This blog has never been particularly focused on FIRE (Financial Independence Retire Early). Rather I’ve focused on the FI part (Financial Independence), as that’s useful and helpful to everyone whether they want to retire early or not. Having said that, this blog also focuses on public school educators and, historically at least, they have often been early retirees. This is because of their pension plans which often allowed them to retire in their mid to late 50s. While that might seem “old” to many in the FIRE movement, it really is early retirement. The median age for retirement in the United States is around age 63 and, of course, full retirement age (FRA) for Social Security is age 67 (with the earliest you can start receiving benefits being age 62). In that context, retiring in your mid 50s is a pretty significant early retirement.
Financial Independence is defined as when you have enough passive income to cover your full expenses. This is also sometimes referred to as “work-optional”.
Over the years, however, most public pension plans have gotten less generous in terms of the amount of the benefit, any annual cost-of-living increase, and – crucially – the age at which are you eligible to retire. As a result, many public school educators aren’t eligible to retire with their full pension benefit in their mid 50s anymore. Often the earliest age is 60, 62 or sometimes even later. So an educator starting work today is likely looking at a much longer career and therefore fewer years (particularly healthy and active years) in retirement. So that got me thinking about how the FI ideas I talk about, as well as the more hard-core FIRE movement ideas, might apply to educators just starting out. While certainly all of the strategies and techniques of the FIRE movement apply to public school educators as well, there is still one significant difference that comes into play: their pension.
As I started thinking about how to write about this the first thing that came to mind are the various flavors of FIRE. While this list isn’t exhaustive, and of course different people have different definitions, here are some of the most talked-about flavors.
Note: The numbers below are for an average cost-of-living location in the United States. So the numbers would be different (higher) if you live some place like New York City or San Francisco. Alternatively, they could be lower if you live in a lower cost-of-living location (particularly in another country which is often referred to as geoarbitrage).
- FIRE: The general term for reaching financial independence and retiring early (how one defines “early” can vary).
- Lean FI(RE): This is the most frugal of the flavors, generally defined as being able to live on less than the average American family (say ~$50,000/year or less).
(As a side note, many of the criticisms of the FIRE movement tend to equate FIRE with the most ultra-frugal members of this group, which I think mostly misses the heart of what FI is all about.) - Fat FI(RE): The other end of the spectrum, people who want to spend much more than the average family in retirement (say ~$120,000/year or more).
- Coast FI: This is when you have enough money saved and invested that you no longer need to save and invest additional money in order to retire at a traditional age. Instead of focusing on retiring early, this allows someone to spend more in the latter part of their working years and/or switch to less lucrative employment that they might enjoy more.
- Barista FI: This is a form of semi-retirement, where your passive income supports the majority of your spending but you continue to work part-time to supplement your income, sometimes also get health insurance, and for the social aspects of working. By continuing to work part-time and earning some income, you can leave the full-time workforce earlier and focus on other aspects of your life.
Pension FI(RE)
So let’s take a look at what Pension FI(RE) might look like. Obviously pensions for public school educators vary tremendously, including whether they also pay into Social Security (teachers in 15 states do not), how much pension they can receive, and at what age they can receive that pension. For the rest of this blog post I’m going to use a Colorado teacher who is just starting out at age 23. (Note that this also applies even if they are starting later than 23, that’s just the example I’m using. This means they will be on Table 9 for Colorado PERA (these are often called “tiers” in other pension plans), the least “generous” table for PERA. I will also use Littleton Public Schools for their salary (this is my former school district). LPS is a school district in the Denver metro area and is one of the higher-paying school districts in the state, but along with that comes a higher cost-of-living living in this area. Colorado teachers do not pay into Social Secuirity (from their teaching job), only into PERA.
There are six different scenarios below, and the first four come with a spreadsheet. To be perfectly clear, this is a wildly simplistic spreadsheet. As with all projections, the spreadsheet has to make many assumptions, and then those assumptions compound over a very long time period (a ridiculous 78 years). The actual experience of a teacher just starting out today is most likely going to be very different than the spreadsheet. But I still think the spreadsheet is helpful because, to quote statistician George Box,
“All models are wrong, but some are useful.”
