Teacher Pensions Blog

  • A former teacher, Kevin L. Matthews II is a licensed financial advisor, author, and speaker. Kevin holds a bachelor's degree in Economics from Hampton University and is a candidate for the Certified Financial Planner (CFP) designation through Northwestern University. In 2010, Kevin launched BuildingBread to inspire millennials to set, simplify and achieve financial goals. Kevin regularly speaks to young adults across the country and has been featured in media publications and productions including The Wall Street Journal, The New York Times, LearnVest, NerdWallet, and many others. We reached out to Kevin to hear more about his decision to leave the classroom, and how teachers can best prepare for retirement. 
    Below is a lightly edited transcript of my recent correspondence with Kevin.

    Kirsten Schmitz: Thanks again for connecting with us. We have a few biographical questions to set up some context. Where and what did you teach?

    Kevin Matthews: I taught 7th grade math at Ann Richards Middle School in Dallas, TX.

    Schmitz: How long did you teach?

    Matthews: I taught for two years, from 2012 to 2014.

    Schmitz: Can you tell us more about your decision to both enter and exit the classroom?

    Matthews: I entered the classroom in 2012 with the belief that a great education was the "master key." With it, there is no door or opportunity that cannot be unlocked. I still believe in that ideal today. Currently, I am still the only four year college graduate in my family; that accomplishment has unlocked opportunities I didn't know existed for people who looked like me. Teaching was a chance to show others how to knock down barriers and carve out their own path to success.

    My decision to leave the classroom however, was a difficult one. I still question if I've made the right decision. My choice to leave the classroom came down to one of education's primary causality dilemmas. Does education limit income or does income limit one's education?

    It is likely some combination of both, but I ultimately sided with the wealth and income portion of the equation. I thought leaving the classroom to become a financial advisor would give me a better chance at helping people avoid massive student loan debt and create generational wealth.

    Though I enjoy the privileges of helping families plan out their financial goals, I often find myself helping current and former teachers figure out how their pensions work and the best way to approach their retirement strategy. For all the amazing work teachers do to prepare students, we need to do a better job of helping teachers prepare for retirement by giving them pension options that fit today's economy.

    Schmitz: Since you've left teaching, what did you do with your retirement account balance?

    Matthews: I rolled my account balance into a Traditional IRA in the summer of 2015.

    Schmitz: What do you wish you had known about your retirement benefits going into teaching? Or, is there any advice you'd like to pass along to future teachers?

    Matthews: I really wish I had known what all my investment options were and for someone to explain the pension plan in context, without bias. When I started contributing to my retirement I was told I could only choose variable annuities, which can be expensive. It wasn't until my last year that I learned I had more investment options such as mutual funds which would have been more beneficial for my situation. 

    My biggest piece of advice for future teachers is to really sit down, take the time to understand your retirement benefits and how they'll affect you. If you're approached by an advisor on campus, do not make a decision after just one meeting. Give yourself enough time to do your research and work with someone who will walk you through it and explain how the pension works.

    If you’re a teacher or former teacher who enjoys reading our work and would like to tell us your story, please contact us at: info@teacherpensions.org. We can't promise to interview everyone, but we are interested in hearing how state and local retirement systems impact the lives of individual teachers, whether you are early in your career, in the middle of it, nearing the end of a long career, or have transitioned out of teaching.  

  • Change isn’t easy, and the large-scale shift from defined benefit pension plans to 401k-style plans has had its own bumps and missteps. A new report from the Center for Retirement Research at Boston College (CRR) helps document how that transition is going.

    The paper looks at retirement wealth of households headed by 51-56 year-olds from the period 1992 to 2010. Before digging into their findings, it's worth noting that 2010 was a difficult year for savers. As a country, we were still coming out of one of the worst recessions ever; unemployment was high, and some employers cut their retirement contributions. Still, the findings here suggest that the transition from DB to DC plans has been turbulent but is not leaving workers materially worse off than they were before. 

    Here are some takeaways:

    - In inflation-adjusted dollars, retirement savings in 2010 were lower on average than in 1998 and 2004, but they were higher in 2010 than in 1992. The median values (see table below) are especially pertinent, because they show that the overall increases aren’t just being skewed by high-income workers.

    - Another way to look at retirement savings is to consider it against income earned while working. Called the "replacement rate," the numbers haven't changed considerably here either. Although incomes rose over this time period, replacement rates were about the same in 2010 as they were in 1992.

