If you're a teacher who will retire with a state pension, how much you need to retire is the yearly after-tax gap that pension leaves, grossed up for income tax and multiplied by 25. The main exception is Roth money: qualified Roth withdrawals (after age 59½ and five years) are tax-free, so a Roth dollar counts dollar for dollar and skips the gross-up that every pre-tax 403(b) and 457(b) dollar needs.
Do nothing and you'll likely carry a generic number around for years. Say you hear "25 times spending" and aim for $2 million when the pension covers much of the bill. Or you compare a pre-tax balance to an after-tax target and feel ahead when you aren't.
Green State Credit Union advisors work this gap out account by account for teachers and other school employees, so the target reflects the pension, the tax type of each account and health premiums. The sections below show the method, a worked example and the deadlines that move the number.
By Michael Donovan, AIF — Chief Investment Officer | Reviewed by David Okonkwo, ChFCMichael leads the investment committee, setting strategic asset allocation guidelines and reviewing manager performance quarterly.
Compare balances to the target in the same tax terms. A pre-tax $920,000 and an after-tax $850,000 are not the same number.
Senior Financial Planner, Green State Credit Union
Your income at 63 sets your Part B premium at 65, so big withdrawals that year deserve a look first.
CPA and Tax Director, Green State Credit Union
How much do teachers need to retire when a pension pays part of the bills?
Teachers with a state pension need savings only for the spending the pension and Social Security leave uncovered, grossed up for tax and multiplied by 25 (a 4 percent withdrawal rate, for illustration). For the hypothetical couple below, that is $1 million, not the $2 million a generic multiple suggests.
A generic multiple ignores the pension. A couple spending $80,000 per year would hear "25 times spending" and aim for $2 million. Savings only has to cover what the pension doesn't.
The method, in order:
- After-tax spending minus after-tax pension and Social Security equals the after-tax gap
- Divide the gap by one minus your tax rate if the money is pre-tax
- Multiply the result by 25
The 4 percent rule says less than people quote
The number is $40,000 of withdrawals on a $1 million balance, and the rule behind it is narrower than the paraphrase. The 1990s research on US market history starts with 4 percent of the opening balance as the first-year withdrawal. After that, the same dollar figure goes up each year with the rise in prices. That approach held up over historical 30-year periods. People often restate it as '4 percent of the current balance every year, forever' or as a promise, and it is neither. Markets can fall, and you can lose money, including what you put in.
The rule is silent on tax. Every dollar out of a traditional 403(b) or governmental 457(b) is ordinary income, so a 4 percent pre-tax withdrawal buys less than 4 percent of spending.
Two other paraphrases need fixing. RMDs don't start at 72; they start at 73, or at 75 for anyone born in 1960 or later. And governmental 457(b) withdrawals after you leave the district carry no 10 percent additional tax at any age, though they're still taxed as income.
Green State Credit Union bases the withdrawal rate on long-term historical research and diversification, never on a forecast for the next decade.
Kenji and Agnieszka's target grows $150,000 once tax is counted
Kenji and Agnieszka (hypothetical) are 61 and 58. He's a high-school band director with a state pension; she's a district payroll specialist with a 457(b). They want $80,000 per year after tax once both stop working. You can enter your own figures in the calculator on this site and follow the identical method.
$12,000 estimated tax savings
Hypothetical estimate for illustration only.
Here is the arithmetic, line by line:
The spending figure must already include Medicare Part B. For 2026 the CMS standard premium is $202.90 per month per person, plus a $283 annual deductible. For a couple that is $4,869.60 per year in premiums alone.
Where careful people slip: they build the target from after-tax spending, then compare a pre-tax balance to it. Kenji and Agnieszka hold $640,000 in the 403(b) annuity plus $280,000 in her 457(b), $920,000 in all. Against $850,000 they look $70,000 ahead. Against the real $1 million they're $80,000 short. That's a $150,000 miss from tax alone.
The choice is still theirs. Option one: Agnieszka works to 62 and defers $20,000 per year, adding $80,000 before growth. Option two: they trim spending by about $2,700 per year after tax. Check it: $920,000 × 4 percent = $36,800; × 0.85 = $31,280; $34,000 − $31,280 = $2,720.
Health coverage tips it. If she stops at 58, she needs seven years of coverage before Medicare. If her district plan or retiree coverage is cheap, option two gets easier; if it's costly, her extra years of work are worth more.
Before Green State Credit Union quotes any savings target, it sorts each account by tax type: pre-tax 403(b) annuity, pre-tax 457(b), Roth and taxable. A Roth dollar and a 457(b) dollar are never added as if they were equal.
The step-by-step numbers
The mistake and the open choice
If most of your savings sits in a pre-tax 403(b) or 457(b), divide your after-tax gap by one minus your expected tax rate before you multiply by 25. Only Roth money skips that step.
