One issue which teachers and other public employees often overlook is how much money their school pensions will provide for them in the future, and whether or not they will also be able to receive Social Security. This article is designed to help you avoid some of the pitfalls which create problems for many public service workers after they retire.
As an example in this post, I use the CalSTRS teacher pension plan, because it is one of the largest in the country, and I personally know a number of working and retired California teachers, even within my own family. As a result, I have been able to get first-hand information from some of them. However, much of the information is similar for many other teachers and public employees across the U.S., especially if they live in states where their pensions are subject to either the WEP or GPO, which are discussed below.
One of the people who was especially helpful in writing this post was Elizabeth Wallace, a retired California teacher and the author of "Free College: How Graduates Earn the Most Scholarship Money." If you are a parent or a grandparent of a school age student from kindergarten to high school, you might want to use this link to see her book on Amazon. She was very helpful in explaining some of the issues she discovered when she retired as a California public school teacher, and I have included her suggestions in this post.
The most important information you should get from this post is that every teacher and public employee needs to research their retirement plans as soon as possible, so they do not receive an unpleasant shock when they reach retirement. This post will help you be prepared and, hopefully, know what to expect.
What Teachers and Public Employees Should Know About Their Pensions
Like many state pension plans, CalSTRS is a defined benefit pension. You pay into it and, depending on how long you work and how much you earn, you will receive a defined pension when you retire.
If you work for a private company, most Americans can expect to receive Social Security benefits when they retire, which will provide them with a small basic income during their retirement years. If you work as a teacher or a public employee, however, you will receive a state pension, which should also give you a secure pension when you retire. Some things about these state pensions are similar to Social Security, but other aspects of these plans can be quite different.
CalSTRS is the California State Teachers Retirement System and much of the information in this article comes from their website. Every state teacher’s retirement program, and public employee retirement system, should have a website and provide you with information similar to what is available to CalSTRS members. Since CalSTRS is one of the largest teacher retirement programs in the U.S., the information provided here about their pensions is similar to what teachers can expect in many other states, so it is a good example of some of the retirement problems public employees and teachers can experience.
Whether you are a teacher in California or a public employee in another state, it is very important that you learn about your retirement program as soon as you start working. The CalSTRS website can be found at CalSTRS.com and contains a wealth of information for both new and long-term California teachers. On that website, you can watch a video which gives an overview of the retirement system at CalSTRS.com/early-career.
The average California teacher who retired in 2021 received, on average, a $57,756 annual pension or about $4800 a month. Of course, some teachers received much more or less than that amount. The average teacher pension is much more generous than what the average person receives from Social Security. This is because they paid far more into their teaching retirement system. The average Social Security recipient received about $1632 in 2022, with most high earners receiving less than $3000 a month, even if they worked until their full retirement age of about 67 years old. In this respect, the average teacher retirement may be much better than the Social Security benefits paid out to even the highest earning private sector retirees. Consequently, people who work solely in the private sector must save much more money in their personal retirement accounts if they want to have a retirement which is comparable to being a retired teacher.
You can use the calculator on the CalSTRS website to get an estimate of how much of a pension a teacher can expect to receive, based on their current income and the number of years they have worked. In California, you have to teach for at least 5 years in order to get a pension when you turn 55. You will also get a COLA (Cost of Living Adjustment) added to your pension after you retire, based on the Consumer Price Index (2.77% for those who retired in 2021 and less for earlier retirees) although, like the Social Security COLA, it is unlikely to keep up with the rate of inflation, since it does not compound over time.
In addition to getting a COLA, CalSTRS is similar to Social Security in that you are still eligible to get Medicare at age 65.
However, there are some significant differences between the two systems, as well, particularly in California and the 25 other states where teachers are subject to the Windfall Elimination Provision or WEP. Under the WEP, if you worked in the private sector in addition to teaching, and you paid into Social Security during your career, your Social Security benefits will be cut by as much as 67% because of the WEP. This is despite the fact that you contributed to Social Security and earned those benefits!
Here is an example of how the WEP affects teachers in 26 states. Let’s say you are entitled to receive a CalSTRS pension when you turn 55 because you have worked for more than five years as a teacher. In addition, you may have worked in the private sector and paid into Social Security, too. Under the WEP, your Social Security benefits will be cut by as much as two-thirds. So, if you are entitled to $1200 a month in Social Security benefits, you will only receive $400 because of the WEP. This is despite the fact that you paid into both retirement programs, CalSTRS and Social Security. The WEP is particularly unfair, because it is only applied to teachers and public workers in about half the U.S.
Can you avoid the WEP? It is not easy, because you will need to pay into Social Security and earn a substantial amount for over 20 years for the WEP to decline, and you will have to work for 30 years in the private sector, earning a substantial income, for it will go away completely. Few teachers will achieve that.
