To illustrate the ways pension plans create incentives for teachers, I created a list of things teachers would do if their sole motivation was maximizing their pensions. Of course teachers have many competing motives, and not all of these steps are feasible, practical, or ideal for all teachers, but here are eight ways they could legally boost their pensions:
- Stay in school: This one may seem obvious, but the key to maximizing a pension is to stay in the pension plan as long as possible, or at least until you reach the plan's "normal retirement age," usually around age 60. Don't take time off or leave the profession for any reason, because any lost years won't count toward your pension plan's "years of service" calculation.
- Don't leave your state. It's no good to split a teaching career across state lines (or even across different pension plans in the same state). One study estimated that a teacher working a 30-year career in the same state had two or even three times the pension wealth as a teacher with the same 30-year career who split her time across two states. So if your spouse wants to move, or if you want to be closer to family or just try a new career, know that you're sacrificing your retirement.
- Earn as little as possible for as long as possible. Every state requires teachers to contribute some portion of their salaries into the pension plan. To maximize the net return on their pensions, teachers should want to keep those contributions as low as possible.
- Become a principal (or a superintendent). Ideally, teachers would keep their low salaries (and low pension contributions) for almost all of their career. Because pension formulas are typically based on the employee's highest three or five years of salary, they should try to do everything in their power to make their peak earning years count. The best way to do that is to pursue higher-paying jobs as principals or administrators. Teachers need to get out of the classroom if they really want to maximize their pension.
- Move to a suburban district right before you retire. Again, a teacher seeking to maximize their net pension wealth should stay in a low-salary district for as long as possible, but right before retirement they should seek out the wealthiest district possible. Just a few years of earning the higher salary will pay big dividends in the form of higher pension payments every year in retirement. (The slightly higher pension contributions in those years are more than compensated by the higher pension payments.)
- Be a woman. Women live longer, meaning they have, on average, more years in retirement to collect a pension.
- Store up your sick leave and vacation days. Many states allow teachers to "cash out" their sick leave and vacation days when they retire, artificially inflating their salary in that year. Even better, that inflated salary will translate into higher pension payments for life. So as you're nearing retirement, try not to get sick or take vacation time.
- Retire when the state tells you to. State legislators set the "normal retirement age" for teachers, and that's when they want you to retire. If at that point you decide you still like teaching, every year you keep working is a year you could be receiving a pension. You're losing out.
If you read this list and think it doesn't quite square with why you went into teaching, your pension plan may not be working in your best interests (or the best interest of schools and students). It may be time to consider other options.