The Top Three Retirement Strategies for Teachers
written by: Katie Oliver — Investors Asset Management
Get schooled on the most impactful steps you can take to create your dream retirement…even on a teacher’s salary!
Teachers play a vital role in shaping the next generation of learners, but a typical teacher’s salary still remains low compared to other professions. And most everyone knows teachers typically don’t get the elusive “easy summer off”, but typically spend it tutoring in summer school, growing a side hustle, or taking classes to get an advanced degree.
There are general personal finance tips that apply to everyone regardless of sector (see The Five Golden Rules for Building Wealth to learn more about these), but being a teacher means you have more nuances to reaching financial freedom in retirement. Understanding these nuances can make a big impact on how you spend, save, and pay down debt to reach your goals.
Here are the top three things to know for teachers:
1. If you are teaching in a public system, research the basics of your state pension system.
The majority of teachers in the United States have defined-benefit pension plans. This means the teacher and their employer each make contributions every paycheck and the state guarantees a monthly payout for life upon retirement. Typically, the longer you stay in the system and the higher your salary, the higher your monthly payout.
The easiest place to begin is the website of the teacher retirement system of your state. You should be able to find the basics of the plan on their website including projections, vesting, and formulas to help you start to determine what your pension will look like. Some states also include 1:1 support with a retirement counselor to help familiarize yourself with those programs.
Some school systems (about 60%) also require you pay into social security. While this can be a deduction from your paycheck each month (you should see it on your pay stub), if you are in this group you will also be able to claim social security benefits once you reach retirement age.
2. Understand your options to save for retirement outside the pension system.
If you are in the public system, your pension most likely won’t cover all your financial needs in retirement. Teacher pension plans tend to be underfunded and states have been forced to reduce benefits for future retirees.
As early as possible in your teaching career, it’s wise to start saving more money on the side to bolster your nest egg. Most schools or school systems will have a retirement plan, such as a 403(b) or 457. These are beneficial as your contributions can be tax-deductible and your investments earnings grow tax-free until you withdraw them in retirement.
If you’re one of the lucky few, your employer might make matching contributions to your 403(b) or 457. For example, your employer might match 50% of your contributions up to 6% — if you save 6% of your paycheck, then they will kick-in an additional 3% (think of it like a 3% raise).
One downfall of 403(b)s is they historically have been wrought with fees. If your plan is a high-cost plan, like an annuity-based plan through an insurance company, it might be more beneficial to open an IRA through a company like Vanguard or Fidelity and invest in low-cost index funds. For more on 403(b)s, we recommend diving into the resources on the website of 403(b)wise, a non-profit dedicated to making 403(b)s better for teachers.
3. If you have student loans, educate yourself on the forgiveness options to see if you are eligible.
If you have student loan debt, you undoubtedly want to get rid of it. The less debt you have, the more finances you can put towards current or future wants and needs.
Good news! Some student loans held by teachers are eligible for forgiveness or cancellation. There are currently three main programs for student loan forgiveness for educators:
· Public Service Loan Forgiveness Program
· Perkins Loan Cancellation and Discharge
· Teacher Loan Forgiveness (Stafford Loans)
You can download the details on each program (and find helpful links) in the document “Student Loan Cancellations for Educators.”
These three tips should help you see the big picture of retirement and help you start putting the pieces together so you can reach your retirement goals.
Katie Oliver is an Investment Advisor Representative for Investors Asset Management. Before joining the firm, Katie had 14 years of experience in the public and charter school systems in North Carolina and Georgia as a teacher and as an administrator. Since joining the firm, she has enjoyed apprenticing under the other advisors and leveraging her experience as an educator to support clients. Born and raised in Atlanta, Georgia, Katie is a graduate of Wake Forest University and of Harvard Graduate School of Education. In her free time, Katie enjoys spending time with her husband, serving on the boards of several non-profit organizations in Atlanta, running (and doing physical therapy so she can keep running), reading, and traveling.
About Investors Asset Management — Investors Asset Management is a investment advisory firm founded in 1988 and located in Atlanta, Georgia. We offer comprehensive wealth management services to our clients to service them from the time they build wealth to planning for the next generation. Additionally, we began offering 401(k) solutions to companies in 2008 and expanded these services to the non-profit and education section in 2018.
