Maximizing Your Retirement: A Guide for Duke University Faculty and Staff

Table of Contents

• Understanding Duke Retirement Benefits
• Understanding Duke’s Rule of 75 and 403(b) Plan
• Decisions to Make When Enrolling in the 403(b) Plan
• Assessing Your Retirement Savings Needs
• Customizing Your Investment Strategy
• Transitioning from Saving to Spending
• Doing the Math: Making Informed Decisions
• The Kuhn Advisors Difference
• FAQs

 

Whether you are beginning your career in academia or planning to hang up your hat soon, understanding your retirement benefits and deciding on your investment strategy is both a time-consuming and highly nuanced process that can impact the quality of your future lifestyle. In the Bull City specifically, Duke University faculty and staff are faced with a sea of retirement savings and investment options to navigate.

Kuhn Advisors, Inc. is a comprehensive wealth management firm with a Durham office located near Duke’s campus. Our team knows Duke, but we also recognize the uniqueness of each faculty and staff member’s retirement circumstances and the valuable time it takes to sort through plans and investment options. To help plan a comfortable future after your time at the University, we hope to partner with you to guide you through your Duke retirement benefits today.

Keep reading to learn more or schedule a 15-minute call to get started with the Kuhn Advisors team today.

Understanding Duke Retirement Benefits

Depending on your payment schedule as a Duke employee, you will be eligible for the Employees’ Retirement Plan and/or the Duke Faculty and Staff Retirement Plan. Below are summaries of each of the plans but, for more information, explore Duke’s resources like this video: Your Retirement Plans at Duke.

Employees’ Retirement Plan (Non-Exempt)

“The Employees’ Retirement Plan is a pension plan, designed to provide you with a guaranteed monthly income at your retirement, paid entirely by Duke.”

All current or past bi-weekly paid, non-exempt Duke employees are eligible for this retirement plan. If you have finished one year of employment by working a minimum of 1,000 hours and are 21 years old or older, you are automatically a member of the Employees’ Retirement Plan.

Duke Faculty and Staff Retirement Plan (Exempt and Non-Exempt)

“The Faculty and Staff Retirement Plan for monthly employees is a program that is funded both by your and Duke’s contributions.”

For exempt employees, eligible staff and faculty paid monthly may participate. After a year of service and attaining age 21, participation in this plan can begin, which is when Duke can make contributions on your behalf. For non-exempt employees, those paid on a biweekly or hourly basis may “make voluntary pre-tax contributions, Roth 403(b) after-tax contributions, or a combination of both to the Faculty and Staff Retirement Plan.” Eligible employees may participate immediately.

Duke 457(b) Deferred Compensation Plan

The 457(b) plan offers highly compensated Duke employees an additional opportunity to save for retirement by deferring a portion of their salary on a pre-tax basis. Eligible employees can contribute to both the 403(b) and 457(b) plans, thus allowing them to save even greater amounts for retirement and potentially realize even greater tax savings. If you are notified of your eligibility to participate in this plan, Kuhn Advisors can assist you with determining how this plan might be beneficial to your retirement savings strategy.

Regardless of the plan or plans you have access to as a Duke faculty or staff member, it is never too early to start planning for retirement. Keep reading to learn more or schedule a 15-minute call to get started with the Kuhn Advisors team today.

Understanding Duke’s Rule of 75 and 403(b) Plan

According to Duke Retirement Frequently Asked Questions (FAQs), the Rule of 75 at the University says, “The sum total of your age plus your years of continuous service (based upon your most recent continuous service date) must equal at least 75.”

At Duke, the Rule of 75 determines whether your dental and health insurance, as well as your tuition grant benefits, can continue into your retirement. It is important to note that this rule does not have to be met by faculty and staff to receive benefits from your Duke retirement plan.

The “403(b) plan” at Duke is the Faculty and Staff Retirement Plan, outlined in the previous section. With many shared features of a 401(k) plan, the 403(b) plan is funded by voluntary contributions from your paycheck and is made possible because of Duke’s status as a non-profit, tax-exempt organization and educational institution. For more on 403(b) plan participation, visit Duke’s enrollment page.

