post-tenure financial adjustments

[Puget]

Apropos of my news today --

For the tenured amongst you, how (if at all) did you adjust your financial behavior after getting tenure?

There will be a modest raise, but I'm more thinking about redirecting part of my emergency fund--

Even though I thought my chances were low of needing it, I've been keeping about 6-9 months of expenses in savings just in case I found myself without employment. I'm thinking that with security of employment, that's probably a bigger emergency fund than I need (though I would certainly want to keep at least about $20k liquid in case of major house stuff, like the boiler dying suddenly). I'd be curious to hear how much others are comfortable with.

Then, what to put that money towards going forward? Some options, not mutually exclusive but figuring out what to prioritize:

1. Increase 403b contributions (currently I'm putting in 8% and university is putting in 8% which is their fixed %, i.e., match won't go any higher)

2. Non-retirement investments. I currently put a small amount ($250/month) into an index fund. I feel incredibly uneducated and unsure about picking other investments. CDs? Bonds? More index fund shares?

3. My only non-mortgage debt is a credit union loan for my solar panels, with about $16k remaining at 6.29%, on which I'm currently paying $500/month. I could pay that off in a lump sum with no penalty instead.

4. There's non-emergency house stuff I'd like to do (like replacing the 100+ year old windows).

5. I suppose I could spend some of it on fun. This might be hardest of all for me, but I'm trying to get more comfortable with it.

[Hibush]

Congratulations on your new condition!

After spending that kind of money on windows (post tenure) I found it it made a huge difference in how pleasant the house is. No condensation, no mold, less draft, easy to open and close, good view. Well worth considering.

As far as building equity or retirement, just do a little more of what you are doing. I have for many years had an S&P index fund as well as other investments to see whether my great research skills and insight could do better. The answer is a clear NO. I no longer worry whether I should get fancier.

And have fun! Buy the fancy bread.

[Puget]

Congratulations on your new condition!

After spending that kind of money on windows (post tenure) I found it it made a huge difference in how pleasant the house is. No condensation, no mold, less draft, easy to open and close, good view. Well worth considering.

As far as building equity or retirement, just do a little more of what you are doing. I have for many years had an S&P index fund as well as other investments to see whether my great research skills and insight could do better. The answer is a clear NO. I no longer worry whether I should get fancier.

And have fun! Buy the fancy bread.

Thanks!

Yes, I probably will go for the windows. I got estimates done earlier this winter but the sticker shock made me hang back until I'd heard about tenure. It is certainly something the house needs, which I knew when I bought it (the windows really are more than a hundred years old- single panes of course, and incredibly leaky, though the storm windows help).

I appreciate the advice about sticking with index funds -- that was my impression too, that it wasn't worth trying to beat the market, plus I simply don't have the time or inclination to do a lot of research on it.

"buy the fancy bread" is a good mantra! I think like many academics, it can be hard to adjust to being comfortably middle class, after so many years of scrimping through grad school and postdoc, and then in my case saving to buy a house, and making necessary upgrades to said house. I feel incredibly lucky that I'm at the point I can try to relax and enjoy it a bit. 

[arcturus]

Congratulations on your new status! However, while you may think you "have a job for life", you should still keep an emergency fund for other emergencies (house repairs, car accidents, etc). Further, while rare, it is also possible to still have job-related emergencies: University of California faculty were required to take furloughs (i.e., reduced salary) during the great recession, for example. So, yes, you can probably reduce your emergency fund if you were keeping a high balance to account for potential job loss, but do not reduce it to zero.

Make certain to fund a "for fun" fund (say that 6 times fast!). And use it! You have worked hard to earn this status. You will continue to work hard even after having achieved this status, because that is who you are. Nonetheless, you need to prioritize shifting the balance of work/life a little bit, so that you can continue to succeed for the long haul.

In term of investing, I use index funds with low expense ratios. I did split my investments between the 403b (tax advantaged) and a taxable brokerage account to a certain extent immediately following tenure. It isn't a 100% mathematically correct approach (tax advantaged is "tax advantaged" after all), but it made me more comfortable to see an increasing balance in funds that I could access pre-retirement, if necessary. I now have sufficient income that I can max-out my 403b contributions, so I do that and then invest the remainder in my taxable brokerage account.

At the recommendation of someone here, I have been reading bogleheads.org . They have a good wiki covering most aspects of investing for retirement and other aspects of your financial life. There is also good information in the bogleheads.org forum posts, although you will have to parse through a fair amount of "humble brag" regarding early retirement plans and absurdly high annual salaries. One of the tenets there is that investing does not need to be complicated. A three fund portfolio (total US stock, total international stock, and bonds) is sufficient. The argument then becomes what percentage of your portfolio should be in each of these investments!

