Pension Changes Make Educators' Road to Retirement Tougher

September 13, 2013 ( - Many education professionals have worked their entire careers toward a pension benefit that was likely the sole source of retirement income.


Today, many state retirement systems are underfunded and benefits are changing. The retirement path now looks more like a network of highways, detours, and interstates under construction. School district 403(b) and 457 retirement plans, once considered supplemental, are now an ‘essential’ part of an educator’s retirement picture. As school administrators and educators look down the road to retirement, they need more than a map of possibilities. They need a navigation system to help them get started, move forward, and be ready for retirement.

What has changed?

Everything. Over the last decade, more than 40 state retirement systems have changed their pension benefits. They’ve added new tiers, frozen cost-of-living adjustments or converted retirement systems to defined contribution plans. The Great Recession instilled a mindset of fear into average Americans, and likely delayed retirement for many educators who are conflicted by the need to protect assets while “catching up” and capturing more upside returns.

The average retirement age for educators is 59, which means late-career educators may still be as young as 50. While their pension benefits haven’t changed, it’s not enough to maintain their pre-retirement lifestyles. They will enter retirement through a maze of complex options and choices—including pension payouts, health care plans, and Social Security benefits—and their decisions will affect the rest of their lives.

Roads to retirement

The changes in pensions mean educators will now travel different roads to retirement depending on their current career stage: early, middle or late. Each group will have a unique set of responsibilities and decisions along the way to a comfortable retirement. Nearly everyone will need some additional retirement savings from their 403(b), 457 or IRA account. Reaching and maintaining a desired retirement lifestyle is achievable, but it may take a new approach and additional help to get there. 


Early Career – Those beginning their career are often the least concerned about retirement planning, but they hold the greatest asset—time. Starting early and saving methodically is critical to success, since young educators will need to be more financially self-reliant than older peers when they retire. Early-career educators should:

  • Order a pension report and understand how much income their state retirement system will provide;
  • Ask a financial adviser for a paycheck analysis or perform one online to calculate how much they can and need to save; and
  • Start saving now through the district’s 403(b) or 457 retirement plan – the cost of waiting even a few years can make a substantial difference in retirement savings.


Mid Career – Educators who are close to the midpoint of their careers need to take more control of retirement and understand how changes to the system affect them now and in the future. They need to reassess goals, increase contributions, and balance investment portfolios to make sure they are moving forward to retirement. Those 10 to 20 years from retirement should:

  • Ask for an income “gap” report comparing the amount of income versus expenses in retirement;
  • Work with a financial adviser to make sure they are comfortable with the amount of investment risk in their retirement portfolio; and
  • Catch up 403(b) or 457 retirement plan contributions to current salary levels—make contributions in percentages of salary (e.g., 5% to 10%) not fixed dollar amounts.


Late Career – For those nearing retirement, knowing the right questions to ask is just as important as finding the answers. Professional financial advice can help educators prepare and plan out their decisions to be ready for retirement. Late-career educators should:

  • Plan for a lengthy retirement, factoring in a 50% or greater chance that at least they or their spouse will live to age 92;
  • Understand expenses in retirement and the impact of inflation; and
  • Balance retirement portfolio risk; withdrawals from an investment portfolio during market downturns may increase the odds of running out of money.

Today, education professionals find themselves staring at, instead of down, the road to retirement. Rather than a map showing optional routes and highways, they need someone to help them choose a course, provide direction and save them time. School administrators and business officials can be a tremendous resource by offering financial education, workshops, and access to professional advice from an experienced local financial adviser.


Jim Kiley, Vice President, Security Benefit 


Services are offered through Security Distributors, Inc., a subsidiary of Security Benefit Corporation (Security Benefit) 


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.