Tag Archives: retirement

The Little Law School(s) That Could

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Once upon a time there was a young financial aid counselor at a small private college in western New York state.  She wanted desperately to move from small town life to a big city.  So she went on a job interview and before very long she was a financial aid advisor at an independent unranked law school in Chicago.  She loved Chicago and loved working with law students.  She discovered she had a true passion for helping students understand how to repay student loans.  But after several years she also discovered that she really missed her family in Pennsylvania.  Then one day she was flipping through the Chronicle of Higher Education, and she discovered an ad for a financial aid director at a small law school in south central Pennsylvania that had recently been acquired by Giant University.  So she went on another job interview, and before she knew it she was moving closer to her family to work at the little Pennsylvania law school.

When the maturing financial aid director started at the little law school, the scars there were still fresh from the recent merger with Giant University.  It was hard for the little law school to accept that they had just gone from “strong and independent” to “We Are.”  A financial aid colleague from Giant University’s big campus told her, “A good thing about Giant University is that we’re really, really big.  A bad thing about Giant University is that we’re really, really big.”  And as she found her footing in her new role, she recalled those words of wisdom many times.

As she progressed into the sixth month in her new job, the financial aid director discovered that she really enjoyed working with all the advantages of Giant University, while still having all of the advantages of the small law school.  She was very happy and decided to stay for a very long time.  So she bought a house.  The next month the entire staff and faculty was called into a meeting with the University President and Provost.  The President announced that they planned to pick up the little law school and relocate it to the big campus of Giant University.

Everyone (other than the President and Provost) was very dismayed at the thought of moving the little law school.  The alumni loudly shouted their anger.  The faculty and staff were upset because they didn’t want to leave their little town.  It was clear that Giant University wanted to have a law school on their campus, but the little law school was not going to go quietly.  So many people were so angry as many scenarios were tossed around.  Perhaps Giant University should sell the little law school to the little college down the street.  Perhaps the little law school should close altogether.  There was much uncertainty and everyone was scared.  Then two powerful alumni came up with a wonderful plan.  They would keep the little law school open while also adding a second location on the big campus of Giant University.  The two law schools would operate as one, offering students their choice of location.  The students would be able to choose classes from either location, either commuting or attending remotely.  The faculty and staff were split between the two locations, serving the needs of all the students.

The unified two-location law school continued to grow stronger as the years went by.  The financial aid director decided to relocate to the big campus location so she could better meet the needs of the larger student population, while still visiting at the little law school location on a regular basis.  Everything seemed to be going well.  But eventually it became clear that the faculty at the Giant University big campus could not get along with the faculty at the original little law school location.  They fought and fought about how the school should be run and what their academic focus should be.  Everybody did what they could to make the angry faculty agree, but it was too late.  Their differences were irreconcilable.  The decision was made that the two locations would separate into two separately accredited schools.

Over the next years the financial aid director and the rest of the staff worked very hard to painstakingly untangle the two locations into two separate law schools.  Once it was all figured out, the accrediting body decided that all was ok and the two law schools could move forward, and everything was fine again.  The two separate law schools continued to grow stronger as they moved forward.  The big campus law school embraced the interdisciplinary study opportunities readily available to them.  The little law school embraced making their students ready to practice law, taking advantage of their location near the state capital.  Both law schools were happy and growing and rising up the annual ranks assembled by the fancy magazine.

Everything seemed to be going so well.  Except money was tight.  Then one day the financial aid director received an email that the faculty and staff of the big campus law school were to report to an urgent meeting with the University President and the Provost.  The financial aid director remembered how things did not immediately go well the last time she had been called to a meeting with the President and Provost.  This time was not different.  The meeting turned a bit unruly after the President announced that the two separate law schools were to be reunited into one….and that the primary law school would be the little law school from which she had relocated so many years ago.  The faculty and staff were very scared because there was suddenly much uncertainty about how long they would be able to keep their jobs.  The students were very angry because they felt that their school was being yanked out from under them.  The Dean of the big campus law school was very frustrated because things were handled quite poorly by the leadership of the Giant University.  The now well-seasoned financial aid director was sad because she had been planning to retire from the big campus law school in 5 to 7 years, but no longer had certainty that her job (which she loved very much) would still exist when she became eligible to retire.