Here is an example of how the WEP affects teachers in 26 states. Let’s say you are entitled to receive a CalSTRS pension when you turn 55 because you have worked for more than five years as a teacher. In addition, you may have worked in the private sector and paid into Social Security, too. Under the WEP, your Social Security benefits will be cut by as much as two-thirds. So, if you are entitled to $1200 a month in Social Security benefits, you will only receive $400 because of the WEP. This is despite the fact that you paid into both retirement programs, CalSTRS and Social Security. The WEP is particularly unfair, because it is only applied to teachers and public workers in about half the U.S.
Can you avoid the WEP? It is not easy, because you will need to pay into Social Security and earn a substantial amount for over 20 years for the WEP to decline, and you will have to work for 30 years in the private sector, earning a substantial income, for it will go away completely. Few teachers will achieve that.
What does this mean for the average teacher? It means that if you make a career change, you may end up earning a low CalSTRS pension, because you left your public school teaching job and lost out on your earned retirement benefit, and you may also have your Social Security earnings reduced by the WEP, unless you live in one of the states without the WEP. In other words, a career change can cost you a portion of your retirement benefits in both program.
Currently, the only solution to this unfair law is to continue to work in a school district, in your current state, and over a period of 30 years, make sure you earn a substantial additional salary in your side job. Of course, this means that you are working almost full time in TWO different careers at the same time. Only then can you receive the full amount of your earned teacher retirement and the full amount of your earned Social Security. This is not a very satisfactory solution.
Moving to a non-WEP state during retirement is not a solution, because it would still not allow you to collect your full Social Security in addition to your full teacher's benefit, since your teacher's pension is coming from a WEP state. Unless the law changes, teachers continue to be subject to this unfair provision.
The same is true for other public service employees who are subject to a similar program known as the GPO or Government Pension Offset. When they also work in the private sector and pay Social Security withholding, they currently will not receive a fair share of their Social Security benefits when they retire.
Remember, these public service employees are getting short-changed by not receiving Social Security benefits which they paid for and earned, often after they paid into the system for decades!
If you live in one of the states affected by the WEP, you should talk to someone at your pension office, as well as someone in your local Social Security Administration office, to see how WEP would affect both your pensions, especially if you are thinking about a career change.
In addition, everyone who is affected by the WEP or the GPO should write their Congressperson about this unfair situation in half the U.S. As of the publication of this blog post, there is a bill pending in Congress to change this unfair law, but teachers and other public service workers are going to have to be vocal if they want to see Congress make the change. Encourage your unions and the AARP to take up this cause, as well.
Another issue which is different for teachers and many public service workers is that most of them are never able to collect their spouse’s Social Security benefits. Other retired spouses typically can receive up to 50% of their spouse’s Social Security benefits, while their spouse or former spouse (if they were married over 10 years), is still alive. This is true even if they did not earn any Social Security benefits of their own, because they were a non-working spouse. Then, a surviving spouse may receive a bumped up payment after their spouse dies.
Another issue which is different for teachers and many public service workers is that most of them are never able to collect their spouse’s Social Security benefits. Other retired spouses typically can receive up to 50% of their spouse’s Social Security benefits, while their spouse or former spouse (if they were married over 10 years), is still alive. This is true even if they did not earn any Social Security benefits of their own, because they were a non-working spouse. Then, a surviving spouse may receive a bumped up payment after their spouse dies.
However, teachers have to choose either their teacher’s retirement OR a percentage of their spouse’s Social Security, and the teacher’s retirement is nearly always far more than 50% or even 100% of their spouse’s Social Security benefits. As a result, they only rarely collect any benefits from Social Security. They cannot receive most of their own, earned benefits, and they cannot receive any benefits based on the earnings of their spouse.
Whether a retiree is going to rely on Social Security or a teacher’s retirement or other public service retirement program, they need to use the online calculators provided by their retirement plan to get an estimate of how much money they can expect to receive when they retire. They should do this early in their career and repeat it often, especially if they are considering a career change. They owe it to themselves to have a clear idea of the consequences if they make a change.
Whether a retiree is going to rely on Social Security or a teacher’s retirement or other public service retirement program, they need to use the online calculators provided by their retirement plan to get an estimate of how much money they can expect to receive when they retire. They should do this early in their career and repeat it often, especially if they are considering a career change. They owe it to themselves to have a clear idea of the consequences if they make a change.
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I encourage retirees who read my blog to have a "side-gig" to earn a little extra money and help them stay ahead of inflation. Especially for energetic, healthy retirees, earning extra money can be a good way to help yourself financially and socially. Depending on what you do, a side-gig can also challenge you mentally and help you stay up-to-date with current technology.
In my case, I run a little Etsy gift shop where you can find items for retirement parties or retired friends, people who are in 12 Step groups like AA, friends who love nature prints, and so much more. Check it out at DeborahDianGifts.etsy.com!
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Source: Facts about aging from the June 2022 AARP Bulletin.
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