The spreadsheet is designed for an educator just starting out who wants to be intentional with their financial life, including being intentional about how long they might want to work. It lays out a reasonable path this teacher could follow that is likely to align well with their intentions. The idea isn’t that the spreadsheet will be accurate out to 78 years, but that the directionality is correct. In practice, the spreadsheet allows the educator to make year-by-year decisions that align with their intent and, because it’s a spreadsheet, the educator can adjust the numbers year-by-year to reflect their lived experience. As the spreadsheet gets updated each year, it becomes more and more accurate, as the current numbers are correct and the remaining years of uncertainty get fewer and fewer. Ultimately, as they start approaching retirement, the numbers get really accurate.
One of the huge advantages that most teachers have is that they have a defined salary schedule. While we don’t know the annual cost-of-living increases to the salary schedule itself, over time those increases will roughly match inflation. Which means that a teacher with a salary schedule just starting out effectively knows what they will be making each and every year throughout their career. In addition, they know exactly what their pension will be based on their salary. This is obviously very different than most folks, but is very helpful from a planning perspective.
You will also see some ridiculously large balances in the investment accounts at the end of some of the scenarios. These are certainly possible, but of course not guaranteed. And it’s also important to remember that those numbers are not after-inflation numbers, so the equivalent amount in today’s dollars is much, much lower.
The spreadsheet itself is very complicated (and likely still has some mistakes in it that I haven’t caught, but hopefully they are relatively minor). If you scroll all the way to the right you’ll see the assumptions (tax info is for 2026, then adjusted for inflation thereafter). (You can choose File–>Make a Copy to get an editable version.) Also, none of these scenarios assume any help from parents or any inheritance. Many folks will have that (particularly an inheritance), and that will be a tailwind for all of these scenarios.
I ended up looking at six different scenarios, although I only created spreadsheets for the first four (I’ll explain why I didn’t create them for the last two scenarios when we get to them).
Scenario 1: Base Pension FIRE: Retire at 50
Scenario 1 models a teacher that works from age 23 through age 50 and then retires, and does not earn any income after retiring from teaching. Some of the key aspects to note:
- It assumes that they perform some additional duties at work that increases their PERA-includable salary a bit
- It assumes that they work in a Social Security covered job part-time in the summer (although it doesn’t have to be in the summer and/or it could be self-employment). While they could achieve early retirement without this, their spending would have to be cut (both while working and then in retirement as they wouldn’t receive Social Security based on their own earnings). If their intention is to retire at 50, working part-time in the summers (or whenever) is in alignment with their goals.
- It assumes that they periodically move horizontally on the salary schedule by receiving additional education (which all teachers have to do to maintain their license, although they don’t necessarily have to get a Master’s degree which this scenario assumes).
- It assumes a reasonably frugal initial spending amount of $45,000 a year (note that that is actual spending, not gross income).
- Each subsequent year their spending typically increases by just a little bit more than inflation (with some variation). This means that their real spending generally increases over time but less than how much their income increases.
- Their investments are structured so that their pre-tax contributions are typically coming out mostly at the 22% federal tax bracket level but their withdrawals from that account are at the 10% and 12% levels (so tax arbitrage). Their combined (federal and state) effective tax rate never exceeds 11%.
- When they retire around age 50, the amount they can spend in the first year of retirement is approximately 15% more than the previous year (~13% in real terms).
- Their spending each year in retirement keeps up with inflation and grows slowly in real terms.
- They remain under the ACA subsidy cap up through Medicare age, and the IRMAA surcharge level throughout retirement.
- Their withdrawal rate varies, starting at around 3.6% and increasing each year through age 64 (when it reaches about 6%). But beginning at age 65 it drops dramatically because they start receiving their pension (and then Social Security at age 67), so their withdrawal rate is sustainable.
- Note that in this scenario the teacher is most likely renting, as there is no provision for making a down payment on a house. If the teacher had help with a down payment from a parent (or a partner), then they could likely afford to purchase a house.
