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Retirement Planning For Teachers & Educators: A Guide Thumbnail

Retirement Planning For Teachers & Educators: A Guide

As a professor or teacher, you always give 110 percent. You put in long-hours, work on the 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 Money is withdrawn from a teacher’s paycheck pre-tax and grows in a retirement savings account until retirement.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  Similar to a 401(k), funds placed in a 403(b) plan aren’t taxed until withdrawn, and employers can choose to make matching contributions.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

Many educators are enrolled in a State pension program, such as STRS or OPERS in Ohio.  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.

Remember that just because you are enrolled in a pension plan upon employment, does not mean you will meet the vesting requirements. For a majority of states, the requirement is five-years of employment, while some require ten. If you leave before this time, you will not be eligible to receive your pension payouts.

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.

For those that may not have chosen the pension option, a plan like ARP (Alternative Retirement Plan - Ohio) may be available in your state.  This choice can sometimes be beneficial instead of a pension plan for those who may be moving jobs periodically and not maintaining employment in the same state.  This is a defined contribution plan that typically has both employee and employer contributions.  Similar to the 403(b) option, you (or you along with your financial advisor) are in charge of the investment allocation.

Social Security Benefits (Or Lack Thereof)

Did you know that not all teachers will be eligible to receive Social Security benefits in retirement? This accounts for about a million educators in 15 states including:1

  • Alaska
  • California
  • Colorado
  • Connecticut
  • Georgia
  • Illinois
  • Kentucky
  • Louisiana
  • Maine
  • Massachusetts
  • Missouri
  • Nevada
  • Ohio
  • Rhode Island
  • Texas

For millions of retirees, Social Security offers a steady, reliable income source in retirement. While it is not meant to cover all expenses, it can help serve as the foundation of a secure retirement plan. If you are a teacher in a state that does not have you pay into Social Security, it’s important to prepare a plan that can help you address this lack of income in retirement.

Preparing for retirement as an educator can come with its own unique challenges, but that doesn’t mean it should be put off or ignored altogether. Working alongside your school’s human resources department and your own financial advisor can help you feel confident and comfortable with your plan for retirement. Because you give your all today, it’s imperative that you let your money care for you when you need it most.

  1. https://www.npr.org/sections/ed/2018/04/20/602846417/why-more-than-a-million-teachers-cant-use-social-security#:~:text=Walkouts%20And%20Teacher%20Pay%3A%20How,the%20workforce%20is%20not%20covered.%22

Jeff Spitzmiller is the CEO of Ohana Wealth & Life Planning based in Cincinnati, OH.  Ohana specializes in life and financial planning along with ESG (Environmental, Social, Governance) investing principles.  The firm is an independent financial advisor and a fee-only fiduciary. Jeff and the firm also enjoy volunteering and giving back to the local community. You can reach Jeff at jeff@ohanaplanning.com.

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