You've spent your career serving California—as a teacher, police officer, firefighter, nurse, or state employee. You've earned a pension. You understand that retirement is coming. But after years of financial planning conversations with public employees, I've seen the same preventable mistakes cost people thousands—sometimes hundreds of thousands—of dollars.
The good news? These mistakes are avoidable. Here are the five most expensive ones I see.
Mistake #1: Cashing Out Early and Forgetting About It
The Scenario: You leave a teaching position after 4 years. You're not vested yet in CalSTRS (which requires 5 years, but you want to move on). You receive a refund of your employee contributions—maybe $35,000. It feels like free money. You deposit it into your checking account, use some for a move, maybe pay down a car loan, and move on with your life.
Why This Hurts: That $35,000 represents years of compound growth that's now gone. If you'd left it invested and returned to public service later, or if you'd rolled it into another retirement account, it could have grown to $80,000+ by the time you retire. Instead, it's spent, taxed, and forgotten.
Even worse: if you didn't roll that refund into an IRA within 60 days, you owe income taxes and a 10% early withdrawal penalty on the entire amount. That $35,000 refund just became a $14,000 tax bill.
How to Avoid It:
- Roll it over, don't cash it out. If you leave public service, ask CalSTRS or CalPERS about rolling your refund into a Traditional IRA or your new employer's plan. The money stays invested and grows tax-deferred.
- Understand your vesting timeline. You might be closer to vesting than you think. CalSTRS requires 5 years; CalPERS varies by membership date but is typically 5 years as well. If you're at year 4, one more year could mean the difference between a small refund and a lifetime pension.
- Talk to a professional before making any withdrawal decisions. A 60-day rollover window moves fast, and mistakes are expensive.
Mistake #2: Ignoring Cost-of-Living Adjustments (COLA)
The Scenario: You retire at age 55 with a CalPERS pension of $3,000/month. You're thrilled. You calculate your annual income: $36,000. You budget based on that number and move forward.
But here's what many retirees miss: CalSTRS and CalPERS both provide annual COLA adjustments—typically 2% per year, though it can vary. In 20 years, your $3,000/month pension isn't $3,000 anymore. It's nearly $4,500/month.
Why This Matters: If you ignore COLA in your planning, you're banking on a pension that will actually grow over time. This is actually good news—but only if you plan for it. Conversely, if you're pessimistic about inflation and don't plan for the growth, you might unnecessarily cut back on retirement dreams or keep working longer than needed.
The real danger? Not understanding COLA at all and making decisions based on today's purchasing power. Inflation is real, and your pension does protect you against it—but only if you know it's happening.
How to Avoid It:
- Factor COLA into long-term projections. Use a conservative 2% annual COLA when modeling your retirement income. That $36,000/year in today's dollars becomes roughly $53,000/year in 20 years.
- Let COLA work for you. This is one of the huge advantages of a public pension. Don't ignore it or underestimate its power.
- Review your benefit statement annually. CalSTRS and CalPERS send statements that show your current balance and projected benefits. Watch for COLA increases—they're real money.
Mistake #3: Not Maximizing Your Final Average Salary (FAS)
The Scenario: You're a police officer with 28 years of service. Your pension is calculated on your Final Average Salary (FAS)—typically your highest 3 years of earnings. Over 28 years, your base salary has grown steadily: $80,000, $82,000, $84,000. Your pension will be calculated on roughly $82,000 average.
But what if you took on overtime, special assignments, or deferred time off in those final years? You could have pushed that average to $90,000. That extra $8,000 in FAS? It would have added $4,000-$6,000+ to your annual pension for life. Over a 30-year retirement, that's $120,000-$180,000 in additional income.
You left it on the table.
Why This Happens: It's not necessarily a mistake on your part. Many public employees don't understand the Final Average Salary calculation. They don't realize that strategic decisions in the final 3 years can significantly impact lifetime benefits. Or they're exhausted and ready to step back—which is completely understandable—but don't fully grasp the long-term cost.
How to Avoid It:
- Understand your FAS calculation. Ask CalSTRS or CalPERS for a projection based on different salary scenarios. Most plans use the highest 3 consecutive years, but specifics vary.
- Plan strategically in the 3-5 years before retirement. Work with your employer to understand what opportunities exist (overtime, specialty pay, deferred time off). Even modest increases can add significant lifetime value.
