Early Retirement Pension Benefits
NBER Working Paper No. 654
Early retirement options alter the accrual of pension benefits, increasing the fraction of total benefits accrued in the early years of work. This is true regardless of whether de facto no worker exercises the early retirement option. No currently used actuarial method correctly calculates the cost of an early retirement option. Early retirement options must be considered in calculating age/compensation profiles. Furthermore, the early retirement option can effectively be used to encourage less productive older workers to retire, without the firm having to reduce the nominal salary of such workers.