Teaching

Prior to 1980, any worker with a pension plan had a plan that paid a calculated amount at age 65 and was paid for by the employer. The amount received was based on a pension factor and years of service. The typical factor ranged from one to three percent. If a person started to work for the company at age 25 and stayed there until age 65 and their pension factor was 1.5%, they would receive 1.5 times 40 years or 60% of their final salary. As years passed, the pension cost to companies increased and became too burdensome so companies began to move away from pension plans and substituted with 401K plans which were part of the Revenue Act of 1978. Since an American company like GM had many more retirees than say, Toyota, the costs were higher. In 2005 hourly labor for GM employees was $69 and for Toyota $48 and most of this difference was to pay for legacy cost which means pension and healthcare. Today only union workers and public employees still have pension plans while the private sector has switched over to 401K plans. The pension factor for teachers varies by states but averages about 2%. Only about 25% of teachers make it a lifetime career but those retirement benefits are substantial. The average pay for a teacher, who is retiring today is about $80,000. If they started teaching at age 25 and retired at age 62 they would have 37 years experience and with a 2% pension factor would have a pension of $59,000. Their SS retirement benefit would be $18,000. At retirement not all SS is taxable and they no longer pay into SS or into their pension so they retire at more net income than they were earning. This is also true of union workers who had pensions and explains why companies moved away from pensions to 401K’s. Even with this comfortable retirement only one fourth of K-12 teachers make a it a life career. The job is just too stressful for most people.