The Pension Path

Hi Readers! It has been a bit since I last posted. Just a result of the normal ebb and flow of the semester that comes with education and the logistics of break, holidays, etc. Now that we’re working into the second semester, I’m finding my thoughts returning to personal finance and trying to support educators out there looking for resources. I want to focus this post on a benefit of teaching that, at least for folks within Wisconsin, should be front and center in terms of how they think about their financial stability and wellness: The Wisconsin Retirement System (WRS). 

This post is part of my path series. If you want to learn about the series, check out my post Charting Paths to Financial Stability and Freedom. My goal is to describe paths that:

1. Are accessible to most folks in public education in Wisconsin.
2. Do not require complicated financial structures.
3. Do not require complicated behavior.
4. Provide flexibility to adjust direction as life circumstances change.

The Pension Path: A Road Your Already Traveling

If you are a public employee in the State of Wisconsin, I have great news! You are likely already on a path to financial stability and freedom that I call The Pension Path. This path is part of the benefit package for employees of state and local government employers who choose to participate. The list of covered employees includes public school teachers, faculty and staff for Universities of Wisconsin, local police and firefighters, public librarians, and public city workers. In simple terms, the program works like this:

1. You and your employer pay into the system while you work (6.95% each).
2. Once you meet the minimum requirements for the program, you are eligible to have a guaranteed monthly benefit when you retire. 
3. This benefit amount is based on years of service, classification, age, average salary, and the options you select when choosing to take it.
4. The benefit will last your entire lifetime and include cost of living adjustments.

I am going to spend this post unpacking the Wisconsin Retirement System a little bit to explain how the benefit is calculated. A few quick disclaimers before I do:

1. I do not work for the Wisconsin Retirement System (WRS). I am, however, an engaged and interested reader of the ETF publications.
2. I am a public employee in the State of Wisconsin and participant of the WRS System. This clearly leads to a bit of bias as one might imagine. 
3. This is intended to be an educational post. If you want to dig into more details, I suggest checking out the resources on the ETF website. They offer publications, webinars, and videos. The State of Wisconsin Investment Board (SWIB) also has a podcast!
4. Whether or not the WRS pension path results you achieving financial stability and freedom depends on your goals and behavior. The system provides a great foundation but it needs to operate within your context.
5. Although the WRS is similar to pension systems in other states, every system is different. Make sure you do your research!

What is the Wisconsin Retirement System and who oversees it?

The WRS is overseen by the Wisconsin Department of Employee Trust Funds (ETF). As ETF notes on their website: "The Wisconsin Retirement System was created to protect public employees and their beneficiaries against the financial hardships of old age and disability, to attract and retain a qualified public workforce, establish modest benefits and achieve administrative savings."

ETF has five different Boards of Trustees. These boards set policy, review administration of the different ETF programs, and influence the way ETF works. One board important for this discussion is the Teachers Retirement Board, which advises ETF on matters involving various types of public educators (e.g., public school teachers, university teachers). If you want to see what particular benefits (including WRS) are available to you, you can search for your employer on the Benefit Available to Me page. 

What factors influence the benefit amount a person receives?

If you take a look at ETF’s publication Calculating Your Retirement Benefits (ET-4107), you will find the following formula to calculate the benefit amount on Page 5:

Formula from ETF’s Calculating Your Retirement Benefits ET-4107

Let’s break down each of these parts. Keep in mind that this is simplifying the discussion.

• Final Average Monthly Earnings: This is an average based on your three highest annual earnings while working as a teacher in Wisconsin. To find your number, add up your three highest years and divide by 36.
• Formula Factors: This factor is based on the category of employment as defined by ETF. For teachers who started teaching after 1999, the factor is  .016. 
• Credible Service: This is your years of service within the WRS. If you teach for 20 years, then years of service is 20. 
• Age Reduction Factor: The WRS defines Normal Retirement Age as 65. At 65, the age reduction factor is 1 meaning there is no reduction. If you retire before 65, the benefit is reduced under the assumption that you will live longer and thus it will need to be paid longer. 
• Variable Adjustment: The WRS has two funds: the Core Fund and the Variable Fund. Without getting too deep into the weeds, the Variable Fund aims to mirror the stock market in its returns while the Core Fund aims to balance long-term returns and risk. This means that the Variable Fund, as its name suggests, has variable returns. It can, and does, lose value. The Core Fund returns, in contrast, are smoothed over a five-year period to keep returns more stable. Everyone is automatically enrolled in the Core Fund unless they voluntarily opt to participate in the Variable Fund. If they opt to participate, then their contribution is evenly split between Core and Variable. I think there is a strong argument for having new teachers opt into the Variable Fund.

If I move schools, will I still be part of WRS?

If you are still a public employee in the State of Wisconsin at your new job, then you should still be part of WRS. For example, if you move between public schools in Wisconsin, then there should not be a change. Likewise, if you switch from public schools teaching to teaching at the Universities of Wisconsin (as I did), you are still part of the same system. If you shift from being a teacher to being a different kind of public employee (e.g., police officer), there might be a change to your category of employment.

What is the maximum benefit that I can receive from WRS?

The three variables you have some control over are annual salary, age, and credible service. To receive the largest benefit you want to have the largest possible average annual salary, be 65 years old, and have at least 30 years of service. However, keep in mind that, at most, WRS will pay out 70% of your monthly average annual salary. 

When am I eligible to take the benefit?

You are eligible to take the benefit when:

1. Are vested, which means you have at least five years of credible service.
2. Are at least age 55 years old 
3. You have terminated all WRS-covered employment

Additionally, you must not be on a leave of absence or in temporary layoff status. If you want to return to work to a WRS employer, you must wait for 76 days. 

When should I take the benefit?

Now we are talking personal finance! The answer to “When should I take the benefit?” Is complex and context dependent. Answering this question MUST involve consideration of a your destination, vehicle(s), and path. As I have discussed in previous posts (e.g., Focus Less on Numbers), you should not just make decisions based on numbers alone. How does taking the benefit or waiting to take the benefit fit into your overall strategy? What other income sources might you be able to turn on if you took the benefit sooner? Etc. Is not something I aim to answer here but plan to discuss in some detail in another post.

That’s all for this post! If you found this discussion useful, informative, confusing, etc., let me know! I’ve started to use BlueSky. You can find me here: https://bsky.app/profile/herteljt.bsky.social 

Originally posted Feb 8, 2025