Colorado Teachers Just Got a Big Raise: Now What?

First, I need to apologize, because not every Colorado teacher just got a big raise. But due to a confluence of circumstances, quite a few did. These circumstances include:

• The state legislature having surplus dollars and finally deciding to try to make up for the years of underfunding of K-12 education (known, I kid you not, as the Budget Stabilization factor, or BS factor).
• The recent high inflation numbers, combined with housing price increases and mortgage rate increases that combine to make it impossible for many teachers to live anywhere close to the communities they teach in.
• The teacher shortage which has been exacerbated by the pandemic, public criticism of the profession, and low salaries, resulting in a push for higher starting salaries as well as higher ceilings on salary schedules.
• And probably some other factors that I’m just not thinking of.

As a result, negotiations in many (but not all) school districts resulted in historic increases to starting salaries for teachers and pretty darn good increases for many veteran teachers. (As always with salary schedules, at any given time certain people will benefit more from that year’s adjustments than others will.) I’m going to look at one, hopefully fairly representative example, just to indicate the magnitude of the increase and then discuss how teachers might want to approach this (likely) once in a career increase.

I taught for most of my career in Littleton Public Schools, which is one of the higher paying districts in Colorado (although most Denver area school districts are fairly similar), so I’ll use last year’s salary schedule and this coming year’s salary schedule for this example. I’m going to use a teacher who just completed her fifth year of teaching and has a Master’s degree. For next school year, she will move to year 6 on the salary schedule and I’ll also assume she moves from the MA+0 lane to the MA+15 lane on the salary schedule. Let’s take a look.

2022-23 Salary	2023-24 Salary	Dollar Difference	Percent Difference
$57,957	$68,868	$10,911	18.8%

That’s….significant. Now, to be sure, they won’t see the full $10,911 in their net paycheck. 11% will go to their pension, likely 22% to federal tax withholding, and 4.4% to Colorado tax withholding, but that still leaves about $6,800 net difference (but the percentage increase for their net pay will still be in the 18% range).

Important Note: For those educators who are nearing retirement and are in their highest average salary (HAS) years, be aware that this year’s raise might be enough to exceed the 8% yearly “spiking” cap the legislature has in place for PERA (this rarely comes into play because our salaries do not normally go up this much, unless we transition from teaching to administration). For anyone about to retire, your benefit is based on the average of your highest three 12-consecutive month salaries which, for most folks, is their last three years. The year prior to that (the fourth year) is the base year to start the calculation for the spiking provision. So if you are going to work at least four years after this one, you’re fine. But if you’re within that four years, it is quite possible that the raise you receive will be above the 8% cap. That doesn’t mean you won’t receive the full raise (you will), but it does mean your full salary will not be used to calculate your PERA retirement benefit. The formula works off of your base year (year four), then adds 8% to that salary for year 3, then 8% again for year 2, and then 8% again for the final year. While this is a bit of a bummer, it’s still a great thing, because it means you’ve maxed out the possible increase you could ever possibly get and you got a few extra dollars in pay for those years.

As always, personal finance is personal, so what any individual should do with this raise is very dependent on their values and goals and their current financial circumstances. But here are some ideas to consider:

• If you have any high-interest debt (which I’ll define as greater than 5%), pay it down or off.
• If you contribute to an FSA and don’t currently max it out each year – and have the necessary out-of-pocket expenses necessary to use it all up – start maxing it out.
• Even better, if you have an HSA-qualified High Deductible Plan and are not maxing that out, max it out (and try to not reimburse yourself and instead use it as a stealth retirement account).
• If you have federal student loans, are participating in PSLF, and are on an income-based repayment plan and have not already reduced your payments to $0 (once they resume), considering contributing more to a pre-tax 401k/403b/457b/IRA in order to lower your AGI and your payment (hopefully to $0). (Note that increased FSA and HSA contributions accomplish the same thing.)
• If you are saving for a future college education for one or more children, considering adding some to their 529 plan(s).
• If you aren’t maxing out your 401k or 457b, consider adding more to those. All Colorado educators have access to PERA’s 401k and many to PERA’s 457, be sure you are using those instead of any other 403b or 457b vendors your district may offer. (Note that these can be pre-tax, Roth, or a combination.)
• Consider contributing to your pre-tax or Roth IRA.
• Consider contributing to your taxable brokerage account.

These are just a few ideas, and this is not meant to be all-inclusive. But no matter what you decide, here’s the challenge I have for you: commit to saving and investing at least 50% of this raise. Again, this is a much larger raise than normal, you can save 50% of it and still have much more to spend than you would in a typical raise year. And, if you don’t really need anything, shoot for closer to saving and investing 100% of it. Future you will thank you.