Retirement may mean you won’t work a full-time job anymore, but you will still need an income. To live comfortably in retirement, conventional wisdom suggests that you’ll have to generate 80 percent of your final salary.

There are revenue streams, such as pensions or Social Security retirement benefits, but they aren’t available to everyone. Depending on which source you can participate in, they might not produce enough income to achieve the financial freedom in retirement to pursue your passions.

For example, California is one of 14 states where educators do not pay Social Security taxes or receive those same benefits. Rather, beginning the first day on the job, California educators are automatically enrolled in a state pension program, the California State Teachers Retirement System (CalSTRS) or the California Public Employees’ Retirement System (CalPERS).

When you decide to retire, the amount you will receive from a state pension is based on a formula determined by years of service, age of retirement and final salary. CalSTRS and CalPERS have different rules for pension qualifications, including eligibility requirements and age at which you can begin drawing a pension.

Having control over your retirement rather than relying solely on other sources for income is vital since pensions and Social Security are not as certain as they once were. Although pensions have been in place for decades, especially for government employees, a majority of states have only about 71 percent of assets to finance promised benefits. You want to make sure that whenever you stop working—whether in a month, a year or a decade—you will have the financial resources you will need in retirement.

A tax-deferred savings plan, such as a 403(b) and 457(b), can be a complement to a state pension. Among the benefits of enrolling in a 403(b):

• Tax-deferred savings. When you enroll in a 403(b) savings plan, contributions are deducted directly from your salary before your employer withholds income tax, thus lowering your current taxable income. You’ll pay taxes on the income when you withdraw money at a later date, typically when you reach retirement and are in a lower tax bracket. For 2021, you can contribute up to $19,500 and an extra $6,500 if you are 50 and older.

  Some school districts also provide the option of enrolling in an after-tax Roth 403(b). Because these contributions are made after taxes, you will not be taxed on them when you are eligible to start withdrawing funds at retirement.

  You can contribute either pre-tax or Roth within the same account. There’s no need to enroll separately. If you are uncertain whether to enroll in one, consulting a tax professional can help you determine what’s right for your situation.

• Compounding growth on investments. As regular contributions to a retirement fund will help grow your savings, so will compounding interest. And, the earlier you start participating in savings plan, the more its value will grow over time.

   

• Control over your investments. When you enroll in a 403(b), you have the opportunity to choose where to invest your contributions. If you tend to be more conservative with finances or have a very short time period before retirement, you can participate in bond funds or a fixed account which guarantees a minimum interest rate and provides some protection from market volatility. If you are more of a risk taker or have more time until you retire, you can choose from mutual funds, which tend to be more speculative and can go down in value during a market downturn, but have the potential for faster and greater growth.

You can also allocate investments to balance risk, so part of your contribution can go to mutual funds and part to a more fixed return option. If you need help to determine what’s right for you, you might want to consider working with a financial professional who can help identify your current needs and priorities as well as long-term goals.

Give yourself the peace of mind by taking an active—not passive--approach to preparing for retirement. By researching and planning for your future today, you can enjoy a more confident, fulfilling tomorrow.