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What is about school that burns itself into our dreams and nightmares? Do any of these themes find their way into your REM sleep?

• Not being able to find your class or classroom
• Showing up naked in P.E.
• Landing in an elementary classroom as an adult
• Lusting for past teachers and former classmates

Like many others, I have school dreams. Not as a teacher, but as a student. It’s a recurring dream. And no, it’s not erotic. And I’m wearing clothes.

The setting could be junior high, high school, or college. I suddenly realize that I’ve been forgetting or neglecting to attend a certain class, usually math or science. And I haven’t turned in any work or I’m facing a big test. 

I desperately try to figure out how to catch up on the content or overcome my absence from classes. I wander through former school hallways with surreal fear, loathing, and confusion.

Psychoanalysis of this dream would likely discover that I was a rather nerdy / good student and prided myself on good attendance and good grades. Additional therapy would probably uncover the fact that I avoided taking math or science classes whenever possible. I graduated from college without taking either subject. Karmic payback? Maybe.

Playing catch up

Just about any search about retirement on the internet is likely to turn up surveys or statistics painting a bleak picture about Americans’ readiness for life after 65 (or whenever retirement arrives.) 

Whether it’s about adults’ perceptions of their ability to retire, the ‘magic’ dollar amount of savings necessary for retirement, or statistics about how much (or little) Americans have saved for retirement, the message is almost always the same — you haven’t saved enough and should have started saving sooner.

In a country which has eliminated or gutted pension programs and shifted the cost and risk of retirement planning to workers, it’s no surprise that retirement anxiety is common among American adults.

Educators face the same uncertainty. 

The good news is that whether you are a younger educator, someone midway through their education career, or an educator nearing retirement, there’s no time like the present to either start or crank up your retirement saving for the future.

Thankfully, the IRS has your back. (When was the last time you heard that one?)

And educators have a few additional advantages when it comes to playing catch up. That is if you’re committed to saving more aggressively. 

Gotta pension?

Before we talk about turbocharging your retirement savings, we need to talk about pensions. It’s sort of a good news / bad news thing.

The good news 

As I’ve shared in other posts, most educators have a decidedly old school retirement benefit called a pension. A pension is a defined benefit program which is almost always automatic for most school employees. Each month, a contribution is deducted from your paycheck into a retirement program. Once you have a set number of years of service, you will qualify for a guaranteed retirement benefit at a certain age. Your benefit is calculated based on your salary, years of service, and a few other criteria. I have more detailed posts about pensions here:

Bad news

While having a pension is good news for educators, your benefit is not likely to be enough for a comfortable retirement even if you receive additional Social Security benefits. This is particularly the case if you were hired in the last several decades, largely because the defined benefits portion of educator pensions have been downsized in order to keep pension programs viable. 

If you have been teaching for a while, there is an outside chance that your pension ‘tier’ is more generous. Here in the Pacific Northwest, there is a final generation of educators nearing retirement for whom this might apply. The best way to find out what your benefit might be is to visit your pension program site and create a free online benefit estimate.

But I will repeat — your pension and Social Security benefits are unlikely to be enough for you to retire comfortably. If you want to become financially independent and be financially sound in your retirement, you need to make additional investments.

So let’s roll up our sleeves and sock away some money for retirement. Pronto.

I’ll take the 403(b) and raise you a 457(b)

These cryptic numbers and letters are IRS shorthand for tax-advantaged defined contribution retirement plans. While non-educators are more likely to have access to 401(k) accounts, educators have their own set of alphanumerics for retirement saving.

Educators also have the opportunity to invest in BOTH types of retirement accounts, something most private sector workers cannot do. For those looking to double down in order to catch up on their retirement savings, this is a great opportunity.

I explain and explore tax-advantaged retirement accounts in other FIRE Me posts. 

For the purposes of this post, here’s just enough information to get you started. Read the posts or browse the FIRE Me Library to fill in the gaps.

Tax-advantaged investments

For most educators, tax-advantaged investments come in two flavors. The most common and popular option is a tax-deferred account.

These accounts allow you to save for retirement by ‘deferring’ money from your paycheck to qualified programs. In the year that you make these contributions, you don’t have to pay federal (and often state) taxes. The money goes into a mutual fund or similar investment that you choose and which grows tax-free over time. When you qualify, you can take the money out and pay taxes on your distributions as normal income. 

Another tax-advantaged option are plans that have the name Roth attached to them. These plans are funded with after-tax dollars, which means you don’t get a tax break in the year that you make the investment. However, your investment grows tax-free AND is not taxed when you withdraw or sell your assets. While these types of accounts have always been available, many educators are not familiar with these popular plans.

Strings attached 

In exchange for these tax breaks, the IRS limits the amount that you can contribute to tax-advantaged retirement accounts each year. While the amount is adjusted annually, in 2024, individuals can contribute up to $23,000 to a 401(k) or 403(b).

Double dipping

But many educators are able to contribute to another type of tax-advantaged retirement plan. 457(b) or deferred compensation programs are much like the 403(b), but are uniquely offered to qualified educators and some employees of public or non-profit organizations. 

If you are wanting to set aside more than the $23,000 limit on your 403(b), I’ve got more good news for you. The IRS counts 457(b) deferred compensation programs separately. According the IRS, 

“If you’re in a 457(b) plan, you have a separate limit that includes both employee and employer contributions.”

