It’s important that at the start of the school year, as you prepare yourself for your new students, you also do a check-in on your future. If you are far away from retirement, it’s important you have an idea of how your pension will be calculated, even if you don’t know what kind of salary you’ll be making or the years you want to teach. If you are nearing retirement, it’s even more important to look at calculations and requirements to make sure you are prepared. This week’s article is an overview of State Teachers Retirement Pensions. I will go over more detail with examples over the next few weeks and add to this. 

A big plus to becoming a public educator is access to a pension - a guaranteed income stream in retirement. How well do you understand your pension and how it works? Although there are differences among states, pension benefits have most things in common, and it’s important to understand how they work. Here are the top 3 concerns that I hear teachers ask about their pension plans.

1. How is my pension calculated?

Your pension calculation is one of the most critical aspects to understand, as it directly influences the income you’ll receive in retirement. Typically, there are three main factors: 

• Years of Service - This is the total number of years you have worked and contributed to the pension plan. The more years you work, the higher the pension will be. You may have yeast under more than one state plan, also. There may be an opportunity to combine your years between plans, or a chance to buy-back years of service. You also may be able to add sick days to the number of years.

• Final Average Salary - This refers to the average of your highest earnings over a certain period, typically 3 to 5 yes. Some plans might use your last few years of salary before retirement, while others might use the highest earning years through your career.

• Multiplier/Benefit Factor - This is a percentage, usually between 1.5% to 2.5%, that is applied to your years of service and final average salary to determine your annual pension benefit. For example, if your final average salary is %70,000, you have 30 years of service, and your benefit factor is 2%, your annual pension would be calculated as $70,000*30*.02 = $42,000.

Notice that there will be a reduction in take-home pay when you move from salary to pension benefits. On average, your pension will replace 40-70% of your final salary. The gap between what you are used to bringing home each pay period and what you will receive once you retire is called the Pension Gap. I’ll talk about this in more detail next time.

Your State Pension’s website will provide you with a lot of useful information - calculators, charts, brochures, videos -sometimes too much information! It is a great place to bookmark and go back to when you want to look something up. 

2. When Am I Eligible to Retire with Full Benefits?

State Pension Plans have rules about when you can start to receive benefits, what’s the maximum amount you can receive, and the conditions you must meet to get those benefits.

Know these key things:

• Age Requirements - what is the minimum retirement age? Can I retire early with reduced benefits? Some plans may have different ages based on when you were hired, also.

• Years of Service - Just as we used years of service to calculate your benefit amount, it’s also important to calculate this so you know how many years you need to work for full benefits. Typically it is tied to age, also. For example, you may be able to retire with benefits after 20 years of service and age 60, or age 65 with 5 years of service. 

Retiring with full benefits ensures you receive the maximum pension amount available to you. When planning your retirement, make sure you know what these numbers are, and any impact retiring early will have on your benefit amount.

3. How Does My Pension Work with Social Security?

This can be complicated depending on which state you live in. In essence, your pension replaces Social Security benefits - while you work for the District, you pay into the State pension and not into Social Security. This usually is a great benefit, as Social Security only replaces about 34% of a person’s salary. 

However, many educators choose to work outside of the school district, or work another job prior to becoming a teacher, and contribute to Social Security while at those jobs. There are two ways you can be affected:

• WEP - Windfall Elimination Provision. This may reduce your Social Security benefit. It is based on a formula based on the number of years you worked in jobs covered by Social Security. 

• GPO - Government Pension Offset. This may affect the Social Security benefits you receive as a spouse or widow(er) if you receive a pension from non-Social Security covered work. The GPO can reduce or even eliminate these benefits, depending on the size of your pension.

It is important that you know how these two systems interact with each other and the effect on your pension. 

Final Thoughts…

As we’ve explored this week, understanding the basics of your State Teachers Retirement Pension is essential, whether you're at the start of your teaching career or nearing retirement. Knowing how your pension is calculated, when you’re eligible for full benefits, and how your pension interacts with Social Security are key factors in planning for your financial future. 

In the coming weeks, I’ll provide more detailed examples and insights to help you navigate these important aspects of your pension plan. Remember, as you prepare your classroom for a new school year, it's equally important to take time for your future. I encourage you to schedule a pension review appointment with an independent advisor today to ensure you’re on track for a secure retirement. 

Don’t wait—your future self will thank you!

Debbie