A teacher can earn such multiples of her salary in pension wealth accrual during a peak year in her early or mid-fifties, and then start losing
pension wealth if she continues to work for the rest of her fifties.
Seniority rights are a big deal right now because older teachers have a lot to lose: higher salaries that they've reached after a lifetime of anemic ones; and significant
pension wealth if they make it to retirement.
Not exact matches
Thus, in Figure 1, the
pension wealth curve would coincide with the contributions curve depicted, for a fiscally equivalent plan, or with a lower curve
if costs are to be reduced.
And
if we had a different
pension system — one that allowed teachers to build
pension wealth throughout their careers and take it with them whenever they left — then they wouldn't be worried about losing their big payout by getting fired a few years before retirement.
In Missouri, a 25 - year old entrant into the teaching profession receives net
pension wealth equal to 33 % of her cumulative earnings
if she teaches until age 55, but her net
pension wealth will be equal to only one percent of her earnings
if she leaves at age 35.
If a teacher moves from PSRS to one of the city plans, he or she will incur a significant loss in
pension wealth.
If she works her 36th year, her
pension wealth will fall by 34 percent of her salary that year, and the losses will continue to grow with each passing year.
(
Pension wealth actually declines
if employees choose to continue working after becoming eligible for retirement, because every year they keep working is a year they could instead be receiving retirement benefits.)
The next set of figures answers the question that is critical for understanding the system's incentives: how much does a teacher's
pension wealth change
if she works an additional year?
Pension wealth never declines:
if a teacher wants to work another year, the account grows by the contributions, plus the investment return.
If she works another year, then her
pension wealth will actually decrease by $ 7,411.
If she works year 30, then she will increase her
pension wealth by $ 304,288 for this single year of service.
In fact, the average woman's total
pension wealth only begins to catch up to her male colleagues
if she lives to collect benefits well into her 80s and 90s.
To put it in simple terms, teachers can lose more than half of their
pension wealth just for moving one time;
if teachers move multiple times —
if, for example, their spouse was in the military — the losses would be even greater.
If she separates from the system after 15 years — the average experience of a teacher who leaves the profession — her
pension wealth is $ 38,619, but at this point she has contributed a total of $ 76,425.
If the vast majority of workers remained in one
pension plan for the life of their career, the back - loaded nature of defined benefits would create some perverse incentives around the normal retirement age (where
pension wealth comes to a steep spike), but it wouldn't matter that the employee was accumulating very little early in their career.
In some places, those
pension rules mean a substantial loss of retirement
wealth if teachers move states mid-career.
We're asking them to predict whether they'll return to teaching and to compare their
pension wealth, in future dollars, versus how much it might be worth
if they invested their money elsewhere.
If teachers had an expected
pension wealth above what they would have been able to withdraw and invest on their own, he considered them to have a «positive» net
pension wealth.
If not, he classified them as having a «negative» net
pension wealth.
If teachers could take their own money and earn an investment of only 2 percent above inflation, just 14 percent of vested Illinois teachers would leave with a negative
pension wealth.
So,
if you don't expect to amass enough
wealth to generate significant investment income in retirement, and don't have a generous
pension, a traditional IRA is likely to be the better choice for you.
If the issue is high
wealth super then introduce a progressive tax rate for high
wealth super so that they hit 30 % at say $ 75k to $ 100k income, even those in
pension phase.
If you lack pillar two (employer
pensions) it's up to retirees to convert whatever
wealth they have in pillar three (registered and non-registered savings), and create their own «personal»
pension.
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