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When Can A Teacher Retire In California?

17 Feb - Posted at 03:47h in Uncategorized

Retirement is an exciting new chapter in life. But it requires a lot of preparation. If you are preparing for retirement in California, you'll need to start plotting out which options, resources and strategies you'll need. And you'll need to know how long you have to prepare for retirement.

When can a teacher retire in California? California Teacher Retirement Age

Teachers in California are a part of the California State Teachers' Retirement System. Established in 1913, this system is the largest public retirement system in the entire state.

In California, the normal retirement age is 62, but that doesn't mean you have to retire exactly at that age. Many people choose to retire within a window around that age, in which you can maximize retirement wealth. Teachers in California have the potential to retire at age 55, with reduced benefits, based on experience and age. However, it should be noted that you cannot begin to collect a pension until you hit your state's retirement age, even if you choose to retire earlier.

California Pension Plan Cost and Calculation

The calculation of your total pension amount is typically based on three things:

  • The number of years of service you have earned while teaching;
  • Your final average salary
  • The state's pension multiplier (California's pension multiplier is 2%)

As you work, you (and your employers) contribute to your pension plan. Contribution rates are set by the state legislature and can change from year to year. In 2018, teachers contributed 10.23% of their salary to their pension fund while the state contributed 20.25%. Not all of these contributions go toward benefits. A portion of the state’s contribution is for benefits, and the remaining portion of the state's contribution is used to pay down the pension fund's debt.

Teacher pensions in California, as with most states, are not portable. If you move across state lines and continue working as a teacher, you will most likely have multiple pensions. However, these pensions combined will likely be with less than if you remained in one system for your entire career.

Pension and Benefits Based On Retirement Age

There are two rules you can follow in order to receive the most income in pension benefits:

  1. Keep the same pension plan for as long as possible.
  2. Retire at your state's normal retirement age.

If you are a new teacher starting out in California, you can retire with full benefits once you reach 62 years of age and have accrued 5 or more years of service.

California allows you to retire early at age 55 if you have accrued 5 or more years of service, but your benefits will be reduced based on your years of service and retirement age.

For example, since the retirement age in California is 62, teachers who retire at age 62 receive a benefit based on the 2% formula multiplier discussed above. However, if you were to retire at 55 instead, the multiplier would be reduced to 1.16% to calculate your pension benefit.

You may be wondering, will my pension and benefits increase if I continue teaching past age 62 and retire later than the normal retirement age? Unfortunately, it doesn't work this way. You receive your pension benefits as yearly payments, not in a lump sum of cash. If you continue to work, you will have fewer years of life to receive these payments.

Plan To Retire at California's Normal Retirement Age for Maximum Pension and Benefits

Thanks to a combination of all of the factors above, a structure is created in which a teacher's pension wealth remains low throughout their career, spikes at their state's normal retirement age, and slowly declines from that spike. Because of this, an ideal window of retirement begins at California's normal retirement age of 62.

Financial Planning and Advising For Teachers

No matter where you live, we will help you make the most out of your money. At Appreciation Financial, we strive to help educators and public servants make their money work for them, instead of the other way around. With financial planning services ranging from getting out of debt to planning for retirement, our agents at Appreciation Financial have your back. Give us a call to schedule an appointment with our financial professionals today.