    These findings are in line with what we’d expect through this transition. The transition away from DB plans was and will not be without some bumps, but DC plans are improving over time, including for low-income and low-education workers. This includes establishing 401(k) plans with auto-enrollment and auto-escalation of default contribution rates, as well as expanding coverage options to individuals without an employer-provided plan. And while some may argue that those without a college degree were better served by a defined benefit plan, data out of the Social Security Association says otherwise.  

    As careers spent with a single employer become more and more rare, our changing workforce needs retirement plans that can move with them. The transition to portable DC plans hasn’t always been pretty, but those plans are improving over time and expanding to provide workers with sufficient retirement benefits. 

  • The following is a guest post from Martin F. Lueken, Ph.D., the director of fiscal policy and analysis for EdChoice, formerly the Friedman Foundation for Educational Choice.

    Like most states, Nevada faces challenges with rising pension costs. According to University of Arkansas economist Robert Costrell, per-pupil school pension costs have doubled nationally in the last 10 years. This trend is similar in Nevada. The contribution rate for school districts has increased by about 40 percent since 2002. Annual payments (adjusted for inflation) devoted to paying off the state’s pension debt, however, more than doubled from $540 to $1,200 per student. Unfortunately, there’s no sign of when this trend will break in the future absent structural reform.

    Last year, Nevada passed the nation’s first universal education savings account (ESA) program (the state’s Supreme Court is currently reviewing the constitutionality of the law). In addition to the non-fiscal benefits attached to educational choice, the program can relieve pressure for district budgets from rising pension costs (for each one million dollars spent on the program, I estimated that the state would save almost half of that amount, while school districts would save almost $700,000). These savings would give district officials flexibility and more control over their budgets. One option they have would be to reallocate these savings to shore up retirement-related obligations.

    Nevada’s effort to provide true and meaningful educational choices to its citizens by enacting the ESA program is needed. But to maximize the program’s effectiveness, it’s important for Nevada to have the right policies in place to allow its education system to fire on all cylinders. This includes a fluid educational labor market where teachers can move from one sector to another in response to changes in supply and demand. One area with potential to create inefficiencies in its teacher labor market is pensions.

    In this post, I examine in detail how Nevada’s pension plan for teachers operates and show how it incentivizes teachers to make employment decisions around arbitrary points in their careers.

    How Nevada’s Pension Plan Works

    Public school teachers in Nevada automatically become members of the Public Employees’ Retirement System (PERS) of Nevada. The pension plan is a traditional (or “final salary”) defined benefit (DB) plan. Teachers can vest in the plan after five years, meaning that they become eligible to receive a pension. If a teacher leaves the system before vesting, she may only take a refund of her own contributions. Vested teachers can collect a normal pension starting at age 65. Teachers who leave with 10 years of service can start collecting a pension at age 62, and teachers with 30 years of service can begin collecting a pension immediately. Vested teachers can also receive a reduced benefit if they retire before age 65. Depending on a teacher’s years of service, his benefits are reduced by 4 percent to 6 percent each year younger than his normal retirement age.

    The value of a teacher’s benefit is determined by how many years she works, the average of her highest three consecutive years of salary (final average salary, or FAS) and an accrual factor of 2.5 percent.

    Let’s start with an example. A teacher who started at age 25, worked in the system for 29 years, and has an FAS of $50,000 can expect to receive an annuity worth:

    (2.5 percent) x (29 years) x ($50,000) = $36,250 per year

    While she would leave at age 54, she cannot start collecting her benefit until age 62. If she lives until age 80, then she would collect 18 years’ worth of pension payments, and the total value of her pension would be $652,500 (ignoring factors like inflation and cost-of-living adjustments).

    Now consider the same teacher, but this time she works an additional year to reach her 30th year of service. Her annual benefit would be worth $37,500. While similar to the annual benefit she’d receive if she left after 29 years, she would be eligible to immediately collect a pension starting at age 55. This is a huge difference. The value of her pension would be $937,500. This large jump (44 percent) in the value of her pension benefit occurs because she would collect 25 years worth of pension payments, up from 18. By working just one additional year and reaching her 30th year of service, she can receive 7 additional years worth of pension payments.

    What a difference a year makes!

