How Tutoring Can Save Your Retirement as a Teacher

Guest Blog

That certainly sounds like a grandiose title but it is 100% true and I will prove it to you in under 850 words. Based on that claim, I have no time to waste…except for right there…and there  : )
The unfortunate fact is that in the past several years, almost half of our country’s states have altered their pension system in some form: either by reducing future employee benefits or increasing employee contribution percentages (or both). More states are considering doing the same or states that have already made amendments are looking to further alter their pension to the further detriment of their employees.

Most state governments (and certainly the federal government) are facing budget deficits, debt, & pension deficits that range from moderate to significant. A 2010 study done by the Pew Center on the States, “The Trillion Dollar Gap”, graded each of the 50 state’s pension systems and 34 of them rated as either ‘Needs Improvement’ or ‘Serious Concerns’.

If you think state teacher pension systems are in trouble now, wait for the next decade to pass. According to a 2010 McKinsey & Company report titled “Closing the Talent Gap”: more than half of today’s teachers, 1.8 of 3.3 million, will become retirement age eligible in the next decade. What will happen when these already stressed pension systems see massive outflows of their highest paid teachers from the ranks of paying into the pool of pension dollars and pull a 180 by starting to take money out of the system.

Even if every teacher that retires is replaced, how can an unstable pension recover when waves of baby boomer aged teachers retire each year and with them take 75-80% of their higher end of the pay-scale salaries from the pension each year only to be replaced by new teachers at the lowest end of the pay-scale contributing no more than 10% of their salary into the system?

Hopefully that doesn’t scare you too much as there is a solution. Back to the title of this post, what does this have to do with tutoring? How can that save your state’s pension plan and ensure that you are provided fully with the benefits you’ve earned and deserve? Plain and simple, it can’t.

Okay, end of post.

Just kidding.

While tutoring can’t save your pension, it can save your personal retirement. It isn’t exactly a secret that teachers are under paid and underappreciated. And since teachers are already contributing a significant amount of their earnings to their state’s pension, it is understandable that there isn’t much money left over to save for retirement outside of the pension.

This is where tutoring comes in. Many parents are looking for tutors for their children and are clearly looking for qualified people for the job. Who is more qualified to teach than teachers? Your experience and expertise gives you a huge advantage in the tutor market as well as could (and should) allow you to command a higher rate than others looking to tutor (and certainly if you have a specialty subject that further distinguishes you above the rest). Especially when you consider finding the most effective tutor for the child is the top priority for parents over trying to find a “bargain”.

At My Town Tutors, rates range from around $30 – $85 per hour. Let’s say a 35 year old teacher hoping to retire at age 65 started tutoring just one hour per week at the lowest rate in that range and saved every penny of it in a retirement account outside of their pension. With a modest long term average investment return of 7% over the 30 years from age 35-65 (for comparison’s sake, the stock market as a whole was around 9% for the past century), the teacher would retire with an extra $157,674 at retirement.

That is a very nice buffer to protect against anything potentially happening in the future to decrease your pension benefits. And if nothing adverse happens to your pension (cross your fingers), then you have that much more at your disposal to be able to do and see more of the things you’ve always hoped for. Just for fun, if that teacher received 9% average per year instead of 7%, they would have retired with $231,777 in the account.

It isn’t hard to imagine what would happen if you charged more per hour or worked more than one hour per week as a tutor.

Teachers have a great deal to offer as tutors, it can be a nice change of pace from working with full classrooms, and the potential long term rewards to your retirement for giving personalized teaching attention to individual students are now clear.

Clocked in under my quoted 850 words, I hope I was able to prove to you how tutoring can save your retirement.

However, having that knowledge is only half the battle. Teachers have many different types of retirement plans available to them and they aren’t all built the same. In fact, the difference between simply choosing your best option as opposed to your worst available option can result in tens of thousands of dollars more in your account at retirement. The even more shocking fact is that 80% of teachers choose the worst type of retirement plan available to them.

To learn what the best plan for you is most likely to be, the dirty secret of why so many teachers choose the wrong plan, and how to significantly improve the quality of your retirement; sign up for this teacher-only webinar on Teacher Retirement Plans.

Steven Daar is a published author & blogger on financial issues facing teachers and their retirements. He graduated with a degree in Finance from the University of Illinois in Urbana – Champaign and has since learned from and/or directly collaborated with some of the brightest and most decorated individuals in personal finance. He is also a constant student of his craft, looking for new or better information to pass on to teachers. You can read more from Steve at http://teachersretirementhelp.com/.