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Service credit purchases, such as redepositing prior withdrawn contributions or buying nonqualified service credit, can also increase retirement income.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 and encouraging long-term planning. Including healthcare cost estimators in retirement planning sessions and offering workshops on Medicare enrollment can help educators prepare for this significant financial obligation. Without proactive planning, healthcare costs can erode a substantial portion of pension income, particularly for those retiring before Medicare eligibility.

Adjusting Plans in Response to Legislative and Economic Changes

Retirement planning is not a static process. Changes in pension legislation, contribution rates, or retirement age thresholds can affect long-term outcomes. For example, CalSTRS has implemented changes over the years that affect benefit calculations depending on when a member was hired, distinguishing between members under CalSTRS 2% at 60 and CalSTRS 2% at 62 benefit structures⁵. Teachers should stay informed about legislative developments that impact their retirement benefits and adjust their plans accordingly.

Economic factors such as inflation, cost of living adjustments (COLAs), and investment returns also influence retirement readiness. While CalSTRS provides a limited COLA, it may not fully keep pace with inflation. Teachers can mitigate this risk by diversifying their retirement income sources and periodically reviewing their financial plans. Districts can assist by integrating retirement planning updates into regular professional development cycles, ensuring that staff are equipped to respond to changes in a timely and informed manner.

Leveraging Retirement Timing and Exit Strategies

The timing of retirement can significantly affect the value of CalSTRS benefits. Educators who work beyond the normal retirement age or delay drawing their pension may receive a higher monthly benefit due to age factor adjustments⁶. Conversely, retiring early can reduce monthly income, even with substantial service credit. Understanding these trade-offs enables teachers to make decisions that align with both financial goals and personal circumstances.

Retirement is also a professional transition that benefits from thoughtful planning. Districts can support this phase by offering phased retirement or mentorship programs that allow experienced teachers to reduce their workload while supporting new educators. These programs not only ease the transition for retirees but also preserve institutional knowledge. Empowering teachers to retire on their own terms—when they feel financially and emotionally ready—contributes to a more stable and sustainable workforce.

Building a Culture of Retirement Preparedness

Embedding retirement planning into the educational profession requires sustained cultural change. Just as schools emphasize continuous learning for students, retirement literacy should be an ongoing priority for staff. This includes integrating financial planning into new teacher orientations, offering annual check-ins with retirement specialists, and celebrating milestones such as eligibility for full retirement benefits. When retirement preparedness becomes a shared value, educators are more likely to participate and engage.

District leaders, unions, and professional associations can collaborate to promote best practices in retirement planning. By normalizing conversations around financial goals, encouraging peer mentoring, and providing access to credible resources, the education sector can foster long-term well-being for teachers. Ultimately, a proactive approach to retirement not only benefits individual educators but also contributes to workforce retention and institutional stability.

Bibliography

California State Teachers’ Retirement System. “403bCompare: Compare 403(b) Investment Products.” Accessed April 15, 2024. https://www.403bcompare.com.
California State Teachers’ Retirement System. “Your CalSTRS Retirement Guide 2023.” Sacramento, CA: CalSTRS, 2023. https://www.calstrs.com/publications.
California State Teachers’ Retirement System. “Purchasing Service Credit.” Accessed April 15, 2024. https://www.calstrs.com/purchasing-service-credit.
U.S. Government Accountability Office. “Retirement Security: Most Households Approaching Retirement Have Low Savings.” GAO-15-419. Washington, DC: GAO, 2015. https://www.gao.gov/products/gao-15-419.
California State Teachers’ Retirement System. “Understanding the 2% at 60 and 2% at 62 Benefit Structures.” Accessed April 15, 2024. https://www.calstrs.com/benefit-structures.
California State Teachers’ Retirement System. “How Your Retirement Benefit is Calculated.” Accessed April 15, 2024. https://www.calstrs.com/benefit-calculation.