Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Buying 2 years more pension or not?
Old 01-17-2015, 08:12 AM   #1
Dryer sheet wannabe
 
Join Date: Jan 2015
Location: Tomah
Posts: 10
Buying 2 years more pension or not?

Hello everyone, I have been browsing around this forum and have picked up many tips from all of you.

Here is my multiple faceted dilemma. I have the ability to purchase 2 additional years of pension benefits for aprox $80,000.

The benefit increase from the 2 additional years will increase the pension $5000 a year for life and transfers 100% to spouse.

This pension also has a 3% increase every year.

I am torn. This is with the Illinois, so it could be defaulted on in the future and I am out 80k. The 3% cola is at risk too.

Thanks for any input!
__________________

__________________
wkoukios is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-17-2015, 08:16 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
How old are you, or will you be when the pension starts?
__________________

__________________
utrecht is offline   Reply With Quote
Old 01-17-2015, 08:20 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Well, I can see why Illinois govt pensions are in trouble!
Being able to buy $5000 per year in benefits for life--incl the life of the spouse--with a 3% COLA is very . . um, "generous." It would be a fantastic deal if the money is actually paid out.

I'd be looking at the "what ifs" if Illinois can't pay. What have other states done? I would >guess< that any reductions would be phased-in, and that those with a small pension check would be hurt less than thse with a larger check. Or there would be a cap (similar to the PBGT cap). So, if you have a small pension, maybe it would be worth the gamble.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 01-17-2015, 08:25 AM   #4
Dryer sheet wannabe
 
Join Date: Jan 2015
Location: Tomah
Posts: 10
I am 53 and will retire next year. The ability to purchase 2 years is because I can purchase up to 2 years active duty military service. Thanks
__________________
wkoukios is offline   Reply With Quote
Old 01-17-2015, 08:25 AM   #5
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
Consider your pillow, then decide.
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline   Reply With Quote
Old 01-17-2015, 09:45 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
You haven't mentioned which pension system it is. Even in Illinois some are in better shape than others. I would go to your pension website and find the funding level of the pension. I spent a little under a 100k 6-7 years ago to buy 4 years of pension next door to you in MO. But are funding ratio is pretty strong at 85%. No way would I consider buying years in a distressed funded system. 80% is generally considered safe by the experts I have read. You see something that reads significantly below that, it should cause some serious reflection before purchasing.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-17-2015, 10:03 AM   #7
Recycles dryer sheets
 
Join Date: Apr 2014
Location: Twin Cities
Posts: 50
Can someone explain how to find out the funding ratio of a private pension fund? Is it simply the ratio of two lines on IRS form 5500?
__________________
manerac is offline   Reply With Quote
Old 01-17-2015, 10:04 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,331
I bought 5 years of extra service when I retired. The cost was about $65k, IIRC, and it bought me about $380 a month more in benefits.

That was before Detroit.

If I had to do it today, given the Detroit precedent, I might not do it, or split the difference by buying 2-3 years and investing the rest.

But, Illinois's pension system is in much worse shape than my state's system according to what I have read. So..... Be very careful.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 01-17-2015, 10:30 AM   #9
Recycles dryer sheets
 
Join Date: Jan 2014
Posts: 65
Take a look at this site to estimate and compare what your money will buy today in the annuity market; https://www.immediateannuities.com/


