To buy or not to buy

19 years ago

I work for a state agency, does anyone know whether or not it is a good idea or not to purchase previous service credit. I am eigible to purchase up to 6 year of previous credit which will cost $23,000.

Without purchase those service credit, I will have 16 years of service credit. With the purchase I will have 22.5 years of service.

I plan to retire at age of 55 which will qualify me for 25 years of service credit if I purchase those years. In addition, I will be able to start withdrawing pension.

Any advice will be greatly appreciated.

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Comments (5)

kudzu9
19 years ago
There are too many unknowns here to answer your question responsibly. You don't say how your pension system works, whether there are cost of living increases and of what size, how much your pension will be with and without the increased credit, what you would do with the $23,000 if you didn't buy the credits, and how long you're planning on living! I'm not trying to give you a hard time, but just trying to explain you either need to run the numbers for yourself, or find someone (personnel office, your accountant, etc.) who can do it for you.
In general, government agency programs to allow buying retirement credits are usually a good deal, but, without any numbers specific to your situation, it's impossible to say whether that's true for you.
celticmoon
19 years ago
Agree with Kudzu - need more info. In adddition to Kudzu's questons:

How does the pension work - a multiplier of years of service? 1%?, 1.5%? 2.0%? What is the salary multiplier?

Is there any chance you'd keep working and hit a max and not need that credit?

Can you decide later whether to buy the credit? Your situation may be clearer as you get closer to 55.

Lots of civil servants grapple with this, and federal, state and municipal programs vary greatly. The long term monster issues are healthcare costs, inflation, and the viability of Social Security.
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marge727
19 years ago
Just to give you another viewpoint---I had the opportunity 25 years ago to purchase service credits on my teachers pension, because I transferred from another state. Instead of doing it--we took the $15,000 and bought a house which we rented out in Redondo beach, california. So instead of getting the extra few hundred or whatever it would have been on a monthly basis, I get to own real estate which we have traded up over the years. It has gone up in value (to put it mildly)
My point is--it depends on what you would do with the money if you didn't buy the credits. As it turns out I switched fields anyway, and now get the pension even though I am still working. Something to think about.
minigreenhouse
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19 years ago
Just wondering what accounting software to purchase with 5-6 owner managed rental units? I must add that I am pretty good with Excel, should I create the worksheet myself?

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C Marlin
19 years ago
marge727, I also own a rental unit in Redondo Beach. Appreciation is great, sounds like you made a good move. Is rental income popular with teachers? I'm thinking of teachers that own rentals in Hermosa and Manhattan. Good supplemental income.

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