Providing financial wisdom for the academic crowd

Understanding how professors think can help an adviser serve this community.

By Joyce Hanson

Dec 15, 2013 @ 12:01 am (Updated 5:00 pm) EST

As an adviser with a niche practice serving professors, Jim Lange understands the thinking of academics, whose careers have been driven by the love of intellectual pursuit rather than money.

A bit of an academic himself, Mr. Lange is a certified public accountant, lawyer and author who founded Lange Financial Group in Pittsburgh to provide financial services for those with individual retirement accounts and retirement plans. Many of his 500 clients are retired or active college professors — about 80% of whom are associated with Carnegie Mellon University or the University of Pittsburgh.

“College professors have a different mindset. Once you understand that mindset, it helps you work with them,” said Mr. Lange, 57. “College professors didn't go into it for the money. Whether they got into biology or genetics or American literature, they had a passion and wanted to live their life doing it.”

By the time Mr. Lange meets many of his clients, usually via word of mouth, they're 30 to 40 years into their careers and wondering whether they have enough money to retire. In many cases, they're surprised to learn that the answer is yes.

Typically, retiring professors have led middle-class lifestyles, and the vast majority of their 403(b) tax-advantaged retirement savings plans are invested solely with funds from TIAA-CREF, which offers financial services to workers in the nonprofit sector, or The Vanguard Group Inc. Not surprisingly, Mr. Lange has become a TIAA-CREF and Vanguard expert.

“In my niche, you have to understand qualified-retirement-plan money as well as Roth IRA conversions and the nuances of TIAA-CREF,” Mr. Lange said. “Basically, I developed a skill set to serve this crew. The practice built by word of mouth, but I also market to this niche and have set up a website [faculty-advisor.com] to serve faculty members.”

FRUGAL LIFESTYLE

He explains why this market has amassed greater wealth than one might expect in an industry of modest compensation.”These professors never had a great salary,” Mr. Lange said, and “they didn't buy huge houses, [and] they bought Honda Accords.”

As an example, Mr. Lange offers the case of an academic who began his teaching career 40 years ago with a starting salary of $40,000. Eventually he became a tenured professor and put 8% of his annual salary into his TIAA-CREF account. About 20 years ago, Vanguard became another popular retirement vehicle, and the professor started saving with those funds, too. Meanwhile, the university matched the professor's contribution at 12% of his annual salary.

“The 403(b) is building and building, and he's not paying attention to it,” Mr. Lange said. “By the time he's 65 years old with $1 million to $3 million in his retirement account, he's wondering, "What now?'”

Because professors get used to living a thrifty lifestyle, part of Mr. Lange's service as a financial adviser is convincing them when they retire that they will be fine.

“I have to give them permission to spend their money,” Mr. Lange said. “One guy told me, "You've changed my life because I've been living like a grad student for 40 years.' He was so used to a frugal lifestyle, it never occurred to him that he could live better.”

Mr. Lange estimates that, not counting Social Security, a retired 80-year-old professor with a 10-year life expectancy and a $2 million next egg can safely withdraw 7% a year, which amounts to $140,000.

“But they're living at $80,000,” Mr. Lange said.

In addition to specializing in IRA, 401(k) and other retirement plan distributions, Mr. Lange is founder of the Roth IRA Institute and author of the book “Retire Secure!: Pay Taxes Later” (John Wiley & Sons, 2006).

Many of the retired professors he serves stay married and live longer than average, and his business also provides them with legal, tax, estate-planning, asset management and insurance services. His certified public accounting firm prepares hundreds of tax returns annually, and it has prepared about 1,800 wills and trusts.

To help ensure that they remain happy, Mr. Lange urges his clients to stay engaged in their intellectual pursuits even after they retire.

“I have clients in their 70s and 80s who are still passionate about what they do,” he said. “They write books, they apply for grants, they stay involved in research and they maintain offices at the university, even though they don't get paid. I recommend that they do it.”

SEEKING RETIREMENT KNOWLEDGE

Born a Great Depression baby in 1932, Keith McDuffie has always been a frugal person and a saver. During his decades-long career as a Spanish professor at the University of Pittsburgh, he earned a comfortable living and was happy to pursue his passion for foreign languages while living a modest life with his wife and two children.

But in 1996, when Mr. McDuffie was 64, he met with Jim Lange, founder of Lange Financial Group, because he still wasn't sure he had saved enough money to retire. For years, the University of Pittsburgh had deducted 8% of Mr. McDuffie's salary for his plans with TIAA-CREF and The Vanguard Group Inc., and the university also provided a 12% match based on his annual income.

The university in 1996 offered Mr. McDuffie and 159 other professors a six-figure bonus to retire and make way for younger professors to get on the tenure track. Between the bonus and his investments in TIAA-CREF and Vanguard, Mr. McDuffie had sizable savings — yet he wanted reassurance from an expert before walking away from his career.

“I just wasn't sure about the figures,” he recalled. “Those of us who don't know finance and economics are babes in the woods. You retire only once, so you're not an expert.”

Mr. Lange's expertise in understanding TIAA-CREF's financial services has attracted large numbers of University of Pittsburgh and Carnegie-Mellon University professors to his advisory firm, Mr. McDuffie said. He added that based on Mr. Lange's advice, his portfolio now includes conservative TIAA-CREF funds yielding 3.5% and a Vanguard annuity.

However, Mr. Lange also advised him to diversify his holdings by cashing out some TIAA-CREF and Vanguard funds, and investing that money with registered investment adviser Fort Pitt Capital Group Inc. And more recently, Mr. McDuffie has gone to an index fund adviser recommended by Mr. Lange.

To Mr. McDuffie's surprise, Mr. Lange also has recommended that he actually spend more money in his retirement because he can afford it. As a result, he has provided financial help to his son, whose expenses are tight because he and his wife have a baby daughter and just bought a new house.

Mr. McDuffie also takes piano lessons, is learning French and travels to France whenever he can.

“Jim has been my guide since 1996, and a very good guide. I can trust him,” Mr. McDuffie said. “What he has said to me is that people who are my age tend to be rather thrifty because we've known times when there hasn't been much money around. I don't buy yachts or second homes; that's not what I'm interested in. But I do travel.”

  @IN Wire

Apr 17 11:14PM
The three levels of community involvement and how they can pay off: http://t.co/tw1EwHtZUv
Apr 17 07:22PM
6 hugely important tax lessons our own @Darla_Mercado learned from the challenging 2013 tax season: http://t.co/Liea3mZgKW

Career Center

Explore your opportunities and be informed for your next move.

Company Type
Firm Type
Clearing Firm
Presented by