If you’re a teacher, maximizing your pension is an important part of a well-rounded retirement strategy. To make the most of your pension and retirement opportunities, though, you first need to understand the intricacies of teacher pensions and how early planning can lead to a retirement that’s more secure. You want to protect your future, and good planning is among the best ways to do that.
Fortunately, there are ways to do that. Then, you can take that valuable information and decide what options work for you when it comes to saving and investing. There are a lot of ways to save, including putting away some of the money you’re paid every time you get a check and maximizing any contributions you’re allowed to make to your pension fund for investment returns.
Whether you’re just starting out in teaching and looking for help with calculations or you’ve been looking into investments for a while and need to make a plan, having the right help and support can make all the difference. Here, you’ll get actionable tips to make the most of your pension benefits, so you can have a stronger retirement and increased peace of mind.
Understanding How Teacher Pensions Work
Teacher pension plans provide a monthly benefit to teachers after they retire, for the rest of their lives. If you work as a teacher you may want to start investing in your pension plan as soon as possible, so you can be paid in retirement from the contributions you made over your working years.
It’s not just the money you’ve put in that will go to fund your pension, though. Teacher pension plans are also partially funded by your employer and by the state in which you teach. After a set number of years of work, your pension becomes vested, which means it’s guaranteed.
Remaining in your job until you’re vested is an important way to ensure that any pensions you’ll be eligible for will come to you after you retire. Pensions are important investments in your future, and you want to receive the maximum return for your investment. Jobs like teaching typically provide stronger pensions than many other kinds of employment.
The salary you make during your years in education will affect how much you’re paid in retirement because those payments are directly related to how much was invested in your pension and how it has grown over the years. If you want better investment returns there are some specific things you can do.
1. Start Planning Early for Retirement
The very first thing you can do with your teacher pension when thinking about retiring is start planning early. Pensions take time to grow, and that means planning early may increase the likelihood of a secure retirement, but remember that future returns depend on a variety of factors including market conditions and personal circumstances. You want to see a good return on your investments, and bigger returns typically come with longer timelines.
Especially if you intend to build a career in education, early awareness of teacher pension plans and options can have a significant impact on your overall financial security during your retirement years. To learn what you need to know personally, though, you’ll want to get matched with a financial advisor who can help with your specific situation.
When you work with a professional they can give you detailed ideas about investments, assets, and the law, so you can make a plan and have a higher return after you retire. Employees who work in education have great opportunities for benefits, and teachers can work on maximizing those nearly right away.
2. Maximize Your Contributions
Whether you start right away or later in your career, you can maximize your teacher pension contributions to get bigger benefits such as increased future payouts. Teacher pension options have contribution limits, which are the maximum amounts you can put into your pension fund per paycheck or sometimes per year. If you put in the maximum you’ll see your investments potentially grow faster.
Additionally, many education employers offer matching contributions up to a specific percentage. For example, you may have a maximum contribution limit of 10% of your paycheck with a 3% matching contribution from your employer.
That means 13% is going into your pension, and will compound over time. If you can put in the maximum contribution and if your employer offers a match, both of those are great ways to help increase your future payout after you retire. You can change your contribution if necessary, but the bigger the better is a good rule to live by with putting money back for retirement benefits.
3. Understand Your Pension Formula
Education retirees receive benefits based on the amount of pension they have when they retire. This is determined by a formula that takes into account the years of service and final salary. When you understand this formula you can anticipate your future pension income more easily. Formulas vary by plan and state, and typically includes a state-set multiplier that increases your benefit.
As an example of what you might receive, one common formula is 2% this is the state-set multiplier) x your years of credited service x the average final compensation you were receiving. This calculation results in your monthly benefit, which will be in effect for the rest of your life and can help teacher retirees live more comfortably after their career in education is complete.
It’s generally better to have a professional help you decide on how to protect your assets and what kinds of investments are best. You can use our free Advisor Match Tool to be matched with an advisor who can help you understand the plan options you have, the return you can expect from them, and whether you need to change a plan you may have already started.
4. Take Advantage of Pension Buybacks
Pension buybacks allow teachers to purchase additional years of service, which can boost their retirement benefits and income. However, there are generally limits on how many of these years can be purchased and it can seem expensive to buy them at the time.
In order to determine whether a pension buyback is right for you financially you’ll need to calculate what you’ll be paying for it against what you’ll receive in retirement. It’s not always easy to get an exact calculation, but one of the ways you can get a better idea of value is to consider survivor benefits.
If you have someone who will get a percentage of your pension if you pass away, such as a spouse, you may want to spend a little now to buy more money in retirement. That not only benefits you as a retiree, but it can also help protect someone you love by providing for them financially after you’re gone.
5. Consider Delaying Retirement for a Larger Payout
Because people are living longer now, many of them are also working longer. Whether that’s because they need to or simply because they want to, it can offer significant value in a higher level of benefits through pensions. Instead of retiring as soon as you’re eligible, working a few extra years could add hundreds of dollars per month to your retirement income.
It’s important to determine whether you want to work longer and delay your retirement in order to see a larger payout as a retiree. A few extra years can significantly boost teacher pension benefits, which might be well worth it if you like what you do and are in good health. However, it’s not for everyone, and there’s nothing wrong with taking your retirement when it becomes available if that works for you.
6. Coordinate Pension with Other Retirement Accounts
If you have other retirement accounts, such as IRAs or 401(k)s, aligning them with your teacher pension is the way to go. That will help you maximize overall retirement income for a more comfortable future. It’s important for you to understand whether you need to take distributions from any of these accounts, how much, and when.
By handling your other retirement accounts and working the distributions from them around your teacher pension you can have a better plan and increased confidence that you’ve received enough to live comfortably as a retiree. If you need to make a change, the time to do that is as early as possible.
Remember, though, that investing involves risk, including the possible loss of your principal. Past performance is not indicative of future results, and you want to make sure you’re spreading your other retirement accounts out across a variety of investment vehicles for maximum levels of security.
7. Know Your Survivor Benefits
Survivor benefits are another area where you should know the details of your pension plan. These are benefits that are offered to your spouse, or sometimes another loved one, in the event of your death after retirement. However, they aren’t free or automatic and you may have several options as to how much they offer.
For example, you may be able to choose from a few set percentages when it comes to how much a survivor benefit will be. There may also be lump sum choices, and what you’re given to choose from can depend on what employees receive in specific states. Some are different from others or may increase or decrease over time.
Conclusion
Maximizing a teacher pension requires careful strategy and planning. From starting early and maximizing your contributions to understanding your pension formula and taking advantage of buybacks there’s a lot you can do to add more value to your retirement and improve your future.
If you delay your retirement for a larger payout and coordinate your pension with other retirement accounts you may find that you have a better balance based on what’s coming in and what you can do in your golden years. Don’t forget to carefully consider your survivor benefits, too, so you can help protect someone you love after you’re gone.
The best way to make the right choices for your individual situation is to find a financial advisor to work with. When you have quality guidance and support you have a much better chance of ensuring you’re making the most of your benefits and plans. There are often nuances to teacher pension plans that you might not be clear on, especially if you’re new to the education field.
You don’t have to settle for guesswork, though, or just assume that all the plans and options are pretty much the same. Your retirement is too important for that, and you can maximize the value of the opportunities you have during your teaching career with the right information.
The information provided on this site is for informational purposes only and should not be construed as financial advice. Invested Better does not guarantee the accuracy or completeness of the information provided. Please consult with a licensed financial advisor before making any financial decisions.
