Managing your Pension After Academia.
Nobody likes to read or study about a pension. However, our PhD and studying years typically sets us back in understanding and growing our pension, so it’s imperative we get to grips with it post-PhD and begin to understand and define a strategy that sets us up for success throughout our career.
Thinking about a pension after your PhD feels incredibly too early, almost ridiculous to think about in fact. For most of us, a PhD sets you back with regards to creating savings pots, or possibly a pension for yourself when you’re older. This is more so in comparison to academic roles, which typically provide traditional pension schemes and more ‘reasonable’ pay to give you more autonomy to think about how to spend or save your disposable income. A pension is essentially a plan or benefit provided to you from your employer that commits to make regular contributions to a pool of money that can be set aside to be later access upon retirement.
After finishing a PhD, we like to think about our salary earnings, simply finding a secure job, and we rarely think about company perks and benefits. However, your pension should also feature as some of that decision making – maybe not as a deal breaker, but at least so you have awareness and are informed about what you’re signing up for. Especially as you’re unlikely to have made any pension contributions during your PhD years. These contributions are really important, because over time you’re able to benefit more from compounding interest and subsequently put yourself in a ‘healthier’ position come retirement. Possibly even consider early retirement.
In the UK, roughly one-third of Brits don’t have a pension at all, and for those that do, about a third don’t even know how much money they have in their pension. A similar story can be seen in the US, with only 7% of Americans taking advantage of a pension scheme, social security and savings (the recommended tri-factor). To highlight the issue further, 40% of Americans rely on the social security, which many argue isn’t enough to support you in your post-working years.
Of course, this sounds so far away it’s hard to visualise or even think about what you want retirement to look like. But the key thing is you set yourself up to have options and space to pivot when the time comes, and to do that effectively, you want to ensure you have a strong pension from the get-go. It can also get you thinking about your current pension savings, if you’ve dabbled in jobs here and there during or after your PhD, did some teaching, or anything else, it’s likely that you’ll have mini ‘pension pots’ scattered all over the place and so we’ll want to bring them all together.
Starting early is the crux of the issue. You don’t want to get to 55 or older and still not have any pension savings. In fact, one in six over 55’s in the UK don’t have any pension savings, whilst nearly half of all families in the US have no retirement savings at all. And so, to avoid falling into this category, and having to throw yourself into the labour market in your older years, it’s important to get cracking on your nest egg ASAP. For most of us, that’s not feasible during the years were studying, and so it’s important to tackle it head on once you graduate. Keeping in mind delayed gratification and looking after your future self is key to success on this particular topic.
We’re not financial advisors and this site isn’t here to give you financial advice. We’re focused on ensuring you thrive post-PhD, and occasionally it means we need to touch on finances. So, it goes without saying, but always do your due diligence, do your own research and pick a strategy that works for you. However, the most important thing is that you actually have a strategy in the first place. One of the most effective ways to make up for lost time, or to ensure you’re making the most of your pension scheme is to match your employers’ contributions. Typically, a pension scheme will function on the basis that every month money will be deducted from your wages and put into a savings pot for retirement. Many employers will then ‘match’ your contributions up to a certain percentage.
To make this tangible, it might be that your employer will match up to 5% pension contributions. In turn, you can choose any percentage of how much you want to pay into your pension per month from your wages. If say, you opt to contribute 3% of your salary to a pension pot, your employer will match your 3% - so you effectively double the amount you’re saving. However, you’re missing out on an additional 2% of pension contributions from your employer (as they’re willing to match up to 5%). To really maximise this opportunity then, general guidance is to max out up to what your employer is willing to match (i.e., the full 5%), to really take advantage of this ‘doubling’ contributions, or matched contributions.
The other core benefit of having a pension scheme is that it offers special tax relief due to it being in a pension. This is slightly beyond the scope of this post, but it’s another piece of information to consider. Identifying how to maximise tax relief and tax opportunities is encouraged, and again feeds into that narrative of figuring out a strategy. After all the research, you may decide a pension isn’t the best for you, and that’s okay, but the main thing is that you reach this conclusion with confidence and not out of ignorance that’s all.
As we move more into a stable career/profession we want to begin setting ourselves up for success and for our future. And unfortunately, it means we have to engage in the boring things too – like your pension.
