This issue we begin a three-part series on nonprofit retirement, written by Blue Avocado columnist Steve Zimmerman. You've read about how organizations should prepare for people retiring, but not much about how you can prepare. In our trademark fast read style, Part 1 looks at calculating retirement needs and using that information to explore choices. Part 2 is aimed at people who still have time to save: how and where to save. And Part 3 is for people who are running up close to traditional retirement ages: what to do now. Part 1:
When Pat Joyce retired in March from the regional arts council she ran for 23 years, the agency and its board threw her an elegant gala dinner. They provided her with some beautiful thank you gifts . . . but a retirement fund wasn't one of them.
Pat isn't alone. One Blue Avocado reader told us, "When I started in a public service career I knew I would never be wealthy, but I didn't think we would be at risk of living in poverty!" And another said wryly, "I'm in training to be a bag lady."
Low salaries and nonexistent retirement funds make it especially hard for life-long nonprofit staff to save for retirement. But as another Blue Avocado reader commented, "My story isn't much different from many in the for-profit sector, like a friend of mine who worked for an airline that went bankrupt and she lost all of her pension." It's worth remembering that retirement is uncertain for almost everyone in America, as financial giants like Bear Stearns collapse, leaving retirement plans full of worthless stock and as technology companies slash salaries . . . not to mention small business where retirement benefits are rare. A recent poll of CPAs (certified public accountants) found that retirement security is the top concern of their clients.
Let's start with the two core questions that nonprofit people face: When can I retire? and How much money will I need?
Calculating retirement needs
Let's say "Jackie" is a single woman at a community nonprofit who wants to retire at age 65. She currently makes $40,000 per year. If she expects to live to age 85, she'll want to retire with enough funds to last 20 years. So a first step is to think about what she expects to spend in retirement.
If we use the financial planners' rule of thumb that most people's expenses fall 25% from when they were working, Jackie can expect to have living expenses of $30,000 per year once she has retired. So we need to figure out what will allow Jackie to retire at age 65, and live for 20 more years with an annual income of $30,000 year. (You can change your hoped-for retirement age, the age to which you expect to live, your projected expenses, and so forth, of course.)
This comes to a (pretty scary) $600,000. For some nonprofit staff, this number is well within reach, given, for instance, current savings, many years ahead in which to save, and property owned or expected to be inherited. But for others, this number can seem overwhelming. One key factor to consider is Social Security. If Jackie can expect to receive the national average of annual Social Security payments (currently $13,000), she'll only need to retire with $341,000 -- a far lower number.
One of the better online tools to help you refine this calculation can be found at AARP, the nonprofit association for seniors; it's called the Retirement Calculator. The tool also allows you to put in your own predictions for inflation.
Even without these tools, you already knew that the earlier you start saving, the easier it is. If Jackie is 55 years old and has $10,000 in the bank already, she'll still need to save about $2,000/month to reach her goal (assuming no other factors, such as working part-time at age 65, moving to a less expensive community and so forth). But if Jackie is 30 years old, even with no savings at all, she needs to save only $475/month (even assuming her salary never goes up).
Financial impacts and advisors
There are of course, many important factors that would change these numbers dramatically. The biggest ones are out of our individual control, such as what might happen with Social Security, inflation, changes in the stock market or other locations for our savings, and our physical ability to continue working. But you may want to discuss your retirement and savings plans with a financial advisor. Money is a personal matter, and it's hard to find someone you trust, and who understands your lifestyle and your nonprofit background, to discuss it with. Blue Avocado readers said that they had asked board members for recommendations, other nonprofit staff, their banks, and the CPA who audits their organization. "It doesn't mean I don't have to do my homework," wrote one Blue Avocado reader. "But it helps to have someone make sure I'm understanding everything and not missing anything."
In hindsight, Pat realizes she should have pushed harder for the Council to have established a retirement plan. "I should have been more outspoken for myself and for my staff. We mustered the energy to hold a capital campaign to buy our own building, but we should have saved energy to support our people as well," Pat says.
Regardless of your age or financial situation, working on a plan can give you the freedom and space to begin preparing for the rest of your life. In the next part of this series on nonprofit retirement, we'll look at how organizations can help their staff with retirement benefits, and we'll also answer the question of where to put the money you're saving. No time to save? In Part 3 we'll examine retirement options if you don't have years ahead to build a nest egg. I'd love to hear more from Blue Avocado readers, too. (Click here to email Steve Zimmerman.)
We'll close Part 1 with this note from a reader with a compelling story and a reminder of the context:
"I am 60 and have worked for various government and nonprofit agencies all of my career. In the first few jobs I had no useful retirement plan -- either the vesting period was 10 years or there was no plan at all. However in the early 90's I worked for an organization with a good plan and I was able to build up to $60,000 in my fund at one time.A
"Three years ago I decided to move across the country to be closer to my mother who has Alzheimer's and took a nonprofit job that didn't pay my moving expenses. Within six months I was out of a job. Now I'm working for a great organization but making about $30,000 a year less than before. On top of dealing with my Mom and my husband's severe health issues we have no retirement funds left. My husband has worked mostly for retail businesses that had no retirement plans at all.A
"I am very much afraid that I will never be able to retire, and that health issues may drive us into bankruptcy at some point. [But I would] add that the U.S. lack of universal health care coverage and the lack of assistance to help people stay in their homes are still the biggest barriers to a secure retirement."
Special thanks to Blue Avocado readers Pat Joyce, Christine Sharer, Alexandra Furnari, Dorene Warner, Kristin Kivington, Kathryn Reasoner, Sara Jones, Karin Wandrei, Pamela Rose, Ann Solomon, Pam Harper, Kathleen Blake, Heather Finke, Anne, Phillis, and Todd, for sharing their stories and viewpoints with us.
Steve Zimmerman, C.P.A., M.B.A., is a former nonprofit CFO and development director now doing finance and strategy consulting out of Milwaukee. He writes the Personal Finance/Money Matters column for Blue Avocado. Click here to email Steve.