Retirement Planning for Teachers: How to Turn Your Savings Into a Monthly Paycheck
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One of the biggest challenges in retirement planning isn't necessarily accumulating enough money. It's figuring out how to turn that money into income.
For teachers, this can be especially interesting. You may have a pension through your state retirement system, Social Security benefits, and additional savings in a 403(b), 457(b), Roth IRA, or other investment accounts.
That's a lot of different pieces to coordinate!
But here's the question I want every teacher approaching retirement to consider:
How much money can I comfortably spend each month without putting my financial future at risk?
This is a much different question than simply asking whether you have enough money to retire.
Traditionally, retirement planning has relied heavily on something called a Monte Carlo analysis, which produces a probability of success. While this can be a useful planning tool, I believe there's a better way to communicate retirement projections.
Instead of focusing on an arbitrary percentage, I want to focus on creating a monthly retirement paycheck.
Let's look at how this works and how your pension, Social Security, and investment portfolio can work together to provide retirement income.
1. Start With Your Existing Sources of Retirement Income
Before determining how much money you can withdraw from your investment portfolio, we need to understand what income you already have.
For teachers, this typically starts with your pension.
Teacher Pension
One of the biggest advantages of working in education is the opportunity to receive a pension after completing the required years of service.
Depending on your retirement system, your pension may provide a monthly benefit for the rest of your life.
However, there are several things we need to consider when incorporating your pension into a retirement plan:
Monthly benefit: How much will you receive based on your years of service and final average salary?
Retirement date: When are you eligible to receive your full pension benefit?
Cost-of-living adjustments: Will your pension increase over time to help offset inflation?
Survivor benefits: What happens to your pension if you pass away before your spouse?
These details can have a significant impact on your retirement income.
For example, a teacher receiving $50,000 annually from their pension has a very different retirement planning situation than someone receiving $25,000.
And while having a pension is a tremendous benefit, it doesn't necessarily mean your pension will cover all of your retirement expenses.
Social Security
Social Security is another important piece of the retirement income puzzle.
Depending on your earnings history and when you claim benefits, you may be eligible for Social Security retirement benefits.
This is particularly important for teachers in states where public school employees participate in pension systems that do not contribute to Social Security.
The Social Security Fairness Act, signed in January 2025, eliminated the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These provisions previously reduced Social Security benefits for many public employees and their spouses.
For some educators, this has created additional retirement income opportunities.
When building a retirement plan, we want to understand your individual Social Security eligibility, projected benefits, and the potential impact of claiming at different ages.
Other Sources of Retirement Income
You may have additional income sources that need to be incorporated into your retirement plan.
Some examples include:
A spouse's pension.
Rental property income.
Annuity payments.
Part-time employment.
Other recurring sources of income.
The goal is to identify all the income you expect to receive throughout retirement.
Once we have a clear picture of these resources, we can determine how much additional income needs to come from your investment portfolio.
2. Determine How Much Income Your Investment Portfolio Needs to Provide
After identifying your existing retirement income, we can start looking at your investment accounts.
Let's use an example.
Imagine a married teacher couple who wants to have $8,000 per month available to spend in retirement.
Their projected income looks like this:
Retirement income source | Monthly income |
Teacher pension | $3,500 |
Social Security (Spouse 1) | $2,000 |
Social Security (Spouse 2) | $1,000 |
Total monthly income | $6,500 |
In this example, the couple has $6,500 per month coming from their pension and Social Security.
However, they want to have $8,000 per month available.
That leaves a $1,500 monthly gap that needs to be filled by their investment portfolio.
Rather than simply looking at their retirement account balances, we can now begin answering a much more important question:
Can their investment portfolio reasonably provide an additional $1,500 per month throughout retirement?
This is where retirement income planning becomes especially important.
We need to consider investment returns, inflation, life expectancy, taxes, and the possibility of experiencing a significant market downturn early in retirement.
A portfolio that looks sufficient today may have a very different outlook depending on when you retire and how the financial markets perform.
This is why I don't believe retirement planning should be a one-time calculation.
3. Why a Monte Carlo Probability of Success Doesn't Tell the Whole Story
Most traditional retirement planning software uses something called a Monte Carlo simulation.
Essentially, the software takes your financial information and runs hundreds or thousands of potential market scenarios to evaluate how your retirement plan might perform.
For example, it may simulate retiring immediately before a major stock market crash or during a period of strong investment returns.
After completing these simulations, the software provides a probability of success.
You might be told that your retirement plan has an 85% probability of success.
While this information can be useful, I have always struggled with how we communicate this number to clients.
What does an 85% probability of success actually mean?
Does it mean you can spend $8,000 per month?
Does it mean you should delay retirement?
Does it mean you're saving too much?
The percentage doesn't necessarily answer those questions.
I would rather have a conversation about how much income you can reasonably expect to receive each month and what would cause that amount to change.
This doesn't mean Monte Carlo simulations are useless. In fact, they are still an important part of evaluating retirement income strategies.
The difference is how we use the results.
Instead of presenting a probability of success, we can translate the results into a monthly retirement paycheck.
4. Creating a Teacher Retirement Paycheck With Income Lab
This is where I have become particularly excited about retirement planning.
I've spent years building retirement projections for clients, trying to determine how much income they can expect from their pensions, Social Security, and investment portfolios.