    The teacher in the first example has a very strong incentive to stay until her 30th year. With such a strong incentive built in to the system, however, some teachers will likely stay regardless of their life circumstances or preferences. Those who cannot remain for an additional year will consequently face a severe financial penalty for their mobility – not staying for her 30th year means the teacher in our example gives up $285,000 worth of pension payments.

    The story doesn’t stop there, though. Let’s consider an additional year of work. By working her 31st year, her annual benefit would be worth $38,750 – an increase in the annual benefit of $1,250. But the total value of her retirement would actually decrease from $937,500 to $930,000, because by working an additional year, she is giving up one year’s worth of pension payments. That is, she will now collect pension payments for 24 years instead of for 25 years. In other words, the year of pension payments she foregoes is greater than the additional pension benefit she accrues from working an extra year. Financially, she would be better off retiring instead of continuing to teach in the system.

    The adage “a picture is worth a thousand words” rings particularly true for examining pension incentives. The graph below clearly shows the financial incentives Nevada’s pension system places on teachers.* It plots the year-over-year change in pension wealth for a teacher who begins teaching in Nevada at age 25. This example uses the pay schedule for the Carson City School district.

    Imagine that a teacher receives a one-time lump-sum payment worth his pension wealth when she retires in a given year. This amount (i.e. the value of his pension wealth) varies with the timing of her decision to leave covered service. For each year in his career which she might leave, the value on the graph at a given point is how much the value of her retirement benefit changes from working an additional year. It is not the value of her pension wealth itself.



    Before vesting, she is not eligible to receive a pension. Her gross pension wealth is zero (and therefore the change from year-to-year during this period is zero). If she leaves in year five (when he is 31), she can collect a pension starting at age 65 because she will then be vested in the system. Her pension wealth at this point would be worth $3,671.

    The value of her retirement grows slowly and steadily up to age 54, at which point she’s given 29 years of service to the state. Working his 29th year generates an additional $24,586 in pension wealth. She can collect a pension starting at age 62 if she leaves Nevada’s system at this point. Her total pension wealth is worth almost $400,000 (not shown in the graph).

    If she works year 30, then she will increase her pension wealth by $304,288 for this single year of service. This will boost her total pension wealth up to more than $700,000. In terms of her retirement, this would be an extraordinary year in his career.

    If she works another year, then her pension wealth will actually decrease by $7,411. Financially, she’ll be better off retiring after his 30th year instead of continuing to teach. Of course, numerous factors drive these decisions (health, family circumstances, etc.). But it’s not hard to imagine how this financial incentive can become a serious consideration that is difficult for a teacher to ignore—if it wasn’t a main consideration for an individual before. Workers in general are very responsive to these incentives.

    The key question is: What is so special about the points where these spikes occur?

    There is no logical answer to this question; it is an artifact of an outdated retirement system designed long ago for a different kind of work force. And there is evidence that it might not serve the purpose that the plan was intentionally designed to serve. According to a report by Bellwether Education Partners, just over half of teachers in Nevada (55.3 percent) vest, and only 28.7 percent of Nevada teachers stay until normal retirement age. Like most other plans that cover teachers, Nevada’s plan rewards just a small minority of teachers who stay long enough to reach retirement eligibility.

    Incentives for teachers in Nevada’s pension plan

    The behavior of Nevada’s pension plan is typical of most other FAS DB plans, in that it backloads pension benefits. The example above demonstrates how two forces at play in these plans work to create inefficiencies in the teacher labor market. Parameters in the plan work to “pull” teachers already in the system to remain until arbitrary points in their careers, and “push” teachers out after these points—regardless of their life circumstances, passion or dispassion for teaching and other job conditions.

    First, strong incentives work as a “pull” to incentivize teachers to continue teaching while covered by the system up to the spike. That is, these factors incentivize teachers who might otherwise separate from covered service to “hang on,” regardless of whether they want to (perhaps they are no longer suitable for the job or burned out). Second, teachers face strong incentives to retire early. The period after the spike serves as a “push” to incentivize teachers to leave teaching after 30 years, regardless of whether they have good years left to give or whether they desire to continue teaching. Such plan designs are arbitrary and drive a wedge into the teacher labor market.           