Congratulations again on your recent accomplishment. Take some time to breathe and enjoy it!

[Sun_Worshiper]

This is a great problem to have. Congrats!

It is always good practice to max out your retirement (even if there is no match) and/or invest in index funds. So if you've been holding back then perhaps you can put a little more in. But it is still good to have a rainy-day fund of $15k or so.

A three fund portfolio (total US stock, total international stock, and bonds) is sufficient. The argument then becomes what percentage of your portfolio should be in each of these investments!

This is good advice - and really all of the advice above is good. Put most of your money in stocks when young (international and US) and a smaller share in bonds (say 10 or 20%). Then gradually raise the bond percentage as you get older. I put money in a Vanguard account that manages the balance for me - there is a small fee, of course, but imo it is worth letting a professional deal with it.

[Puget]

Thanks arcturus and Sun_Worshiper! Yes a very good problem to have indeed!

I will definitely keep at least $15k (maybe a bit more) as an emergency fund.

I'm not maxed out on my 403b annual limits yet, so that seems like a rational place to start, along with some of the house projects.

I appreciate the push on work-life balance and spending a bit more on fun -- that's definitely something I struggle with and want to get better at. I don't need or want much in terms of additional possessions, but value experiences, especially travel to/with with friends and family-- I do do that, but could do it a bit more, and with less worry about the cost. 

[darkstarrynight]

I max out HSA and Roth IRA contributions annually since I already have a decent retirement match. I also try to keep an emergency fund liquid - our house had flooding issues the first few years we were in it and we spent a ton of money trying various companies and solutions until that was fixed, so I am a bit scarred from that and want to be prepared. Congratulations to you!

[Ruralguy]

1. Put most of the increase toward 403b for sure. Always. I'd go with 50-60%
2. of the remainder, I'd put half into emergency (I agree with others. If anything, this should be bigger, not smaller. As job security nominally increases, marketability likely decreases. So, in the unlikely even the job is lost, you need the emergency money even more). Put emergency fund in highest interest savings/money market you can find online (maybe 10-20 can be in checking at a local bank, but rest should be earning).
3. The other half of remainder, split evenly between laddered CD's and some sort of equity investments (easiest just to go with SP500 index).

My numbers are a bit rounded off, and probably need to be adjusted up and down for age and risk tolerance, but there ya go.


 

[Ruralguy]

Oh, and yes, if you qualify for an HSA, put at least enough in to get employer match, if there is one, then gradually increase contributions with raises.

Also, every year, check to see what the new 403b max out numbers are, and adjust your contributions up to meet new max (I know you aren't there yet, but keep turning it up. Even if you don't get a raise, try, say, increasing monthly contribution by 100 or so).

[clean]

Emergency funds are not 'get laid off' funds.  That is certainly an emergency, but not the only emergency.  Long ago I quit asking questions like 'What's the worst that could happen?'  I dont want to challenge the Fates!  I have long learned that I can not fathom 'the worst'.   It is 'insurance', so make sure it is there when you need it, and hope it is enough when you do.

What interest rate is your mortgage?  If low, then I suggest that you send it to the retirement fund (either a 403b or 457 plan, or even a Roth IRA).
If the interest rate is over 5%, that is about the rate on decent CDs these days, then you can pay it down.  Once the house is paid off, divert your former house payment toward retirement. 

For what it is worth, in the olden days, when I was tenured and promoted to Associate Professor, the raise was $3000 (which it had been for YEARS !!)  So an extra 3G/year didnt really change my take home pay much. The good news is that it wont 'change your life' if you saved it vs spending it!  So go ahead and take advantage of the Miracle of Compounding!  An extra 3K saved for 20 years adds up!   

as for fun, make a Financial Plan (ie a budget! and  unlike a 'diet', Stick To It!)   You can add or increase your fun line, but I wouldnt!  Remember, you will face promotion and Post Tenure Review too so your life really wont change a lot!  Your stress level will, short term, anyway, fall!  Enjoy it!

I will say this, though.... You should celebrate earning tenure and promotion!  IT represents a lot of hard work, and it is really sort of anticlimactic.  When I was tenured and promoted, the paperwork was submitted by 9/1, but it was not until May that I got the official word.... an autopen letter from the president stuck in my office mail box.   No cake, no celebration, nothing.  Not even a hand signed letter!!  Anyway, take a long weekend, go to a fancy restaurant, take your spouse!  enjoy room service breakfast and raid the minibar!  (Or bring some adult beverages with you, which is much more affordable!)   