Scenario 2: Barista Pension FI: Retire at 50, work part-time until 60
Scenario 2 models a teacher that works from age 23 through age 50 and then retires, but continue to work part-time for 10 years. Some of the key aspects to note:
- It assumes that they perform some additional duties at work that increases their PERA-includable salary a bit
- It assumes that they work in a Social Security covered job part-time in the summer (although it doesn’t have to be in the summer and/or it could be self-employment). While they could achieve early retirement without this, their spending would have to be cut (both while working and then in retirement as they wouldn’t receive Social Security based on their own earnings). If their intention is to retire at 50, working part-time in the summers (or whenever) is in alignment with their goals. It also assumes that once they retire from teaching they increase their part-time work and earnings a bit.
- It assumes that they periodically move horizontally on the salary schedule by receiving additional education (which all teachers have to do to maintain their license, although they don’t necessarily have to get a Master’s degree which this scenario assumes).
- It assumes a reasonably frugal initial spending amount of $45,000 a year (note that that is actual spending, not gross income).
- Each subsequent year their spending typically increases by more than inflation. This means that their real spending generally increases over time but less than how much their income increases. This allows for a higher level of spending than in Scenario 1, roughly 10-12% more, with the tradeoff being working part-time for the first 10 years of retirement.
- Their investments are structured so that their pre-tax contributions are typically coming out mostly at the 22% federal tax bracket level but their withdrawals from that account are at the 10% and 12% levels (so tax arbitrage). Their combined (federal and state) effective tax rate never exceeds 11%.
- When they retire around age 50, the amount they can spend in the first year of retirement is approximately 3% more than the previous year (~1% in real terms). But remember this is from a much higher base than in Scenario 1.
- Their spending each year in retirement generally keeps up with inflation.
- They remain under the ACA subsidy cap up through Medicare age, and the IRMAA surcharge level throughout retirement.
- Their withdrawal rate varies, starting at around 3.7% and increasing each year through age 64 (when it reaches about 4.7%). But beginning at age 65 it drops dramatically because they start receiving their pension (and then Social Security at age 67), so their withdrawal rate is sustainable.
- Note that in this scenario the teacher is most likely renting, as there is no provision for making a down payment on a house. If the teacher had help with a down payment from a parent (or a partner), then they could likely afford to purchase a house.
Scenario 3: Barista Pension FI: With a House
Scenario 3 is similar to Scenario 2, but allows the teacher to purchase a house using a down payment from their own savings and investments. Some of the key aspects to note:
- It assumes that they perform some additional duties at work that increases their PERA-includable salary a bit
- It assumes that they work in a Social Security covered job part-time in the summer (although it doesn’t have to be in the summer and/or it could be self-employment). While they could achieve early retirement without this, their spending would have to be cut (both while working and then in retirement as they wouldn’t receive Social Security based on their own earnings). If their intention is to retire at 50, working part-time in the summers (or whenever) is in alignment with their goals. It also assumes that once they retire from teaching they increase their part-time work and earnings a bit.
- It assumes that they periodically move horizontally on the salary schedule by receiving additional education (which all teachers have to do to maintain their license, although they don’t necessarily have to get a Master’s degree which this scenario assumes).
- It assumes a reasonably frugal initial spending amount of $45,000 a year (note that that is actual spending, not gross income).
- Each subsequent year their spending typically increases by more than inflation. This means that their real spending generally increases over time but less than how much their income increases.
- In year 8 (at age 30), it shows a withdrawal from their investment accounts that allows a $42,000 down payment on a house (at 10% that would be a $420,000 house for a single person).
- Their investments are structured so that their pre-tax contributions are typically coming out mostly at the 22% federal tax bracket level but their withdrawals from that account are at the 10% and 12% levels (so tax arbitrage). Their combined (federal and state) effective tax rate never exceeds 12%.
- When they retire around age 50, the amount they can spend in the first year of retirement is approximately 16% more than the previous year (~14% in real terms).
- Their spending each year in retirement generally keeps up with inflation.
- They remain under the ACA subsidy cap up through Medicare age, and the IRMAA surcharge level throughout retirement.
- Their withdrawal rate varies, starting at around 3.5% and increasing each year through age 64 (when it reaches about 4.3%). But beginning at age 65 it drops dramatically because they start receiving their pension (and then Social Security at age 67), so their withdrawal rate is sustainable.
- This scenario does include the ability for the teacher to purchase a modest home at age 30.
Scenario 4: Pension FIRE at 55
Scenario 4 models a teacher that works from age 23 through age 54 and then retires, and does not earn any income after retiring from teaching. Note that this assumes the teacher works four more years and that they purchase 3 years of service credit.
