire officially from the UC system.

The FAQ section on "Which option is best for me?" seems to lean (in my case) towards the 401k-style, too. http://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/2016-retirement-choice/faq.html#4_8

I'd love to hear other pointers on how to make FIRE work in a University setting. I've already seen tricks like the Mad Fientist's getting a free education from a top quality school http://www.madfientist.com/free-ivy-league-degree/ and I'll be availing myself of all the perks http://hr.berkeley.edu/compensation-benefits/perks within reason. But, it would be great to hear what else y'all can come up with.

Thanks in advance.

I'm a month or two out of date, but I read through the updates fairly carefully a while ago, and thought that the 403(b)-style option looked entirely reasonable.  It has a UC contribution in addition to your contribution, which brought it roughly in line with what's offered at my university.  Seemed solid.  I'd take it over the pension if you're considering early, for reasons already elucidated.

Lagom

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Re: FIRE in a University?
« Reply #9 on: July 15, 2016, 09:48:33 PM »
I am a UC employee and am not aware of any extra UC contribution to the 403b. Perhaps this is only for faculty? I'm prioritizing the 457 myself for the withdrawal flexibility. I might have misunderstood when the 401a was explained to me, but I thought those were post tax contributions. Can someone clarify on that point? Can I really contribute $18k x 3, pre-tax, to those three plans? I'm actually not even clear if non-faculty are eligible for 401a contributions at all. I guess I should check with HR, although just being able to max a 403b and 457 (not to mention the pension), is pretty sweet as it is.

Lagom

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Re: FIRE in a University?
« Reply #10 on: July 16, 2016, 01:28:01 PM »
I did some digging and if I'm understanding the informational materials correctly, full-time UC staff can make post-tax contributions to the 401a with a cap of $53k. Since withdrawals are also taxed, I don't think there is any reason until your 403b and 457 plans are maxed (and a Roth IRA if you're eligible).

Faculty do seem to have somewhat different rules.

csprof

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Re: FIRE in a University?
« Reply #11 on: July 16, 2016, 03:15:06 PM »
I am a UC employee and am not aware of any extra UC contribution to the 403b. Perhaps this is only for faculty? I'm prioritizing the 457 myself for the withdrawal flexibility. I might have misunderstood when the 401a was explained to me, but I thought those were post tax contributions. Can someone clarify on that point? Can I really contribute $18k x 3, pre-tax, to those three plans? I'm actually not even clear if non-faculty are eligible for 401a contributions at all. I guess I should check with HR, although just being able to max a 403b and 457 (not to mention the pension), is pretty sweet as it is.

Sorry, I was smooshing some things together (the employer match and the 403(b)).

The stand-alone 401(k) "style" option is described as:

- You contribute 7% of annual eligible pay, before taxes, up to IRS maximum.
- UC contributes 8% of eligible annual pay up to IRS maximum.

In addition to that, you:
http://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/ucrs/index.html

can also contribute $18k/year pretax to each of the 403(b) and 457 plans.

So in total, on a 100k eligible base salary, you should be able to amass 15k in the base plan and 36k in the elective plans, for a total of 51k in tax-advantaged retirement savings.  Of that, 8k was UC contribution, and the rest was pre-tax, leaving you with 57k of taxable income.  I'm drooling a little.

(The thing I was noting was similar is that my university also provides about an 8-9% of salary contribution, but it doesn't let you throw in as much money overall.)

Read the docs on the 457 carefully, though, because it has different legal protections than the 403(b).

Bicycle_B

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Re: FIRE in a University?
« Reply #12 on: July 16, 2016, 03:21:26 PM »
Well now I'm looking into 403b and it looks like you can withdraw early without penalty if:

"The distribution is made as part of a series of substantially equal periodic payments beginning after separation from service and is made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least five years or until the employee reaches age 59.5, whichever is the longer period.)"

http://www.investopedia.com/university/retirementplans/403b/403b3.asp#ixzz4EVMdh5Z8

So it sounds like you could pay yourself from the plan even if you retired in your 40s.

Be careful with this one.  Don't be distracted by the five years.  As I understand it, SEPP (substantially equal periodic payments) mean that the withdrawal amount you're allowed on these is limited to a small amount based on your life expectancy, as defined in tables that part of the regulation for these accounts.   Example: If you withdraw starting at 40, you might only get to withdraw 2.5%/year.  If you deviate, in most cases the penalty for withdrawing before age 59 1/2 gets reinstated.  So you're stuck making these little withdrawals forever regardless of whether that fits your changing circumstances.  These are tricky accounts that are not very flexible. 

