Whether you are a veteran teacher counting-down the days to retirement, a seasoned educator watching your older colleagues retire with just a little hint of envy, or you’re just getting started and haven’t given retirement a second thought, now is the time to take control of your financial future and thoughtfully design the retirement you will want to live. Having dedicated your careers to educating and shaping the minds of future generations, it is now your opportunity to focus on your own future. There are essential strategies you should be considering now, so let’s explore five critical considerations for California teachers regarding their pensions and retirement planning.

1. Understand Your Pension Plan

First things first, you’ve got to know your numbers! In California, teachers are covered by the California State Teachers’ Retirement System (CalSTRS). This isn’t just a paycheck waiting for you—it's the bedrock of your retirement strategy. CalSTRS works on a defined benefit plan, meaning your pension is based on your years of service, final compensation, and age at retirement. 

Understanding these factors is crucial to maximizing your benefits, but up until now educators have not been given the tools needed to truly understand their pensions or to project their post-retirement earnings. Those who endeavor to research and understand their pensions are left to sift through 700 pages of education law and navigate a CalSTRS calculator with a disclaimer warning that “...the Retirement Benefits calculator only provides an estimate of your future retirement benefits.” 

At Pension101, we don’t believe that you should just sit back and hope for the best. Our calculator allows you to be proactive by calculating your projected pension to the month you want to retire or to track changes to your pension over time based on salary and cost of living (COLA) adjustments. It also gives you the power to model different scenarios such as early retirement, deferring your pension, retention of sick days, the impact of supplementary (DBS) income, or advancement, and see how each of these factors align with and impact your retirement goals. Knowledge is power, and when you know your plan inside and out, you can make better decisions for your future.

2. Supplement Your Pension with Additional Savings

Relying solely on your pension might not be enough. CalSTRS cautions members that they should “...participate in a ‘hybrid retirement system’ consisting of a traditional defined benefit (your pension), [a] cash balance [plan], and ‘voluntary’ defined contribution plan,” but only advises that: “If you are nearing age 55 or are within a few years of your projected retirement date, review your current financial status to plan for your final career years and retirement.” THAT’S NOT GOOD ENOUGH! Informing teachers in one breath that they should have at least 3 sources of retirement income, yet advising them that they should understand and review their financial plan only as they are “nearing age 55” seems counterintuitive at best. 

According to Gallup, over the last several years, amid high inflation, stock market volatility, and recession fears, less than 50% of non retirees have been optimistic about their retirement future. That’s why, ideally, teachers should be thinking about extra savings options early in their career – options like 403(b) or 457 plans. These are tax-deferred retirement savings plans specifically designed for educators. The magic here is in the compounding interest. It’s never too late to jump-in to these markets, but if you start saving early, even if it’s just a small amount each month, those dollars will grow over time, giving you a substantial nest egg to complement your CalSTRS pension.

3. Stay Ahead of Inflation

Inflation is like a silent thief, slowly eroding the purchasing power of your money. Think about this: The cost of living in California is high, and it’s only going up. A CalSTRS pension offers a 2% simplified cost-of-living adjustment (COLA) each year (meaning you may anticipate a 2% increase each year – but always based on your original final compensation number). Recent history shows that this will not keep up with real-world inflation. 

Investopedia highlighted that inflation has been one of the most significant risks to retirees. In just the 3 years since the class of 2021 retired, those dedicated retirees have effectively lost 10.8% of their spending power. 

• In 2021, the average rate of inflation was 4.7% – a loss of 2.7% in spending power..

• In 2022, the average rate of inflation was 8.0% – a loss of 6.0%.

• In 2023, the average rate of inflation was 4.1% – a loss of 2.1%.

To stay ahead, educators should consider working with an advisor who specializes in pensions and supplementary investments, to identify investments that offer growth potential, like stocks, annuities, or real estate; and even products that take advantage of market volatility. A diversified portfolio can help protect your purchasing power and ensure you maintain the lifestyle you desire.

4. Plan for Healthcare Costs

Retirement isn’t just about finances; it’s about your health too. According to Fidelity Investments’ 23rd Annual Retiree Health Care Cost Estimate, Americans who retire at 65 in 2024, are looking at an average of $165,000 in healthcare expenses over their retirement, up nearly 5% from last year. That’s more than double what most Americans think they’ll need. Medicare doesn’t cover everything, and out-of-pocket expenses can add up fast. California teachers should look into supplemental healthcare insurance or a Health Savings Account (HSA) if they have a high-deductible plan. Planning for healthcare expenses now will save you from financial stress down the line.

5. Create a Legacy

As you plan for retirement, consider how you want to leave a legacy beyond the hundred or thousands of lives you have transformed in your classroom or schools. Retirement offers the perfect opportunity to reflect on the impact you wish to make on the world. Whether it's leaving tangible assets to the ones you love through estate planning or deepening your emotional connections to them; or perhaps by working to make a positive impact on society, or by making intellectual contributions, or even exploring creative endeavors; your legacy will be about leaving a lasting mark. This is your chance to shape how you will be remembered and to leave a lasting impact that extends beyond your career.

It is vital that every educator understand the value of their pension. At Pension101, we are here to help California educators plan for their futures and leave a positive legacy along the way. Don’t leave it to chance. Consider these five steps and start building the retirement you deserve. You’ve dedicated your life to others; now it’s time to invest in yourself. Understand your pension, supplement your savings, stay ahead of inflation, plan for healthcare costs, and create a legacy. It’s not just about surviving retirement—it’s about thriving! Take charge, take action, and create the life you’ve always dreamed of.