Women live longer than men, and are far more likely to see their golden years tarnished by falling into poverty. In fact, women age 65 and older are 80 percent more likely to experience poverty than men of the same age. Financial hardships fall more heavily on women as they age, with women between ages 75 to 79 three times more likely to be poor than men.
We know that the financial disparities between men and women start with differences in pay and then compound into retirement years. Women's workforce participation trends show they often have less time to accumulate retirement assets via pension credits or to build up the 401(k) account balances. Taking time out of the workforce for family obligations is another contributing factor, as it often translates into far less retirement income for women.
Federal law that requires spouses with income from defined benefit (DB) pension plans continue payments to the survivor, which helps women keep an income should their husband pass away. In Shortchanged in Retirement: Continuing Challenges to Women's Financial Future, the National Institute on Retirement finds that income from DB pensions fairly consistently provided about 20 percent of household income across ages, genders, race and changes in marital status. Looking ahead to future generations of workers, DB pensions will cover only about half of those benefiting from them now.
Women in education were one of the few bright spots our analysis of women's retirement outlook. Retired teachers over age 65 actually earned less than 80 percent of other college educated women during their careers. But, they rely the least on Social Security, have the highest household income among retired women and the lowest levels of poverty. Income from DB pensions provided women educators with 37 percent of their household income, while income from defined contribution (DC) accounts accounted for just three percent for women educators age 65 and older.
Teachers in public education exchange higher pay for financial security when they retire. So choosing to become a teacher with a public pension comes with a long-term financial advantage. Industry-wide retirement plans cover 84 percent of the women who teach. Additionally, most K-12 public school teachers must make significant contributions to their DB pensions from day one. As new teachers progress through their careers and sharpen their classroom skills, their pension benefits are vesting simultaneously. Moreover, pensions have strong retention benefits, and this encourages experienced teachers to stay in the classroom. Ultimately, the public benefits because experienced teacher provide a better learning environment for students. Also, it is well documented that teacher turnover is negatively correlated with education effectiveness, and we all know that high employee turnover is expensive.
Consistent participation in a retirement plan from day one on job along with sharing the retirement costs with an employer means that teachers can retire from the classroom in their 60s. Most teacher pensions pool longevity risk and have professions asset management, which means pensions can deliver 50 percent more in each pension check than a 401(k) plan.
A recent analysis of the California State Teachers Retirement System (CalSTRS) by the UC Berkeley Center for Labor Research and Education found that the state pension played a key role retaining teachers. Three-quarters of classroom teaching in California is preformed by experienced teachers. Knowing that the typical teacher in California public schools will retire around age 61 with over 30 years of service enables schools to manage the teaching force and avoid expensive turnover costs.
State Budget Solutions and others suggest that K-12 teachers should embrace the 401(k) style DC plan that many colleges and universities offer their faculty. But, there are problems with this notion.
Employers do not restore the value lost in individual DC accounts after stock prices take a dive, but there are other costs when employers shift this risk entirely on teachers. The burden of make up for investment losses that teachers see on their 401(k) statements falls on employees. Either educators need to save more in their DC accounts or face short falls in retirement income for years to come.
Another alternative for would be to keep working. Recent studies by TIAA-CREF and Fidelity indicate that 75 percent of college professors decide to continue working well beyond typical retirement ages. But, working after 65 pushes up payroll costs and clogs up the academic pipeline for new professors.
Ultimately, defined benefit pensions for K-12 teachers are a winning approach. After a full career in the classroom, teachers can retire with a modest and stable retirement income. And, taxpayers benefit from keeping experienced educators on the job in the most cost efficient way feasible.