What Are the Retirement Benefits For Teachers in California?

The California State Teachers’ Retirement System (CalSTRS) is a retirement system that provides retirement benefits to California’s public school teachers providing their services in prekindergarten or community colleges. As of June 2021, the CalSTRS is the largest educators’ pension fund in the United States with a portfolio of about $250 billion. As of June 30, 2020, about 975,000 public school educators have benefited from the program. 

Benefit Structures of CalSTRS

CalSTRS has the following two benefit structures:

1- CalSTRS 2% at 60

2- CalSTRS 2% at 62

The 2% figure mentioned above is known as the age factor, which is the percentage of your final compensation you will receive as a retirement benefit for every year of service credit. 

1- CalSTRS 2% at 60

If you were hired on or before December 31, 2012, you are covered under the CalSTRS 2% at 60 benefit structure. The eligibility for claiming retirement benefits under this benefit structure is: 

• Age 50 with at least 30 years of service credit.
• Age 55 with five years of service credit

The base age factor for members retiring at the age of 60 is 2%, which gradually decreases to 1.4% at age 55 for members retiring before age 60 and increases to 2.4% at age 63 for members retiring after age 60. 

2- CalSTRS 2% at 62

If you were hired on or after January 01, 2013, you are covered under the CalSTRS 2% at 62. The age factor for members of ‘CalSTRS 2% at 62’ is 2% at age 62. However, if you wish to retire before age 62, the age factor reduces 1.60% and increases to 2.4%, but not until age 65. The eligibility for claiming retirement benefits under this benefit structure is:

• Age 55 with at least five years of service
• Or under special circumstances of concurrent retirement with certain other California public retirement systems.

What retirement benefits do teachers get in California?

CalSTRS is a hybrid retirement system that offers the following three benefits programs to its members:

1- Defined Benefit Program

2- Defined Benefit Supplement Program

3- Defined Contribution - 403(b) Program

1- Defined Benefit Program

The defined benefit program promises guaranteed, lifetime, monthly payments after your retirement irrespective of the performance of your investments or contributions. The monthly payments that you get after your retirement are based on the following formula:

Years of service (service credit) x your age (age factor) x final compensation = retirement benefit

During the course of your employment, you, your employer, and the state of California will contribute a certain percentage of your salary to your retirement fund. You can see the details of the contributions on your paycheck statement. The contributions for 2020-21 are as follows:

Apart from retirement benefits, the program also offers survivors and disability benefits. 

2- Defined Benefit Supplement Program

This is a supplement program in addition to the primary defined benefit plan offered to the public educators and members of the CalSTRS. The supplement program uses a separate account that provides additional income for your retirement and is funded by you and your employer. 

You and your employer will contribute a percentage of your earnings in excess of one year of service credit. For example, if you earn more than your one year of service credit in a single year by working overtime or taking extra-pay assignments, you and your employer can contribute 8% of the excess amount to the supplement program retirement account. The contributions you make to the supplement pension program will earn a guaranteed rate of return that you will be able to use after retirement. 

Contributions for the year 2020-21 are as follows:

3- Defined Contribution - 403(b) Program

Public school educators in California can also opt for defined contribution or a 403(b)  program. The program is a voluntary defined contribution plan that allows teachers to put additional money in a 403(b) or 457(b) investment plan. CalSTRS offers a 403(b) program because the first two programs - the Defined Benefit Program and Defined Supplement Program - generally replaces between 50% - 60% of your salary. To help you close the gap between your retirement goal and CalSTRS income, you might need to contribute additional funds to a 403(b) program. 

To invest in the Defined Contribution or 403(b) program, you can instruct your employer to deduct a specific amount each month from your paycheck as you desire. 

Conclusion

The average CalSTRS 2% at 60 members at age 60 can expect to get at least 50% of their final compensation after 25 years of service credit whereas, after 30 years of service credit, you can expect to get at least 60% of your final compensation as your retirement benefit. To sum up, the CalSTRS retirement plan, though helpful, will only make up 50% to 60% of your last salary, and you might need monthly retirement payments to be at least 80% to 90% of your last-drawn salary to comfortably live your post-retirement life.

To top up your retirement income, you can consider contributing aggressively to 457(b) or 403(b) accounts, take extra-pay assignments to build your Defined Supplement Account, purchase service credit, and increase your years of service by delaying your retirement date.