Determination of the retirement age using the present value of retirement benefits
Keywords:
Dynamic Retirement, Replacement Ratio, Retirement BenefitsAbstract
This article presents a series of financial estimates to answer the question of the most convenient retirement age from a financial point of view, considering the calculation of the present value of a worker's retirement benefits.
For this purpose, it has been decided in this study to carry out an exercise of this type for the case of the Autonomous University of San Luis Potosi (UASLP), since the required information is available for professors and civil servants of both genders, for whom a calculation of the present value of their retirement benefits is made, as well as for a worker affiliated to ISSSTE who earns at least 10 minimum wages.
The financial estimates for the case of the UASLP consider the two retirement schemes that the institution has and determine the present value of the retirement benefits for professors and employees and how this varies according to the years of service. Subsequently, the same is done for a worker affiliated to the ISSSTE.
By analyzing how the present value of these benefits changes, it can be determined whether the employee should stay another year to increase the amount, or whether the difference is not significant enough to encourage him/her to continue working.
Based on the estimates, it is concluded that from a financial point of view, the most advisable retirement age for the UASLP under its first retirement scheme is 30 years of service for a male professor or official and 28 for both categories of women; while under the new retirement scheme, the age is that at which the sum of age and years of service reaches 95 years. For a worker affiliated to the ISSSTE, this occurs at 28 years for women and 30 years for men. In all cases, this is when the worker reaches a 100% replacement rate.
Nevertheless, some factors that intervene in the retirement decision, which influence workers close to retirement, are discussed. This opens the door for future research to determine the importance of each one of them.
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