Gas station without pumps

2019 March 17

Sabbaticals until retirement revisited

Filed under: Uncategorized — gasstationwithoutpumps @ 10:58
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In Sabbaticals until retirement, three years ago, I outlined a sabbatical plan for using up my sabbatical credits slowly:

year Fall Winter Spring credits left
2015–16 +1 +1 +1 20
2016–17 –6 +1 +1 16
2017–18 –6 +1 +1 12
2018–19 –6 +1 +1 8
2019–20 –6 +1 +1 4
2020–21 +1 –5 +1 1

I followed that plan through this year, but I won’t be able to continue with it, due to a misunderstanding on my part of the rules for sabbatical leave.  I can turn in n credits for n/9 salary, but only for n≥6, so the n=5 plan for 2020–21 cannot be made to work.  I found this out when I tried this year to modify the plan to

year Fall Winter Spring credits left
2019–20 –5 +1 +1 5
2020–21 –5 +1 +1 2

Because I can’t take 5/9 salary, I am going to switch to taking a leave without pay this fall, and then full-salary sabbatical in 2020:

year Fall Winter Spring credits left
2019–20 -0 +1 +1 10
2020–21 –9 +1 +1 3

I’ve decided that I need the break from grading more than I need the money—if I taught all three quarters next year with the number of hours per week I’ve been putting in this year, I’d burn out and retire a year earlier, which would cost me more.

The new plan will cost me about $5000 in extra insurance premiums (the University pays a share for medical, dental, and vision care insurance for sabbatical leave, but not leave without pay) in addition to losing a sabbatical-leave credit (worth about $5000 before taxes, or $3500 after taxes). Doing the leave without pay this fall allows me to take full salary for Fall 2020 sabbatical, using one more sabbatical-leave credit than if I took 8/9 pay this Fall.  If I had known about the 6/9 minimum earlier, I would have revised the plan for Fall 2018 to take 7/9 pay, rather than 6/9.

I can’t contribute to my HSA (Health Savings Account) while on leave without pay, so I need to change my contributions for the months that I will not be on leave.  The insurance premiums for the health care do count as allowable expenses for the HSA.

The Sabbaticals until retirement post also discussed the possibility of doing a “service buy-back” to buy service credit on my retirement for the foregone salary.  At the time it looked like a good investment, but the paperwork involved was daunting (I thought I had done it all and sent it in, but all that triggered was them sending me the paperwork to do all over again).  I’ll have to decide again on the service buyback this spring or early summer, since there is a 3-year limit on doing the buyback at a reasonable rate—after that they charge so much that it is clearly not a good investment.   The buyback I could do this year would get me 1/3 year extra service credit, which would increase my retirement salary by 0.83% of my HAPC (highest average plan compensation—essentially my annual salary at full time). I can use annuity calculators to figure out about how much that is worth and compare it to what the University would charge me.

2016 May 2

Sabbaticals until retirement

Filed under: Uncategorized — gasstationwithoutpumps @ 22:28
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I plan to take sabbaticals every year until I retire. Here’s how that works: for each quarter I work I get one “sabbatical leave credit”.  With the permission of my department chair (as part of the Curriculum Leave Plan each year), I can cash in the credits for sabbatical leave.  What is unusual about the UC system is that I can cash in the the credits for partial pay—9 credits gets me a quarter of sabbatical leave at full pay, 6 credits a quarter at 2/3 pay, and for n≤9, n credits a quarter at n/9ths pay.  The portion of my salary not paid to me is returned to the department, who can add it to their TAS (Temporary Academic Staffing) budget, or add it to their reserves, in the unlikely event that they have enough funding to cover all the lecturers for the year.  Taking partial-pay sabbaticals is easier for the department to cope with than taking full-pay ones, as there is no extra money for hiring replacement lecturers during full-pay sabbaticals.

As of the end of this quarter, I will have 20 sabbatical leave credits, so I could take 2 quarters off at full pay, but that’s not what I plan.  Instead I plan the following strategy, taking single-quarter, partial-pay sabbaticals every year for the next 5 years, then retiring (+1 means I’m teaching, a negative number indicates a sabbatical and how many leave credits I’ll use up):

year Fall Winter Spring credits left
2015–16 +1 +1 +1 20
2016–17 –6 +1 +1 16
2017–18 –6 +1 +1 12
2018–19 –6 +1 +1 8
2019–20 –6 +1 +1 4
2020–21 +1 –5 +1 1

I don’t have to take Fall quarters each year, but that is the quarter for which my teaching is easiest to cover by someone else, at least until I get someone trained to teach the applied electronics course.

Due to a quirk in the rules for retirement compensation, there is a significant advantage to separating from the University at the end of June, and starting retirement in July (a cost-of-living adjustment for those separated from the University but not yet retired), and I need to return from each sabbatical for at least as long as the sabbatical itself, so ending up with one credit at the end of spring is optimal use of sabbatical credits, which calls for a Winter quarter sabbatical in my last year.

I have to find someone to take over the Applied Electronics course by Winter 2021,  if I’m going to retire in summer 2021. It will also be interesting to figure out what course I’ll teach in Fall 2020, since I’ll have been out of the courses I’ve been teaching every Fall for 4 years at that point, and it might be better for me to pick up a different course.

One choice I have to make when taking partial sabbaticals is whether to “buy back” service credit for my defined-benefit retirement plan.

The defined benefit is 2.5% * years of service * (HAPC – $133*12) per year after retirement for life.   When I take partial-pay sabbatical, the “years of service” also accumulates more slowly. (HAPC is Highest Average Plan Compensation, which is the average over 36 months of base salary, excluding summer salary and stipends, for the highest-paid contiguous 36 months—taking partial-pay sabbaticals does not reduce HAPC, since it reduces % time, not base salary.)

Actually, the benefit is a bit more complicated than that, as there is a continuing 25% of the benefit to my wife, if I die before her.

As I understand it, I can buy back the service credit for 18.72% of the foregone salary—at least, that’s the Plan Normal Cost in 2016 (https://atyourserviceonline.ucop.edu/ayso/html/HelpBuyback.jsp#Benefits).

The value of $1k/month for life is about $178k for someone retiring at age 66 (based on the cost of single-life annuities). Adding a 25% second-life benefit doesn’t raise the value much—maybe to $184k (25% is an unusual second life benefit, so I did not find an annuity calculator for it). More common are plans with full benefit to survivor, half benefit to survivor (2 lives treated symmetrically), or half benefit to annuity partner (lives treated asymmetrically, with no loss of benefit if partner dies, but drop in benefit if annuitant dies).

So I could buy-back 1/9 year of service for 2.08% of my annual salary, which would raise my annual income after retirement by about 0.275% of my salary.  That is a break-even time of about 91 months, substantially less than the 178 months of purchasing an annuity at age 66.  I’d have to get a 12% annual return on investment for 6 years to beat that investment, which is an unlikely return to get in the next few years.

If I’ve done my calculations right, then the service buyback is a very good investment for someone as old as me, being almost twice the return of a purchased annuity. Either I’ve done my calculations wrong (quite possible), or the leave buyback is mispriced. Since it seems that mainly senior management uses leave buyback, I can well believe that it is deliberately underpriced for old folks, as management loves giving itself perks.

For younger faculty, leave buyback might not make as much sense, since other investments are likely to grow faster than faculty salary does, and the value of the defined-benefit plan is tied to the HAPC.  Young faculty who leave UC long before retirement age get very little benefit from the defined-benefit plan, so there is higher risk associated with investing in a leave buyback.  Pre-tenure faculty should have a defined contribution plan, with the option of turning it into a defined-benefit plan when they get tenure.

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