Let's Talk About RETIREMENT...
Planning for "what comes afterwards" may not be foremost in our minds in our 20s or 30s, even our 40s. However, the sooner we INVEST in OURSELVES, the BETTER the eventual (and inevitable) outcome...
Public K-12 teachers in the United States have several retirement plan options that are akin to 401(k) plans. Let’s explore a few of them:
403(b) Plans: These are the most common type of defined contribution plans for teachers. Similar to 401(k) plans, 403(b) plans allow you to have money deducted from your paycheck and invested in your chosen funds1. They often include both traditional and Roth account options2.
457(b) Plans: These plans are available to public employees, including teachers. Like 401(k) plans, they allow for pre-tax contributions, and the funds grow tax-deferred until withdrawal1.
Traditional Pensions: Most public school teachers are covered by traditional pensions. These pensions encourage and reward long service. They provide monthly income based on age and years of service. Recent studies have shown that traditional pensions are significantly better matched to the typical teacher’s career than 401(k)-type savings plans in several states, including Colorado, Connecticut, Georgia, Kentucky, Missouri, and Texas3. For eight out of ten teachers in these states, existing pensions provide greater, more secure retirement income compared to an idealized 401(k) savings plan3.
Remember to explore the specific details and options available in your state or school district to make an informed decision about your retirement plan!
*** DISCLAIMER: THIS IS NOT FINANCIAL ADVICE, just a clarion call to us all (the author included) to EDUCATE ourselves about money, finance, and living NOW & into retirement…
1. Traditional Pensions (Defined Benefit Plans)
Most public school teachers are covered by traditional pensions. These plans encourage and reward long service.
Benefits are based on age and years of service.
Teachers contribute a portion of their salary, and the employer (school district or state) also contributes.
Examples of states with traditional pension plans:
Colorado
Connecticut
Georgia
Kentucky
Missouri
Texas
2. Defined Contribution Plans
These plans are similar to 401(k) plans and allow teachers to save for retirement. Here are the key types:
a. 403(b) Plans
Common for teachers.
Allows pre-tax contributions directly from the teacher’s paycheck.
Offers investment options.
Similar to 401(k) plans but tailored for educators.
b. 457(b) Plans
Another option for public employees, including teachers.
Allows pre-tax contributions.
Provides flexibility in investment choices.
3. Roth Options
Some plans (403(b) and 457(b)) offer Roth versions.
Roth contributions are after-tax, but withdrawals in retirement are tax-free.
Remember that each state may have variations in its plans, so it’s essential to check the specifics for your state or territory. Teachers should consult their local school districts or state retirement systems for detailed information.