    This is not ideal for Nevada’s teacher labor market, which supplies public schools (including charter schools, which are required to participate in NVPERS) and private schools. Consider that Nevada’s system, like many similarly structured DB plans offered to most public school teachers throughout the country, is structured to:

    1. create a disincentive for teachers to switch between public and private schools;
    2. create a disincentive for potentially effective short-term teachers from entering teaching;
    3. create an incentive for effective teachers to retire early even though they may still have good years to offer;
    4. create an incentive for less-effective teachers to enter the profession in place of those who were enticed not to enter;
    5. retain some teachers longer than optimal, regardless of effectiveness; and
    6. encourage teachers to enter and stay in administration to spike their final salary, regardless of whether they are suitable for such positions.
    Implications for Nevada’s K-12 schools and policy recommendations

    Last year, Nevada passed the largest ESA program in the country with the goal of expanding educational options for all Nevada families. To achieve this goal, the state will need to attract high-quality schooling options and the staff to run them. It will need to ensure that policies are conducive to attracting and retaining a high-quality and responsive teaching workforce. As it stands, the underlying incentives in its pension plan runs counter to this goal.

    Put simply, the system is not designed to serve all teachers. It penalizes teachers who leave before reaching retirement eligibility, regardless of an individual’s life circumstances.

    Nevada could alleviate this potential problem by offering teachers more choices in the kinds of retirement plans offered. Given the idiosyncratic incentives embedded in its current retirement plan—and because it imposes mobility costs on mobile teachers—the state should at least offer a defined contribution (DC) plan as a choice for its employees. Not only might mobile teachers have stronger preferences for them, but some teachers may also not know with certainty whether they will work in the system for an entire career. The portability that comes with a DC plan would be a welcome option for some teachers.

    In addition, because benefits are tied directly to contributions, the system is much less likely to accrue large unfunded liabilities.

    Nevada’s pension debt is the equivalent of $27,750 per student.

    Alternatively, the state could increase the portability of its current plan by allowing refund claimants access to employer contributions. Under the current plan, teachers who leave prior to retirement eligibility and opt for a refund receive only their contributions (currently 12.25 percent of creditable earnings) plus interest. Employees under NVPERS do not enroll in Social Security, however, as many other states do. Given that some financial experts usually recommend savings rates of about 15 percent to 20 percent for retirement security, teachers who take a refund may be under-saving. Allowing access to even a portion of the employer’s contributions (about 13 percent in FY 2014) could help teachers meet this target. Although this option addresses portability, it would not improve funding and sustainability problems.

    Rising costs and arbitrary incentives are just two reasons for Nevada to pursue pension reform. In light of its bold step to enact a universal ESA program fit for the future, its pension plan remains in the past.

    *The graph is based on a measure which economists Robert Costrell and Michael Podgursky coined “pension wealth.” It can be computed for any year that a teacher leaves service (and the system). Pension wealth is the present discounted value of the stream of pension payments she can receive, discounted for survival probabilities. It is a lump sum. Present discounted value converts dollars given for future points in time into today’s dollars. I also adjust all figures for inflation. I assume nominal interest is 5 percent and inflation is 2.5 percent.           

  • Education funding is hard to come by these days. Most states still haven’t raised their school funding to the pre-recession levels. In Illinois, for example, the Chicago Public School system is almost bankrupt. Earlier this year in Michigan, Detroit teachers staged a “sick-out” to protest the deplorable conditions in their schools.

    But, the grass is much greener in Maryland. For the second year in a row, they have a surplus of state funds.  Included in the surplus, the state legislature allocated around $20 million to help counties fund their teacher pension systems.

    But, Governor Larry Hogan won’t release the money.

    Hogan argues that he is withholding the funds because the money is tied to “good and bad things,” and since it was a package deal, he chose to fund none of them. Understandably, teachers are upset and accuse the Governor of cutting the education budget.

    Governor Hogan disputes this claim and points out that his administration has raised the state’s K-12 budget to record levels, even without the additional funds. While it is true that Maryland’s total spending on K-12 education is up, districts still did not receive the full amount of money allowed by the state funding formula. Therefore it becomes clear that withholding the additional funds set aside by the legislature to help counties pay their teachers’ pensions only adds to the problem. Moody’s credit rating service warned that the decision could adversely affect the counties’ bond ratings.

    This fight over teacher pension funding raises an important philosophical question: Does money spent on teacher retirement count as education funding?

    The answer is yes.