Decisions to Make When Enrolling in the 403(b) Plan

New Duke employees will make several important decisions upon enrolling in the 403(b) plan, including:

1. How much to contribute to the plan
   We’ll explore this topic further in the “Assessing Your Retirement Savings Needs” section below.
2. Whether to have those contributions made on a pre-tax or after-tax (Roth) basis.
   A brief summary of the differences between these two choices are summarized in the table below:

   	Pre-tax Contributions	Roth After Tax Contributions
   Contributions	Deducted from pre-tax pay	Deducted from after-tax pay
   Investment Earnings	Taxed at withdrawal	Tax free at withdrawal if certain conditions met**
   Contributions are taxed…	Upon distribution	Upon contribution
   Required Minimum Distributions apply	Yes	Yes
   **Withdrawal of contributions and earnings are tax-free after you have attained 59.5 years of age and the first Roth contribution was made at least five years earlier.

3. Who to designation as a beneficiary of the account at your death
   You may change your beneficiary designations at any time, and we encourage you to review your selection during major life events such as marriage, divorce, death of spouse, or when your financial circumstances change.
4. Choosing investment options
   We’ll explore this topic further in the Customizing Your Investment Strategy” section below.

Assessing Your Retirement Savings Needs

Perhaps the most important decision when enrolling in the 403(b) plan is how much of your salary to defer from your paycheck into the plan. At Kuhn Advisors, we think that planning for retirement does not exist in a vacuum. When considering how much to save, our team helps you consider several questions, including:

1. When would you like to retire? Do you dream of retiring early or launching a second career?
2. What lifestyle changes might you make in retirement, such as exploring new hobbies, traveling more, or supporting charitable organizations?
3. Will you have additional assets or income sources to provide for your living expenses in retirement, such as Social Security, rental property income, or a pension?
4. Will you have family members to support?
5. How will you fund potential long-term care or other medical expenses?
6. Do you wish to leave a financial legacy to philanthropic causes or family?
7. How will your portfolio maintain its purchasing power against inflation while managing stock market risk?
8. What other goals are you currently saving towards, such as buying a house or starting a college fund for your child?

Generally, we recommend saving 10-15% of your annual income for retirement. We recognize that this savings level can be challenging, especially when you may have multiple goals, such as saving for a child’s college education or a new home. That’s where Kuhn Advisors can help.

With close to a third of our client base currently or previously employed at Duke, we understand the intricacies of the retirement plans and how they apply to you, whether you are just starting at Duke or preparing to retire. Our President and Founder Mark Kuhn is a Blue Devil himself, having graduated from and worked for the University before launching our firm over 30 years ago.

Upon partnering with Kuhn Advisors, we’ll create a customized wealth plan that shows how you are tracking towards your multiple financial goals, including a secure and comfortable retirement. This tool will break through the noise of the dozens of calculators available online by allowing us to factor in your unique personal and financial circumstances and goals. Then, we’ll sit down with you to interpret the results and help you decide on an appropriate savings rate.

Customizing Your Investment Strategy

Once you select your contribution amount, it is time to start choosing investments to reach your retirement savings goal. Within the Duke 403(b), the investment options are organized in a tiered system. Tier 1 and 2 funds, which are selected by Duke’s Investment Advisory Committee (IAC), are consistently monitored for quality and pricing.

Tier 1: Lifecycle Funds

Selecting a Tier 1 investment is the simplest option available to you, though it also limits your ability to customize the risk and return potential of your portfolio. Investments in this tier are known as “target date funds” since you simply choose the fund that corresponds with the approximate year of your retirement. Over time, your selected fund becomes more conservative as you near your planned retirement date. While lifecycle funds offer a simple, hands-off approach to saving, we think they may not support your unique financial goals, such as preserving your spending power over a lengthy retirement or giving you the ability to leave a legacy for your family and community.

Tier 2: Core Funds

Tier 2 offers more choices for your retirement portfolio by allowing you to access additional asset classes which may allow you to build a more diversified portfolio aligned with your desired outcomes.

Tier 3: Self-Directed Brokerage Account

Tier 3 is the most customizable of Duke’s investment tiers, offering you access to hundreds of mutual funds through Fidelity BrokerageLink®. We think this self-directed option gives you the most flexibility to build a portfolio best suited to your risk and return profile and while offering increased diversification from an expanded range of asset classes.

The benefit of having a diversified investment portfolio is that it is tailored to your retirement timeline and goals. One trend we have seen from working with dozens of university faculty and staff is a bias toward being too conservative with their investment approach. We think taking a conservative approach too early in one’s retirement savings journey is a lost opportunity for wealth building. Being overly focused on reducing the fluctuations in your account value can also introduce other risks such as not being able to maintain your desired lifestyle or mitigate the corrosive power of inflation.

