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Teachers Retirement System

Why Save in a 403(b) Plan?

​​​​​​While your TRS pension benefit will provide a valuable source of ongoing retirement income, your pension probably won't provide enough income to ensure a financially secure retirement. Let's look at the numbers:

  • 70-90% = percentage of pre-retirement income that experts estimate you will need to maintain your standard of living in retirement (if not more)
  • 68% = percentage of the average career employee’s pre-retirement income replaced by their TRS pension*
  • $0 = amount of retirement income most Texas school employees can expect to receive from Social Security**

As you can see, there is a gap between the amount of income provided by the average career employee's TRS pension and the minimum amount of income you will likely need to live a financially comfortable retirement. To increase the income available to you in retirement, you’ll need to supplement your TRS pension with your own personal savings. One way to save for retirement is in a 403(b) plan.

With a 403(b) plan, contributions are deducted from your paycheck on a pre-tax basis. Taxes on your 403(b) contributions are deferred until you begin making withdrawals, typically upon retirement. This offers several tax advantages:

  • The actual reduction to your take-home pay will be less than your contribution amount. To provide a simplified example, let’s say you’re in the 25% tax bracket. A $100 pre-tax contribution to your 403(b) account may only reduce your take-home pay by an additional $75, since that $100 would have been taxed 25% if you had not deferred it into your 403(b) account.
  • The earnings on your 403(b) account will grow tax-free until withdrawal. All investment returns will remain in your account to potentially earn more returns. Although you will eventually have to pay taxes when you withdraw your money, you will likely benefit from years of compound interest on your untaxed earnings.
  • You may be in a lower tax bracket after retiring and may pay less in taxes on withdrawals from your 403(b) account than you would have paid when you were employed.

Before opening a 403(b) account, TRS encourages you to thoroughly research the options available to you. There are a wide variety of online resources available in addition to the information TRS has provided on this website. You can begin learning more about 403(b) plans and how they work by visiting Evaluating Your Retirement Options from the U.S. Securities and Exchange Commission (SEC).

*A career employee is defined as one who retires at age 62 with 32 years of service. The 68% replacement ratio applies only to replacement income at initial retirement. Inflation will lower effective purchasing power over time. For more information, see page 13 of the TRS Pension Benefit Design Study (pdf).​

**94% of school districts do not pay into Social Security – check to see if yours does.

403(b) Legal Disclaimer
Questions Regarding Individual 403(b) Contracts