Are you getting ready to retire or thinking about your future? You may be shocked to discover that your years of teaching may leave you short when it comes to retirement funds.
That’s because many teachers can only collect a percentage of their Social Security payments. Some can’t collect any. This is largely because of state and government laws that affect teacher retirement and Social Security.
Concerns About Retirement
Teachers have several reasons to worry about their ability to retire comfortably. If you’ve been working as a teacher for several years, learn about two government provisions that can affect your Social Security benefits. You should also look at what your state’s pension fund is planning.
Two government provisions can hurt your retirement. They are the Windfall Elimination Provision and the Government Pension Offset.
These provisions are supposed to prevent people from getting double benefits, for instance, getting social security benefits while they’re also collecting a pension.
This only applies if they did not pay social security taxes while working at the job with a pension.
These provisions affect several other public sector employees such as firefighters, state and federal government employees and police officers.
Windfall Elimination Provision
This provision uses a specific benefit calculation formula for retirees who receive pensions from jobs where they didn’t pay Social Security taxes.
The provision protects low-income workers by allowing a different calculation of benefits. This calculation gives low-income workers a larger share of their earnings to their Social Security payments.
As the Motley Fool explains, “Lifetime low-income workers qualify for the highest Social Security benefits as a percentage of their earnings. However, if a worker only paid Social Security tax on some of their earnings, they may appear to be a low-income worker when looking at their Social Security wages, when in reality that isn’t the case.”
Government Pension Offset
This is another law that affects people who get retirement benefits outside of Social Security. It holds that if you’re getting a government pension and you’re also getting survivor Social Security benefits, your Social Security benefits will be lower.
The cut can be significant. The reduction depends on the amount of your monthly pension plan. If it is high enough, you could lose 70% to 90% of your Social Security payment.
State Social Security Agreements
Some states have made their own arrangements with the Social Security Administration. These states have workers who don’t pay into social security and use their own pension plans. They are:
- Rhode Island.
According to the Social Security Intelligence blog, “If you are a teacher in one of those states, the rules for collecting a Teacher’s Retirement System pension and Social Security can be confusing and maddening at the same time. That’s especially true if you’ve paid into the Social Security system for enough quarters to qualify for a benefit, which is fairly common among teachers.”
It can be especially confusing because teachers often work two jobs. Many teachers started teaching after spending several years in other careers.
According to pension researchers Chad Adelman and Andrew Rotherman, that leaves 40% of all teachers without the chance of collecting their full social security benefits.
Writing at EduWonk, Andrew Rotherman points out that this shortchanges teachers, because teachers are relying on pension plans funded by their states. Some of these plans are solid and well-funded, while others are weak and poorly managed.
“Social Security alone is not sufficient as a retirement plan for teachers,” Rothman writes. “Whether through defined-benefit plans, 401k-style plans, or hybrids such as cash-balance plans, states and school districts must to more to ensure teachers are on a secure footing for retirement security. But Social Security is a portable retirement benefit that works favorably for teachers as part of a basket of supports.”
The problem goes beyond teachers and Social Security. Teachers also have to face the fact that states are trying to cut teachers’ pension plans and replace them with risky 401Ks and so-called cash balance plans.
In 2018, National Public Radio aired a special report focusing on teachers and their retirement struggles. Andrew Biggs of the American Enterprise Institute told the station, “You know, in theory, you could work for 10 years as a schoolteacher, come out with very little on the pension end, but also not have earned any credits toward getting any Social Security benefits.”
Rotherman believes that fixing Social Security to include teachers is the answer, because state pension systems are not designed to work for today’s teachers.
“Teacher pensions face problems that go beyond financial shortfalls. Traditional pensions are increasingly a bad fit for a more mobile teacher workforce and an American workforce where people change careers more,” Rotherman writes at the EduWonk blog.
“This problem is becoming more acute as states increase the length of time it takes to earn a pension benefit to save money. We’re not talking about just a few years. Seventeen states now have vesting periods of 10 years. In 1988, if you asked teachers how many years of experience they had, the most common answer was 14 or 15 years. If you asked the same question in 2008, the most common answer would have been one year, followed by two years. So, there is a design problem and an actuarial one.”
What Can You Do?
When it comes to teachers and Social Security, make sure you know where your state stands. Will you have to give up some or all of your Social Security benefits because you have a state-funded pension?
Speaking of that pension, how well is it doing? Is the pension fund well-managed and stable?
Consult a Retirement Specialist
Understanding the details of teacher retirement and Social Security can be complicated. It may be a good idea to consult a financial professional. An expert in retirement and Social Security provisions can guide you toward the right plans for your retirement.
Learn as much as you can about state and federal laws that affect your retirement. Certain factors may be out of your hands, but you can plan around them. Make the adjustments you need to protect your future.
Let Me Know in the Comments Below!
Is Social Security part of your retirement plan? Have you signed up for a retirement information meeting yet to see what’s going on with your teacher’s pension? Even if retirement is years off, I encourage you to start asking questions now. It’s never too early to start preparing.
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