At Kuhn Advisors, we recommend selecting investment options from Tier 3, but only with the proper guidance as having more choices could introduce the risk of not creating a well-balanced portfolio that will meet the unique risk and return characteristics demanded by your retirement savings goal. We’ll help you see the big picture and tailor recommendations to you. Our approach for curating investments that align with Duke faculty and staff goals is centered around building and monitoring your unique portfolio, doing the hard work for you so you can focus on living your life.

We won’t…

1. Put your retirement savings in a cookie-cutter portfolio.
2. Make decisions in a vacuum and ignore your individual circumstances and dreams.
3. Give you generic answers found with a simple Google or ChatGPT search.

We will…

1. Take the time to have a conversation about your future financial goals.
2. Consider the potential curveballs of life and how they can change your circumstances.
3. View your time as extremely valuable, doing the work of monitoring your portfolio while you focus on living life.

Transitioning from Saving to Spending

If you are a Duke faculty or staff member preparing to retire within the next five years, we suggest planning for the transition from saving to spending well ahead of time. This transition will likely involve both a mental shift and changes to your portfolio’s asset allocation. Up until now, your primary goal has been saving your money for the day that you retire. Now that this day is fast approaching, you’ll need to consider how you will convert your retirement plan account into a steady stream of income to maintain your desired lifestyle for life’s next chapter.

Below are some frequently used methods for implementing your portfolio withdrawal strategy.

4% Rule

This strategy involves withdrawing 4% of your retirement savings during the first year of retirement and then increasing the distribution by inflation each year. This method is designed to ensure that your portfolio will not run out of money over a 30-year retirement horizon and can be a good strategy for someone who plans to spend the same amount each year. However, this strategy may not consider how your spending levels may change over your golden years. For example, you may want to spend more on travel while you are healthy and then direct more to philanthropy or health care costs in your later years. Since this method doesn’t consider your individual circumstances, many view the 4% Rule as a starting point when creating a retirement income strategy as opposed to a hard and fast rule.

Fixed-Amount Withdrawal

Choosing the fixed-dollar withdrawal as your saving to spending strategy will remove a set amount of money from your retirement account each year across a selected amount of time. This predictable method allows you to know what will be withdrawn and reevaluate this amount after a pre-selected time. You can also choose a fixed-percentage withdrawal, which takes out a pre-set percentage of your portfolio every year, rather than a dollar amount.

Dynamic Withdrawal

Unlike the previous options, which feature set withdrawal amounts, either in the form of a percentage or dollar amount, dynamic withdrawal gives you the freedom to adjust your withdrawal amount every year. Additionally, this method includes setting an annual spending minimum and maximum to keep you on track.

Withdrawal Buckets

This method involves dividing your retirement savings into three buckets, each designed to meet your spending needs over specific time frames:

• Short-term: The money in the short-term bucket is used to fund your living expenses over the next 3 years, and the objective is to minimize any fluctuations in value. Therefore, these dollars are invested in very low risk assets, such as CDs, Treasury Bills, money market funds or high-quality short-term bonds.
• Intermediate term: this bucket is used to fund living expenses you plan to incur between three and seven years down the road. Since any near-term needs will be covered by the conservatively invested short-term bucket, you can afford to take a moderate amount of risk and aim for higher returns with the funds in this bucket. Better returns may likely be generated by using investment grade and high yield bonds.
• Long-term: Finally, the long-term bucket is reserved for money intended to be spent five to seven years into retirement and beyond, with the goal of growing these funds throughout retirement to beat inflation and maintain your standard of living. Funds invested in this bucket will offer the highest returns along with the highest risk, so stocks will likely be the preferred investment vehicle.

The bucket approach described above is our preferred choice for creating a retirement savings withdrawal strategy. We think it strikes the right balance between providing you peace of mind when experiencing the inevitable fluctuations in stock prices while also giving you the opportunity to maintain your standard of living in the face of rising prices.

Doing the Math: Making Informed Decisions

The following vignettes illustrate two types of clients we help navigate through the Duke retirement savings landscape.