    If states and districts consider funding teacher retirements as separate from their investments in K-12 education, it becomes much easier for legislators and governors to kick the funding liabilities down the road and leave them for others to sort out. It also creates the odd situation like the one we see in Maryland in which the state is both raising and cutting education funding.  This happens because the state increased its allocations to districts, but those districts will be required to come up with a larger share of the funding for their pension funds. In other words, Maryland is robbing Peter, the county pension funds, to pay Paul, the state funding formula.

    There are a few key reasons why teacher pension spending is education spending and should be recognized as such:

    First and foremost, a pension is part of the deal that states and districts made with teachers: less money in salary in exchange for a healthy and sustainable retirement. In other words, pensions should be thought of as part and parcel of teacher compensation. With that in mind, pensions are certainly education spending.

    Even though, as my colleagues have pointed out, pensions are not an effective way for the majority of today’s teachers to save for retirement, that isn’t an acceptable reason to retreat on existing pension obligations that current teachers rely on and need in their retirement. States may want to consider offering alternative retirement plans for new teacher to better meet their needs since only around half of teachers leave the profession with a pension. Furthermore, this would help states avoid adding to their existing pension liabilities.  While such a change would not erase a state’s current obligation, it would help to make sure that the problem doesn’t grow.          

    Regardless of the model chosen, spending on teacher retirement should be counted as education funding since such investment cannot be extracted from the state’s general K-12 budget. This is because – as is the case with Maryland right now – each jurisdiction will need to make up for that lack of pension funding. To do that, districts either need to raise additional tax revenue, which will disproportionately burden low-income communities, or they will need to cut back on other education expenditures. The third option would be to ignore their pension liabilities altogether. But, that approach can be disastrous, just ask Illinois or New Jersey. Finally, thinking of funding for teacher pensions as education spending will force policymakers and the broader public to reckon with the fact that teacher retirements spending is extremely high, rising, and cutting into the available funds for teacher salaries.                                                                      

    For many governors and state legislators, funding pensions can seem politically challenging. It’s not a sexy topic, either. And for some constituents, it can seem less relevant to education than more direct budget items, such as new books or a computer lab. Nevertheless, investing in teacher retirement and in schools are intertwined. Thus, resolving the impending pension crisis in many ways in not only integral to school funding writ large, it is fundamental to high quality schools.

  • Most teachers in the United States won't be teachers for their entire career. They might leave the profession altogether, by choice or as the result of a life circumstance, or maybe put their teaching career on pause to pursue other personal or professional goals.

    So, if almost every teacher will transition into and out of a pension plan, it makes sense to pay attention to how pension plans treat teachers at those transition points. Every state, with the exception of Alaska, relies on some form of a defined benefit (DB) pension plan, a retirement benefit based on years of service, age at retirement, and final compensation, to determine a teacher’s retirement benefit. Due to the structure of DB plans, they penalize employees for changing states or leaving the teaching profession.

    One way retirement plans penalize mobility is through vesting periods. This is true for retirement plans in the public or private sector, but as Chad Aldeman has pointed out, federal law sets limits on vesting periods in private-sector DB plans, and there is no comparable rule for public-sector workers like teachers. States can and do set longer vesting periods than what would be required in the private sector. These long vesting periods makes it hard for new teachers to acquire retirement benefits. If they leave before they are fully vested, they will walk away with only their own contributions, sometimes with interest (keep reading to see why this matters).

    Increased vesting periods aren’t the only rules states use to penalize teachers. The National Institute on Retirement Security (NIRS) recently collected state-specific information that illuminates how pension plans enact barriers that penalize teachers at various transition points across their careers. These sorts of barriers can reduce teacher pensions by 50-75 percent, depending on the state and the severity of their penalties. 

    To illustrate how those barriers affect teachers, consider a hypothetical teacher we'll call "Ms. Mover." In this example, Ms. Mover was born and raised in Florida near the Florida-Georgia border. After 15 years teaching in a Florida public school, she received a teaching opportunity in Georgia that she couldn’t pass up. Knowing she could continue living in Florida while working in Georgia, Ms. Mover accepted the position without regard to her future retirement benefits. We'll use this hypothetical story of Ms. Mover to illustrate four additional ways that state pension plans limit the ability of teachers like Ms. Mover to choose their own professional path:

    1. Low Interest Rates on Employee Contributions

    When a teacher chooses to leave prior to full retirement age, she can pull out her own contributions. However, not all states pay interest on those contributions. In some cases, this means that the teachers get back exactly what they put in and states get to keep any interest that accrued on those contributions. The table below groups states based on the interest rate they pay on employee contributions.

