Retirement Planning Guide for Teachers

ByNathan Paulus
Reviewed byAnthony Pascazio

Updated: January 16, 2024

ByNathan Paulus
Reviewed byAnthony Pascazio

Updated: January 16, 2024

Advertising & Editorial Disclosure

In terms of retirement, teachers have unique access to both defined-benefit pension plans and defined contribution plans like 403(b) or 457(b). However, about 40% of public school teachers, as reported by the National Association of State Retirement Administrators, do not contribute to the Social Security system, thus affecting their eligibility for these benefits upon retirement. Understanding these unique factors and strategies can help you plan for a secure and fulfilling retirement.

Teacher Retirement Benefits Key Statistics


United States teachers have access to a range of retirement plans, each offering unique benefits and employer contributions.

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The U.S. has 63 different retirement systems for teachers and school staff, encompassing over 300 plans that provide a wide range of retirement benefits.

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Most teachers are enrolled in defined-benefit pension plans, though they now have access to various retirement plan options.

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In 2022, employers contributed an average of 20% of the total payroll to teacher pension funds. Out of this, 15% is used to pay off pension debts, while 5% directly funds the current benefits for retirees.

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Teacher pension plans increased benefits by an average of 2% in 2022 to match inflation.

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For the 2022–23 school year, the three states offering the best retirement benefits to new teachers are South Carolina with a 94% rating, Tennessee with 88% and South Dakota with 79%.

Key Considerations for Teachers When Planning for Retirement

Teachers preparing for retirement must navigate unique considerations, including diverse income sources and benefits, alongside general factors like age, preferred retirement timing and expected expenses. Taking these into consideration can help teachers effectively save for retirement and craft a comprehensive retirement plan:

Pension Plans for Teachers

Teachers often have access to defined benefit plans or pension plans, distinct from common 401(k) plans. Understanding how these pensions work, including vesting periods, benefit calculations and potential cost-of-living adjustments (COLAs), may help you maximize their benefits. Even with a pension, assess your financial situation to determine if it will suffice or if you need additional retirement income sources.

Social Security Eligibility

Not all teachers are eligible for Social Security benefits, particularly in the 15 states and the District of Columbia, where educational employers don't participate in Social Security. Those states are Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island and Texas. Check your payroll deductions to see if you're contributing to Social Security.

Government Pension Offset (GPO)

The GPO can affect teachers receiving a government pension from a job not covered by Social Security and those eligible for Social Security benefits as a spouse, widow or widower. If you're affected, your Social Security benefits are reduced by two-thirds of the government pension amount.

Windfall Elimination Provision (WEP)

The WEP can reduce Social Security benefits for those who also receive a pension from a job not covered by Social Security taxes. This provision modifies the formula used to calculate Social Security benefits, with the maximum reduction set by law and changing yearly. The reduction will be less for those who have more years of work where they paid Social Security taxes.

Inflation and Colas

Inflation impacts the purchasing power of retirement savings. Many pension plans, including for teachers, include COLAs to offset inflation effects. These adjustments vary, with some plans offering fixed COLAs and others variable COLAs tied to inflation indicators like the Consumer Price Index (CPI).

Tax Planning

Teachers should consider the tax implications of various retirement income sources, including pensions, Social Security and personal savings. Developing strategies to minimize tax liabilities can influence investment choices, aligning with expected retirement tax brackets. This planning also involves planning withdrawal strategies to reduce the overall tax burden. Also, consider state tax policies, as some offer tax advantages for retirees.

Types of Retirement Plans for Teachers

Teachers generally have access to two main types of retirement plans: defined benefit plans and defined contribution plans. Public school educators often participate in defined benefit plans, which guarantee a predetermined income after retirement. Teachers in private and charter schools usually opt for defined contribution plans like 403(b)s and 457(b)s. Both types can involve contributions from the teacher and employer, but they can differ in aspects such as income calculation and investment control.

The table below outlines the key differences between defined benefit and contribution plans to help you better understand each plan's unique features, benefits and potential drawbacks.

