Blog: Teachers and Social Security

Laid-off workers may be facing a double whammy of missing out on retirement benefits.

A teacher with split Social Security coverage emails us with a question about how to maximize her retirement:

Here is a little background on my question. I entered teaching later in life than is typical. I worked in the corporate world for over 10 years before pivoting to teaching.  Thus, I already had the 40 quarters required for Social Security. I understand that my 10+ years of teaching service do not count towards Social Security, but I don't understand how I can have her 40 quarters taken away by entering teaching. It's almost beginning to feel like it may be in my best retirement interest to go back to the corporate world.

Can you point me in a direction that would give me some sort of clarity?

Thank you,

--Career Switcher

Hi Career Switcher,

I have two pieces of good news for you. The first is that you will not have all of your Social Security benefit taken away. Given your 40 quarters of contributing toward Social Security, you are entitled to a benefit when you reach the retirement age. 

The second piece of good news is that you may be better off than your colleagues in terms of pension benefits. Because you are closer to reaching your state's retirement age, your pension is more valuable than your younger colleagues with the same amount of experience. See here for a longer explanation. 

But now for the bad news. Yes, your Social Security benefit may be reduced under what's known as the Windfall Elimination Provision (WEP). The exact answer to your question depends on how long you taught without Social Security coverage, how much money you earned (and thus contributed to Social Security) while there, and the comparison between the value of your pension and your Social Security benefit. For more detail about how the WEP works, see this two-pager from the Social Security Administration with an explanation and the methodology behind the calculation. Although it changes slightly every year, the maximum WEP penalty in 2020 is $480 a month in retirement. 

However, the WEP cannot reduce the value of your Social Security by more than half of your pension amount. That provision means that the WEP does not apply to anyone with only a small pension. 

To your ultimate question, it's hard to know whether you would be better off going back into the corporate world for a few years. That would depend on the salary in either job, how many years you have until retirement, and how many years you plans to continue working.

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There are five things all Texas teachers should know about their retirement benefits:

  1. The Teachers’ Retirement System (TRS) of Texas is back-loaded, and it leaves the majority of its teachers without adequate retirement benefits.  
  2. The TRS plan is one of the stingiest in the country. On average, Texas teachers receive less money toward retirement than many of their peers in the private sector.
  3. TRS benefits are getting worse. Due to rising costs, state legislators have slowly reduced benefits provided to new teachers, and teachers who enter Texas schools today are getting a much worse deal than their predecessors.  
  4. Texas lets each individual school district decide whether they want to enroll their teachers in Social Security, creating a patchwork of coverage that is not good for teachers or employers.
  5. Texas has better options for public servants. In Texas, municipal and county workers are covered by retirement plans which do a better job of providing adequate retirement benefits to all workers.

Each of these points deserves its own section, so I’ll break them down one by one.

1. The TRS system is back-loaded, and it leaves the majority of its teachers without adequate retirement benefits. 

The Texas TRS plan is a fairly typical teacher pension plan. As a defined benefit plan, it offers workers a retirement benefit that’s equal to 2.3 percent multiplied by their years of service and their final average salary. As an example, if a teacher taught in Texas public schools for 15 years, and her salary averaged $60,000 over her last five years of teaching, she’d be eligible for annual benefits worth $20,700. The math looks like this:

Annual Pension = 2.3 percent * Years of Service * Final Average Salary

Annual Pension = 2.3 percent * 15 years * $60,000

Annual Pension = $20,700

In Texas, teachers must serve at least five years before qualifying for a pension (this is called the “vesting” period). The state also sets rules on when teachers can begin collecting their pension. For teachers hired today, they can begin collecting a pension check at age 65 if they had at least five years of service, or age 62 if they had more than 18 years of service. (Teachers may also begin collecting retirement benefits at younger ages, but those benefits are reduced for every year early they are claimed.)

This may sound fairly simple, but it’s complicated by the fact that the “Final Average Salary” number is calculated based on the years in which it was earned. That is, if our hypothetical teacher began her career at age 25 and served 15 years, her pension would be based on her salary at age 40. But, critically, she wouldn’t be able to collect her pension until age 65. By that time, inflation would have worn away the value of her pension significantly.

There’s a common misconception that teachers’ retirement plans are gold-plated, extremely generous options. And for a very small pool, they do provide a secure retirement. But that’s not the case for the majority of Georgia's teachers.