Beyond the Pension: How Educators Can Maximize Retirement Income

While CalSTRS provides a foundational pension for California educators, most teachers will benefit from supplementing their retirement income through additional savings vehicles. Programs such as 403(b) and 457(b) plans offer tax-advantaged opportunities to save more throughout one’s career. These plans allow educators to contribute pre-tax dollars, reducing taxable income during working years while growing retirement savings. Understanding how these plans interact with CalSTRS is essential for developing a comprehensive financial strategy.

School districts across the country should take an active role in helping teachers navigate these options. Hosting vendor-neutral informational sessions and providing access to fiduciary advisors can prevent educators from selecting high-fee or underperforming products. The California State Teachers’ Retirement System does not manage 403(b) or 457(b) plans, so teachers must rely on their districts or third-party platforms like 403bCompare to evaluate their options carefully¹. By regularly contributing to supplemental plans, teachers can close potential income gaps between their pension and desired retirement lifestyle.

Understanding the CalSTRS Benefit Formula and Service Credit

A critical area where early- and mid-career educators can influence their retirement income is through understanding the CalSTRS benefit formula. The retirement benefit is determined by three factors: years of service credit, age at retirement, and final compensation². Teachers who monitor their service credit and understand how it accumulates are better positioned to make strategic career choices, such as working additional years or increasing their work schedule to full-time status when feasible.

Service credit purchases, such as redepositing prior withdrawn contributions or buying nonqualified service credit, can also increase retirement income. These options require careful cost-benefit analysis, ideally done with the assistance of CalSTRS counselors. Informed decisions about service credit can significantly improve long-term benefits, particularly for educators who experience career interruptions due to caregiving, relocation, or other personal reasons. Making up that credit early in a career is generally more affordable and impactful than waiting until later years³.

Planning for Healthcare and Other Post-Retirement Costs

One of the most frequently overlooked aspects of retirement planning is healthcare. CalSTRS does not provide health insurance coverage in retirement, leaving educators responsible for securing their own benefits unless their district offers post-employment healthcare. This can result in significant out-of-pocket costs, especially before becoming eligible for Medicare at age 65. Educators should evaluate their district’s retiree health benefits and explore Health Savings Accounts (HSAs) if available, as these accounts provide tax advantages and can be used to cover qualified medical expenses in retirement⁴.

District leaders and human resources staff can support teachers by offering transparent information about post-retirement benefits