No. of Recommendations: 1
I will soon be eligible for a very modest pension from a previous career and am wondering if it may be wise to purchase additional service credits.
I have 25 years in WA's PERS2 plan where the retirement benefit is calculated by # years multiplied by 2% of the average of your 5 highest-paying, contiguous years. I separated 14 years ago and began a new career.
I intend to work 2 more years in my current job (which has provided a 457b and 401a), hopefully retiring at 67. There appears to be no reason to delay the PERS2 pension past age 65 as it does not increase after that as SS retirement does. There is an option to purchase an Annuity at time of retirment, which I'm pretty sure would not be for me, but I had not considered the idea of purchasing more service credits.
Purchasing 5 more years of service credit would cost an estimated $58,638 and would increase my monthly benefit by $334.
Thus, it would take 176 months to break even - around the age of 80.
BUT - how do I apply the cost of that missing $58k lump sum (I have both IRAs, 457/401 and non-tax advantaged accounts to pull from if need be) to this calculation? Is there any ballpark rule-of-thumb to simplify this, just as a reality check?
I'm not particularly afraid of rabbit-holes (so to speak) but if it's clear this would be a really bad or a really good idea, it'd be lovely to devote energies elsewhere.
Thank you in advance for any thoughts, observations or guidance!
No. of Recommendations: 5
Purchasing 5 more years of service credit would cost an estimated $58,638 and would increase my monthly benefit by $334.
Thus, it would take 176 months to break even - around the age of 80.I would consider that to be in immediate annuity of the $58k. You could run your details through an annuity calculator like the Schwab one linked below and I think you will find it is no better,and likely slightly worse, than what you could simply buy on the open market. If an annuity meets the needs of your personal situation then you may want to look elsewhere than buying the years.
https://www.schwab.wallst.com/tools/FixedIncomeAnn...BUT - how do I apply the cost of that missing $58k lump sum (I have both IRAs, 457/401 and non-tax advantaged accounts to pull from if need be) to this calculation? Is there any ballpark rule-of-thumb to simplify this, just as a reality check?This is highly dependent on an individual's situation and risk tolerance. Any "rule of thumb" may not apply to a persons unique circumstances and personal values. Some good discussion on annuities in the post linked below if you are interested.
https://www.shrewdm.com/MB?pid=758459292&wholeThre...Jeff
No. of Recommendations: 3
Out of curiosity I put your exact question into Perplexity to see how it would respond.
https://www.perplexity.ai/search/a59310c2-c9c1-41c...I was surprised to see that it indicates the pension you asked about is inflation adjusted in retirement, more and more rare these days. If true, that would make the purchase of additional years more attractive, again depending on your personal situation.
The summary at the end of the Perplexity response is really quite good:
How I’d use this as a “reality check”
As a simplified rule of thumb for your situation:
* Use your simple breakeven age (~80) as Step 1.
* Assume the purchase is roughly like a 5–6% real annuity if you live to your mid‑80s or beyond.
Ask yourself:
* Am I comfortable treating $58k as “gone” in exchange for more guaranteed income from 65 on?
* Do I reasonably expect to live well into my 80s, and do I value predictability over investment flexibility?
If your answer is “yes” to longevity and guaranteed income, it’s not a “really bad” idea; it’s in the realm of reasonable choices. If you strongly prefer flexibility, anticipate shorter longevity, or are confident you can earn significantly more than that with your portfolio at acceptable risk, it’s likely not compelling.Jeff
No. of Recommendations: 3
I was looking at this the other night and I would lean towards paying the extra money if it is a true COLA pension. I have one that is advertised as COLA but it has limits and doesn't match the CPI rate. If you think the market will do well or don't want extra fixed streams of income, then just keep the money in your normal investments.
I was looking at immediateannuities.com for that amount and while it starts off much higher, it has no inflation adjustment and at 3% inflation, the pension would extra it within 10 years.
Personally if I could move more of my portfolio into a COLA pension-like investment, I would for safety/peace of mind.
Rich
