Rules of Thumb for Educators Saving for Retirement

Chris Reddick |
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For those in the education field, such as teachers, professors, and administrators, it incumbent upon them to save for retirement. One of the benefits of working in education is the generous employee benefits, which many educators don’t take full advantage of. In this blog, I will discuss 4 rules of thumb to follow to save for retirement, focusing on educators. Although following these rules won’t guarantee success, they can put you on a good path.

1. Save at least 15%

One of the most important thumb rules is to save at least 15% of your pre-tax income towards retirement. This would include both employer and your contributions. This is a general guide, and you can, of course, save more but up to IRS limits. Educators typically have many options, such as 403(b) or 457 plans to save for retirement. If you contribute towards a pension, you could reduce the savings to perhaps 10% of pre-tax income. But don’t view a pension as the sole source of your retirement income.

2. Target saving by your age

Fidelity Investments provides examples of how much of your salary you should have saved for retirement by age. For age 30, you should have 1X your salary, at age 40 3X your salary, age 50 6X your salary, age 60 8X your salary, and age 67 10x your salary. These are rules of thumb and general aspirational guidelines. If you are behind these benchmarks, try to catch up!

3. A pension is usually not enough

Educators usually have a choice of a pension or are obligated to sign up for the state pension. A pension is a great source of guaranteed income during your retirement. But typically, with a pension, you might get around two-thirds of your working salary in retirement. It could be less, so why take a chance? State governments know this and usually offer additional ways to save for retirement. It is better to contribute additional money to 403(b) or 457 plans to supplement your pension. These plans are similar to a 401(k) that you see in the corporate sector.

4. Check that you are actually paying into Social Security

We often hear that Social Security will not be there for future retirees. This may be the case, but I would count on something being there. If you contribute to Social Security, this can be a good source of retirement income. Keep in mind some teachers and educators don’t pay into Social Security, which could impact whether you receive it or get a reduced benefit. Social Security is great because it provides guaranteed income indexed for inflation or the cost of living. Most state pensions are not indexed for inflation. You can also maximize your Social Security benefit by taking it at age 70. First, make sure you are paying into Social Security. You can easily look at your paycheck or talk to HR. If not, save additional money in a 403(b) or 457 plan.

It is never too late to save for retirement. Even if you start late, you can work on catching up. Retirement is a major milestone in your life as an educator, and you should not take it to chance. Contact a financial planner to discuss your retirement goals.

 

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.

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