    The average state pays an interest rate on employee contributions of 3.45%. This is better than the interest on a common savings account today, but it’s about half of what states assume they will earn on their own investments. In many states, teachers are essentially giving the state an interest-free or low-interest loan, because the state turns around and invests those contributions and expects a return of 7.5 or 8 percent. Even if the pension plan hits those 8 percent targets, teachers won’t see a dime of that interest.

    For example, as Ms. Mover leaves Florida, she would be eligible to receive her own contributions back but without any interest. (She would qualify for a pension from Florida, but it might be worth less than her own contributions.) She would have been better off putting those contributions into a savings or investment account. 

    2.     High Interest Rates on Service Credits

    The inverse trend occurs when a teacher attempts to buy back into a plan. If they exit a pension plan but then decide to come back, they must come up with the interest that would have accrued on their contributions had they remained in the pension plan. Of the 31 states that told NIRS what they charge teachers, 19 used a different rate for re-purchases than they paid out to teachers. That means that they’re paying teachers less than what they ask of them if they want to return. If a teacher did want to buy back in, they’d have to somehow come up with the difference between the two sums of money. 

    Unlike the previous table, “Interest Rate on Employee Contributions,” the states in this chart are clustered closer to the right side. States like Alabama, Arizona, and Colorado, ask teachers to not only make up for any employee contributions, but pay up to 8 percent interest on those contributions.

    Ms. Mover, our teacher from Florida, left Florida with only with her own contributions. If she ever tries to go back into the Florida pension system, she would have to come up with all the money she took with her, plus 6.5 percent annual interest.

    This discrepancy essentially forces teachers to remain in the pension plan if there’s any question at all about whether they might return, because the risk of having to pay the difference between the two rates is too great. Meanwhile, every year they don’t withdraw their contributions is a year they’re stuck with relatively low investment returns. That makes for a complicated choice, and it’s one reason why so many teachers leave their money in state pension plans even when it might make financial sense to withdraw it.  

    3.     Limits on Purchasing Service Credits

    Defined benefit pension formulas rely on years of service, so more years of service means a greater pension benefit for the rest of that teacher’s lifetime. All states offer teachers the ability to purchase additional "service credits," but many place a cap on the number of years of credit an individual can purchase. Those limits are another way that states limit teacher portability. 

    If we turn our attention back to Ms. Mover, we see how limiting these restrictions can be. Her fifteen years of teaching in Florida don’t travel with her. Instead, Georgia only allows her to purchase a maximum of ten years. Even if Florida gave her a decent interest on her own contributions, and even if Georgia allowed her to purchase credits at a comparable rate, caps like this will limit her future benefits. When she goes to retire at the end of her teaching career, at least five years of service won’t be factored into her retirement at all. The table below groups states based on the maximum number of years available for purchase.

    As the table suggests, most states limit how many service credits a teacher can purchase. Only ten states allow teachers to purchase as many service credits as they would like. The most common or modal state restricts teachers to purchasing only five years of service credits.

    4.     Limits on Types of Qualified Service

    Just because a state offers teachers the ability to purchase service credits doesn’t mean it allows them to purchase credit for any purpose. Limiting the types of qualified service (or absence from service) is another way states limit teacher portability.

    In fact, 9 states deny teachers the ability to purchase service credits based on years of teaching in another state (they might allow someone to purchase credits for being in the military or serving in the Peace Corps, for example, but not for teaching service). As it turns out, Ms. Mover chose to move to the wrong state. Even though Georgia allows for the purchase of up to ten years of service credit, her 10 years teaching in Florida don’t qualify. Even if there were no transition costs, Georgia wouldn’t allow her to purchase service credit for her any of her time teaching in Florida.

    These pension plan rules place constraints on teachers. When making professional decisions, teachers might not see the full picture or how they factor in their retirement. They might not realize the true cost of their movement across sectors or state lines until they reach retirement age.

