Entering retirement is a very exciting time in one’s life, but it does require a lot of preparation. If you are planning to retire in the state of California, you will need to start assessing all your options and resources, which can be tough. National Educational Services is ready to help you start this process, so let’s get started today with some introduction information!
California Teacher Retirement Age
California teachers are members of the California State Teacher’s Retirement System, which was established in 1913 and is the largest public retirement system in the whole state.
The normal retirement age in California is 62, but that does not necessarily mean you must retire at that age. Many individuals tend to retire within a window around age 62, depending on which specific age allows them to maximize their retirement wealth.
In California, many teachers have the ability to retire at age 55, although they will face reduced benefits due to age and experience level. It is very important to note that you will not be able to begin collecting pension payments until you reach your state’s retirement age even if you decide to retire early.
California Teacher Pension Plan Cost & Calculation
In California, the calculation of your total pension amount is commonly based on three factors:
- Your final average salary
- Number of years of service earned while teaching
- The state’s pension multiplier (California’s multiplier is 2%)
Throughout your years of service, you and your employer will contribute to your pension fund. These contribution rates are stated by the state legislature, and they can change from year to year. In 2018, California teachers contributed 10.23% of their salary to their own pension while the state contributed about 20%.
These contributions do not all go towards benefits, as a portion of the state’s contributions are used for benefits while the other portion is used to pay down the debt of the pension fund.
In most states, including California, teacher pensions are not portable. Meaning if you were to move across state lines and continue working as a teacher, you will have multiple pension plans from different states. Although, it is likely that these pensions combined will be less than if you were to have stayed in one system for the entirety of your career.
Benefits Based on Age of Retirement
Generally, there are two rules to follow in order for teachers to receive the maximum payout of their pension benefits:
- Stick with the same pension plan for as long as possible
- Retire at your state’s normal retirement age (62 in California)
In the state of California, you are able to retire at 55 years old if you have accumulated 5 or more years of service, but your benefits will be reduced based on your actual years of service and your age.
Many wonder if their pension benefits will increase if they continue to teach past age 62 and retire later than normal. Unfortunately, this is not how the retirement process works. Your pension benefits are paid out in terms of years so if you chose to continue to work past the normal retirement age you will receive fewer payments.
Retirement Under California’s Normal Age for Maximum Pension Benefits
Due to the combination of the many factors listed above, there is a structure embedded within a teacher’s pension where wealth will remain low throughout their career, spike at the time of their state’s normal retirement age, and then begin to slowly decline from the peak spike. Because of the nature of this structure, ideal retirement is at California’s normal retirement age of 62.
Seek Out Advice from a Professional
Regardless of where you live at in the United States, advisors at National Educational Services are here to make sure you are making the most out of your money. We strive to help all educators and public servants make their money work through our financial planning services. Give us a call today to schedule an appointment with any of our financial experts.