Preparing for a Secure Financial Future

Why educators need to invest and what to know to get started

You went to school to get the preparation you needed to become a teacher. But one important topic that was not likely discussed was how to prepare for your financial future. Unfortunately, many educators don’t know where to get started.

A common misconception is that you are saving enough for retirement through your pension. While most teachers do indeed get a pension provided by the state, it will not typically provide enough income for you to live the lifestyle you want in retirement. Here are some ideas to get you started preparing for the financial future you want.

Why start saving for your retirement?

The real question is, why would you not start saving for your retirement?! After you complete your credential program and land your first job the last thing you are probably thinking about is retirement. However, this is the most important time in your life to begin saving (investing) for your future. The younger you start the easier it is to grow your money into large sums because of the time it takes to take advantage of compounding interest.

To see compound interest in action, let’s compare an early and late investor.

• Early Investor — invests $200 a month for 10 years at age 25 ($24,000)
• Late Investor — invests $200 a month for 30 years at age 35. ($72,000)

Thanks to the power of compounding interest, or earning interest on interest, the early investor is able to accumulate more money than the later investor with one third the amount of money invested (assuming 7% average annual return).

Even though the early investor only saved one-third of the amount that the late investor did, they still end up with more money at the end of the day, clearly demonstrating the value of an early start.

This being said, if you are older and you haven’t started investing, that doesn’t mean it is too late! Starting is the most important step you can take.

What are my retirement options as a teacher?

Have you heard of a 401k plan? A 403b plan is essentially the same thing as a 401k, but offered by public employers, such as school districts. A 403b allows you to easily deduct money from your salary and invest those funds where they can grow tax-deferred.

An Individual Retirement Account (IRA) is another way to save for retirement. IRA’s are not set up through your employer, but set up by you as an individual; hence the name, “Individual Retirement Account.” The contributions grow tax-deferred like a 403b, but the funds come directly from your bank account like a cable bill.

Both can be great options for teachers to use in saving for their retirement.

Traditional vs. Roth Contributions

In addition to different types of accounts (403b vs IRA) you can open as a teacher, you also have different options in terms of the types of contributions that you can use for those accounts.

• Traditional contributions are funds you invest “pre-tax.” These funds typically grow tax-deferred, which means you do not get taxed on the growth. When you take money out and spend the funds in retirement you will pay income tax.


• Roth contributions are funds you invest “after-tax.” These funds typically grow tax-deferred and you are able to take the funds out tax-free in retirement.

Again, it matters less what type of contribution you decide to use, it’s more important to get started in saving for retirement.

How do I get started?

It is also important to know some important differences between the people you may come in contact with that want to help you with your money.

A Broker or Agent is typically compensated by a sales commission. This means they are not truly a financial advisor, they are a financial sales person. When using a broker, remember:

• this person is incentivized to sell you the product that pays them the highest commission.
• you typically end up paying higher fees, say for each transaction done in your portfolio.

A Financial Advisor or Fiduciary are compensated based on a management fee. They are obligated to put their clients best interests ahead of their own. Since they are earning a management fee versus a commission, the more money an investor makes, the more money the Financial Advisor makes. This usually better aligns their interests with the interest of the investors (you).

Which one would you rather work with?

There are also “do it yourself” options available where you won’t pay any management fee or commission. That being said, you also won’t be getting any guidance or assistance, but if you feel comfortable managing your own portfolio, this could be a great option.

How can I budget for my retirement?

One benefit teachers do have when it comes to money is a consistent monthly or bimonthly income. This makes it very easy to set up a budget!

Defining your expenses is the first step to getting started. I look at budget in three ways:

1. Defining necessary expenses
   What you need to survive.
2. Define “necessary“ expenses
   Not necessary to survive, but necessary for you, like the gym.
3. Define unnecessary expenses
   unplanned shopping and eating out

It is in the unnecessary expenses that you will be able to identify where you can cut back and start saving extra for your retirement, even if it’s only 25 dollars. You can fill out the direct deposit form with your payroll office and elect to have a certain percentage automatically deposited into a retirement account or savings account.

Why is it important to identify unnecessary expenses? Let’s take a look at this budgeting example. If you spend $50 a month at Starbucks or any other unnecessary expense you would spend $18,000 over 30 years, leaving you with nothing to show. If you invest $50 dollars a month, you have the opportunity to grow your money and take advantage of compounding interest!

While you can still spend money to treat yourself, saving and investing that money instead can reap large future rewards.

Plan your monthly savings amount as a necessary expense in your budget and you will be on your way to creating more financial success. You can even fill out the direct deposit form with your payroll office and elect to have a certain percentage automatically deposited into a retirement account or savings account.

Take the first step

Whether is it getting on top of your budget, choosing to invest, or making your first contribution, the most important think you can do for your future is get started.

by Laura Martin

Laura Martin is a Math Specialist with Cajon Valley School District in California. You can find more great investing advice for educators from her @theinvestedteacher Instagram account.