- Run the math. A $5,000 increase in FAS might add $2,500-$3,000 to your annual pension. Is an extra year or two of strategic higher earnings worth an extra $75,000-$90,000 in lifetime retirement income? Usually, yes.
- Balance quality of life. That said, don't sacrifice your health or happiness. But if it's feasible, strategic increases in your final years can pay huge dividends.
Mistake #4: Relying Only on Your CalSTRS/CalPERS Pension
The Scenario: A teacher with 30 years of service looks at her projected CalSTRS pension: $48,000/year. She thinks, "That's not a fortune, but I can live on it. I'll be fine." She doesn't maximize her 403(b) contributions. She doesn't save in a personal IRA. She lives paycheck-to-paycheck, assuming the pension will be enough.
Then she hits retirement. $48,000/year seems smaller when it's actually your only income. Healthcare costs more than she expected. A minor home repair becomes a crisis because there's no emergency fund. She's stretched thin.
Why This Is a Problem: CalSTRS and CalPERS pensions are excellent benefits. They're stable, predictable, and include COLA. But they're not designed to be your only retirement income. Most financial advisors recommend having multiple income streams: your pension, Social Security, supplemental retirement savings, and possibly part-time work.
Public employees often assume their pension is "enough" without doing the math. But "enough" depends on your lifestyle, health, location, and aspirations.
How to Avoid It:
- Crunch the numbers. Run a full retirement projection that includes your estimated pension, Social Security, and existing savings. Be honest about your expected expenses.
- Maximize your 403(b) and 457 plans. These are supplemental retirement vehicles available to most public employees. Contribute what you can, especially if your employer offers matching. For 2024, the 403(b) limit is $23,500/year ($31,000 if you're 50+).
- Open an IRA. A Roth or Traditional IRA is another powerful tool. Contribute the maximum ($7,000/year, or $8,000 if you're 50+) if you can.
- Build an emergency fund. Aim for 6-12 months of expenses in liquid savings. This protects you from having to tap retirement accounts early if something goes wrong.
- Get a second opinion. Work with a financial planner who specializes in public employee pensions. They can help you build a comprehensive retirement strategy.
Mistake #5: Miscoordinating Social Security and Your Pension
The Scenario: You're a firefighter eligible to collect Social Security at 62. You also have a CalPERS pension. You assume you can take both and live comfortably. But you haven't accounted for the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO).
WEP reduces your Social Security benefit by up to 50% if you also receive a government pension. GPO does the same for spousal or survivor benefits. You could lose $8,000-$12,000+ per year in expected Social Security income—money you were counting on.
Or you make the opposite mistake: you wait to file for Social Security until 70 to maximize benefits, but you don't account for the fact that your pension (with COLA) will be growing steadily in the meantime. You could have filed earlier without significantly impacting your overall retirement income.
Why This Matters: Social Security and pension coordination is complex. The rules vary based on your birth year, when you became a public employee, and how your pension is calculated. A small decision made without full understanding can cost you tens of thousands of dollars.
How to Avoid It:
- Understand WEP and GPO. Ask CalSTRS or CalPERS for a clear explanation of how these provisions apply to you. Check the Social Security Administration's website for WEP/GPO calculators.
- Project multiple claiming scenarios. Work with a financial planner to model Social Security claiming at 62, 66, and 70. See how each scenario interacts with your pension and COLA.
- Don't assume you know the answer. I've seen public employees lose $200,000+ in lifetime benefits because they made Social Security decisions without fully understanding the rules. Get professional guidance.
- File strategically. For many public employees, claiming Social Security at 62 (or 66, depending on your circumstances) is optimal because your pension already provides a stable base. But everyone's situation is different.
The Bottom Line
Your CalSTRS or CalPERS pension is one of your greatest retirement assets. It's stable, predictable, and inflation-protected. But like any asset, it requires smart management and planning.
The five mistakes outlined here—cashing out early, ignoring COLA, leaving FAS on the table, relying solely on your pension, and miscoordinating Social Security—can each cost you tens of thousands of dollars. Together, they can cost you hundreds of thousands.
The good news? These are all avoidable with a little knowledge and professional guidance.
If you're a California teacher, police officer, firefighter, nurse, or public employee, your career has been about serving others. Your retirement planning deserves the same care and attention. Reach out to a financial professional who specializes in public employee benefits. A few hours of planning now can add hundreds of thousands to your lifetime retirement security.
Your future self will thank you.