How Does Accelerating the Retirement Age Increase Present Values?
Retiring at a younger age means that one’s money will be received sooner and over a longer period of time, thus increasing the present value of the pension. Keep in mind that the present value is based on multiplying the accrued pension by an annuity factor that increases as one draws closer to retirement. The annuity factor for someone who is 48 and retiring at 65 may be 3.1; the same person who retires at 50 might have the accrued pension multiplied by an annuity factor of 7.7. The 246 percent increase in present value that results from an assumed earlier retirement age obviously makes this a hotly debated topic. Consider the following example: Official estimates for some United Auto Worker pensions for workers with 28 years of service have indicated that, starting at age 65, the participants can retire with a monthly pension in the range of $1,316 for life. However, employees who continue working another two years are eligible for an immediate, unreduced retirement pension of some $
