Will Your Pension Be Enough? How to Calculate Your Retirement Needs as a Teacher

The Pension Gap: A Growing Concern for Teachers

According to recent data, the average state and local government pension in 2024 provides approximately $24,500 per year. While this may sound like a decent amount, it’s important to consider the rising cost of living, healthcare expenses, and other financial obligations that come with retirement. Additionally, about 27% of state and local employees are not covered by Social Security, which means their pension may be their primary source of income.

For many teachers, this could result in a significant drop in income during retirement, forcing them to cut back on spending, delay retirement, or even rely on family for support. This is why it’s crucial to plan ahead and ensure you have additional savings to bridge the gap.

How to Calculate Your Retirement Needs

To determine whether your pension will be enough, you’ll need to estimate your retirement expenses and compare them to your expected income. Here’s a simple step-by-step guide to help you get started:

Estimate Your Annual Retirement Expenses
– Start by listing your expected monthly expenses, including housing, utilities, food, transportation, healthcare, and leisure activities.
– Don’t forget to account for inflation, which can significantly increase costs over time.

Calculate Your Expected Retirement Income
– Add up all sources of retirement income, including your pension, Social Security (if applicable), and any other savings or investments.
– If you’re not covered by Social Security, your pension will likely be your primary source of income.

Identify the Gap
– Subtract your expected retirement income from your estimated expenses. If there’s a shortfall, that’s the amount you’ll need to cover through additional savings or investments.

Plan for the Unexpected
– Consider potential healthcare costs, long-term care, or other unexpected expenses that could arise during retirement. It’s always better to have a cushion.

Why a 403(b) Plan Can Help Bridge the Gap

A 403(b) plan is a powerful tool for teachers to save for retirement. Here’s why it’s worth considering:

Tax Advantages: Contributions to a 403(b) are made on a pre-tax basis, reducing your taxable income and allowing your savings to grow tax-deferred until retirement.

Flexibility: Your 403(b) funds can follow you if you change jobs, and they can be rolled over into other retirement accounts, such as an IRA.

Supplemental Income: A 403(b) can provide additional income to supplement your pension, helping you maintain your lifestyle in retirement.

How to Get Started with a 403(b)

Assess Your Current Savings: Take stock of your current retirement savings and determine how much more you need to save to meet your goals.

Set Up Payroll Contributions: Contributions to a 403(b) are made through payroll deductions, making it easy to save consistently.

Maximize Your Contributions: Take advantage of catch-up contributions if you’re over 50 or have been with the same employer for many years.

Consult a Financial Professional: A financial advisor can help you tailor a retirement savings plan that fits your unique needs and goals.

The Bottom Line

While your pension is an important part of your retirement income, it may not be enough to cover all your expenses. By calculating your retirement needs and supplementing your pension with a 403(b) plan, you can take control of your financial future and enjoy the retirement you’ve worked so hard for.

Don’t wait—start planning today to ensure a secure and comfortable tomorrow. Your future self will thank you!

Ready to take the next step? Contact a financial professional to learn more about how a 403(b) plan can help you achieve your retirement goals.