- After-tax budget: $80,000
- Pension after tax: $46,000
- Gap: $80,000 − $46,000 = $34,000
- Gross withdrawal at 15 percent tax: $34,000 ÷ 0.85 = $40,000
- Target: $40,000 × 25 = $1,000,000
- Untaxed target: $34,000 × 25 = $850,000
Which deadlines between 58 and 75 move the number?
The income Kenji reports at 63 sets his Part B premium at 65 under IRMAA. Their projected $86,000 or so of income sits far below the 2026 joint threshold of $218,000, but a large one-time withdrawal could change that. The timeline puts each date in order.
First comes the pension application; many systems want it several months before the retirement date, so check your system's deadline. The higher catch-up of $11,250 (2026 IRS limit) applies at 60 to 63. Medicare starts at 65, and RMDs at 75 for those born in 1960 or later.
First moves, in order:
| Age | What happens | What to do |
|---|---|---|
| Now: Kenji 61, Agnieszka 58 | Pension option chosen at retirement | Price the after-tax gap first |
| Agnieszka 60 to 62 | Catch-up rises to $11,250 | Decide her last working year |
| Kenji 63 | That year's income sets Part B at 65 | Keep withdrawals under IRMAA tiers |
| Kenji 65, later Agnieszka 65 | Medicare; Part B $202.90/month | Add premiums to the budget |
| Each turns 75 | RMDs begin (born 1960 or later) | Plan withdrawals before RMDs force them |
- Request a pension estimate for every option
- Total monthly after-tax spending with premiums
- Label each account pre-tax, Roth or taxable
- Gross up the gap, multiply by 25
- Mark the pension application deadline
What happens to the gap when one spouse is left alone?
A survivor option that pays less than 100 percent raises the survivor's gap. The survivor also usually files single starting the year after the death (unless a dependent child qualifies them as a surviving spouse), so narrower brackets push the gross-up higher on a smaller income.
Adult children who inherit leftover 403(b) or 457(b) money generally must withdraw all of it, taxed as their income, within 10 years, while a spouse can treat it as their own. Choosing the pension option itself is covered on its own page.
Other questions we hear
Is a dollar in my 457(b) worth the same as a dollar in a Roth IRA when we add up our retirement target?
No. A pre-tax 457(b) dollar is taxed as ordinary income when withdrawn, so at a 15 percent rate it supports about 85 cents of spending. A qualified Roth withdrawal is tax-free and supports a full dollar. Add the accounts after adjusting each for its tax type.
What happens to our savings target if we move to a state that doesn't tax pension income?
The gross-up shrinks. If the state tax drops out, your overall rate falls, so the pre-tax withdrawal needed for the same after-tax gap is smaller, and the target falls by 25 times that difference. Some states exempt part of pensions, so check your state's rules.
My district pays out unused sick leave when I retire; should I count that check toward how much we need?
Count it as a one-time, taxable amount, not as ongoing income. Reduce it by the tax it triggers, then treat what's left as a taxable savings balance. Ask your system how it's paid, because a large lump sum can also raise your income for Medicare premium purposes.
How much do Medicare premiums add to the savings a retired teacher couple needs?
At the 2026 standard Part B premium of $202.90 per month each, a couple pays $4,869.60 per year, before the $283 deductible each. Multiplied by 25, that's roughly $121,740 of target, more if IRMAA tiers apply.
Should we count our paid-off house in how much we need to retire on a pension?
Not in the withdrawal target. A house covers your housing costs, so lower housing spending shrinks the gap, but its value isn't spendable unless you sell or downsize. Count it only as a reserve for later needs such as long-term care.
Checking your pension gap with Green State Credit Union
Upload your pension estimate letter and your latest 403(b) and 457(b) statements with the form on this page. On the intro call, Green State Credit Union works out your after-tax gap and the target it implies. Before any work begins, you get a written agreement stating what you'll pay. Green State Credit Union takes on households with $500,000 or more in investable assets. A flat 15 percent tax and a 4 percent withdrawal rate are illustrations only. State tax on pensions, a horizon past 30 years for the younger spouse and long-term care costs can all move the target.
| After-tax gap | Gross withdrawal | Pre-tax target | Roth-only target |
|---|---|---|---|
| $20,000 | $23,529 | $588,225 | $500,000 |
| $34,000 | $40,000 | $1,000,000 | $850,000 |
| $50,000 | $58,824 | $1,470,600 | $1,250,000 |
A pre-tax dollar and a Roth dollar are never the same dollar when you build your target.
Where the rules come from
This is general information, not personalized investment, tax, or legal advice. Investing involves risk, including loss of principal. Before making decisions about your retirement or investments, consult a qualified professional about your own circumstances.