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Backloading: Pensions are Designed for Teachers Who Spend Their Entire Career in a Single State

Pensions don’t provide much value over the first few years that you work, but the value really spikes as you near retirement. This approach is called “backloading,” and it’s by design.

The value of all of the future monthly pension checks measured in today’s dollars—called the net present value—grows much faster toward the end of your career than the beginning. States want to retain quality teachers, and they do so in part by offering a backloaded guaranteed income pension.

In theory, this works to the advantage of educators committed to the classroom. However, as modern lifespans and career trajectories have changed, this backloaded structure has not adapted. Because benefits accrue mostly at the end of a career, they do not work for a geographically mobile generation of teachers who are increasingly likely to pursue multiple career paths during working years.

Consider the following chart that shows how pension wealth accumulates over time. Over your first decade of work, you don’t gain much. This is because salaries are lower earlier in your career and because you have fewer years of service. For example, if you only worked 10 years of service, with a 2% multiplier and $50,000 in final average salary, then you would only receive $10,000 a year in retirement—and that’s before accounting for inflation. But those who work 30 to 40 years in the same pension system retire with substantial pension benefits.

Wealth Accumulation Over Time in a Typical Guaranteed Income Pension Plan

Pension Wealth

Source: Bellwether

*Note: The pension wealth is simply the estimated value of all expected monthly pension checks added together, and shown using today’s dollars. Think of this as the sum total of all of your expected pension checks between the time you retire and the time your pension plan thinks you’ll pass away, but then adjusted based on the value of money today versus what we think money will be worth in the future. 

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