Retirement Planning for Teachers

Minimize costs and avoid Social Security surprises

Teacher standing before students with hands raised

Thomas Barwick / Getty Images

Anyone who wants to retire comfortably needs to understand basic retirement concepts like income planning, taxes, and longevity. But teachers have unique retirement options that demand extra attention. If you’re an educator, it pays to know how your retirement savings plan works—and what pitfalls you may encounter. It’s also important to learn how your pension can affect your Social Security benefits.

Importantly, this information applies to more than just teachers: Principals, custodians, administrators, and other school district employees often use the same retirement programs.

Types of Retirement Plans for Teachers

Retirement savings plans are generally broken down into two categories. Teachers often have both types available to them.

  • Defined contribution plans: In a defined contribution plan, you choose how much to contribute. How much money you have for retirement depends on how much you put into the plan and how well your investments perform by the time you retire.
  • Defined benefit plans: Unlike defined contribution plans, defined benefit plans, also known as pension plans, provide income during your retirement that is not directly tied to investments you choose. Instead, your retirement income depends on factors such as how much you earn, how long you have worked in your school district, and your age at retirement.

Both types of retirement plans have their benefits and drawbacks.

Defined Contribution Plans

Defined contribution plans allow you to save money for retirement in tax-sheltered accounts. You can choose how much of your earnings go into the plan—up to Internal Revenue Service (IRS) limits—and select investments like mutual funds and annuities to put your money into.

Key Takeaways

  • 403(b) plans are known for being inflexible and charging high fees.
  • Take the time to learn which retirement plans are available to you, and what types of investments each has to offer.
  • Investigate ongoing fees and upfront investment expenses.
  • Contribute at least as much as your employer will match.
  • Know when to use an IRA instead of, or in addition to, your district’s retirement plan.

A popular plan for school districts is a 403(b) plan, which is similar to a 401(k) plan. School districts often have multiple providers for you to choose from, such as Fidelity, Equitable, or TIAA. As you evaluate providers, it’s critical to review what types of investments are available to you, how much you’ll pay in fees, and what restrictions the provider places on your money.

Unfortunately, 403(b) plans can be notoriously expensive and inflexible, especially if your options are limited to variable annuities. But you’re not necessarily limited to a 403(b) plan. Your employer may also offer a 457(b) or 401(k), and you can use individual retirement accounts (IRAs) on your own instead of, or in addition to, investing through your employer-sponsored plan.

Regardless of which type of plan you choose, it’s essential to pay attention to retirement plan fees, including:

  • Underlying investment expense ratios
  • Administrative and recordkeeping fees
  • Advisory fees, “loads,” or sales charges
  • Additional fees for loans and other transactions

Ask each plan provider for an easy-to-read breakdown of these fees so you can better compare your options.


If your employer offers matching contributions, it’s smart to contribute at least that much—even with expensive plans. Matching money is “free money” that substantially adds to your retirement savings. Just be sure to understand the vesting schedule so you can keep that “free money.”

A Note on Annuities

If you’re considering an insurance product such as a variable annuity, be aware that annuities offer no additional tax advantages when you invest in them through your retirement plan. Fees are also typically much higher than what you’d pay in mutual and index funds.

You should also ask about surrender charges that could make it difficult or expensive to access your savings from an annuity. In fact, the Securities and Exchange Commission (SEC) notes that it will be best for many investors to max out their contributions to retirement plans before investing in a variable annuity.

However, if annuities are the only option available in your employer-sponsored retirement plan, or if they have benefits that outweigh their expenses, even high fees could be a necessary evil in order to save what you need for retirement.

Plan Contributions

When contributing to a 403(b), 457(b), or 401(k), you can often choose to make pre-tax contributions to a traditional plan, or after-tax contributions to a Roth plan. Pre-tax contributions reduce your taxable income (and, as a result, your income tax liability) the year in which you make them. However, you’ll need to pay income tax on your withdrawals during retirement.

