Retirement Planning For Teachers & Educators: A Guide

Someone once said that teaching is the profession that teaches all other professions. As a teacher, you always give 110%. You put in long hours, including working many late evenings and weekends, and contribute the extra effort needed to get every student involved and excited about what they’re learning.

But when it comes to preparing for retirement, it’s not unlikely for teachers to put off the important decisions or neglect to ask questions. Educators face unique financial concerns when it comes to their retirement, but that doesn’t mean they deserve anything less than a relaxing and well-funded retirement. Below are the top three concerns we see educators face when it comes to their retirement - and what you can do to face them head on.

Understanding Your 403(b) Plan

At a surface level, a 403(b) plan works similarly to a 401(k). Money is withdrawn from a teacher’s paycheck pre-tax and grows in a retirement savings account until retirement.

But a major difference is that a 403(b) plan is typically a tax-sheltered annuity (although nowadays they often offer some mutual funds as well).  Similar to a 401(k), funds placed in a 403(b) plan aren’t taxed until withdrawn, and employers can choose to make matching contributions.

It’s important to note that, unlike a 401(k) plan, investment options for a 403(b) are limited to annuities and mutual funds.

When selecting a 403(b) plan from your employer, you’ll likely be presented with low, medium and high-risk plan options - or a mix of the three. It’s not uncommon for teachers to have questions about the differences between these options, and you will likely benefit from working with a financial professional to take a look at your options as well. Choosing the wrong option for your unique retirement needs could greatly impact your future withdrawals.

The Realities of Your Pension Plan

Approximately 91% of teachers are enrolled in a defined benefits pension plan.¹ While this is an opportunity few professionals are offered anymore, the realities of what your payouts may look like in retirement shouldn’t be ignored.

In Iowa, you must teach for seven years before you are fully eligible the pension.²  Additionally, how much you receive in retirement through your pension will depend on a variety of factors, including your salary and years of service. You’ll want to read the fine print of your plan and ask around to determine how much you could expect to receive from your pension plan in retirement. This can help determine how much you’ll still need to save in order to maintain your standard of living and cover expenses in retirement. I wouldn’t say this. This is where we can help. So maybe something along the lines of helping them determine what they may anticipate as income in retirement. 

Relying solely on your Pension to replace your income

While having a Pension is a major benefit, relying on it to replace your income outside of Social Security may not be in your best interest. Although unlikely, that pension could go away if funding is not there. It is currently funded at 79.9%.³ It may also not be enough to maintain your current life style. A total of 11.53% is contributed between the teacher’s salary and the employer. Most recommend a savings of 15%. 

We are here to help

For any of us, preparing for retirement comes with its own set of unique challenges, but that doesn’t mean it should be put off or ignored altogether. We are happy to work alongside you to help you feel confident and comfortable with your plan for retirement. As teachers, you give your all to our kids today, so let us help you prepare for tomorrow. 

Cheers,

FSB Premier