The Link between Pensions and Retirement Timing: Lessons from California Teachers
This paper uses a policy change in California to show that the extreme rewards and penalties built into existing defined benefit teacher pension systems do affect teacher retirement behavior. When a new benefit enhancement for California teachers created a financial windfall for teachers with 30 years of experience who were exactly 61 ½ years old, the percentage of teachers retiring at the relatively odd age of 61 ½ doubled. Another component, allowing the multiplier factor to increase for teachers with 30 years or more of experience, meant that teachers suddenly became three times more likely to retire with 30.5 years of experience than with 29.5. Teachers appear to know their benefits and plan their retirement accordingly.