While Roth contributions confer no immediate tax benefit (you include the amount you contribute in your taxable income), Roth plans are designed so you can withdraw everything tax-free in retirement. Deciding whether to make Roth or traditional-plan contributions largely comes down to whether you’d prefer to pay taxes now on your contributions, or later on your withdrawals.

The maximum amount that you can contribute to your 403(b) and 401(k) plan is $19,500 for 2021 (increasing to $20,500 in 2022) unless you qualify for catch-up contributions. All contributions to a 457(b) plan—the combination of both your contributions and your employer’s—can not exceed $19,500 in 2021 ($20,500 in 2022), in most cases, unless you qualify for catch-up contributions.

Note that a 457(b) plan has a contribution limit that is entirely separate from the 401(k) and 403(b) limits. In other words, most teachers (if they are younger than the age of 50) can make a contribution of $19,500 to the 457(b) and then another $19,500 into the 403(b).


If you’re a new teacher, consider contributing to a Roth retirement plan. Since you’re in your lowest-earning years, you won’t pay much in taxes, and you could be in a higher tax bracket when you retire. If needed, you can change your plan option later.

Catch-up Contributions

As you approach retirement, you can often increase how much you contribute to a defined contribution plan from the earliest age at which you may retire with full pension benefits up to age 72. In 2021 and 2022, savers who are 50 or older may contribute an additional $6,500 to 403(b), 457(b), or 401(k) plans.

Plus, you might have access to even bigger catch-up opportunities:

  • 403(b) plans may offer an additional catch-up of up to $3,000 for employees with at least 15 years of service.
  • 457(b) plans allow employees within three years of the plan’s normal retirement age to contribute up to $39,000 more in 2021 ($41,000 in 2022).

It's important to note that while contribution limits are separate for the two types of plans, the traditional catch-up of $6,500 cannot be applied alongside the special catch-up in the 457(b).

If you have enough cash flow to boost your retirement savings, ask your plan administrator if these opportunities are available.

If You Have a Lousy Retirement Plan

Some teachers, especially those in K-12 schools, only have access to high-cost 403(b) plans. If there’s no employer match and you expect to save less than the annual IRA limit each year, consider using an IRA instead. For 2021 and 2022, the IRA contribution limit is $6,000 for those under age 50 ($7,000 if you’re 50 or older).

IRAs allow you to save pre-tax or after-tax money, depending on whether you choose a traditional or Roth IRA. And you can choose your own investment provider (instead of being limited to a shortlist). You can also contribute to both an IRA as well as a retirement plan through work. For example, you might max out your IRA first and put additional tax-favored savings in a 403(b).

However, it’s critical to make sure you’re eligible. Depending on your income and tax filing status, you might not be able to make deductible contributions to a traditional plan or even contribute to a Roth plan.

For 2021, if you’re married and both you and your spouse have retirement plans through work, you can’t deduct contributions made to a traditional IRA if your modified adjusted gross income (MAGI) is more than $125,000 (increasing to $129,000 in 2022). If you’re married and your MAGI is at least $208,000 (increasing to $214,000), you can’t make any contributions to a Roth.

Ask your accountant how these strategies will work regarding your tax return before you decide.

Defined Benefit Plans

Pension plans can be a valuable retirement benefit for teachers. They can replace a substantial amount of your income in retirement, and the income is typically guaranteed to last your entire life. Plus, you can choose a beneficiary who continues to receive income after your death.

Key Takeaways

  • Pensions work best if you stay within one retirement system throughout your career.
  • A pension can provide income for your life as well as the life of a beneficiary.
  • Depending on your district and/or the state you live in, your pension benefit could reduce your Social Security benefit.

But to get a meaningful pension benefit, you need to work under the same retirement plan system for numerous years. These arrangements tend to reward long-term teachers; if you only teach for a few years, don’t expect much from your pension.

Most school districts offer a pension plan to employees, and you are automatically enrolled. In some cases, you can choose to participate in a defined contribution plan in addition to (or instead of) the pension plan. That’s a difficult decision that depends on numerous factors and requires you to make some assumptions about the future. When you participate in a pension plan, you typically contribute a portion of your wages to help fund your future income. The exact amount depends on your retirement system, but it’s often around 6% to 8%.

