Retirement Planning for Educators: What You Need To Know

In the world of education, retirement planning can look very different depending on whether one works in a private or public school. Substitute teaching roles also carry unique retirement structures. From a financial planning perspective, building strategies that address the interactions of pensions, 403(b) plans, Social Security, and supplemental income can help educators strengthen their retirement outlook. In this guide, we explain the financial differences in the educational pathways and how substitute teaching income can shift one’s retirement wage base in surprising ways.

Private vs. Public Education Retirement Paths         

Private and nonprofit schools generally offer defined contribution (DC) plans such as 401(k) or 403(b) with possible employer matches and reliance on market-based returns.  These accounts are portable but place all investment responsibility on the educator.

Public school systems typically offer defined benefit (DB) pensions.  These provide guaranteed lifetime income, usually tied to years of service and final salary.  While predictable, pensions can penalize mobility since benefits often vest after five to 10 years of service.  Additionally, moving between states may reduce value, because DB plans are rarely portable across state lines. Additionally, the funding status varies widely among states.

Clarifying plan rules early is a key step for both groups.  Private school educators should confirm employer match rates and fee structures.  Public educators should be aware of vesting requirements and project what their pension may provide if they change districts or states.  

403(b) Plans for Educators: Opportunities and Risks in Retirement Planning

A 403(b) is a tax-advantaged retirement account available to public school employees and nonprofit organizations.  Contributions reduce taxable income, grow tax-deferred, and incur tax upon withdrawal in retirement. For 2025, the employee contribution limit is $23,500, with an additional $7,500 catch-up for those age 50 and older. Some plans also allow a “15-year service” catch-up for long-tenured employees to make further contributions of up to $3,000 ($15,000 lifetime limit applies). Finally, under SECURE 2.0, employees aged 60–63 qualify for a higher catch-up contribution limit of $11,250 (instead of $7,500).

Unlike many 401(k) plans, 403(b)s in public schools often fall outside the oversight of the Employee Retirement Income Security Act (ERISA).  That means less protection from high administrative fees or limited investment choices. A 2022 U.S. Government Accountability Office (GAO) review found fees over 2% annually in some K–12 403(b)s—enough to significantly erode long-term growth.  By contrast, non-profit private schools may offer ERISA-protected 403(b)s, which must meet fiduciary standards, meaning the plan holder must legally act in the best interests of their participants.

Here are a few ways educators can protect themselves and optimize their retirement planning:

• Review the fee disclosures of the 403(b) plan
• Avoid high-cost annuity products
• Direct contributions to low-cost diversified funds
• Maximize employer matches 

Social Security Coverage and State Variation

Social Security does not apply equally to all educators. Roughly 40% of public school teachers work in states where they do not pay into the system. In these cases, retirement relies heavily on the state pension.

Until recently, teachers who divided their careers between covered and uncovered (paying versus not paying into Social Security) positions faced reductions under the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). With the Social Security Fairness Act, both provisions are repealed as of 2025. Many educators could see their benefits increase by several hundred dollars per month, including retroactive payments for their years in covered positions.

Still, state variation matters.  Educators in states with Social Security coverage may receive both a pension and Social Security, while those without coverage must plan around pension rules alone.  Teachers should verify whether their employment history qualifies for full benefits and any recalculations with the Social Security Administration.

Substitute Teaching Income

Substitute teaching plays a complex role in retirement. In some districts, substitute pay counts toward pension credit or is subject to Social Security taxes, boosting retirement earnings. In others, substitutes are classified as temporary and excluded from both systems.

Educators who are substituting should ask whether their teaching assignments are “covered” employment. If covered, the income can increase the Social Security wage base or add service credit to pensions. If not, it serves as supplemental income to save or invest independently (in a traditional or Roth IRA), rather than as part of a retirement income stream.

Action Steps for Educators

1. Verify retirement coverage: Determine whether the school offers a pension, a 403(b), or both, and the Social Security implications.
2. Monitor Social Security adjustments: If benefits were previously reduced under WEP and GPO, confirm recalculations for 2025 and beyond.
3. Optimize 403(b) participation: Contribute enough to capture employer matches, prioritize low-fee funds, and use catch-up contributions if eligible.
4. Treat substitute work strategically: Before accepting roles, determine whether income qualifies for pension service credit or Social Security taxes.  If not, earmark substitute pay for an IRA or other savings.
5. Rebalance regularly: Review investment allocation annually to ensure that portfolio, time horizon, and risk tolerance all align.
6. Mobility plan: If there is a possibility of relocating to another state, weigh the portability of DC accounts against pension vesting rules. Consider rolling old 403(b) balances into an IRA for more control.

The retirement landscape for educators is largely shaped by whether they work in public or private systems, participate in Social Security, or earn substitute income.  A financial advisor can help educators clarify coverage, maximize contributions, and coordinate savings strategies for stronger long-term security.

If you are an educator seeking guidance on how your pension, 403(b), and Social Security fit together, contact an SHP Financial advisor today for a complimentary review of your portfolio and retirement strategy.