Here’s picture taken from Josh McGee and Marcus Winters’ “BETTER PAY, FAIRER PENSIONS: Reforming Teacher Compensation.” It shows the pension wealth at various ages of a New York City teacher who started her career at age 25. You can think of the value as being the equivalent of a lump sum pay out if she retired at the age shown on the horizontal axis.
Consider a 41-year old (who’s taught for 16 years). She’s making around $85,000 a year. (As an aside, I remind you that NYC is an expensive place to live.) Over the next four years the value of her pension goes up by about $40,000, or $10,000 per year.
Compare the 41-year old to a 59-year old. The older teacher is earning a somewhat higher salary, about $100,000 a year. Over the next four years, the older teacher’s pension wealth rises by about $160,000, or $40,000 per year.
Does this make sense? Probably not. The 41-year old has too much incentive to look around for another job while the 59-year old is effectively trapped by the huge pension accruals and can’t sensibly think about early retirement or doing something different at the end of her career. That’s what McGee and Winters want to change.