Defined Benefit Plan
Defined Contribution Plan

Income Security

Guaranteed monthly income based on a set formula.

Income depends on account contributions and investment performance.


Not portable; non-vested benefits may be lost if you leave the system.

Portable; retains value when changing jobs or states.

Investment Risk

Borne by the employer.

Managed by the employee; subject to market fluctuations.

Lifetime Benefits

Typically provide lifetime income and may include survivor benefits.

Limited to the account's value; may deplete over time.

Employer Contributions

Often included without requiring employee matching.

May include employer contributions and or matching employer contributions. Employee contributions may be required.

Remember, the retirement plans available to teachers can vary by state. Utilize the "Retirement Security Report" tool to locate retirement plans specific to your state.

Defined Benefit Plan

A defined benefit plan, commonly known as a pension, provides teachers with stable retirement income, usually paid monthly for the life of the teacher after retirement. Eligibility requires meeting specific years of service and becoming vested. These pensions often include survivor benefits, ensuring that a spouse or dependent continues to receive income after the retiree's death. While offering predictable income, these plans have limited flexibility, particularly if you change jobs or move states before vesting.

The pension amount is based on your salary and years of service, with longer service typically yielding higher payments. The specific plan details and the wage portion contributed vary by the retirement system. Contact your benefits administrator to clarify the expected pension amount and beneficiary designations.

The survivor benefit calculation is critical to long-term retirement planning. The primary benefit is based upon the teachers years of service and salary history with a school system. The decision to elect a required survivor benefit and or an optional survivor benefit will reduce the primary benefit amount. This reduced amount is often overlooked when performing long-term planning.

Calculating Your Pension Amount

A teacher's pension is typically calculated based on three key factors: Years of Service (YOS), Final Average Salary (FAS) and the state's pension multiplier. The formula can be represented as:

YOS x FAS x Multiplier

The calculation factors:

Years of Service (YOS)

This term refers to the total number of years you have taught before retirement. Typically, 30 to 35 years is standard. Fewer years of service can result in reduced pensions, often due to the penalty for early retirement. However, some states allow penalty-free retirement at age 60, even with less than 30 years of service.

Final Average Salary (FAS)

This is generally calculated as the average of your highest-earning years, often the last three to five years of your career. To estimate this, check the salary schedules of specific districts or consult HR departments. Keep in mind potential future salary increases due to cost of living adjustments.

Pension Multiplier

This figure, usually between 1% and 3%, indicates the percentage of your final average salary that you'll receive for each year of service. Refer to this spreadsheet to find the specific figure for your state.

Source of the formula: Equable Institute


For example, a teacher in Louisiana with a FAS of $90,000, 28 years of service and a pension multiplier of 2.5%, the annual pension amount would be:

(28 x $90,000 x 0.025) = $63,000 per year.

Defined Contribution Plan

Defined contribution plans, or retirement accounts, are individual retirement savings platforms where you and your employer can contribute. Unlike defined benefit plans, the value of these accounts at retirement is contingent on your investment decisions and market performance. The primary advantage of defined contribution plans is their portability; the account remains yours, irrespective of career changes. However, these plans are risky: retirement funds are finite, and their longevity depends on your investment choices and market trends. Below are some popular defined-contribution plan options:

401(k) Plans

401(k) plans are widely used for retirement savings, particularly in private educational institutions. These plans enable teachers to contribute either a fixed amount or a percentage of their pre-tax wages, subject to an annual limit.

In 2024, the IRS limit has been set at $23,000 for the maximum deferral. For those aged 50 and over, there is an additional catch-up contribution limit of $7,500, allowing a total contribution of up to $30,500. 401(k)s can be either traditional, where contributions are tax-deferred until withdrawal, or Roth, where contributions are taxed upfront. Both contributions and earnings are tax-free upon withdrawal after age 59, provided certain conditions are met.

403(b) Plans

The 403(b) plan is commonly used in public educational institutions, and by employees of tax-exempt organizations and non-profit employers. 403(b) plans share many similarities with 401(k) plans. They allow for pre-tax contributions that grow tax-deferred until withdrawal.

