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How Not to Save for Retirement if You’re a Teacher

Don’t make the same mistake this former math teacher did. And if you’ve already made it, it’s OK. You can fix it.

October 15, 2018

Ryan Frailich

Ryan Frailich

I’m a former math teacher, now a financial planner, and I want to share with you my biggest financial mistake. Yes, you should save for retirement. But don’t do what I did.

I distinctly remember, when I was teaching, meeting the representatives who came to school and set up in the cafeteria to sell teachers on investing in a 403(b) account. Each friendly company rep brought a dish of candy and started and ended every interaction with a big hug. I didn’t realize at the time they were putting me at ease so I wouldn’t ask the hard questions.

After my corps years in Mississippi, I taught in Brooklyn before moving to New Orleans, where I taught for another year and then moved to a new organization before starting my financial planning business. Mobility is increasingly common among teachers, so traditional teacher pension systems—which require you to stay in one state to get a payout—don’t work for many of us.

So I did what a lot of people who have four jobs in three states over 10 years do: I invested in the most common account to which most teachers have access, a 403(b). This can be a useful tool, but there are major pitfalls to watch for before you invest.

What Exactly Is a 403(b)?

A 403(b) is similar to a private sector 401(k) retirement plan, in which you can invest a portion of your pre-tax earnings. But the 403(b) is specifically for education and nonprofit workers. It’s an employer-based account, meaning you access it through your school district or network and make deposits straight from your paycheck. You can contribute much more than you can to an individual retirement account (IRA), so it can be attractive if an IRA won’t cover your future needs.

So what’s the problem?

While certain 403(b) plans (such as any through which an employer makes a matching contribution) are covered under ERISA—the federal law that protects private-sector employee retirement savings—many 403(b) accounts are not. Those not covered by normal ERISA protections include the governmental accounts that public school teachers can access.

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Due to these plans being more lightly regulated, you may be entering the carnival fun house of retirement plans. The investments offered can be wildly overpriced when compared to a 401(k). Fees can be impossible to determine unless you’ve read through a multi-hundred-page prospectus. You may have to wade through dozens of companies your employer has approved, each of which has multiple products. If you’re a smart person who feels stupid when trying to compare these accounts or plans, I don’t blame you for wondering if that’s intentional.

The “financial advisors” who visit schools and service these accounts often are not advisors but salespeople who make commissions on what they sell. Say you’re a busy teacher, struggling to make sense of it all. That can lead you to one of two decisions: total inertia, or a quick move to sign up with whichever representative you meet first.

This is the mistake I made.

“If your future self wants to have any choice about when to stop working, you should aim to save at least 10 percent of your income for retirement if you can.”

Ryan Frailich

My 403(b) Mistake

The 403(b) accounts I chose sold annuities (a type of insurance product) with a fixed 2 percent rate of return. While each person’s risk and reward profile is different, in general, I believe that getting paid 2 percent per year on a fixed annuity is likely not appropriate for a 24-year-old with 40 years to invest towards retirement. If I wanted to save $1 million by age 65, I’d have needed to be saving more than one-third of my income. Not only that, but once I left that job where I purchased the annuities, I couldn’t get my money out without paying additional “surrender” fees.

So what did I do? I left my money in those accounts for five years after leaving the job (because inertia), while the S&P 500 was returning an average of 12 percent annually. In real dollar terms, those five years cost me about $8,000.

Navigating Your 403(b)

I am not recommending you quit saving. If your future self wants to have any choice about when to stop working, you should aim to save at least 10 percent of your income for retirement if you can. Here are ways to avoid the hazards:

  • If you’re below certain income requirements, as many teachers are, you can skip the 403(b) altogether and contribute up to $5,500 per year to an IRA or Roth IRA.
  • If you are using the 403(b) and have many company options, I suggest you choose one that—while not perfect—has a reputation for being more transparent and customer-friendly. I have no affiliation with any of these companies, but some with better reputations include Vanguard, Fidelity, and Schwab.
  • Understand whether you’re investing in mutual funds or an annuity. There are different rules for each. Time-consuming as it may be, you have to read the prospectus.
  • Be cognizant that many representatives of financial companies who sell accounts at schools are not legally bound to act in your best interests.
  • Look for total fees on your account or employer plan to be under 1 percent. Push to understand all the fees. Use a tool like 403bcompare to make sure you’re not missing anything. I recently met a couple, both working in nonprofits, who had $250,000 in an annuity inside a 403(b). Their quarterly statements read "Fees & Expenses: $0." Yet we discovered they were paying nearly $6,000 a year for this product.

Let’s Achieve Reforms

I believe it’s unfair that public school teacher accounts aren’t given the same protections that private sector workers get with 401(k) plans. Connecticut just passed a bill requiring disclosure of fees on all 403(b) accounts. Teachers in New York State’s union approved a resolution to educate members about the importance of low-fee investments and provide access to fiduciary advisors. If you belong to a union, you can ask it to disclose what financial support it receives  from financial companies, a potential conflict of interest. And perhaps you can start advocating locally with your union or the finance committee of your school board or network to build momentum toward getting teachers the protection they deserve.

And Don’t Think You’ll Never Retire

Don’t let the confusing acronyms or one bad experience stop you. I am not advocating for you to consult a financial planner; that carries a cost too. But if you’re struggling, and you decide you need a financial advisor, choose carefully. My fee-only colleagues are paid by you, the client, instead of earning commissions on products we sell, so fee-only advisors should be giving you unbiased advice.

I made a mistake in my 20s that cost me thousands. I know some of you reading this have made this mistake too. It’s OK. You can fix it and get your money out. The best day to start is today.

Ryan Frailich (Greater Delta ’06) is the founder and leader of a New Orleans-based financial planning firm.

This article is provided for general information only. Nothing contained in the material constitutes advice, a recommendation for purchase or sale of any security, or investment advisory services.


  • One place where you can compare and learn about retirement planning products is at the website 403bcompare.
  • You can find basic educational materials and learn about advocacy efforts at the website 403bwise.

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