Resources & Education

Pension is a “Defined Benefit Plan”

• Employer-Provided Guarantee – A pension promises you a specific monthly income for life, usually based on your salary and years of service.

• Little Employee Management – Your employer manages the plan investments and carries the risk.

• Predictable Income – You know what you’ll receive when you retire.

• Less Common Today – Most common in public sector jobs, such as schools and government.

Example: A teacher retiring after 30 years may receive a fixed monthly check from their school district’s pension system (like ATRS).

401(k) is a “Defined Contribution Plan”

• Employee-Directed Savings – You decide how much to contribute and where to invest it (within plan options).

• Investment Risk on Employee – Your retirement balance depends on investment performance.

• No Guaranteed Payout – You can withdraw savings in retirement, but there’s no fixed lifetime check.

• Employer Match Possible – Some employers contribute matching funds, boosting your savings.

Example: A private-sector employee saving 6% of their paycheck in a 401(k), with their company adding a 3% match, invests and grows that money until retirement.

Yes. In addition to the plans offered through through employers (typically a 401K) or schools (like ATRS, 403(b), or 457), you can open a personal retirement plan on your own.

Common Options Outside of Work

• Traditional IRA (Individual Retirement Account):

  • Contributions may be tax-deductible (depending on income).

  • Taxes are paid when you withdraw funds in retirement.

• Roth IRA:

  • Contributions are made with after-tax dollars.

  • Growth and qualified withdrawals in retirement are tax-free.

• Other Savings Vehicles:

  • Brokerage accounts, CDs, or annuities can also be used to supplement your retirement savings.

An annuity is a financial product that provides a steady stream of income in retirement. It’s often used to help cover the gap between pension income and what you’ll actually need to live comfortably.

Key Features

• Income for Life (or a set period): You can choose an annuity that pays you monthly for life, or for a specific number of years.

• Purchased with Savings: Annuities are typically bought with retirement savings, either all at once or over time.

• Predictable Payments: They offer consistent, reliable income, regardless of market ups and downs.

• Variety of Options: Some annuities include extras like survivor benefits, inflation protection, or flexible payout schedules.

There are three main types of annuities: fixed, variable, and indexed, each with different levels of risk, potential returns, and guarantees.

Roth vs. Pre-Tax: What’s the Difference?

When you save for retirement in a 403(b), 457, or 401(k), you may have the option to contribute either pre-tax or Roth (after-tax) dollars. The difference comes down to when you pay taxes.

Pre-Tax Contributions

• Tax Benefit Now – Money goes in before taxes are taken out of your paycheck.

• Reduces Current Taxable Income – This lowers the taxes you pay today.

• Taxes Later – You’ll pay income taxes on both contributions and earnings when you withdraw them in retirement.

• Best For: People who expect to be in a lower tax bracket when they retire.

Example: If you earn $40,000 and contribute $4,000 pre-tax, you’re only taxed this year as if you earned $36,000.

Roth Contributions (After-Tax)

• No Immediate Tax Break – Money goes in after taxes are taken from your paycheck.

• Tax-Free Growth – Earnings grow tax-free.

• Tax-Free Withdrawals – In retirement, qualified withdrawals are completely tax-free.

• Best For: People who expect to be in a higher tax bracket in retirement or want tax-free income later.

Example: If you contribute $4,000 Roth, you pay taxes on your full $40,000 today — but you won’t owe taxes when you take out that $4,000 (plus growth) in retirement.