Then get back to work!  You have more things to do!!

[Puget]

Thanks everyone! - much to sort through here.

To address a few questions-

I hear everyone on maintaining an emergency fund and fully intend to do that-- the question is how much-- Between my checking and savings accounts I currently have a year's worth of expenses -- that seems excessively cautious at this point, yes?

To clean's question about interest rate-- I'm lucky to have a 3.5% fixed rate mortgage, so it doesn't seem like paying that down more quickly would be a good strategy. I am thinking that it probably makes sense to pay off the remaining 15k on my solar loan at 6.29% (which I would otherwise pay down over the next 3 years).It's not a huge amount, but the saved interest would be enough for a trip or two.

I definitely have always had a budget, including budgeting a certain amount for travel and home improvements each year.

[lightning]

Thanks everyone! - much to sort through here.

To address a few questions-

I hear everyone on maintaining an emergency fund and fully intend to do that-- the question is how much-- Between my checking and savings accounts I currently have a year's worth of expenses -- that seems excessively cautious at this point, yes?

To clean's question about interest rate-- I'm lucky to have a 3.5% fixed rate mortgage, so it doesn't seem like paying that down more quickly would be a good strategy. I am thinking that it probably makes sense to pay off the remaining 15k on my solar loan at 6.29% (which I would otherwise pay down over the next 3 years).It's not a huge amount, but the saved interest would be enough for a trip or two.

I definitely have always had a budget, including budgeting a certain amount for travel and home improvements each year.

You should keep using a budget. The biggest mistake I made was that I didn't feel the need to be as financially disciplined, so I ended up making frivolous purchases, without really thinking about it.

I spent many of my younger years sticking with a budget because I had to stick with a budget. After tenure/promotion and professional advancement, I no longer needed to stick to a budget to remain viable and solvent, but I didn't have the financial discipline to deal with excess liquid. So, I took steps to use excess liquid. I paid down all debts, I bought nothing with credit, and I maxed out retirement contributions. (Any credit card purchases were paid off 100% each month.) It's working, but I still end up with probably too much liquid, which really needs to be purposefully directed in a budget. I don't like to keep too much cash-on-hand in an "emergency fund," because I'm simply not going to be unemployed, ever. I'd rather put that $ to use right away in some kind of passive earning capacity, than it sitting around earning nothing, while waiting for an emergency.

One thing that I have yet to figure out are the true costs of retirement at the time towards end-of-life, where it is necessary to pay for a lot of medical care and a lot of assisted living. I'm seeing some of my older boomer relatives & friends going through that right now, and I'm finding that even though they benefited from coming of age and maturing during the strongest economy & job market in USA history (relative to any other generation that came before them or after), way too many of them simply didn't set aside enough $ and are now struggling financially.

[Puget]

You should keep using a budget. The biggest mistake I made was that I didn't feel the need to be as financially disciplined, so I ended up making frivolous purchases, without really thinking about it.

I spent many of my younger years sticking with a budget because I had to stick with a budget. After tenure/promotion and professional advancement, I no longer needed to stick to a budget to remain viable and solvent, but I didn't have the financial discipline to deal with excess liquid. So, I took steps to use excess liquid. I paid down all debts, I bought nothing with credit, and I maxed out retirement contributions. (Any credit card purchases were paid off 100% each month.) It's working, but I still end up with probably too much liquid, which really needs to be purposefully directed in a budget. I don't like to keep too much cash-on-hand in an "emergency fund," because I'm simply not going to be unemployed, ever. I'd rather put that $ to use right away in some kind of passive earning capacity, than it sitting around earning nothing, while waiting for an emergency.

One thing that I have yet to figure out are the true costs of retirement at the time towards end-of-life, where it is necessary to pay for a lot of medical care and a lot of assisted living. I'm seeing some of my older boomer relatives & friends going through that right now, and I'm finding that even though they benefited from coming of age and maturing during the strongest economy & job market in USA history (relative to any other generation that came before them or after), way too many of them simply didn't set aside enough $ and are now struggling financially.

I am definitely way too neurotic to ever not keep a budget. I enter all my expenses into an Excel budget every month (I purposefully don't use a more automated system because I actually want to look at and think about each purchase).

I agree it would be better to invest some of the money in my savings account so it can earn rather than just sitting, but as others have pointed out emergency funds aren't just for unemployment -- in particular, I would want enough of it to still be liquid to not have to finance sudden major home expenses (e.g., having to replace the boiler).

