403bwise is a 501(c)(3) nonprofit organization.

The K-12 403(b) is broken.
Together we can fix it.
Dan's Blog

Save What?!

April 27, 2021

One of the most common questions we get is: How much should I save for retirement? The trite answer is: As much as you can! The more truthful and nuanced answer is: It depends. Now I’m channeling my podcast partner fiduciary planner Scott Dauenhauer, CFP®  who always cautions that every financial decision is individual and dependent on many variables. He’s such a buzzkill! But if you are a teacher wondering how much to save for retirement, the following information may be helpul.

  1. Figure out how your pension works and how much you will get in retirement. Most pension agencies have plenty of resources to help you calculate a projected payout in retirement: online calculators, workshops (both online and in person), and help lines. Note: 403(b) sales people will often help with a pension calculation but they will also be looking to sell you financial products. It is perfectly fine to use an advisor but it’s important that you use the right kind of advisor. Learn about the right kind of advisor here 
  2. Figure out what you can expect from Social Security. You can use this Social Security Retirement Estimator. Note that teachers in 15 states don’t contribute to Social Security. This is a surprise to many.  
  3. A pension and Social Security calculation will give you a solid estimate of how much you can expect to receive from these two income streams. Is it enough to live on? For some it might be. For others, read on… 
  4. I’m a fan of Elizabeth Warren’s 50-30-20 budgeting rule. It’s so simple: 50% for needs (housing, food, transportation, etc.); 30% for wants (entertainment, travel, etc.); and 20% for savings and debt payoff. Chances are that between a teacher’s pension contribution (approximately 5-10%) and a Social Security contribution (6.2%), many teachers are in effect saving close to 12-15% for retirement. If that’s you, saving a bit more in a 403(b), 457(b) or Roth IRA can get you to that 20% or more figure.

I fully acknowledge that there is a lot of competition for a teacher's money and getting to a 20% savings rate may just not be possible right now. In that case, the 20% figure can be aspirational. Next week I will look at where to save outside of a pension and Social Security. 

Stay wise and well (and strive to save 20%).