  • The teacher pensions world can get a little lonely. While nearly all of us could benefit from a brush-up on retirement saving practices, teacher-specific advice is hard to come by. To better understand how best to tackle the unique challenges educators face, I connected with NerdWallet's Arielle O'Shea. O'Shea has been reporting on and writing about personal finance for over a decade, and her work has appeared in Esquire, Money, The Billfold, Women's Health and XO Jane. You can (and should!) follow her on Twitter @arioshea

    Kirsten Schmitz: First, I'd love to hear more about your background at NerdWallet. What brought you to the investing and retirement space, and what keeps you here?
    Arielle O'Shea: I've been with NerdWallet for about a year, covering retirement and investing. I just recently launched the Arielle Answers column, and I also contribute to Forbes. I've been writing about all things personal finance — with an emphasis on investing and retirement — for over a decade. I love NerdWallet because its mission is essentially to do what I love: We want to bring clarity to financial decisions. Money can be so intimidating, and I want to make it approachable. This is a random story, but it kind of captures why I love what I do: Over the weekend I was in Lowe's buying some lumber for a project. I was so out of my element — I am not a DIYer but of course I was trying to save money by building a shed door myself — and as I was nervously waiting to ask the employee to cut the wood for me, it dawned on me: This is how most people feel about managing their money. I was so intimidated...I didn't know how to explain what I wanted, I wasn't even sure what I wanted, I didn't know the right language to use. So, I want to help put people at ease when they think or talk about money, and I think about that goal with everything I write. 

    Schmitz: Our work focuses on teacher retirement. About 90 percent of all teachers are enrolled in defined benefit pension plans, but our work suggests many teachers won't stay long enough to qualify for a decent benefit from the pension system. What advice would you have for teachers who aren't certain how long they'll teach?
    O'Shea: The biggest piece of advice in investing applies to this as well: diversify. Don't rely exclusively on your pension; contribute to an individual retirement plan like an IRA as well. If you're wondering about Roth vs. traditional, Roth is often the obvious choice — but there are a few factors you should weigh, including if you expect your tax rate to go up in retirement. For most people, this will be true, which is why the Roth is a great option — you'll be able to pull the money you contributed, plus investment earnings, out in retirement tax-free. You're effectively locking in today's lower tax rate since you don't get a deduction on contributions. Still, it's worth taking a look at your specific situation before you decide. Here is some more on this, from a post by my colleague.

    Schmitz: With relatively high turnover in the teaching profession, many teachers will leave without vesting into the pension plan, or they'll qualify for only a relatively small pension once they retire. For those departing teachers, how should they decide what to do with their own contributions?
    O'Shea: For most people, the right choice is to roll what you can take with you over into an IRA. If you do it directly, you'll avoid any taxes and penalties — ask your plan how to do that, or the rollover IRA provider can help you. IRAs can be very low-cost — assuming you choose the right one — and you'll have access to a wide range of investment options. Choose low-cost index funds or ETFs to further keep expenses down. 

    Schmitz: I often see mixed messages about millennial savings habits. Either we're all drowning in student loan debt, ubering everywhere and postponing big purchases, or we're actually doing better than expected, and saving more than people think. How would your advice vary for younger or older teachers? Are there any things young teachers in particular should be aware of?
    O'Shea: This is one of my pet peeves for sure! You can find a study to support your views on millennials and money, whatever they may be: They're terrible at saving, they're saving more than their parents, they spend too much, they don't spend at all. I actually think millennials are doing well, considering all of the obstacles in their way (that student loan burden is real). But they're not ALL doing well, and of course how they're doing with their money is directly related to how much money they have. My advice for younger teachers: Save early and often. You don't have to save a lot if you save for a long time. You don't have to be an expert investor. Consistently saving small amounts of money adds up if you start young, due to compound interest. 
    For older and younger teachers, some of the same advice applies: Know what you're working toward (a retirement calculator helps), limit debt, don't try to keep up with the Jones — for all you know, they're in debt! — and invest appropriately, which means taking risk, especially when you're young and you can weather market fluctuations. As you get older and closer to retirement, you can dial back that risk, but you still want to invest, not just save — saving alone, especially with today's interest rates, won't be enough to make your money grow and last through retirement. 
    And then finally, limit investment expenses. These can really eat up your returns, and these days, you can get low-cost investments like index funds and even low-cost advice from robo-advisors. There's really no reason to pay 1% or more for your investments, unless you have a complex financial situation and you need a financial advisor.