How much is the “average” teacher pension? That may sound like an easy question, but there are actually many different ways to answer it.
I’ll use Illinois to show why. Illinois lawmakers recently agreed to legislation that will change the way teacher pension benefits are calculated. In the process, news articles often cited the “average” teacher pension as justification for or against the changes. The Teachers’ Retirement System of the State of Illinois’ official estimate says the weighted average teacher pension in 2012 was $4,018 a month or $48,216 a year.* This estimate would be adequate to use if pension payments formed a normal distribution and there were no high or low outliers. In reality, pension averages tend to be skewed by a small number of large winners.
It's important to clarify that most teachers won't qualify for a pension in the first place. They simply won't stay teaching in their state long enough to qualify for a pension. Illinois estimates that only about 40 percent of beginning teachers will teach in the state for 10 years, the length of time now required to earn even a minimal pension. But, even for those that do qualify, there are many teachers who stay long enough to qualify for some minimal monthly payment but not long enough to reap the full rewards of the pension system. Depending on the state, teachers need to stay for 25-30 years in order to maximize benefits. Only a small minority last that long, but they’re rewarded with much higher pension payments, delivered monthly for the rest of their lives. Weighted averages hide all the teachers who leave before then.
In its Comprehensive Annual Financial Reports, Illinois publishes a table of the monthly pension payments received by all retirees, disaggregated by when the teacher retired and how many years they taught. The table lists average monthly payments for groups of retirees, so, for example, users can see there were 1,370 teachers who retired between one and four years ago who had accumulated 10-14 years of experience. These ex-teachers received monthly payments of $1,282, or $15,384 per year.
The data allow us to see the full range of payments. At the lower end, one retiree receives a monthly payment of only $83. Another seven receive only $123 a month. All of these teachers taught for less than five years and have been retired for more than 35 years. At the opposite end of the spectrum are a small group of recent retirees who taught for many years. Two teachers receive $13,223 a month, or almost $160,000 a year. A total of 30 retirees earn more than $100,000 a year in retirement payouts.
This data also allows us to look at the “average” teacher pension in many different ways.
For example, if you lined up all the different monthly payment amounts, the amount right in the middle would be $2,172. But that would ignore the number of people receiving each payment. If instead you lined up every retiree in order of their benefit, the teacher right in the middle would receive a monthly payment of $4,613, or a little more than $55,000 a year. Statisticians would call this the median payment.
If you wanted to know the most common payment, that would be $5,647 a month, an annual payment of almost $68,000. This is what’s known as the mode. 11,161 retirees fall into this group, or about one out of every nine retirees.
The next time you hear media coverage of Illinois’ or Detroit’s or California’s “average” teacher pension, take a step back and remember that you’re likely seeing the weighted average, and the weighted average hides meaningful differences. The median and the mode of pension payments are likely higher than the numbers you’re seeing reported in the news.
*Note: Illinois teachers do not participate in Social Security. For more information on what that means for individuals and for the state, see here.