Let’s help jumpstart educators’ financial strategies

As educators across the nation focus on the second half of the school year, financial professionals should also lean into this time of year to find ways to help these educators build a sound retirement strategy.

It’s important that educators understand what’s available to them, no matter where they are in their careers. Some educators are just starting out, while others may be transitioning to a different school district or thinking about retiring.\

Let’s explore how financial professionals can support their educator clients in achieving financial stability and securing a fulfilling retirement this year.

Understanding educators’ unique financial needs

Before diving into the specifics of 403(b) plans and financial planning, it’s essential for insurance advisors and financial professionals to understand key differences in the educator market.

• Pension plans: Unlike most clients working in the private sector, educators begin with a unique retirement plan in place—their pension. Any financial professional must start by understanding what that pension plan looks like—those plans vary from state to state—and when the value of its pension credits will exceed educators’ contributions, commonly referred to as the break-even point.
• Social Security: In 15 states, educators do not participate in Social Security as part of their pension programs, meaning they don’t have to pay Social Security payroll taxes. But they also can’t draw from Social Security in retirement.
• Demographics: Almost three in four educators are women. Their financial needs, priorities and responsibilities can be different from those of male educators —take the time to understand your client’s unique aspirations and needs.
• Motivations: Unlike the corporate space, in which 401(k)s with employer matches are standard benefits offerings, educators have no employer match. There is rarely an incentive for them to contribute to a supplemental retirement plan such as a 403(b) or 457(b), so they may not know about or prioritize alternative investment vehicles. However, given limitations on pension benefits and the number of educators ineligible for Social Security, educators may benefit from having additional retirement savings.

 

Five strategies for financial professionals to leverage

A new year can be an excellent time for educators to reassess their financial goals and engage with their insurance advisors and financial professionals. Here are some key strategies advisors can leverage to ensure educators achieve a long-lasting retirement.

1. Revisit financial goals

 

Many educators often configure their retirement plans when they’re young and can forget to reassess them along the path to retirement.

Their expected retirement income—and the type of retirement they envision for themselves—may have changed substantially in the interim. Some, for example, now have children and other family members they are responsible for. Others who started teaching in their 20s may want to pursue an early retirement.

 

2. Create a financial roadmap

 

Financial professionals must ensure that educators have access to a “big picture" view of their finances. That starts with putting together a financial roadmap, which provides educators with a holistic blueprint encompassing their current financial situation, the retirement plans in which they’re enrolled and their long-term financial goals.

Because these roadmaps are living documents, they can go a long way toward assuaging educators’ questions and concerns about sudden life changes, and whether those changes will impact their state pension plans, supplemental retirement plans and more.

 

3. Find ways to bridge the retirement gap

 

In some states, educator pension plans rarely exceed the amount ultimately contributed, and various factors, such as length of service and earnings history, can impact payouts. The average annual benefit for a pension plan can vary widely—from around $22,000 in Alabama to just over $49,000 in Illinois. In states that don’t offer substantial retirement benefits or participate in Social Security benefits for educators, achieving a comfortable retirement can be much more difficult.

To address that potential shortfall, educators may want to take advantage of 403(b) or 457(b) saving plans, which are similar to 401(k)s offered by the private sector. Contributions are tax-deductible and investment earnings are tax deferred—although, unlike 401(k) plans, investment options are generally limited to annuities and mutual funds.

 

4. Educate educators on their options

 

The truth is educators are sometimes too busy to read up on the finer points of financial planning. They may not realize that K-12 teachers who work with a financial professional often reap a multitude of benefits, including higher median account balances; increased confidence in overcoming financial setbacks; and improved engagement with retirements plans. Some may not even recognize that they can qualify for Public Student Loan Forgiveness, or that contributing to a tax-deferred retirement plan like a 403(b) can help lower their student loan obligations.

Ultimately, it’s your responsibility to bring these options to the table, as too few teachers capitalize on them due to a lack of awareness. For example, only 27% of educators and school staff participate in 403(b) plans, according to the most recent data from NTSA, despite the fact that two-thirds of school districts offer them.

 

5. Understand educators’ unique needs

There is no one-size-fits-all approach—financial planning requires holistic thinking that accounts for unique circumstances and goals.

The nuances and complexities of the educator market also require financial professionals to truly understand their clients—their schedules, their after-school responsibilities and their dreams - in order to best help them.

It’s not a one-and-done process

When it comes to reviewing educators’ finances, the beginning of the school year should be considered a starting point for more touchpoints throughout the year. Financial professionals are often on campus, in classrooms and at events. Use those locales as an opportunity to sit down and have conversations with your educator clients. They’ll appreciate it—and they’ll be better prepared to review their finances come 2025.

 

Fred Makonnen is head of group retirement sales and distribution at Equitable, where he oversees its 401(k), 403(b) and 457(b) businesses. Contact him at [email protected].

 

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