Hitting Bumps on the Road to Retirement

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Imagine that you are suddenly faced with a 20% reduction in pay for your very next paycheck!

Well, that’s the situation all full-time employees at my university is facing this spring semester.  Somehow, all of us–administrators, teachers, office staff, advisors–have become unwitting victims of a political budget battle at the state level.  With no state funding for many public institutions, this reduction in pay is expected to go on until at least the middle of September.  That’s a huge chunk of the year–up to 27 weeks for some!–to receive 20% less than our usual pay.

While administrators and office staff can–and apparently “must”–leave their job behind when they are officially on their “furlough” days, teachers are caught in a special bind.  Instructors don’t want to damage the education their students receive, so they might be faced with doing almost the same amount of work, just with significantly less pay.  Some colleagues are already calling that “volunteer teaching,” working during our “sacrifice days.”

Regardless of your particular work though, a 20% decrease for half a year is a significant reduction.  In the less heart-breaking cases, the problem may be of “tightening our belts” to reduce our expenses or delaying retirement a bit while we recoup lost opportunities in investments and savings we would have made with our regular pay.  This option, while mildly annoying, is a relatively minor speed bump.

Others face much greater challenges.  We’re not talking about 5 or even 10% pay cut.  Lower-paid instructors with little job security, sole providers of families, individuals undergoing life-challenges such as a health crisis or divorce–and, yes, I know people from ALL the above categories–cannot afford to absorb a 20% pay cut for the next six months.

There is no solution I can offer up in my little personal blog.  Instead, I only have some reflections.

It is indeed true that the personal IS political.  We were made aware of this when state legislators reminded us that lower-than-typical percentages of voting in our large county (which includes Chicago) resulted in wins or losses of specific political seats, thus climaxing in this epic budget battle.  State-funded universities, offices housing human services, public parks and museums are the casualties of this war.

Crises tend to show our best and worst natures.  I have been puzzled at some responses and proud of others.  With our mess spiraling downward, I have heard of those in full-time employment suggesting that the university simply fire or lay off all part-time or contingent workers–regardless of how much it would negatively impact those individuals.  It is understandable that everyone is panicking (and we really don’t know what’s motivating each individual), but such a response still doesn’t seem that rational since the negligible savings the mass firing of part-time staff would yield can barely make a dent on the budget crisis.

On the other hand, I’ve also heard of generous gestures from some who argue that they–since their salaries are higher–can shoulder a larger percentage of the cuts.  Their argument for a progressive reduction in pay cuts (sort of like a progressive tax rate) is intended to protect those who earn so little that there is no cushion to be able to survive a 20% cut.

This is yet another argument to live well below your means.  Realistically speaking, many office staff, advisors, and contingent employees do not have that “cushion” to absorb the projected cuts.  But it is also true that most professors and administrators–especially those higher in rank or part of a dual income-earning couple–can survive the cuts, if they had planned and saved properly.  

FIRE blogs advise savings rates well exceeding 20% per pay period, and most successful early retirees save 50% or more of their income.  Those living within these guidelines should be able to weather this particular storm–not happily, mind you, but still successfully.

Don’t forget about the 6-month emergency stash.  Some say as little as 3 months, some say as many as 2 years.  The figure most often heard is 6 months.  When you live below your means enough to have savings, do not put it all into your investments.

We’ve had our own share of unexpected challenges like when Will was looking for a new job after his contract work concluded–or now with this surprise 20% pay cut for me. We never want to be without some type of liquid funds to be able to draw from without taking a possible loss.  Sure, the market went up a bit this past week, but we cannot always be so lucky to be able to withdraw our investments without turning our paper losses into real losses.

Plus, personal economic challenges are not always well-forecast ahead of time.  What if you needed to pay your mortgage or rent within days of discovering that your next paycheck wouldn’t be able to cover the automated withdrawal?  Would you be able to sell necessary shares of equities from your (non-401K, etc.) investments and have that deposited into your personal checking account in time?  Always have readily available cash on hand.

Nothing in life is guaranteed.  Frankly, this did catch us by surprise, not because we cannot afford it financially but because we didn’t expect it emotionally.  In our conversations about retirement planning, almost a near-certainty was that I would be able to keep my job for as long as I wanted it.  Our logic was that there are very few jobs safer than being a tenured full (senior) professor at a public university with a strong union.  Ooops!

 

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2 Responses to Hitting Bumps on the Road to Retirement

  1. Hi there — found you guys when you responded to my comment on GCC. 🙂 This sounds like pretty alarming news to get out of the blue, but thank goodness you have emergency savings and an already high savings rate, so can weather this without financial trouble. Though, as you said, the emotional part is harder. We’re on a similar ER timeline as you guys, and are starting to get close enough to where we’d almost be happy to get laid off because we have tons of tenure in our jobs and would be owed big severance packages. BUT, we’re not quite there yet. Like you, I’ve always assumed I could stay as long as I want, and news like this would be a major shock even if it wouldn’t ruin us financially. It would certainly alter our plans, though! Good luck!

    • Exactly. We hoped any involuntary leaving of work would come with huge severance packages (for Will, in corporate America)–not 20% less pay (for me, the tenured professor). While it’s true that we’ve obviously been thinking about stopping work, it’s a different story when we don’t really get to control our narrative on how we exit our careers. A little disorienting, but we’ll re-organize and re-group.

      Thanks for stopping by–and for your sympathy!

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