- It assumes that they perform some additional duties at work that increases their PERA-includable salary a bit
- It assumes that they work in a Social Security covered job part-time in the summer (although it doesn’t have to be in the summer and/or it could be self-employment). While they could achieve early retirement without this, their spending would have to be cut (both while working and then in retirement as they wouldn’t receive Social Security based on their own earnings). If their intention is to retire at 54, working part-time in the summers (or whenever) is in alignment with their goals.
- It assumes that they periodically move horizontally on the salary schedule by receiving additional education (which all teachers have to do to maintain their license, although they don’t necessarily have to get a Master’s degree which this scenario assumes).
- It assumes a reasonably frugal initial spending amount of $45,000 a year (note that that is actual spending, not gross income).
- Each subsequent year their spending typically increases by just a little bit more than inflation (with some variation). This means that their real spending generally increases over time but less than how much their income increases.
- When they’ve completed five years of PERA service they are eligible to purchase service credit. Many (but not all) teachers will likely be able to purchase 3 years or so, assuming they worked part-time in high school and college (as well as the new ability to purchase “air time” for any month after age 21 and before starting PERA-covered employment).
- They are mostly in the 22% federal marginal tax bracket throughout their life. Their combined (federal and state) effective tax rate never exceeds 17%.
- When they retire around age 55, the amount they can spend in the first year of retirement is approximately 37% more than the previous year (~35% in real terms).
- Their spending each year in retirement keeps up with inflation and grows slowly in real terms.
- Due to their large pension, they exceed both the ACA subsidy cap and the IRMAA surcharge level throughout retirement.
- Their withdrawal rate varies, starting at around 1.2% and increasing each year and ending up around 3.7%.
- Note that in this scenario the teacher is most likely renting, as there is no provision for making a down payment on a house. If the teacher had help with a down payment from a parent (or a partner), then they could likely afford to purchase a house. You could also easily modify the spreadsheet to allow for a down payment (as in scenario 3), with a resultant increase in withdrawal rates in retirement.
- Note that by being willing to teach for four more years, this teacher can spend significantly more both during their working years and in retirement. It just depends on how much you value the additional spending versus how much you would value the additional time.
- Also note that if they didn’t (or weren’t able to) purchase 3 years of service credit, they could either work 3 more years to age 58 or they could cut their spending a bit along the way and still retire at 55. So still early retirement, although that’s dependent on starting at age 23 and not taking any time off. For those who start later, or take any time off, retirement will likely be in their 60s.
Scenario 5: Pension FI(RE) with a Partner and no children
I initially tried to model this with a spreadsheet but decided it wasn’t worth it because it took the ridiculous number of assumptions I already had and more than doubled them. But I think it’s reasonable to assume that Scenarios 1 through 4 would still work as a model, either by treating each partner as independent or working through a similar exercise with the partner’s income.
Scenario 6: Pension FI(RE) with a Partner and with child(ren)
This scenario is likely more difficult, but still very possible. The common refrain is, “Kids are expensive.” That’s undoubtedly true (although it’s also true that children are heavily subsidized in the U.S., so their net expense isn’t nearly as much as people think it is). I think there are two sub-scenarios here, one where your partner makes about the same amount as you (perhaps they are also an educator) and one where they make a lot more.
For the scenario with child(ren) where the partner makes about the same amount as you, I think retiring early with kids is doable, but would likely require a lower level of overall spending. Each year’s increase would keep up with inflation, but not exceed it, so your lifestyle would not inflate as you earn more money. Many people would likely not want to make this tradeoff.
For the scenario with child(ren) where your partner makes a lot more than you, I think it’s totally doable and you could use Scenarios 1-4 as models for your part of it.
I want to reiterate that I’m not suggesting that all educators should aspire to achieve an early(ier) retirement. I just wanted to show a roadmap that could work for those who are willing to live on a bit less. For some folks the idea of living on a bit less in their working years in order to reclaim 5 or 10 or 15 more years of non-work (or at least non-full-time work) is worth it. For others it won’t be worth it. But going through the exercise of thinking this through and seeing the feasibility (or not) is worthwhile, even if it’s just to clarify your own values and goals.