Running out of money in retirement is definitely something I worry about, having seen that happen to my maternal grandmother (luckily my parents were able to support her in her final years. Being childless, that's not an option for me, and not something anyone should count on anyway). She and my grandfather traveled extensively and fairly lavishly (cruises etc.) in their earlier retirement, which was great at the time but they definitely did not plan and budget adequately. It's a tricky balance between not waiting to enjoy life, and making sure you are covered for life. 

[clean]

A year of expenses is too much, just as having any excessive insurance would be.

Are you sure that you have everything covered (before you reallocate the 'emergency fund')?  IF you have 6 or even 9 months expenses that should be sufficient, assuming that your employer is in good financial shape.  (Remember 'a job for life is the shorter of Your life or your employer's!  They go under, or declare a financial emergency and tenure is irrelevant!). 

Do you expect to need a new car in the next 5 years?  Pay cash, and rename some of that emergency fund the Replacement Car fund.  (What kind of car are you looking for?  What does a used one cost - as there are ample reasons NOT to buy a new one!  Allocate a chunk of the excess to the car.

For your current car, will it need tires in the next 2 years?  Do you have the money saved? 

Do you have an IRA (hopefully Roth)?  Is it fully funded for last year (you can contribute until you do your taxes for last year) and is is fully funded for 2024, you can contribute for that now too!). 

Make a list of all the things you will need to buy in the next 2 years, and see if you have it covered.

Once all of the needs are covered, and IF there is money left, then paying down the debts would be priority.  (Some would argue that the debts would be paid off FIRST, and THEN build the emergency fund and prefund the needs). 

Another thought is Summer School.  You should Never Depend on summer money for your annual needs!  Summer can always be cut, and you dont want to be short of money.  I get paid once a month for 9 months, so I take 25% of each check and deposit it in savings, so that at the start of Summer, I have all the money to get me through til checks resume in Fall.   IF I work summer, then that money gets allocated to the items on the spending/savings plan.   But IF I dont work a summer, for whatever reason, Im covered.  (Not covered that I can NOT work AND go on a 3 month vacation!!, but Ive annualized my pay). 

[Puget]

A year of expenses is too much, just as having any excessive insurance would be.

Are you sure that you have everything covered (before you reallocate the 'emergency fund')?  IF you have 6 or even 9 months expenses that should be sufficient, assuming that your employer is in good financial shape.  (Remember 'a job for life is the shorter of Your life or your employer's!  They go under, or declare a financial emergency and tenure is irrelevant!). 

Do you expect to need a new car in the next 5 years?  Pay cash, and rename some of that emergency fund the Replacement Car fund.  (What kind of car are you looking for?  What does a used one cost - as there are ample reasons NOT to buy a new one!  Allocate a chunk of the excess to the car.

For your current car, will it need tires in the next 2 years?  Do you have the money saved? 

Do you have an IRA (hopefully Roth)?  Is it fully funded for last year (you can contribute until you do your taxes for last year) and is is fully funded for 2024, you can contribute for that now too!). 

Make a list of all the things you will need to buy in the next 2 years, and see if you have it covered.

Once all of the needs are covered, and IF there is money left, then paying down the debts would be priority.  (Some would argue that the debts would be paid off FIRST, and THEN build the emergency fund and prefund the needs). 

Another thought is Summer School.  You should Never Depend on summer money for your annual needs!  Summer can always be cut, and you dont want to be short of money.  I get paid once a month for 9 months, so I take 25% of each check and deposit it in savings, so that at the start of Summer, I have all the money to get me through til checks resume in Fall.   IF I work summer, then that money gets allocated to the items on the spending/savings plan.   But IF I dont work a summer, for whatever reason, Im covered.  (Not covered that I can NOT work AND go on a 3 month vacation!!, but Ive annualized my pay). 

Thanks--

Yes, I think I would be comfortable with about half the amount I have in my savings account currently.

To answer your questions --

Although my employer is not exactly rolling in dough, it is not likely to end up on the dire straits thread. I think the changes of tenured faculty being laid off is extremely low.

I have no car (don't need one here- I walk to campus, take transit elsewhere), so that's not a concern. I do on the other hand a have a couple pretty expensive home improvements I want to do (replacement windows cost as much as a pretty nice new car would!). And of course unexpected house things can come up.

All my retirement savings now are in my university 403b, in a target date fund, not in IRAs. My thought was I should max out the 403b first, since that is tax advantaged?

I never teach in the summer, but I have summer funding off my grant. I always treat that as extra however, since there could be a lapse in grant funding in the future. I can live comfortably off my 9 month salary, which is paid over 12 months.