As a teacher, one of the most valuable benefits you will receive in retirement is access to a pension. Your pension will provide a dependable income stream in retirement, a benefit that many professionals no longer have. It’s a well-earned benefit for your years of service and dedication to education. As you know, you pay into this pension for the duration of your teaching years. When you are eligible to retire, you will start to receive a guaranteed income stream from this pension. While your pension forms a solid foundation for retirement, it’s essential to consider whether it will be enough to support your future lifestyle fully.
Pensions typically replace around half of your income in retirement. For some, a pension and Social Security are enough to live off during retirement. However, for many, this is not enough income. This gap between the income you receive from guaranteed sources and your income goal is known as your income gap. That’s where a 403(b) or 457(b) retirement plan comes in.
These plans offer a powerful opportunity to build additional savings and provide flexibility in retirement. With rising inflation and longer life expectancies, the cost of living in retirement can exceed what your pension alone can cover. Expenses such as healthcare, travel, or simply maintaining your current lifestyle may create an income gap.
457(b) plan offers unique advantages for public sector employees that many others do not have access to. One key feature of these plans is the ability to make penalty-free withdrawals at any age after separating from service. This gives you more control over how and when you access your retirement funds—whether you plan to retire early, change careers, or need funds for an unexpected transition.
Another fantastic opportunity in preparing for retirement is Roth accounts. Both the 403(b) and 457(b) plans now offer Roth options. Your pension does not have this option. The pension income you receive will always be taxable. Roth accounts allow you to pay taxes on your retirement savings now, so you never have to pay taxes on those accounts again in the future. At HFG, we believe that taxes are very likely to increase in the future, especially when you consider our nation’s massive debt. Roth accounts will increase your taxable income now, but will likely help to reduce your taxable income when you are retired.
At Harford Financial Group, retirement planning should be tailored to your complete financial picture. Your pension is just one piece of the puzzle. Contributing to a 403(b) or 457(b) plan not only helps fill potential income gaps but also supports a more flexible and secure future. As part of our holistic planning process, we work closely with educators to coordinate all aspects of their retirement strategy, ensuring their plan is aligned with their goals. Your pension is robust, but your future deserves even more.
Call Harford Financial Group today to discuss your retirement income gap and how we can help you.