For California teachers, retirement planning is not only about how much money you save. It is also about when you retire, when you begin withdrawals, and how your investment accounts perform during the first years of retirement. This is where sequence of returns risk becomes important.
Sequence of returns risk is the danger that poor investment returns happen at the wrong time, especially near retirement or during the first years after you stop working. If your supplemental savings account drops early in retirement and you are also taking withdrawals, the account may have less time and less money available to recover.
This matters because many California educators rely on more than one income source. Your pension may provide a strong retirement foundation, but your full retirement plan may also include a 403(b), 457(b), personal savings, insurance planning, and beneficiary decisions. That is why a clear retirement income plan from Peak Solutions Financial can help you understand how all the pieces work together.
Why Can Two Teachers With the Same Average Return Have Different Retirement Outcomes?
Two teachers can retire with similar savings, similar investment returns, and similar spending needs, but still end up with very different results. The reason is timing.
Imagine Teacher A retires during a strong market period. Their investments grow during the early retirement years, so withdrawals may feel easier to manage. Teacher B retires right before a market decline. Even if the market later recovers, Teacher B may be forced to sell investments while values are down. That can reduce the number of shares or units left to benefit from a future recovery.
The average return over 20 years may look acceptable, but the order of returns can change the outcome. Early losses combined with withdrawals can cause long lasting damage to retirement savings. This is why the first several years before and after retirement deserve careful attention.
Why Is Sequence of Returns Risk Different for Retired Teachers Than for Working Teachers?
When you are still working, market downturns can feel uncomfortable, but you may still be contributing to your retirement accounts. In that stage, lower prices can even allow new contributions to buy more shares or units. Time is still on your side.
In retirement, the situation changes. You are no longer adding regular paycheck contributions. Instead, you may begin taking money out. That shift from saving to withdrawing is what makes sequence risk more serious.
For California teachers, this risk is especially important when supplemental savings are used to cover:
- Income gaps before pension payments begin
- Travel, home repairs, or family support
- Health related expenses
- Inflation pressure
- Delayed retirement decisions
- Spousal or dependent income needs
A pension can help reduce the amount you need to withdraw from investments, but it does not remove the need for careful planning. A personalized review of your pension, payout options, and supplemental savings can help you see how much income may be reliable and how much may depend on market performance.
How Does a CalSTRS Pension Help Create an Income Foundation?
A CalSTRS pension can provide a valuable income foundation because it is a defined benefit pension. CalSTRS explains that the monthly retirement benefit is based on age factor, service credit, and final compensation, not on how much the member personally contributed or how CalSTRS investments performed (California State Teachers’ Retirement System).
That formula matters because reliable pension income can reduce pressure on investment accounts. If your essential expenses are mostly covered by pension income and other stable income sources, you may have more flexibility during a market downturn.
Peak Solutions Financial helps educators review retirement income planning, pension analysis, payout comparisons, spousal protection, beneficiary reviews, and guidance on accessing retirement income efficiently through its educator retirement planning services.
How Can Supplemental Savings Increase Flexibility in Retirement?
Supplemental savings can help cover the gap between your pension and your real retirement lifestyle. These accounts may also provide flexibility if your retirement date, spending needs, or family responsibilities change.
For California teachers, supplemental savings may include 403(b) and 457(b) accounts. The Internal Revenue Service states that the 2026 elective salary deferral limit for 403(b) accounts is $24,500, with catch-up contributions available for eligible employees age 50 or older (Internal Revenue Service). The IRS also announced that the 2026 contribution limit applies to employees participating in 403(b) plans and governmental 457 plans (Internal Revenue Service).
This does not mean every teacher should contribute the maximum. The right contribution amount depends on income, pension estimate, debt, emergency savings, retirement timeline, tax situation, and family needs. Teachers who want to understand contribution planning can review Peak Solutions Financial’s guide on how much a California teacher should contribute to a 403(b).
How Can a 403(b) or 457(b) Be Affected by Poor Timing?
A 403(b) or 457(b) can be helpful, but these accounts are usually tied to market performance. That means they can rise and fall based on the investments selected.
Poor timing can affect these accounts in three ways:
- The account balance may drop right before retirement.
- Withdrawals may begin while the account is down.
- Future growth may be limited because fewer assets remain invested.
This is why retirement planning should not only ask, “How much have I saved?” It should also ask, “Which account should I use first?” and “What happens if the market drops during my first retirement years?”
A teacher may benefit from having different income sources for different purposes. Some money may be needed soon. Some money may be invested for later years. Some money may be reserved for protection, taxes, or family needs. Peak Solutions Financial also provides helpful education on 457(b) plans for California educators and comparing 403(b) providers offered by a California school district.
