I currently have just over 4 years of service with a state agency. I'm fully vested and our pension is well funded and will most likely be well funded for the next 15 years atleast because of natural resources. So I want everyone to treat my question as if there isn't any doubt the pension fund will stay solvent eventhough I'm fully aware what can happen. I am currently 27 years old and have the opportunity to purchase 5 years of service credit for $14,500 at 8% interest . Our formula for determining our pension payment is (years of service * 2%) * highest average salary over last 3 years of service. If I were to leave before the rule of 85 I would receive this payment beginning at 65 years old with no inflation adjustment. I currently make $3,391 per month.
So I'm currently looking at 8% * 3391 = $271.28 per month at age 65
With 5 more years 18% * 3391 = $610.38 per month at age 65
For some background I have $32,000 in my Roth IRA and $3,000 in Deferred Comp fund.
I have very little expenses and think I can max out my Roth and pay a large chunk of the $14,500 very quickly. I want to do this to suppliment my investing. I see it as diversification. It also decreases my rule of 85 to 50 years old if I manage to enjoy state employment for that long which is possible since there are many state agencies I could work for. The idea of investing in myself is also enticing since I would receive a higher benefit based on each year I keep my employment and everytime I get a raise.
Is it a good idea? I alway read about people purchasing service credits at the end to retire early often paying $90,000 or more. Does it make more sense to do when you are young?
So I'm currently looking at 8% * 3391 = $271.28 per month at age 65
With 5 more years 18% * 3391 = $610.38 per month at age 65
For some background I have $32,000 in my Roth IRA and $3,000 in Deferred Comp fund.
I have very little expenses and think I can max out my Roth and pay a large chunk of the $14,500 very quickly. I want to do this to suppliment my investing. I see it as diversification. It also decreases my rule of 85 to 50 years old if I manage to enjoy state employment for that long which is possible since there are many state agencies I could work for. The idea of investing in myself is also enticing since I would receive a higher benefit based on each year I keep my employment and everytime I get a raise.
Is it a good idea? I alway read about people purchasing service credits at the end to retire early often paying $90,000 or more. Does it make more sense to do when you are young?