Teachers and retirement saving: What you need to know when the last bell rings

As anyone who is a relative of a student or teacher knows, these are particularly stressful times whether you’re in a physical classroom or a virtual one. But especially a virtual one. While students have no choice but to carry on, many teachers are wondering whether it is time to leave the profession for another career or possibly even retirement.

Given the busy life of a teacher, there’s often little time to focus on reviewing their retirement plan or pension. What’s a teacher to do?

I turned to Freda Lee, senior vice president at AIG Retirement Services for her perspective on the subject. Lee has focused on relationship management since she joined AIG in 2004 and has over 20 years of experience in the financial services industry.

She works closely with AIG Retirement Services’ program leadership committee for FutureFIT Academy, which in partnership with EVERFI, teaches financial wellness and literacy to school age children (K-12) in local area schools in need of service.

BenefitsPRO: We know teachers are stressed out and stretched thin, and many are considering retiring early– what things do they need to think about before they take the leap?

Freda Lee: Many of our clients are K-12 school districts, and we know they are prioritizing the safety of their students, teachers and staff. Still, you are right—many teachers are not comfortable returning back to school, and they might decide that an early retirement or a change in roles is their best option.

The first thing I would tell teachers is that retiring early is a big decision. It can send major ripple effects through your entire financial plan.

To begin to understand the impact, teachers may want to consider focusing first on their pensions. They may need to examine whether they will still qualify for a pension if they retire early or change roles. Then they may want to assess how significantly retiring today versus several years from today will impact their monthly income. It’s hard to understate the value of a guaranteed income stream throughout retirement.

In addition to a pension, many teachers have a supplemental retirement plan, and some may also qualify for Social Security. Teachers should look at their total picture to understand just what it means to move up their retirement date. Every year you don’t work is a year you’re not contributing to your plan.

Finally, teachers retiring early will need to evaluate whether they can live on less than they may have anticipated, especially as they think through the risk of outliving their savings. There are options—downsizing or relocating to a more affordable part of the country can lower the amount you will need every month.

For all of these, an important first step is to consult a financial advisor. Working with a professional, teachers can better understand their current retirement picture and the options they have available. Some employers will offer free access to an advisor through their workplace retirement plan.

Younger teachers are still paying off student loans. Are there forgiveness programs available to help? What if they leave the profession — will the loans still be outstanding?

The CARES Act has provided some relief, but student loan forgiveness can be a huge help for many teachers.

Some may qualify for the Teacher Loan Forgiveness Program, which grants forgiveness of up to $17,500. Others may be eligible for Public Service Loan Forgiveness, a federal program that eliminates all remaining federal student debt after 120 months of qualifying payments have been made.

What we’ve seen, though, is that translating eligibility for student loan forgiveness into receiving that forgiveness can be a challenge. Less than three percent of applications for the Public Service Loan Forgiveness program have been approved, so this is a moment when employers can help.

Schools and school districts can provide resources that help their teachers take control of their student loan debt. AIG Retirement Services works with Savi, a social impact technology firm, to provide an online tool to help teachers—and others—determine whether they qualify for student loan forgiveness, navigate through the enrollment process and maintain their eligibility.

An important point: teachers should know that when they leave the profession for a noneligible field, they no longer qualify for these programs. The Teacher Loan Forgiveness Program requires five consecutive years of employment in an eligible teaching position. The story is different for the Public Service Loan Forgiveness program, where borrowers can return to a qualified employer with no effect on their progress toward meeting the requirement of 120 months of qualifying payments.

Teachers are so busy — are there any tips or ideas for how teachers can take control of their finances and learn more about them while still maintaining their busy schedule?

Often teachers are so focused on helping their students that sometimes their own self-care can slip through the cracks.

Schools and school districts have a great opportunity to provide educational seminars that help their employees boost their financial preparedness and IQ—not just for long term goals like retirement, but also with personal finance basics like budgeting, saving and building in safeguards for themselves and their families in the event they become sick or unable to work.

Working with a financial advisor is key to boosting teachers’ financial health. Financial advisors can help teachers put together a holistic plan to help them articulate and reach their financial goals.

A percent of public school teachers don’t participate in Social Security (and some don’t even realize they don’t). Is this going to cause challenges with retirement?

Many teachers don’t pay into Social Security during their teaching careers, paying into a parallel pension system instead. Although every situation is different, a pension along with a supplemental retirement plan and other savings can help teachers find financial security in retirement.

However, one complication can be when teachers receive Social Security benefits for some of their career and a public sector pension for another. In instances such as this, the Windfall Elimination Provision may change how Social Security calculates benefits. Additionally, if a teacher is expecting to collect a Social Security spousal or survivor benefit based on their spouse’s work history, the Government Pension Offset may reduce Social Security benefits.

Teachers need to be aware of factors like these. Part of putting together a comprehensive retirement income plan is to understand how pensions might affect Social Security benefits.

If a teacher is in a public pension plan, is there any way they can make sure they have enough to retire on when the time comes?

It pays to plan ahead. Teachers should think through how much money they will need each month in retirement in order to live the lifestyle they want. Thinking of this number as their “retirement paycheck” can help start the planning process.

Next, they can examine how much they can expect to receive out of their public pension plans. Finally, they can close the gap to reach that target retirement paycheck by supplementing income through savings.

Many schools and school districts offer 403(b) plans to allow teachers to put aside additional tax deferred funds for retirement and starting early pays off. By putting away as much as you can early in your career, your nest egg will have more potential to grow.

Ultimately, the proper retirement mindset should emphasize both savings and income. That’s a good lesson plan for teachers—and for everyone else.