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Author: akck Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76390  
Subject: Re: Buy years or buy stocks Date: 9/11/2013 12:18 PM
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One advantage of a state pension fund over a municipal pension fund is that a state cannot declare bankruptcy. So comparisons to Detroit are unwarranted. Some state pension funds are protected in the state constitution, making changes to promised benefits more difficult (can only affect new hires). Unfortunately, Colorado isn't one or them. That said, you're likely more familiar with the Colorado state pension, state politics and what they might do for pension changes.

So what it comes down to is the cost for the extra 3-4% per year purchased. You can perform a simple IRR or NPV on the cash flows to determine the rate of return on the purchase. If it's relatively good, that is, better than or equal to what you could do yourself, then I'd lean toward purchasing the years. If the pension is inflation protected, I'd just ignore it and assume the number is the real rate of return.

Many here tout the benefit of delaying SS until age 70, to get an additional 8% per year. I find buying pension years to be no different than that. So if the return makes sens to you, I'd buy the years.
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