Life is uncertain.  Change is constant.  The financial aid director learned that over and over again during her many years of working for the law schools of the Giant University.  And the more frequently she dealt with changes, the more comfortable and nimble she became in dealing with change.  The law school(s) evolved through many transitions during her time with the Giant University.  And each time the law school(s), the faculty, the staff, and the students all came out just fine on the other side.  The law schools grew stronger as they evolved.  The staff grew wiser.  The students graduated into alumni who benefitted from the increasingly good reputations of the law schools.  And new students continued to come to reap the benefits of the innovating law schools.

The moral to this story is that change is hard.  Especially when it is unexpected.  But change is also good.  It makes us resilient.  It makes us grow.  It makes us adaptable.  It allows us to learn from our past mistakes.  The law school at the big campus of Giant University has just learned that a big change is imminent.  It won’t be easy.  But it can be good.

 

 

Retirement: Invest Early and Often

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I’ve had my mind on retirement planning lately.  Ok….really I just went to an RV show, but a few years living full-time in an RV is part of my retirement dream.  So it sort of counts.  But I did actually have a conversation last week with a young Penn State Law alumna who is starting her first full-time job post-graduation.  She asked me about whether she should start putting money in her 401(k) right away, or if she should work on paying down other debts first.  This question is one that a lot of people grapple with when they are first starting out.  And my advice is always the same:  as soon as you are eligible, contribute to your retirement plan at least as much as is required to receive any employer match.  My father gave me this advice when I started my first job, and I have never regretted following it.

One advantage of starting as soon as possible is that the money starts coming out of your paycheck before you get used to getting paid.  It’s impossible to miss money that you’ve never received.  The money comes out of your salary pre-tax, so it’s not as big a hit to your bottom line as you might think.  It’s just one more thing that disappears before you see it—income tax withholding, Social Security withholding, health insurance payments, retirement contributions—it’s all money that you’ve earned but you never receive.  So you don’t count on it and you don’t really think about it, because the process for you is passive.

It is important, however, to contribute enough to get any employer match.  Usually it is something like you contributing 7% of your income and your employer pitches in another 5%.  The percentages will vary, but the concept is the same.  If you give enough, your employer gives you more.  They actually pay you to participate in the retirement plan.  Just for investing in your own retirement.  If you don’t contribute enough to get the match, you are literally throwing away free money that you could have received.

But the most important reason to contribute early and consistently is the power of compounding interest.  The earlier you start saving for retirement, the longer your investments have to grow.  As an example of this, when I was in grad school in 1991 to 1993 (yep….I’m old) I had $150 per semester withheld from my assistantship funds and it went to the Ohio State Employees Retirement System.  I remember being really mad about it at the time.  Those were lean years, and that $600 would have made a big difference in my life at that point.  But I had no control, so there was nothing I could do about it.  After I started working full time, I rolled that $600 into an IRA.  I never added another penny to it. And due to the power of compounding interest, by the end of 2021 that $600 had grown into $8,600.  That’s more than 14 times the original investment.  And all I had to do was leave it alone for 30 years.  Now imagine how much growth would come from 12% of your starting salary, rather than just a few hundred dollars.  And keep increasing it as your salary grows.  Slow and steady wins the race when it comes to retirement savings.

It’s true, however, that the stock market has its ups and downs.  That $8,600 I had at the end of last year is currently only worth $7,300.  The stock market has not been in a great place recently.  But you should never let that deter you from putting money into your retirement fund.  I look at bear markets like I look at shopping the sales.  When the price is low, you get more for your money.  So right now my regular retirement investment is buying more shares than it was at the end of 2021.  My retirement investment is on sale!  Slow and steady.  The market will eventually turn around again, and the painfully large drop I have seen in my total account balance this year will bounce back, likely with a euphorically large gain (and so it will continue, up and down like a roller coaster for the rest of my life).

Even with the volatility in the stock market, because I’ve been consistent about contributing to my retirement fund over the last 30 years, I know that I’ll be able to retire comfortably to the RV of my dreams in only five to seven more years.  It seemed like an eternity away when I started my first job in financial aid in 1993.  But time has a way of passing more quickly than you expect it to.

When it’s time for you to select your benefits for that first big job, take my father’s advice and prioritize your retirement contributions.  You won’t regret it.

