Methodology

1. Compound Growth Formula

The calculator models compound growth of a supplemental retirement account (typically a 403(b) or 457(b)) using the following approach. Each month, the balance compounds at the periodic rate and then receives a contribution.

The compounding frequency can be set to daily (365), monthly (12), quarterly (4), semi-annual (2), or annual (1). Monthly is the default and most common setting for 403(b) plans managed through payroll deduction.

Compounding Frequency Impact

More frequent compounding produces slightly higher returns. For a $100,000 balance at 7% annual rate over 30 years:

2. Inflation Adjustment

The calculator reports two values: nominal portfolio value (the raw dollar amount) and real purchasing power (what that money is worth in today’s dollars). Real value is calculated by deflating the nominal value by cumulative inflation:

The default inflation rate is 3%, consistent with the Federal Reserve’s long-run target range and the historical average for the US Consumer Price Index (CPI) over multi-decade periods. Users can adjust this to model optimistic (2%) or pessimistic (4-5%) inflation scenarios.

3. Annual Step-Up Contributions

The step-up feature models increasing contributions over time, reflecting salary growth. Each year after the first, the monthly contribution is multiplied by (1 + stepUpRate/100):

A 2% annual step-up roughly mirrors expected salary growth for experienced teachers. This is consistent with Bureau of Labor Statistics data on compensation growth in the education sector. A 0% step-up (the default) keeps contributions flat throughout the projection period.

4. State Tax Modeling

The state tax field displays the approximate marginal income tax rate for the state where the calculator is set. This is provided for informational context and to allow users to model the after-tax impact of withdrawals in retirement.

The calculator does not automatically deduct taxes from returns or portfolio values during the accumulation phase, as 403(b) and 457(b) accounts grow tax-deferred. The tax rate field is a reference point for users to factor in their own tax planning.

Zero-Tax States

Nine states have no broad-based individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. (New Hampshire fully repealed its interest-and-dividends tax effective 2025; Washington levies a separate capital-gains tax on high earners that does not apply to ordinary wage or pension income.) For calculators in these states, the state tax field is highlighted in green and shows 0%.

Pension Income Tax Treatment

Many states provide full or partial exemptions for pension income. Some states exempt all public pension income from state tax. The state tax rates shown in our calculators reflect general income tax rates; actual tax on pension income may be lower depending on your state’s specific rules. Consult a tax professional for guidance on your specific situation.

Relocation & After-Tax Comparison

Our state-comparison and “Retirement Move Savings” pages estimate the annual state income tax on a pension and the savings from relocating. All of this math lives in a single source (tax_model.py), shared by the website and the browser extension so the two can never silently disagree.

The effective tax rate applied to pension income is zero when a state has no income tax or fully exempts retirement income (New York, Illinois, Iowa, Mississippi, and Pennsylvania); otherwise it is the state’s rate from our data. Relocation savings are computed as the tax in the origin state minus the tax in the destination state — a move to a higher-tax state is reported honestly as a cost, never hidden.

5. Rule of 72

The "Doubles In" metric uses the Rule of 72, a financial approximation for estimating how long it takes an investment to double at a given compound annual growth rate:

We use the effective annual rate (accounting for compounding frequency) rather than the nominal rate for a more accurate estimate. At 7% nominal monthly compounding (7.229% effective), money doubles in approximately 9.96 years.

6. Data Sources

Each state calculator pre-loads data specific to that state’s Teacher Retirement System, including the pension acronym, contribution rate, benefit formula, vesting period, and social security coverage status. These are displayed in the sidebar of each state’s calculator for reference.

7. Limitations & Assumptions

• Fixed return rate: The model assumes a constant annual return rate throughout the projection period. Actual returns are variable and sequence-of-returns risk is not modeled.
• No fees: Investment management fees, fund expense ratios, and advisory costs are not deducted from returns. A typical 403(b) may have total fees of 0.1% to 1%+ annually.
• No early withdrawal: The model does not account for early withdrawals, loans, or required minimum distributions (RMDs).
• No Social Security WEP/GPO: The Windfall Elimination Provision and Government Pension Offset — repealed by the Social Security Fairness Act, signed January 2025 — are not modeled. Teachers previously affected should confirm their current Social Security treatment with the SSA, as legislation can change.
• Pension not included: The defined-benefit pension component of teacher compensation is not calculated here — only supplemental voluntary savings are modeled.
• Tax-deferred growth assumed: The model assumes contributions are to a pre-tax 403(b) or 457(b). Roth (after-tax) 403(b) accounts follow different rules.
• Constant contribution timing: Contributions are modeled as monthly additions at the end of each month. Payroll timing differences may produce slightly different results.