To find out how much you can expect in retirement, contact your benefits administrator. Every pension plan is different, but representatives are often helpful and eager to provide estimates on how much you’ll get at retirement. Be sure to specify what type of income you want: income for your life only or income that continues for family members after you die.

Teacher Pensions and Social Security

Social Security can be extremely complicated for teachers. If you do not contribute to Social Security through your job, you may see any other Social Security benefits you’d be entitled to—such as those from other employment or from your spouse’s work record—reduced or eliminated when you take pension income.

But if you work in one of the 33 states that fully participate in Social Security, you don’t need to worry about these complex rules. Ask your benefits department for guidance specific to your school district.


Penalties that reduce Social Security benefits generally only affect those who get a pension from a government or nonprofit employer that does not pay into the Social Security system.

Windfall Elimination Provision

The Windfall Elimination Provision (WEP) can reduce your benefit by up to $480 per month or one-half of your pension from non-covered employment.

For example, if your monthly Social Security benefit was projected to be $1,500 in 2020 and your teacher pension was $1,000 per month, you could have faced a $480 WEP reduction. In that case, you would only have gotten $1,020 per month from Social Security. That’s a significant difference, and you might not have found out about it until after you filed for benefits.

The WEP rules are complicated. And there are several exceptions available, so it’s important to speak with a Social Security representative or financial professional to learn what to expect. For instance, some people, including those with more than 30 years of “substantial earnings” (as defined by the Social Security Administration) and railroad workers, are not subject to a WEP reduction.

Government Pension Offset

The Government Pension Offset (GPO) affects Social Security’s spousal and survivor benefits. Unlike the WEP, this penalty only applies to retirement benefits from a spouse’s (or former spouse’s) work record. In some cases, the reduction amount can eliminate your Social Security benefit entirely.

The GPO is based on your monthly pension amount, with the reduction amounting to two-thirds of that pension benefit. For example, if you get a teacher’s pension of $3,000 per month, two-thirds of that is equal to $2,000. If your Social Security retirement benefit from a spouse’s work record is $2,000 or less, your Social Security income would become $0. Remember that this only applies to Social Security’s spousal benefits and pensions that do not pay into Social Security.

Next Steps for Teachers Planning for Retirement

Now that you understand the retirement landscape, it’s time to take action. 

  1. Find out if you have access to a defined contribution plan, such as a 403(b) or 401(k), and consider enrolling, as doing so can supplement any pension income you expect to receive.
  2. Review the fees associated with the investment options available to you, and be prepared to ask questions. Don’t forget that you’re probably eligible to contribute to an IRA instead of, or in addition to, a defined contribution plan through work.
  3. Ask your benefits department if your employer contributes to Social Security and if your pension might be subject to reduction by the WEP or GPO. Also, ask for an estimate of your pension benefit so you can get a sense of your projected retirement benefits.

If you want more help, consider asking a financial planner for guidance on investments selections, how much to save, and more.

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  2. U.S. Securities and Exchange Commission. "Updated Investor Bulletin: Variable Annuities."

  3. Internal Revenue Service. "Retirement Topics - 457(b) Contribution Limits."

  4. Internal Revenue Service. "How Much Salary Can You Defer if You're Eligible for More Than One Retirement Plan?"

  5. Internal Revenue Service. "Retirement Topics - Catch-Up Contributions."

  6. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

  7. Internal Revenue Service. "Individual Retirement Arrangements (IRAs)."

  8. Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2021."

  9. Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2022."

  10. National Association of State Retirement Administrators. "NASRA Issue Brief: Employee Contributions to Public Pension Plans."

  11. National Center for Education Statistics. "Not All Teacher Retirement Is Created Equal."

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  13. Social Security. "Windfall Elimination Provision."

  14. Social Security. "Program Operations Manual System (POMS): Government Pension Offset (GPO) Provision."

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