Studious Sarah

Sarah, 35 years of age, is a professor at Duke University with a full load of teaching and research responsibilities. Her spouse is also a full-time working professional, and they have two young children, which leaves them little time to plan for their family’s financial future. Sarah and her spouse have multiple financial goals, including saving for an early retirement, renovating their home, and funding educations at private universities for their two children. They are seeking an advisor who will provide comprehensive financial planning and investment management free of any conflicts of interest and is particularly knowledgeable about the Duke retirement plan and children’s tuition benefit.

Sarah isn’t sure how much risk they should be taking with their retirement portfolio and is also seeking guidance on whether to use the self-directed brokerage window offered in the Duke 403(b). Their household income is around $250k and they have saved $300k for retirement thus far. While they feel like they are on a good trajectory towards their financial goals, they’d like guidance on how much to save to make progress on their multiple priorities.

Generous George

George, 64 years of age, is preparing to retire after a successful career in academia, most recently as a professor at Duke University. He and his spouse have done an excellent job accumulating their $5 million nest egg, but now are tasked with converting it to a stream of income to support their goals in the next chapter of their lives, which includes travel, playing with grandchildren, and establishing a philanthropic giving strategy for organizations they support, both in the Triangle and nationally.

They are seeking an advisor who will provide comprehensive financial planning and portfolio management free of any conflicts of interest and is particularly knowledgeable about the Duke retirement plan distribution options, tax reduction techniques, and the most optimal charitable giving strategies such as QCDs, gifting stocks, or setting up trusts.

The Kuhn Advisors Difference

Partnering with Kuhn Advisors not only gives you access to tools like our portfolio trajectory assessment, but also guidance from our advisors on how to apply the knowledge you attain. This assessment is a valuable tool, but knowing how to interpret it and apply it to your situation is a different skill set. Our advisors combine their knowledge with the assessment to make sure we are giving you financial guidance backed by technology that inputs your variables for actionable results.

Overall, our firm stands apart when it comes to helping Duke faculty and staff prepare for retirement for these reasons:

1. We prioritize your empowerment and want you to understand where you are now to reach your goals in the future. Time is your biggest asset, and we do not intend to waste it.
2. We have experience with Duke University and its various retirement plans and benefits.
3. We give independent advice. Our recommendations are not shaped by interests outside of you. As a fiduciary, we are obligated to give you financial advice that is in your best interest.

Having a well-thought-out retirement plan prepares you to reach your goals during your next stage of life. This includes making smart investments decisions and transitioning seamlessly from saving to spending your hard-earned wealth.

For personalized guidance in your retirement planning journey, schedule a complimentary 15-minute call with a Wealth Advisor from the Kuhn Advisors team today. In this no-pressure meeting, we’ll talk more about your financial goals and tell you about our client-focused approach to wealth management to assess the potential for a mutually beneficial partnership.

FAQs

1. Does Duke University match my 403(b) contributions?
   • Yes, the University has a matching formula that is based on your salary. The current calculation can be found here: https://hr.duke.edu/benefits/retirement/about/faculty-staff-exempt/dukes-contribution
2. How much can I contribute to my 403(b)?
   • The maximum amount you may contribute is based on IRS regulations and changes each year. The current contributions limits may be found here: https://hr.duke.edu/benefits/retirement/enroll/enroll
3. What Happens If I Leave or Retire from Duke?
   • You have several options for your vested 403(b) account balance after separating from Duke, including:
     1. Leaving the balance in the Duke 403(b)
     2. Rolling the balance into your new employer’s retirement plan
     3. Rolling the balance into an IRA or Roth IRA
     4. Withdraw the balance as cash (taxes and penalties may apply)
   • There are benefits and downsides associated with each of these choices, so we suggest you consult with a financial professional before making a decision.

 

Competitor sources not linked in body:

“7 Withdrawal Strategies to Consider for Retirement.” Nationwide®, www.nationwide.com/personal/investing/retirement-plans/articles/withdrawal-strategies-to-consider-for-retirement#:~:text=Use%20the%204%25%20rule&text=It%20calls%20for%20withdrawing%20an,for%20inflation%20each%20year%20thereafter. Accessed 15 Mar. 2024.

“3 Retirement Withdrawal Strategies.” U.S. Wealth Management – U.S. Bank, www.usbank.com/retirement-planning/financial-perspectives/retirement-withdrawal-strategies.html. Accessed 15 Mar. 2024.

Peter-Koyi, Vernell. “A Guide to Retirement Withdrawal Strategies.” Vanguard, 13 Nov. 2023, investor.vanguard.com/investor-resources-education/article/retirement-withdrawal-strategies.