Recently, I started using retirement planning software called Income Lab.
Income Lab takes a different approach to retirement planning by focusing on something called spending capacity.
Rather than simply calculating the probability of success, the software evaluates your financial resources and estimates how much you can spend throughout retirement.
It considers several important variables, including:
Investment portfolio balances and asset allocation.
Pension and Social Security income.
Expected investment returns.
Inflation assumptions.
Life expectancy.
Future spending goals.
The software then runs thousands of potential future scenarios to determine how much income your financial resources could support.
Its default teacher retirement paycheck setting is designed to be relatively conservative. Specifically, it selects an income level that is higher than 80% of the modeled potential retirement paychecks.
In other words, the goal is to establish a reasonable spending amount while recognizing that future investment returns and inflation are uncertain.
I really like this approach because it changes the conversation.
Instead of telling someone they have an 85% probability of success, I can show them an estimated monthly retirement paycheck.
And that's a much easier number to understand and incorporate into your financial decisions.
5. Using Retirement Spending Guardrails to Adjust Your Income
One of the most interesting features of Income Lab is its use of spending guardrails.
The idea is relatively simple.
Your teacher retirement paycheck shouldn't necessarily remain the same regardless of what happens in the financial markets.
If your investments perform exceptionally well, you may have an opportunity to increase your spending.
If your investments struggle, you may need to make adjustments to protect your retirement savings.
Income Lab establishes two guardrails to help identify when those adjustments might make sense.
Upper Guardrail: When You May Be Able to Spend More
Let's say your retirement portfolio performs better than expected over several years.
Your investments have grown, and your financial position is stronger than originally projected.
The upper guardrail helps identify when your current retirement paycheck may be unnecessarily conservative.
At that point, you can evaluate whether increasing your monthly spending makes sense.
Maybe you want to take an additional vacation each year.
Perhaps you want to help your children with a home purchase or contribute toward your grandchildren's education.
Whatever the goal, the upper guardrail helps identify when your financial resources may support additional spending.
Lower Guardrail: When You May Need to Reduce Spending
Unfortunately, investment markets don't always cooperate.
A significant market downturn, particularly early in retirement, can create additional pressure on your portfolio.
If your investment accounts decline substantially while you're withdrawing money, you may need to reconsider your spending.
The lower guardrail helps identify when your current retirement paycheck may be too aggressive relative to your available resources.
Rather than waiting until your portfolio is significantly depleted, we can evaluate whether a spending adjustment makes sense.
Importantly, Income Lab's methodology doesn't necessarily call for a drastic spending reduction immediately.
Its default approach uses a relatively gradual adjustment, recognizing that retirees generally prefer smaller spending changes over large cuts that may prove unnecessary if markets recover.
This is an important distinction.
The goal isn't to constantly change your spending based on daily market movements. It's to establish a framework for making reasonable adjustments when your financial situation changes.
6. Retirement Planning Should Be an Ongoing Process
One of the biggest mistakes I see in retirement planning is treating the retirement projection as a one-time exercise.
You retire.
Your financial planner runs the numbers.
You receive a probability of success.
And everyone assumes the plan is good to go.
But retirement can last 25, 30, or even 35 years.
A lot can change during that time.
Investment returns will fluctuate. Inflation will impact your purchasing power. Your spending habits may evolve. Your health and family circumstances may change.
Even your pension and Social Security income may look different than originally projected.
This is why I believe retirement planning should be an ongoing conversation.
Your retirement paycheck and spending guardrails should be reviewed as your financial circumstances change.
If your portfolio performs better than expected, we should evaluate whether you can spend more.
If things don't go as planned, we should determine whether an adjustment is necessary.
And if your goals change, your financial plan should change with them.
The goal isn't to predict exactly what will happen over the next 30 years.
It's to have a plan that can adapt along the way.
Final Thoughts: Your Retirement Should Be About More Than an Investment Account Balance
Teachers spend decades contributing to their pensions, saving in their 403(b)s, and building wealth for the future.
But eventually, all of that hard work needs to turn into something meaningful.
You should understand how much income your pension will provide, when Social Security will/could begin, and how your investment portfolio can supplement those sources of income.
More importantly, you should have a plan that helps you feel comfortable spending the money you've worked so hard to accumulate.
I believe one of the biggest risks in retirement isn't just running out of money.
It's spending your entire retirement being so worried about running out of money that you never actually enjoy it.
Retirement planning should give you the confidence to spend money on the things that matter while maintaining a strategy for navigating the unexpected.
And that's exactly why I'm excited about moving toward a retirement paycheck approach.
If you're a teacher approaching retirement, or even if retirement is still 10–15 years away, understanding how your pension, Social Security, and investment accounts work together is an important step.
At K-12 Planning, I help teachers and their families coordinate these different pieces to create a comprehensive retirement strategy.
Because you've spent your career working hard to build your retirement.
Now it's time to figure out how to enjoy it.
David Gourley is the Founder and lead Financial Planner at K-12 Planning, an independent financial planning firm specializing in finance for teachers. He served for eight years as a high school mathematics teacher before transitioning into the financial services industry. He started K-12 Planning in 2024, and his passion for serving as a fiduciary for teachers and a student loan planning expert runs deep, as his wife and several other family members have served as educators for years.
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