No. of Recommendations: 0
I am a state employee covered by a state defined benefit pension plan. I have the opportunity to purchase up to four years of service credit. Our pension amount is based on final average pay times 1.7% times years of service.

If I purchased the pension service, in 15 years I would be able to retire two years earlier than I can retire now. The amount required to purchase this service credit is substantial (at least to me). Another benefit to purchasing this service is that my employer bases their contribution for retirees health insurance on years of service and I think that as health insurance costs increase that may be a large factor.

I could probably come up with the amount required within the next six months or so, but how do I determine if that's something I should do. I know there should be some mathematical formula for figuring this out but I am lost.

I already have an emergency fund and contribute the maximum to my 457 plan and my Roth IRA. Also, I understand that if I wanted to I could pay the amount required to purchase the service out of money in my 457 plan. I don't think this is something that I want to do because I couldn't later make this amount up and therefore I lose out on all of the compounding of the amount that I currently have in there. Is this right? Am I missing something that is obvious to everyone else.

I just have no idea where to start when trying to analyze what I should do. Does anyone have any suggestions? Thanks in advance.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.