Teacher Retirement: Defined Benefit vs Defined Contribution

Anyone who wants to retire comfortably should be familiar with basic retirement principles such as income planning, taxes, and longevity. However, teachers have unique retirement alternatives that need special consideration. It’s crucial for educators to know what their options are when it comes to retirement. There are retirement plans that focus on stability, like the defined benefit, while others, like defined contribution plans, allow employees more flexibility when it comes to growing their retirement funds. 

This information is important because it pertains to more than just teachers; principals, custodians, administrators, and other school district employees frequently use the same retirement pathways.

Essential Factors To Consider When Planning Your Retirement

Retirement may seem far away, and as educators, saving for retirement may seem like the least of your worries. However, one of the essential methods to ensure your long-term financial stability is to plan for retirement. The earlier you start, the more likely it is that you’ll reach your financial goals. When it comes to retirement savings, there are several variables to consider, including:

  • What is your age?
  • When do you intend to retire?
  • Your willingness to take risks

With these considerations in mind, you should evaluate how to utilize the retirement benefits available to you effectively. Also, supplementing your retirement funds with other income streams like side hustles helps cushion you against unforeseen circumstances.

What Retirement Plans Are Available to Teachers?

Retirement savings programs are typically classified into two types. Teachers frequently have access to both types.

1. Defined Benefit Plans

Otherwise known as pension plans, defined benefit plans are employer-sponsored and are a fixed monthly amount to be received after your retirement. The employer shoulders the investment risks.

To Consider:

  • Employees in defined benefit plans get a specific sum of money upon retirement, depending on their pay and years of service.
  • Defined benefit pension plans provide a fixed monthly payment for the rest of one’s life based on income and years of service.
  • Teachers are already underpaid in comparison to comparable professionals. One of the incentives for teachers to continue in the classroom has been a comfortable retirement.

2. Defined Contribution Plans

Defined contribution plans, such as 403(b) and 457(b) plans, do not guarantee a particular amount when you retire. The employee or the company (or both) may contribute to the employee’s account under these schemes. The employee is responsible for the investment risks.

To Consider:

  • Employees invest their own money in individual savings accounts. The plan’s investment earnings determine the final retirement payout. Regardless of the employee’s age or circumstances, the benefit ends when the account is emptied.
  • Employees bear the risk in defined contribution plans, which transfer risk away from employers.
  • Defined contribution plans do not provide any guaranteed retirement benefit.
  • Employees are not protected against stock market volatility or corporate malfeasance under a defined contribution plan.


As you can see, this is a highly personal and challenging decision. If you’re unsure what to do, ask if your workplace provides access to an unbiased financial adviser who can give advice. Remember that this article provides basic information about teacher pensions. Suppose you need more particulars on your current or prospective future scenario. In that case, you should contact an adviser with your state’s retirement program, the district HR office, or a teacher’s union representative.

State employee and teacher benefits are our areas of expertise! Here at My State Pension, we connect you with a licensed agent or registered investment advisor that specializes in helping to guide you through the maze and figure out your educator retirement plan so you can reap all the benefits and have a peaceful retirement.

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If you are a K-12 educator or staff, collegiate educator or staff, municipal or state employee we can connect you with a licensed financial professional with the experience needed to help you understand your pension benefits and overall retirement plan.