Many teachers in the U.S. retire with pensions that provide a stable source of income during their golden years, but that doesn’t mean they can ignore retirement planning. In fact, teachers face unique retirement challenges, including the absence of Social Security benefits in some states. Education retirement planning requires a tailored strategy to optimize a teacher’s pension, savings and other retirement benefits.
Whether you’re a teacher or work in a different field, a financial advisor can help you plan for retirement. Speak with an advisor today.
Teacher Retirement Plans
Teachers, like professionals in any field, must consider their retirement options carefully to ensure financial stability in their later years. They typically have access to either a defined benefit plan, known as a pension, or a defined contribution plan – and sometimes both.
Pensions
Pensions, known as defined benefit plans, provide a stable and predictable retirement income for teachers, calculated using a specific formula. This formula often includes factors such as the number of years a teacher has worked and their average salary, typically over the highest-earning years of their career.
For example, a common pension formula might be 2% of the average salary of the last three years multiplied by the total number of years worked.
Defined Contribution Plans
Defined contribution plans offer a different approach, focusing on flexibility and personal responsibility in retirement planning. Plans such as the 403(b) and 457(b) are specifically designed for teachers and other public sector employees. These plans function similarly to 401(k) plans but are tailored to public employees’ unique needs.
Key differences include eligibility criteria, contribution limits, and sometimes, the matching contributions from employers. For example, 403(b) plans are available to employees of tax-exempt or non-profit organizations, and they may allow teachers with at least 15 years of service to contribute more than the standard limit.
403(b) and 457(b) plans also offer a variety of investment options, such as mutual funds and annuities, and contributions are typically made pre-tax, reducing the taxable income of contributors in the year the contributions are made. Some plans also offer unique benefits like the option for after-tax Roth contributions, which grow tax-free, providing additional flexibility in retirement planning.
Retirement Planning Strategies for Teachers
Retirement planning for educators requires a nuanced approach due to the unique characteristics of their employment and benefits structure. Retirement benefits for teachers can vary dramatically across states, influencing their strategies.
Contribute to a 403(b) or 457(b)
Contributing to a 403(b) or 457(b) is highly recommended for teachers who aren’t covered by pensions. But even educators who have pensions should also consider diverting a portion of each paycheck to a defined contribution plan, if they have access to one.
These plans offer tax-deferred growth, which not only helps in reducing taxable income during active working years but also means your investment gains won’t be dragged down by taxes each year. Just keep in mind that you’ll owe income taxes on the money when you withdraw it.
For 2025, the IRS has set contribution limits at $23,500 for those under age 50, with an additional catch-up contribution of $7,500 for individuals ages 50 or older (adding up to a total of $31,000). However, for people between ages 60 and 63, the IRS allows for up to $11,250 in catch-up contributions in 2025, bringing the total potential contribution limit for someone in that age range to $34,750.
Open a Roth IRA
Regardless of whether they have a pension or a defined contribution plan, teachers can also consider opening a Roth IRA. Since Roth IRAs are funded with after-tax dollars, these accounts offer tax-free growth and tax-free withdrawals in retirement, providing a valuable supplement to other retirement funds.
For 2025, the contribution limit for a Roth IRA is $7,000, with an additional $1,000 catch-up contribution for those 50 and older.
The versatility of Roth IRAs makes them a complement to existing pension or defined contribution plans, allowing teachers more control over their retirement savings and providing opportunities to balance taxable and tax-free income streams in retirement. Plus, Roth accounts aren’t subject to required minimum distributions (RMDs), which add to your taxable income in retirement and can potentially push you into a higher tax bracket.
Strategically Plan for Social Security, If You’re Eligible
Eligibility for Social Security benefits among teachers varies significantly. In some states (opt-in states), teachers are covered by Social Security, while in others, they are not (opt-out states). Additionally, some states allow individual school districts to decide whether their teachers will participate in Social Security. Teachers in states or districts that opt out of Social Security will not pay into the system nor receive its benefits, which affects their retirement planning.
The decision to opt-in or opt-out of Social Security can impact a teacher’s retirement strategy and benefits. For example, teachers in Texas who do not participate in Social Security might need to rely more heavily on personal savings and state-provided retirement plans.
| Opt-In States | Opt-Out States | Hybrid States |
|---|---|---|
| Alabama, Arizona, Arkansas, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming | Alaska, California, Colorado, Connecticut, Illinois, Kentucky, Louisiana, Missouri, Nevada, Ohio, Massachusetts, Maine, Washington D.C. | Georgia, Oklahoma, Rhode Island, Texas, Utah |
Do Pension Offsets Still Exist?
In states where teachers are eligible for Social Security, planning becomes a matter of understanding how these benefits can integrate with other retirement income sources, such as pensions. Teachers no longer face reductions in retirement or disability benefits under the Windfall Elimination Provision, which was repealed by the Social Security Fairness Act of 2024.
The bipartisan legislation, which President Joe Biden signed into law in January 2025, also repealed the Government Pension Offset (GPO). Like the WEP, the GPO adjusted Social Security spousal or survivor benefits for individuals who received a government pension but did not contribute to the Social Security system during their government employment.
According to the Social Security Administration, recipients affected by either provision will receive higher monthly checks starting in April 2025, as well as one-time lump-sum payments retroactive to January 2024.
Bottom Line
Educators’ retirement planning requires understanding the different plans available, including pensions, 403(b), 457(b) and IRAs. While pensions offer financial security, defined contribution plans like 403(b) and 457(b) provide flexibility and growth potential, depending on market conditions.
Retirement Planning Tips
- Whether you’re a teacher or not, you could benefit from working with a financial advisor when planning for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you have a tax-deferred retirement account like a 403(b), 401(k) or traditional IRA, you’re required to start taking withdrawals from it by a certain age. While these required minimum distributions (RMDs) currently start at age 73, people who turn 74 after Dec. 31, 2032, will be able to wait until age 75 to take their first RMD.
Photo credit: ©iStock.com/skynesher, ©iStock.com/andresr, ©iStock.com/kali9