Retirement Planning for Educators

Retirement planning can be challenging for employees of educational institutions, especially teachers and support staff with modest incomes.

Teachers are among the nation’s most educated workers, yet their average earnings have continued to decline since 2010, according to the United States Census Bureau. Meanwhile, housing and food costs have increased by 25.7% and 21.2%, respectively, since 2010.

The average educator’s salary depends on their job title. For example, the average salary of a middle school teacher is $61,320, according to the U.S. Bureau of Labor Statistics. A professor’s average salary, on the other hand, is $79,640.

No matter the title, there’s a consensus that retiring on an educator’s salary is no longer easy. Teachers displeased with their pay have an additional roadblock to achieving a comfortable retirement — student loans.

Nearly 50% of educators took out student loans, borrowing $55,800 on average, according to the National Education Association. Establishing a budget and slowly paying off your student loans can be the first steps of your retirement plan.

Our editorial team interviewed two educators, Dennis Shirshikov and Barbara O’Neill, to get their take on challenges they’ve faced as educators.

Currently, retirement planning for educators functions as a puzzle with pieces that don’t fit. Compensation isn’t keeping up with inflation and roadblocks remain unaccounted for.

Luckily, there are a few retirement plans and investment options available to educators. Signing up for these plans can help teachers catch up on their savings.

Educators may have access to pensions, 403(b) and 457(b) plans. These options can be great opportunities for educators to grow their retirement funds.

You’re likely to have different benefit options depending on what type of educator you are, what state you live in and how long you’ve been teaching. Check with your employer or school district to see which options are available to you.

It’s important to understand the benefits of each of these programs before signing up. In some cases, you may want to consider other investment options.

A defined benefit plan, also known as a pension, provides predetermined payments for life after you retire if you’ve worked a specific number of years. Benefits are based on earnings and years of service.

The employer bears the investment risks with a pension, according to the U.S. Securities and Exchange Commission. The longer you work, the more money you receive from your pension.

Pension requirements present an issue since many teachers are leaving the profession due to stagnated wages and burnout. According to a recent survey by the EdWeek Research Center and Merrimack College, one in three teachers say they’re likely to quit and find another job within the next two years.

Pension benefits also have a lower impact than in years past. O’Neill offered her thoughts on the benefit downgrade: “I think it’s challenging because many public sector employers have implemented lower tiers of benefits for recent hires, which reduces their future pension benefits. I think it’s going to be hard to keep teachers.”

So, a pension may only really provide for you if you plan to stay in the profession for many years.

Defined contribution plans are tax-advantaged retirement savings programs available to most educators. The most popular are 403(b) and 457(b) plans. In some cases, you can qualify for both plans.

These plans don’t promise payments upon retirement like pensions. Instead, the employee and employer may contribute to the employee’s individual account. The employee owns this account and can keep it after leaving the sponsoring employer and they can withdraw from it in retirement. The employee bears the investment risks with a defined contribution plan.

403(b) plans are available to most educators, according to the Washington State Department of Retirement Systems.

Our editorial team asked O’Neill and Shirshikov if they think a 403(b) plan is useful.

“Yes. That’s easily one of the best ways to grow a retirement portfolio in a tax-deferred way. Most educators should be seeking to put as much money as possible away,” Shirshikov told RetireGuide.

O’Neill seconded Shirshikov’s statement, saying, “Yes, absolutely. Full disclosure, I am in a 403(b) myself and funded it for many, many years.”

However, there can be high fees and a narrow range of investments available with 403(b) plans. Make sure you fully understand the costs and investment options before signing up. You may find other accounts offer better benefits.

You can consider other accounts, like a traditional IRA, to replace or supplement your pension, 403(b) plan or 457(b) plan.

O’Neill recommends an IRA and suggests other alternatives.

“Other options available in addition to the 403(b) would be a Roth IRA or traditional IRA. If they’re entrepreneurial, they can do a simplified employee pension or a SEP IRA,” O’Neill told RetireGuide.

“Even a health savings account can be a form of retirement savings. And then, of course, taxable accounts, which can be opened with a brokerage firm that you might throw a target date fund into or an index fund.”

Consider these options if you find that the available defined contribution plans have unnecessarily high fees.

Due to long periods of free time during the summer, educators can have unique investment opportunities. Our editorial team asked Shirshikov’s take on other investment options to consider.

Educators can also consider purchasing an annuity as a unique investment option. You receive tax benefits similar to a 403(b) and can add on additional benefits, like long-term care coverage.

Whether you receive Social Security benefits as an educator depends on which state and school district you live in.

Even if your state doesn’t offer Social Security benefits for educators, it doesn’t mean eligibility is impossible. O’Neill is an educator who ended up qualifying for benefits.

“Where we stand now, 40% of teachers don’t have Social Security coverage in their teaching jobs. But notice I said teaching jobs because you can still have Social Security coverage even if your job doesn’t provide it. You can start a side hustle or summer employment,” O’Neill told RetireGuide.

“I’m a perfect example of that. I worked in a job for 41 years that didn’t have Social Security coverage. But then I started Money Talk, and my company has been running for 32 years or so. So, all hope is not lost. But you must plan it yourself if it’s not going to come from your job.”

After you settle your employee benefits, investment options and Social Security benefits, the next step in retirement planning is insurance.

Some states may automatically enroll you in health and life insurance coverage.

For example, in Florida, if you are enrolled in the FRS Pension Plan and were enrolled in employee health and life coverage when you retired, the People First Service Center will automatically enroll you in health coverage and a $2,500 life insurance policy.

Check with your state’s enrollment rules and offerings for health and life insurance coverage.

Most states provide educators with health insurance options, according to the Education Commission of the States. Some states offer individual plans at lower costs, but there aren’t many options for family plan coverage.

If you need help understanding your health insurance options, the National Education Association (NEA) has services to advocate for educators.

Many school districts offer life insurance for educators, according to the National Educational Association. Even if your school offers life insurance coverage, you may want to open another policy for additional coverage.

If your district doesn’t provide life insurance, or you don’t qualify, you can still get life insurance coverage for free.

You can become a NEA member and receive life insurance coverage at no additional cost. Prudential issues these policies.

There are national, state and local resources available to you.

The National Education Association is a nationwide resource with many benefits. As previously mentioned, the NEA offers free life insurance, and they help teachers understand their health insurance coverage options.

You can also lean on your community and talk to other educators about negotiating pay and benefits, and finding solutions together. Shirshikov suggests meeting weekly.

“Decide a place where a group of teachers can meet once a week and discuss what everyone is doing. The reality is that it can be awkward and difficult to have conversations about money with peers and coworkers,” Shirshikov said.

“But teachers are in a unique position where their employer is a monolith. It’s not just your boss. And I think the more that conversation happens, the more confident they’ll feel in making those decisions and moves since retirement planning is difficult.”

“I think taking retirement stress off the table for teachers is one of the best things to increase the quality of education. When you’re stressing about what you’re going to do in retirement, you’re not all there.”

Utilize our checklist, specifically curated for educators, to help ensure you have all the necessary pieces to build a strong retirement plan.