But I am not an expert - will accept correction from wiser commenters.  At least research very carefully before committing to SEPP.
« Last Edit: July 16, 2016, 03:29:49 PM by Bicycle_B »

Lagom

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Re: FIRE in a University?
« Reply #13 on: July 16, 2016, 03:31:22 PM »
Read the docs on the 457 carefully, though, because it has different legal protections than the 403(b).

My understanding is that the only protection that can be different with 457s is that they can be subject to creditors in a bankruptcy scenario, and that is only true of non-profit (vs government) 457s. Am I mistaken? I would think the UC is a government one, although I couldn't immediately confirm this with a quick web search, but even if it's not, I'm not especially concerned about going bankrupt. And the option for penalty-free early withdrawal is tailor made for those of us pursuing early retirement. I can't really think of a good reason why someone without the funds to max both would choose the 403b first.

csprof

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Re: FIRE in a University?
« Reply #14 on: July 16, 2016, 03:38:27 PM »
Read the docs on the 457 carefully, though, because it has different legal protections than the 403(b).

My understanding is that the only protection that can be different with 457s is that they can be subject to creditors in a bankruptcy scenario, and that is only true of non-profit (vs government) 457s. Am I mistaken? I would think the UC is a government one, although I couldn't immediately confirm this with a quick web search, but even if it's not, I'm not especially concerned about going bankrupt. And the option for penalty-free early withdrawal is tailor made for those of us pursuing early retirement. I can't really think of a good reason why someone without the funds to max both would choose the 403b first.

I don't know - I've only looked into it for non-profits, but the creditor difference is the biggest one for non-governmental.  Regardless, the likelihood of a California bankruptcy is low, though we've certainly seen cities do it.  It does look like a governmental 457 can be rolled into a 401(k) or 403(b), which suggests it's even more robust.

Neat trick.  Nice options.  Max 'em all and you're at a 50% savings rate. :) :)

Lagom

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Re: FIRE in a University?
« Reply #15 on: July 16, 2016, 03:46:02 PM »
Read the docs on the 457 carefully, though, because it has different legal protections than the 403(b).

My understanding is that the only protection that can be different with 457s is that they can be subject to creditors in a bankruptcy scenario, and that is only true of non-profit (vs government) 457s. Am I mistaken? I would think the UC is a government one, although I couldn't immediately confirm this with a quick web search, but even if it's not, I'm not especially concerned about going bankrupt. And the option for penalty-free early withdrawal is tailor made for those of us pursuing early retirement. I can't really think of a good reason why someone without the funds to max both would choose the 403b first.

I don't know - I've only looked into it for non-profits, but the creditor difference is the biggest one for non-governmental.  Regardless, the likelihood of a California bankruptcy is low, though we've certainly seen cities do it.  It does look like a governmental 457 can be rolled into a 401(k) or 403(b), which suggests it's even more robust.

Neat trick.  Nice options.  Max 'em all and you're at a 50% savings rate. :) :)

Indeed! I can't wait until I am able to max both. The pay may lag the private sector, but it's a great boon to us FIRE folks to have these sorts of benefits available, not to mention the pension.

naners

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Re: FIRE in a University?
« Reply #16 on: July 17, 2016, 05:25:37 AM »
Similar situation here at my public university in NY. I also went with the 401 option. In addition to what others have said, I feel that the 401 is more of a known quantity than the pension. Is the pension fully funded? Will the university/state cut benefits down the road? Is it being well managed? What kind of fees are they paying? With a pension you have no idea. Here In NY it turned out that the Teachers Retirement System (my pension option) was paying astronomical management fees. I just feel that I can do better, or if I'm unlucky, at least I know exactly what I'm getting into.

Lagom

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Re: FIRE in a University?
« Reply #17 on: July 18, 2016, 01:22:29 PM »
So I found another small difference between the 403b and 457 plans, albeit one that might be controversial on this board. If you think you might need to borrow from your retirement account the 403b is best to prioritize until you reach $100k in assets. The reason for this is that when calculating how much you can borrow, UC offers the lesser of $50k, 100% of your 403b balance, or 50% of your combined 403b/457 balance. Thus if you had $50k in your 457 and $10k in your 403b, for example, you could only borrow $10k, vs $30k in the reverse scenario. Note that the 50% calculation happens even if you only save in the 403b, so you would only be able to borrow the full $50k once total savings exceed $100k (with more than half being in the 403b).

Again, probably not something most people on this board should be thinking about, but it's worth knowing if you are at the early stages of considering your options.