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Last Updated: Oct 16th, 2008 - 13:33:17 |
As most college professors start to plan retirement, their plans might be cut short by the current economic crisis.
"Many professors I know who had planned to retire soon may no longer be able to retire," said UCD Professor of Finance Elizabeth Cooperman, Ph.D.
"The risk of retiring is that your defined contribution pension plan will not have enough financial assets to be able to purchase an annuity that gives you a fixed monthly income in retirement or if you manage your retirement fund yourself, sufficient income from those assets," Cooperman said.
All professors at Metro have a choice between a Defined Contribution Pension Plan (DCPP) or Public Employees Retirement Association, depending if they had previous enrollment with PERA.
PERA, a commonly used retirement plan for teachers, has investments in Lehman Brothers and AIG, two of the most popular corporations to see loss in the current economic crisis.
"One of the most stable plans is the PERA, and they lost $12.6 billion dollars just over the last two weeks," said Executive Director of Human Resources Judy Zewe.
Even though PERA has lost a significant amount of money, it is less than 1 percent of the total portfolio. With such a diverse portfolio to ensure stability, it is common that PERA would have chosen these companies.
With all retirement companies facing loss, Zewe was assured by the enterprises that they are stable enough to continue business.
"I was pleased with our retirement vendors because they really took charge, they took immediate notification, they notified their members to tell them what was happening," Zewe said.
History Professor Brian Weiser has been teaching at Metro for five years and doesn't hope to retire in the next 30. Other than having a TIAA-CREF plan (another retirement investment company), he does not have major plans for retirement.
"If I had money to spare I would probably invest pretty soon," Weiser said.
It is never too early to start work on a retirement portfolio, said MSCD Associate Professor of Finance Timothy R. Mayes, Ph.D.
"Building a retirement nest egg is a lifelong process. It cannot be done overnight. One should start young, contribute as much as possible, and always be well-diversified," Mayes said.
Both Mayes and Cooperman affirm that if the market has significantly affected a faculty member's asset values, then now is not the time to retire. Both professors also state the stock market is likely to come up again.
"There is no good reason to believe that we are entering into anything remotely like a depression at this time," Mayes said.
The way teachers decide to build their retirement plans will determine if they are ready to retire. Whether faculty decides to balance their portfolio themselves or through professionals, it is crucial to diversify it by investing in stocks, bonds and mutual funds.
The economic crisis has reaffirmed the importance of cool-headed, varied investing.
"For those with some years until retirement, now is a good time to learn some important lessons and apply them to your portfolio," Mayes said.
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