How to Retire With $1 Million on a Teacher’s Salary

The median pay for a high school teacher in the U.S. is about $63,000 annually. As far as salaries go, that’s about $10,000 more than the average worker’s pay across all careers and ages. Even better, that $63,000 paycheck is enough to grow a $1 million retirement account.

Along with your paycheck, you’ll also need some discipline and know-how to retire with $1 million. You’ll have the know-how when you’re done reading this article. The discipline should naturally follow once you see what’s possible.

1. Know your numbers

The first step to building retirement wealth is saving to your 403(b). The account has three features that help you grow your nest egg faster:

Your contributions are tax-deductible. Tax deductions lower your cost of saving.
Your earnings in the 403(b) are tax-deferred. You don’t pay annual taxes on interest, dividends, and realized gains in a 403(b). The money that would otherwise go to your taxes can stay in the account, invested and earning for you.
You may earn matching contributions. If your district has an employer-match program, that’s free money to invest and grow.

How much you should contribute to your 403(b) is a function of your investment timeline and your expected growth rate. The timeline is the easy part — count the years between now and your planned retirement date.

Image source: Getty Images.

Your expected growth rate is slightly more complicated. A good starting point is the average annual growth rate of the stock market, which is 7% after inflation. You could plan for this rate if your timeline is longer than 10 years, and you will invest mostly in equity funds.

If you prefer to be conservative, you may want to split investments more evenly between equity funds and bond funds. In that case, your expected growth rate would be lower — say, 4% or 5%.

Once you know your timeline and growth rate, use any compound interest calculator to find the monthly contribution needed to reach $1 million. As an example, saving and investing $603 monthly at 7% growth should give you a million-dollar balance in 35 years.

Assuming a $63,000 salary, a $600 monthly contribution equates to about 11% of your pay.

2. Contribute to your 403(b)

If your targeted contribution amount is out of reach, don’t panic. There are two strategies that can help:

Matching contributions. Employer-funded deposits can fulfill part of your targeted contribution. If your target is $600 monthly, for example, you can get there with $200 in employer match plus $400 in paycheck deferrals.
Bonus pay. If you earn bonuses, deposit and invest those funds in an IRA. That will help cover any shortfall in your monthly 403(b) contributions. In 2022, you can contribute up to $6,000 in an IRA, or $7,000 if you’re 50 or older.

If you don’t have employer match or bonus pay, that’s all right. Contribute as much as you can now. Then, look for opportunities to raise those contributions over time.

3. Invest your contributions

To realize 7% average annual growth, or something close to it, you have to invest your contributions. A popular starting point is an S&P 500 index fund with a low expense ratio. This fund will pair well with a bond fund that holds U.S. Treasury debt.

If you prefer a simpler approach, try a target-date fund (TDF). TDFs are designed to be the only security in your retirement portfolio. They hold a mix of stocks and bonds, and the risk level is tailored to your investment timeline.

4. Check your progress

As you move toward the million-dollar mark, plan on checking your progress annually. This annual checkup is not about verifying that your investment growth was 7% for the year. It likely won’t be.

Instead, compare your investment performance to stock market trends. If the S&P 500 falls 9% in a year, for example, you should see negative returns also. That’s acceptable, as long as your returns aren’t dramatically worse than the market’s. Likewise, a strong year for stocks should translate to good performance in your portfolio.

Believe it or not, tracking with those ups and downs is how you move toward that 7% average annual growth. If your results differ wildly from the market’s, that’s your cue to research what’s happening and possibly make a change.

Once you have 10 years of investment history, you can evaluate your average performance against the growth rate you’d expected at the start.

Making your million-dollar retirement

To reach a million-dollar retirement on a teacher’s salary, you must set a plan, implement it, and adjust along the way. You may have to stretch to contribute the right amount — or not, depending on your age.

The big thing is, don’t wait to put your plan in motion. In 10 or 15 years, when you’re seeing significant progress toward the million-dollar mark, you’ll appreciate that you took action today.

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