For 2024, the limit on contributions to a 457(b) is also $23,000.

That means if you are wanting to crank your tax-advantaged retirement savings up to 11, educators who have access to a 457(b) can set aside a whopping $46,000 a year. 

Almost as good as a senior discount

But wait, there’s more. Depending on your age, you might also qualify to save additionally under IRS ‘catch-up’ provisions. If you are 50 years or older, you can also contribute an additional $7500 each year. And that applies to both 403(b) AND 457(b) plans. 

So let’s do some quick math

This means that if you are an educator who is 50 years or older and qualify for both 403(b) and 457(b) programs, you could sock away up to $61,000 tax-deferred toward your retirement goals. 

15 years? Three years?

While I realize that for many educators, $61,000 represents more than, all or most of your compensation, if you are supersizing your retirement savings, the IRS might have even more good news for you. Both 403(b) and 457(b) plans may qualify for additional deferrals beyond the Age 50 Catch-up provisions. 

In the case of 403(b) plans, the IRS says, “Your individual limit may be increased by as much as $3,000 if your 403(b) plan allows a 15-year catch-up contribution. The 15-year catch-up is separate from the age-50 catch-up.”

For 457(b) plans, the IRS says, “the plan may allow a special “last 3-year catch-up,” which allows you to defer in the three years before you reach the plan’s normal retirement age.”

If you’re getting dizzy, i don’t blame you. Like most things IRS, the devil is in the details.

If you can and want to save more than $61,000 in a calendar year, I’d suggest reviewing this IRS publication. And perhaps talking to a tax specialist. 

Topping up your pension

In addition to being able to catch up on your tax-advantaged investments, most pension programs offer ways to purchase service credit in lieu of (or in addition to) actual employment service. Like purchasing miles or credits with airline affinity programs, this can be expensive, but might be a worthwhile strategy if you have gaps or shortfalls in your pension program.

Get over the ‘doomerism’

In a recent Wall Street Journal article, they used the term ‘doomerism’ to describe the feelings of economic despair among younger generations. Regardless of your age, retirement and financial anxiety can be paralyzing. But FIRE Me is here to give you the information you need to take action. If you want to save money for retirement AND save on your taxes, educators have plenty of headroom to do so.

Just starting out

If you are a young educator or just starting your career in education, socking away $23,000 a year probably seems a bit more than you can afford. No problem. Aim to set aside 5-10% of your gross salary for the first few years as an educator. Then start leveling up as you move up the pay ladder. 

Start by opening a 403(b) and/or 457(b) retirement account then putting aside some money each paycheck. Since you have decades to save (and can weather market turbulence), you’re welcome to select a more aggressive growth fund that includes stocks. The power of compounding interest and tax-deferral will quickly undo a few years of financial procrastination. 

Moving up the pay scale

If you are in the middle of your educator career, you’re likely making more money than you did when you started. And suddenly you’re paying more in taxes. By starting or upping your retirement contributions, you can pay yourself twice. Sounds crazy? Here’s how.

While my wife and I started saving for retirement when we began teaching, we also cranked up our savings rate when we arrived at the top of the pay scale. Despite our early years of artificial affluence, we shifted into retirement savings overdrive in our 40s, aiming to save up to 20% of each of our gross pay each paycheck.

Since we were making more money than we did when we started out as newbie educators, we also found ourselves in a higher tax bracket. While the additional retirement deferrals each month shaved a little off our take-home income, we got some payback when doing our taxes. Since our investments were tax-deferred contributions, this effectively lowered our taxable income, helping keep more of our income in a lower tax bracket and paying less in taxes.

Nearing retirement

While younger savers have the luxury of time and compounding interest to build retirement savings, those who are behind on their retirement investments and who are older need to compensate by saving more quickly and aggressively to meet their retirement goals. 

If you are an old(er) educator or approaching retirement and can afford to be more aggressive in your saving, the IRS is probably not going to get in the way. All it takes is for you to get serious about planning for your retirement.

In some ways, it’s easier to save more when you’re older or nearing retirement. One or more of the following may apply

• The kids have grown up and you have an empty nest,
• The house is (mostly) paid for,
• The student loans have gone away, and/or
• The paycheck is larger than it’s ever been in your education career.

Why not give yourself a (retirement) raise? While not all educators can afford to put aside $23,000 a year, consider this quick calculation.

Let’s say you’re 50 years old and haven’t saved a cent toward retirement (beyond your pension and Social Security). Not ideal, right?

If you set aside $23,000 a year into a tax-deferred 403(b) or 457(b) fund that averages a 7.5% annualized return AND kept saving that amount until you retired at age 65, you’d have around $600K waiting for you when you started retirement.

That won’t make you a millionaire, but it might help you sleep more soundly at night.

You. Can. Do. This.

Now

1. If you haven’t started saving for retirement in a 403(b) or 457(b),
   • Find out what options your school district offers.
   • Research the choices, pick one, and set up an automatic payroll deduction.
2. If you already have a 403(b) and/or 457(b), review how much you are currently contributing.

Next

1. Calculate how much you are currently setting aside for your retirement investments (not counting your pension).
2. Aim to set aside at least 10-15% of your gross salary toward retirement investments.
   • If you make $60000 a year, that means you should be contributing $500 to $750 a month.
3. Remember that you are paying yourself by investing in your retirement!

Extra credit reading