As a teacher, planning for retirement can be complicated, especially if you have many options to choose from. Depending on the state in which you live, you may be eligible to contribute to state pension plans and other retirement plans including 403b and 401k. When investing, consider these options carefully and take into consideration your lifestyle and future plans.
403b Retirement Plan
A 403b retirement plan allows teachers to contribute to a retirement account without having to pay taxes on monies deposited. This is known as a tax-deferred retirement plan. Teachers will only pay taxes when taking money out of the account, usually after they retire.
Within this retirement plan, employers provide teachers with investment options that include mutual funds and annuities (variable, fixed, or equity indexed).
Mutual funds are groups of small investors that gather their money together and invest it in a variety of ways. Some mutual funds buy certain types of stock, while others invest in specific industries or businesses. You may be able to choose from a list of mutual fund stock options.
Annuities are purchased through insurance companies. Depending on your contract with an insurance company, you agree to invest a certain amount of money and receive that money plus interest in monthly payments upon your retirement (similar to a savings account).
Research your investment options before signing up for a 403b retirement plan. Consult a financial adviser to learn more about the types of mutual funds and annuities available.
As with any type of financial investment, consider the risks.
401k Retirement Plan
A 401k is a defined contribution plan, which means that you determine the percentage of your salary to contribute each pay period. Under this plan, the money you invest may not be what you end up with depending on the risk level of your investments.
Most 401k plans allow you to invest in mutual funds, money market accounts, stock, and other investments. Creating a diverse investment portfolio is expected when investing in a 401k plan.
Teachers may be offered a 401k plan instead of a the 403b retirement plan or they may be offered both so they have more options.
Under the 401k plan, your employer may match your contribution to increase your overall investment. Taxes are deferred until you start taking money out of your account.
State Pension Plans
Many states also offer pension plans to teachers. Under these plans, a certain amount of money will be witheld from your paycheck and kept in an account. Over time, this money will accrue interest.
When you retire, you will begin receiving monthly pension checks from the account.
State pension plans vary in benefits from state to state. Most teachers have the option to participate in state pension plans and in other retirement plans.
Contact the human resources department in your school district to learn more about state pension plans.