Retirement is a hard-won milestone after spending years earning degrees and certifications, followed by years or decades of training, lesson planning, and grading. Teachers deserve to retire in comfort or even in luxury if they can properly prepare. Yet, trying to figure out how to do that can be more complicated than any grading curve.

With pensions, investment plans, and Social Security accounts to understand and balance, many pre-retiree educators feel overwhelmed by options. This article delves into the most common teacher pay options in retirement to help educators understand their future income and plan the lifestyle they dream about, after the last class bell rings and they go home for good.

Teacher Pensions

When teachers think of paying for retirement, they usually think of their pensions. Public schools participate in state retirement systems, which fund a predictable monthly income for the teacher’s post-retirement years by taking a contribution from the teacher’s paycheck. The rate of contribution varies by state from between 5% and 12%. In Colorado, for example, teachers pay an 8% contribution rate, while their employers contribute 22.5%.

This provides a stable foundation for the teacher’s retirement pay. However, pensions are not always as cut-and-dry as they appear, with many teachers misunderstanding the benefits and limitations of their pension plans. These are the three key factors that teachers should know:

• Benefits: Pensions offer a defined benefit plan, which sets the monthly payment based on the number of years the teacher was employed and the top salary they earned.

• Vesting Period: In most states, teachers are required to teach for 5-10 years without benefits before they become eligible for a pension, known as the “vesting period.” In Colorado, for example, the vesting period is 5 years.

• Payment Options: Lump sum payouts are possible but not common. Most teacher pensions are structured as a monthly benefit check for the rest of the teacher’s lifetime.

Compared to investment-based accounts, pensions offer teachers strong stability as they plan for retirement. Predictable income and experience-based compensation make pensions the cornerstone of most educators’ retirement plans. However, pensions are not without risks, including underfunding, and these accounts may not fully support teachers through decades of retirement, especially if they began their careers later in life.

Savings and Investments

Pensions provide a predictable income, but they may not be enough to maintain the lifestyle that teachers hope to achieve, especially as rising inflation and living costs eat into their funds. Supplemental retirement accounts can be opened in the form of high-yield savings accounts, investments, and more.

However, navigating the world of private investments can be daunting for a busy teacher. There are two types of savings and investment accounts that teachers should be familiar with: IRAs (Traditional and Roth) and investment savings.

IRA Accounts

IRAs, both Traditional and Roth, provide an easy entry point for pre-retirees to invest in their retirement, even if they have no knowledge of investments. Teachers can manually contribute to the accounts throughout the year up to a set annual limit, which is currently $7,000 for those under 50 and $8,000 for those 50 and older. Opening one IRA of each type is possible, but they share the same maximum limit, meaning if you invest $5,000 in the Traditional IRA, there’s only $2,000 (or $3,000, depending on age) left for the Roth.

Both types of IRAs are tax-advantaged accounts. Where they differ is in the timing of the taxes:

• Roth IRAs do not grant a tax deduction in the year of the investment because contributions are already after-tax. The advantage is that growth is tax-free, and so are post-retirement withdrawals.

• Traditional IRAs work oppositely, where contributions are tax-deductible, saving teachers money in the contribution year. However, the growth is tax-deferred, which means retirees pay taxes on their withdrawals.

Both accounts can be good choices if pre-retirees have time to let the accounts grow without touching the funds. Both types of IRA accounts have early withdrawal penalties (usually around 10%) if the pre-retiree is 59 ½ or younger when they withdraw funds.

Investment Savings Accounts

IRAs are also not the only choice for investment savings accounts. Traditional stocks, bonds, mutual funds, and ETFs can be held or traded to grow an extra nest egg for retirement. Educators, like other public service workers, also have access to retirement savings accounts, 403(b) and 457(b), which take the money directly from their paycheck to save for retirement. Both 403(b) and 457(b) contributions are usually made with pre-tax money, meaning the withdrawals are taxed.

However, since contribution limits for 2025 are $23,500, these accounts can grow very quickly. A 403(b) plan even allows extra contributions of $3,000 per year for up to $15,000 if the teacher is between the ages of 60 and 63, called “catch-up contributions.” These can be crucial to accelerating the retirement timeline by accumulating retirement savings even faster.

Regardless of the type of savings account chosen, the goal is the same: building wealth for retirement outside of paychecks and pensions.

Social Security and Its Equivalents

Social Security is the other primary source of teacher retirement pay that educators should know about. Not all teachers are eligible for Social Security, but many state systems participate in the program or supplement it with a state-managed pension plan. For example, Colorado funds the Colorado Public Employees’ Retirement Association (PERA), which teachers can use in addition to Social Security or instead of it.

Teachers who fully contribute to Social Security receive monthly benefits after retirement, but those who partially or fully replace it with state-funded benefits will have their own benefits repayment plan. Notably, the Social Security Fairness Act now includes a provision for some public employees, such as teachers, to double-dip on benefits, potentially allowing Colorado teachers to collect both Social Security and PERA pensions, though this is not common. The new legislation also increased benefits by an average of $360 per month.

The details are still unfolding on how these changes will impact teachers’ futures in Colorado and all states. Other states likely have their own changes that educators should know about. However, Social Security accounts remain a pillar of many teachers’ retirement plans in 2025.

The Takeaway for Teachers Preparing for Retirement

Becoming a teacher is a hard yet rewarding journey. Pensions, retirement savings accounts, and Social Security can provide single or multiple sources of income for teachers after they retire to ensure the journey has a comfortable destination.

Yet depending on their retirement timelines, teachers need to be careful with their investments. Long-haul investment strategies that require years or decades in the market should be avoided after a certain age in favor of tax-advantaged accounts that can accumulate wealth quickly. Additionally, state-funded pension programs may replace or supplement traditional investment plans, so teachers should find out what their state offers before committing to a long-term strategy.

Planning for retirement may seem intimidating, but Zen Educate is here to help you create a roadmap that puts the retirement lifestyle you deserve within your reach. Regardless of your timelines or your means, there’s a retirement plan for you. Sign up for free today for more educational resources, including how to retire as a teacher in your state and build a legacy for yourself and your family.

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