In 2024, 403(b) plans have a contribution limit of, $23,000 with an additional catch-up contribution option of $7,500 for individuals over 50. Contributions are generally tax-deductible, and investment earnings are tax-deferred.

457(b) Plans

457(b) plans, available to teachers in public school districts, function similarly to 403(b) plans. Contributions are made directly from your salary, and the money grows tax-deferred until withdrawal. Employers typically do not offer matching contributions. However, you can take distributions from your 457(b) without penalty upon leaving your job, regardless of whether you've reached retirement age.

The contribution limits for 457(b) plans align with those of 401(k) and 403(b) plans. These plans also offer a unique catch-up contribution, allowing for potentially higher contributions. In some cases, employers may offer 403(b) and 457(b) plans, permitting contributions to both. Contact your employer to determine the availability of these plans.

Additional Retirement Options for Teachers

Teachers can supplement their retirement with tools like annuities and high-yield savings accounts. Investing in stocks, bonds or mutual funds independently can also help enhance their savings, particularly if a defined benefit plan falls short of covering retirement needs. Below are some popular additional retirement options for teachers to explore:

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    An annuity is a contract with an insurance company that guarantees regular payments to you, either immediately or in the future. Annuities offer financial security and a consistent income source post-retirement by allowing teachers to invest through lump-sum payments or periodic contributions.

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    Mutual Funds

    A mutual fund pools the money from investors to invest in various assets like stocks, bonds or money market instruments. These funds allow teachers to diversify their investments across different market-based assets, issuing shares that can be bought directly or through a broker.

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    Savings Accounts

    High-yield savings accounts are low-risk financial tools offering relatively lower returns but high liquidity and security. They complement more aggressive investment strategies and provide a safe place to park funds.

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    Real-Estate Investments

    Investing in real estate offers teachers an alternative way to diversify their portfolios. This type of investment can yield passive income through rental properties and potential long-term capital gains. However, it requires more active management and higher upfront costs than other investments.


Consider the following tips to help you choose the right retirement plan:

  • Choose a plan that aligns with your financial goals and risk comfort level.
  • Consider factors such as accessibility — some plans may restrict withdrawals or loans.
  • Investigate the fee structures of different plans, especially if you're likely to change employers or relocate.
  • Understand how plans can match inflation and the tax implications for contributions and withdrawals.
  • Opt for a plan offering maximum tax benefits based on your current and future tax brackets.

Retirement Strategies for Teachers

Teachers can enhance their retirement savings by increasing contributions, securing adequate insurance and carefully planning finances, alongside seeking personalized expert advice. The following strategies can help you achieve a financially secure retirement:

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    Seek Professional Guidance

    Begin with educator-specific retirement advice from your state teacher's association and the Teachers' Retirement System. These organizations can provide access to counselors familiar with state-specific retirement programs. Consult with a financial advisor specializing in teacher retirement plans and investment options for tailored advice.

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    Plan for Health Care Costs

    Anticipate and plan for health care expenses in retirement. Consider retirement plans with health savings accounts (HSAs) or similar medical expense savings options. Accurately estimate health care costs, including potential long-term care and understand your Medicare eligibility or alternative health insurance options. Evaluate the need to supplement employment-based benefits with a private policy for comprehensive coverage.

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    Diversify Income Sources

    Address inflation by diversifying your income streams. Don't rely solely on fixed-income investments; consider contributing to a defined contribution plan, investing in stocks, bonds or other securities and supplementing your pension with accounts like a 403(b) or IRA.

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    Plan for Family Security

    If you have dependents, assess how your retirement plan affects them. To ensure their financial security, consider plans with survivor benefits or joint-and-survivor annuities.

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    Explore Supplemental Income Opportunities

    Consider freelance work, part-time jobs or consulting in your field. These flexible opportunities can accelerate progress toward retirement goals.

Additional Resources

We’ve compiled a list of resources offering information, tools and guidance to help teachers effectively plan and manage their retirement:

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.