This paper aims to determine the optimal date for an employee to initiate the pension payments from the New Zealand Government Superannuation Fund (GSF), through retirement or job shifting.
The paper uses discounted cash flow methods in conjunction with mortality tables, inflation estimates and a range of values for the yield on inflation-adjusted bonds in New Zealand.
The paper finds that, if job shifting is costless, then the optimal exit date is between 60 and 65. If job switching is costly, then this paper determines the effective salary reduction arising from continuing to work at the GSF-associated job beyond the optimal job switching age under costless job switching, arising from the adverse impact on the present value of the pension benefits, so as to assist in deciding when to switch jobs or retire. These effective salary reductions are small below 65 but rapidly rise after that, thereby significantly discouraging work much beyond age 65.
This paper assists GSF members to determine when to switch jobs or retire.
The helpful comments of participants at the 2011 New Zealand Finance Colloquium are gratefully acknowledged.
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