This Is Why I Don’t Work In Finance

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I was trying hard to find a way to write an explanation of the crazy stock market thing that happened with Game Stop and hedge funds and Reddit.  But the reality is I don’t really understand how it worked.  Corporate Finance was a class I hated when I took it.  It’s really complicated and somehow the Reddit people caused the hedge fund people to lose a lot of money.  The hedge fund people were trying to make money by betting on the failure of Game Stop.  And the Reddit people ganged up on the hedge fund people and drove the price of the stock up by buying a lot of it, which made the hedge fund people lose a lot of money because Game Stop stock went up instead of down.  I don’t really understand the details of it beyond that.  But it seems like the hedge fund people were mean to Game Stop because they were rooting for the stock to fail.  And the Reddit people were mean to the hedge fund people because they orchestrated this attack to cause the hedge funds to fail.  Who wins?  Only the 10 year old kid who sold his shares of Game Stock when the price was really high.

The whole story makes me worry a little bit.  My retirement savings is mostly in stock investments.  It’s frightening that this sort of planned attack can work.  Are my savings (and the savings of nearly all Americans saving for retirement) at risk?  Will something like this happen again?  Why are investors betting on failure?  Why can’t we all just get along?

As the weird year that is 2021 continues, I guess we just have to buckle our seatbelts and hope for the best.  I wonder what February will bring?  Yes….it’s really only early February….

Pandemic Training for Long-Term Savings

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Saving and investing toward a long-term goal (such as a down payment for a house, or a retirement fund) is surprisingly similar to living through a global pandemic.  That may seem ridiculous at first sight, but if you think about it, it’s true.

  • At the start of it all it seems terrifying and insurmountable.  Any really huge thing can be overwhelming when you look at it from the beginning.  But you have to just take it one step at a time, whether that be wearing a mask or doing a regular monthly deposit into savings.  You do the right thing in small chunks and it adds up to lots of right things over time.
  • There will be ups and downs along the way.  The stock market and interest rates go up and down.  It’s not always in your favor.  The infection rate in your geographic area also goes up and down, not always in your favor.  You buckle up for the ride.  You wait it out.  You play it safe.  And eventually it comes around the other way again.
  • You’ll have to make sacrifices. There will be times that you would rather go on a vacation or buy something fun (or useful) instead of socking away that money in savings.  There will be times that you want to go to a large family gathering, or maybe just sit in a normal law school class….but you have to mask up and hunker down instead.  It’s important to keep your eyes on the long-term goal.  Even if it means sacrifices in the short term.
  • Eventually you’ll see a light at the end of the tunnel.  You’ll hit mile-markers on the way to your long-term savings goal.  The first $1,000.  The first $5,000.  Half-way there.  75% there.  These things make you see that it is indeed possible to achieve the goal.  Just like the recent good news about vaccines in development make us see that it’s possible we won’t be living the pandemic lifestyle forever.  There is a light at the end of the tunnel…but we’re not there yet.
  • At the end of it all, it will have been worth it.  Eventually we’ll get there.  The pandemic will be a historic event that we relay to younger generations and we watch documentaries about.  And the long-term savings goal will have been reached.  You’ll be in your new house, or you’ll be retired, or you’ll have achieved whatever other goal you are saving for.

When you are looking at a long-term savings goal in the future, you’ll have this pandemic to look back on.  And you’ll know that it’s possible to achieve…because you’ll have done it before.

The Power of Compound Interest

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The power of compound interest never ceases to amaze me.

I’ve read countless articles about how important it is to contribute to retirement funds beginning with day one of employment.  They say the funds will grow and grow, so the earlier you contribute, the better.  But I didn’t really get it until I recently took a look at my own retirement account statement.

When I was in graduate school I received a small stipend from my graduate assistantship as an academic advisor.  During those two years, a percentage was held out of my pay and went into the Ohio Public Employees Retirement System.  I remember being annoyed at the time because the $300 per year that was held out of my pay was a significant amount of money to me at that point.  But there was nothing I could do about it.

A few years later, when it became clear that my career was not going to be in the Ohio public university system, I rolled that small retirement fund into an IRA.  It was still a really small amount at that time.  Maybe $700…which is still larger than the $600 I had contributed.

Now fast forward 20 years to 2015.  That IRA that I started with just a few hundred dollars is currently worth over $3,600.  I never contributed another dime to that account.  Just the initial $600.  But it has grown to six times its original size.  And it still has many years to grow before I retire.  This is the power of compound interest.

When you leave law school and venture into full time employment, you should start saving for retirement as soon as possible.  It may seem like a better choice to wait until you’ve made a dent in your student loan obligations.  But it’s not.  The earlier you start saving for retirement, the more time your money will have to grow.  Contribute early.  Contribute often.  Retirement savings is never something that should wait until later.