The Advisor - November 2010


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Why Is a 403(b) Plan Important to Me?

Are you counting on your CalSTRS or CalPERS pension to provide all of your retirement income? Your CalSTRS or CalPERS pension is not enough. A career educator will receive less than 65% of pre-retirement income from CalSTRS and about 50% for CalPERS members. Financial experts recommend that you will need 90% – 100% of pre-retirement income. That’s a significant gap.

You also need to take into account the number of years you will live in retirement, as well as anticipated higher health care costs.

Living longer is usually a good thing, but it can also mean that you run out of money if your savings are insufficient to cover decades without a paycheck. Even a very low rate of inflation can erode your savings over a long period of time. The average age of retirement for CalPERS members is 60, and 61.3 for CalSTRS members.

That means you could easily spend 20 years or more without a paycheck. And don’t forget health care. It’s estimated that a married couple age 65 may need $295,000 in retirement savings just to cover health insurance premiums and out-of-pocket medical expenses during retirement.

As an educator, you can save for your retirement on a pre-tax basis via payroll deduction in a defined contribution plan such as a 403(b) plan. Your earnings grow tax-deferred. A 403(b) plan is sometimes referred to as a tax-sheltered annuity (TSA) and it is similar to a 401(k) plan in the private sector. A 403(b) plan gives you an opportunity to supplement your CalSTRS or CalPERS defined benefit plan with your own savings.


  • 30% to 40% of educators take advantage of a 403(b) or 457 plan.
  • A CalPERS school member retiring at age 55 with 25 years of service will receive about 50% of pre-retirement annual compensation.**
  • Americans will need to accumulate an average of 15.7 times their preretirement pay in order to maintain their lifestyle during retirement.***

* Source:

** Source: Retirement Security in California – CalPERS Pension Benefit Primer, October 2009,

*** Source: Hewitt Associates, “Retirement Income Adequacy at Large Companies: The Real Deal,” 2010,