How Can Teachers Reduce the Damage From Sequence of Returns Risk?
There is no way to control market timing, but teachers can prepare for it. The goal is not to predict every market movement. The goal is to build a plan that can handle difficult timing.
How Can a Retirement Income Floor Help?
A retirement income floor is the amount of reliable income you want available for essential expenses. This may include housing, food, utilities, transportation, insurance, and basic health related needs.
For many California teachers, the pension is a major part of the income floor. Supplemental savings may then be used for lifestyle goals, inflation pressure, emergencies, or extra income needs. Learn more from Peak Solutions Financial’s article on building a retirement income floor with CalSTRS and supplemental savings.
How Can Flexible Withdrawals Help?
Flexible withdrawals can help reduce pressure during down markets. Instead of taking the same amount from investments no matter what happens, retirees may adjust withdrawals based on market conditions, pension income, and current spending needs.
This may include delaying large optional expenses, using more stable reserves for short term needs, or reviewing whether a planned withdrawal is still necessary.
How Can Account Order Help?
The order in which you use accounts can affect taxes, investment recovery, and long term income. Some teachers may need to coordinate pension income, 403(b) withdrawals, 457(b) withdrawals, Roth options, taxable savings, and required distribution rules.
Because tax details can be complex, Peak Solutions Financial notes that retirement planning may involve coordination with licensed tax professionals. This is important because a withdrawal decision can affect more than one year of income.
How Should California Teachers Think About Roth 403(b) and Traditional 403(b) Choices?
A Roth 403(b) and a Traditional 403(b) may both help with retirement planning, but they treat taxes differently. A Traditional 403(b) may reduce taxable income now, while Roth contributions are generally made after tax and may provide tax free qualified withdrawals later.
This choice can matter when planning for sequence risk because retirement income is not only about the investment balance. It is also about how much you keep after taxes. Teachers can review Peak Solutions Financial’s article on Roth 403(b) vs. Traditional 403(b) for more education.
Why Should Pension Timing and Payout Options Be Reviewed Before Retirement?
Your retirement date can affect your pension calculation, income start date, service credit, and planning timeline. CalSTRS explains that the formula includes service credit, age factor, and final compensation (California State Teachers’ Retirement System). This means a teacher should understand how retiring earlier or later may change the monthly benefit.
Payout decisions also matter. Some options may provide more income during your lifetime, while others may provide continuing income for a loved one after your death. This decision should be reviewed carefully before paperwork is submitted.
Peak Solutions Financial provides pension analysis, payout option comparisons, spousal and dependent income protection strategies, and beneficiary reviews. These services are especially useful when a teacher wants to connect pension decisions with supplemental investment withdrawals.
For a deeper topic connection, read Peak Solutions Financial’s guide on the CalSTRS pension benefit formula and its guide on CalSTRS survivor and beneficiary benefits.
When Should a California Teacher Start Planning for Sequence of Returns Risk?
The best time to plan is before retirement begins. Ideally, teachers should review sequence risk several years before leaving work. This allows time to adjust contributions, review investment risk, compare payout options, build reserves, and estimate income needs.
A useful planning window includes:
- 10 years before retirement
- 5 years before retirement
- 1 year before retirement
- The first 5 years after retirement
The years near retirement are important because the account balance may be at its highest, withdrawals may begin soon, and a major market drop can affect confidence. A plan can help you avoid rushed decisions during emotional market conditions.
How Can Peak Solutions Financial Help California Teachers Plan With More Confidence?
Peak Solutions Financial focuses on retirement planning built specifically for educators. The firm helps California educators understand pensions, service credits, supplemental accounts, benefit decisions, retirement income, payout options, asset protection, tax efficiency, insurance coverage reviews, and beneficiary planning.
The value of this guidance is clarity. Instead of guessing how much you can withdraw or hoping the market cooperates, you can build a retirement income plan that reflects your real numbers, timeline, and family responsibilities.
To start reviewing your income plan, visit Peak Solutions Financial’s contact page and request a consultation.
Which Organizations Were Cited?
California State Teachers’ Retirement System. Understanding the Formula. CalSTRS, 2025.
Internal Revenue Service. “Retirement Topics 403(b) Contribution Limits.” IRS, updated 16 Mar. 2026.
Internal Revenue Service. “401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500.” IRS, 13 Nov. 2025.
MIT Sloan School of Management. “Mitigating Sequence of Returns Risk.” Massachusetts Institute of Technology.
U.S. Securities and Exchange Commission. “What Is Risk?” Investor.gov.
