When it comes to retirement plans, things may seem straightforward for new teachers. You automatically contribute to your pension plan, and to supplement that, there’s usually a nice coffee hour or happy hour with brokers who will help you sign up for a 403(b) plan. Many young teachers feel like they are set, and proud that they’ve started saving early, only to realize the harsh realities later on when it’s harder to catch up.
What You May Not Realize About Your Pension
Most of the time, your pension will be 75% of the average of your last four years of teaching, if you are fully vested and wait to retire until your benefits are maxed out. Teachers often do not qualify for social security (although this varies state to state) and rely on their pension for retirement income.
Pensions have their own concerns. Did you enter the education field later in your career? Did you take time off to start a family? Can you wait until you are vested and maxed out to retire? Will 75% be enough? Has your pension fund been underfunded by the state? While it may be hard to see as a new teacher, there are concerns with relying solely on your pension to see you through your retirement.
What About 403(b) Plans?
Many teachers are encouraged to supplement their pensions with additional retirement plans, but nobody is shouting this out loud. For much of the working population, their option is a 401(k) plan. But many workers in the public sector are not eligible, and instead are steered toward 403(b) plans. The harsh reality of a 403(b) plan comes with the lack of regulation, resulting in high fees that can erase any investment profit. Often teachers notice their plan’s value is less than their contribution, all due to high fees. Teachers who find themselves in a plan that erodes value will often investigate switching to a better plan, only to find out that high surrender fees can cost them even more.
What is the Best Teacher Retirement Plan?
The best teacher retirement plan is one that the teacher takes control of themselves – with the help of a financial expert. Young teachers should take control early, looking outside the union and school district, and find a plan that is right for their situation. In many cases, an IRA will be the right choice. Many financial advisors will recommend investing 15% total toward retirement, so the percentage left after a pension contribution will be what is invested in a separate account.
The best thing a teacher can do to avoid these harsh realities is to talk to a financial expert early about their current situation and future goals, and find a plan that will see them through their career to retirement. Contact us today to discuss your retirement plan options.