Last week I declared “optimism” my word for 2020. So, I’m going to jump right into the new year by listing all the reasons that education is a great career choice for those seeking financial independence!
Table of contents
- Teacher Advantages? Really?
- Teacher Advantages for Financial Independence
- Multiple Retirement Savings Options
- Employer Provided Health Insurance
- And Maybe Another Tax Advantaged Saving Option?
- Low Lifestyle Inflation Pressure
- Time To Side Hustle – If You Want It
- Pension
- Putting It All Together
Teacher Advantages? Really?
A number of studies, including both The Millionaire Next Door and Everyday Millionaires found teachers well-represented among millionaires despite not being a high earning profession. How can this be? It’s because despite a relatively low income, educators have a number of other levers that help build wealth.
First, let’s acknowledge the one weakness – income. Income is an important driver, and it’s not easy to earn six figures as a teacher. Our incomes typically start low, but eventually climb up to a respectable level. Safe to say though, that income isn’t a teacher advantage. There are lots of other professions that make more.
It’s the low starting-income that causes people to believe teaching requires poverty. And, I won’t argue that it’s easy starting out. The early years can be lean and financial progress is slow. Early on, you’re subject to RIF and may get hit by furlough days. It can seem impossible. Unfortunately, too many people stay stuck in this mindset.
INCOME
So, let’s cross off income and pay attention to those advantages that can help a teacher build wealth.
Teacher Advantages for Financial Independence
Predictable Stable Income & Growth
Okay, so the amount of income isn’t an advantage. Nor can you expect huge raises. Yet, one thing we as educators take for granted is a stable salary and predictable growth. That may be grasping a bit, but having lived through the Great Recession, it’s not something to ignore.
Once you’ve established yourself as a teacher, you’re relatively assured of having a job. In economic downturns, or districts with declining enrollment, layoffs do happen. Unfortunately, these layoffs hit new teachers the hardest. But for those who have been teaching for 3 years or more, there is a high-level of job security in all but the worst situations. In general, your job is more secure than most other professions.
In most cases, you’ll also get a predictable annual raise based on your experience for 10+ years. (Salary schedules vary.) Sure, you won’t be getting massive jumps, but you know a raise is coming. Don’t shrug that off. Half of Americans didn’t get a raise in 2019.
You can intentionally plan to allocate 50% of your raise to savings/investments.
Your salary will double over time. While it may not be what you’re worth, in most cases you’ll eventually earn more than the US median household income. As they say, it’s not nothing.
Again, income isn’t our strength – but I’m pulling out the positives!
Multiple Retirement Savings Options
This is a big one – if you’ve got good options. In addition to the 403b (the educator’s 401k), many teachers also have access to a governmental 457b.
That means double the tax-advantaged savings for those who can afford it. Even better, the 457b allows you to withdraw money upon separation of service. Great if you want to retire early, or change careers later!
Even better, you can contribute to these on top of IRA (individual retirement account) options. That means for a solo educator, you can contribute up to $45,000 to your retirement pre-tax.
| Account | Contribution Limit (2020) |
| 403b | $19,500 |
| 457b | $19,500 |
| IRA | $6000 |
| Total: | $45,000 |
Contribution limits change every year, and often increase. You may also be eligible for catch-up contributions, especially if you are over 50. Make sure you check for the latest in early December each year.
Don’t forget, these limits are per educator. If you, like me, are in a two educator household, you can get very close to six figures in pre-tax investing. Millionaire Educator blows right through that!
As always, make sure to check the fees in your investment products. Sadly, not all educators have access to good 403b and 457 accounts.
Employer Provided Health Insurance
Health insurance is one of the biggest costs Americans face. It’s also a complex subject with too many variables. Hopefully, we figure out a better way soon.
In the meantime, most teachers have access to employer sponsored health care. The costs may still be high, but often less than those without employer provided plans.
Only about half of Americans get employer sponsored health-care coverage according to the Kaiser Family Foundation. As with anything healthcare related, there are significant disparities and differences in coverage.
We grumble about our out-of-pocket costs, but sadly this is still an advantage compared to many.
And Maybe Another Tax Advantaged Saving Option?
Your district may provide a Health Savings Account (HSA) eligible plan. If so, this is a source of triple-tax-advantaged savings and considered by some the ultimate retirement account.
Check to see if you have an HSA, and then determine if it’s right for you and your family. If so, this can be a real benefit long term!
Low Lifestyle Inflation Pressure
To be clear, teachers are bombarded by all the same consumer messages that other Americans are. In that way, it’s easy to spend more than you make, or at least spend every cent you earn.
Yet, contrary to some professions, education doesn’t come with built in pressure to project a certain lifestyle. In fact, it can be the opposite.
The “doomed to poverty” myth is useful in that you aren’t expected to drive a luxury car or wear expensive clothes to work. Showing up to teach primary art class in an expensive top would be considered foolish!
While teaching won’t make you naturally frugal, it’s certainly an environment that supports anyone who keeps their spending reasonable. If you choose to drive an old car and go on a clothing ban, others might not even notice!
Of course, this didn’t stop us from suffering and then reversing lifestyle inflation. But, that’s our fault not a result of profession-related pressures!
Time To Side Hustle – If You Want It
I don’t blame anyone who chooses to teach and do nothing else. The job is exhausting, and requires periods of rest to replenish your energy.
But…if you are interested in earning more, teaching provides ample opportunities to side hustle. In the early years, a second job may be a requirement to make ends meet. Later on, you may just choose to earn more.
The work hours allow for evening freelancing work (when you aren’t grading) and you have weekends available. Holiday breaks and summers are additional opportunities to take on other gigs or projects. And no, teachers don’t get paid in the summer for their teaching job!
You may not have the energy, or desire, to take on more than your career. That’s okay.
If you do, teaching provides the perfect hours for earning some extra income.
Related Post: Real Teacher Side Hustles
Pension
Did you know only about 1 in 5 American workers have access to a pension? And, that number is shrinking every year as pensions are closed to new entrants or converted to defined-contribution options.
Most teachers have a pension. A pension, or defined-benefit plan, is a huge advantage.
Be aware that pensions aren’t what they used to be. In recent years, most pensions have introduced new tiers that provide a lower benefit. Don’t automatically count on the wisdom of that more experienced teacher that says a pension will take care of you.
Any amount is valuable though. It’s important to understand your teacher pension and it’s potential benefits. Learn the variables so you can most effectively include it in your financial planning.
Realize that having access to a pension at any point in your retirement puts you ahead of most Americans.
Putting It All Together
Each one of those advantages is helpful on it’s own. Put all together into a package and you’ve got a great toolkit to building wealth!
Teacher Advantages:
- Stable Predictable Income (and Growth)
- Teacher loan forgiveness
- Multiple Retirement Savings Options
- Health Insurance
- Side Hustle Options
- Low Lifestyle Pressure
- Pensions
If you still aren’t convinced, check out real stories of educators pursuing financial independence in the Educators on FIOR series.
If you like spreadsheets, I’ve also run three scenarios that demonstrate what is possible for educators using their advantages:
- Building Wealth: A Two Teacher Path To Financial Independence
- Building Wealth: An Administrative Path
- Teacher Path to FIRE (Financial Independence Retire Early)
Oh, and if you know of an advantage that I missed, let me know in the comments below! Don’t forget to talk to other teachers about money!
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