Using your age 53 and assuming your wife is same age, $80k will buy a monthly income of $333 beginning in 1 yr w/o COLA. Your option paying $416 w/ 3% COLA looks good in comparison, provided you can get past the funding concerns.
__________________
greydog17 is offline   Reply With Quote
Old 01-17-2015, 11:04 AM   #10
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 867
While Illinois is in trouble with their pensions that doesn't mean people are not going to be made whole. The system is in trouble because legislators decided to take pension holidays and not fund them for years. Instead used that money on pet projects and various services where people ordinarily would be paying an increased tax for. Illinois has had an artificially low flat tax for years and now the chicken has come home to roost. Illinois has a pension reform bill (SB1) presently awaiting the Illinois Supreme Court. Already was ruled unconstitutional by lower court. Attorney general Lisa Madigan will argue the state can use its soveriegn police powers to urge the Supremes to uphold the law because the state is in such dire straits. A couple of things stand out that hurt her argument. First being the corporate welfare that goes on this state where two thirds of major corporations effectively pay 0 in state taxes. Some of them actually collect their employees income taxes. Also they just reduced the state income tax from 5% to 3.75%. Seems like a lot of revenue for a state to leave on the table when they are hurting so much
__________________
ripper1 is offline   Reply With Quote
Old 01-17-2015, 12:22 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Valid points Ripper and will not dispute them. But just my view and as one as a pensioner, you start to realize you become totally dependent on other peoples actions to safe guard your own financial well being. Pensions were thought of as automatic and gold not too long ago and I certainly would never have thought of my pension as being "at risk". But the climate and attitudes towards pensions are changing rather quickly. Are these arguments in the courts seen as eternal safeguards or just "Custard's last stand"? I do not know, but it certainly has given me pause as for all practical purposes I live on a "one legged" retirement stool.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-17-2015, 12:55 PM   #12
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 867
Quote:
Originally Posted by Mulligan View Post
Valid points Ripper and will not dispute them. But just my view and as one as a pensioner, you start to realize you become totally dependent on other peoples actions to safe guard your own financial well being. Pensions were thought of as automatic and gold not too long ago and I certainly would never have thought of my pension as being "at risk". But the climate and attitudes towards pensions are changing rather quickly. Are these arguments in the courts seen as eternal safeguards or just "Custard's last stand"? I do not know, but it certainly has given me pause as for all practical purposes I live on a "one legged" retirement stool.


Sent from my iPad using Tapatalk
Thanks, Mully. Well, as a LBYM type I certainly have other legs to hold up my stool. It is just a shame we have come to this because others stole the money.
__________________
ripper1 is offline   Reply With Quote
Old 01-17-2015, 01:00 PM   #13
Recycles dryer sheets
 
Join Date: Aug 2011
Location: Atlanta
Posts: 420
Quote:
Originally Posted by wkoukios View Post
Hello everyone, I have been browsing around this forum and have picked up many tips from all of you.

Here is my multiple faceted dilemma. I have the ability to purchase 2 additional years of pension benefits for aprox $80,000.

The benefit increase from the 2 additional years will increase the pension $5000 a year for life and transfers 100% to spouse.

This pension also has a 3% increase every year.

I am torn. This is with the Illinois, so it could be defaulted on in the future and I am out 80k. The 3% cola is at risk too.

Thanks for any input!
I had the same chance and decided against it because I did not want
to put any more money in one place.
__________________
SJ1_ is offline   Reply With Quote
Old 01-17-2015, 01:10 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Quote:
Originally Posted by ripper1 View Post
Thanks, Mully. Well, as a LBYM type I certainly have other legs to hold up my stool. It is just a shame we have come to this because others stole the money.

That is certainly true Ripper. In my situation though, all money has been contributed from both sides and it's questionable how it all will shake out 30 years down the road as it is based on the dreaded 8% yearly assumed return.
Looking back, I could kick myself for not saving more, but as I was rolling through the years I thought "they already are taking nearly 15% and matching the same amount and when I retire I will make as much as I was working and it's COLA'd who needs to save?"
Well the past 5 years I have saved more (and some side gigs) than I had my entire working career as a buffer down the road.... Give me 10 more years and I can survive a big haircut if it ever would happen. The trouble is if things went bad which lever are they gonna pull? Lower the multiplier? Hit the newbies and extend years of service? Raise retirement age? End Cola's? Cut existing pension? I do not know which lever they would pull, so I am assuming it's mine. It's not like I am hoarding every penny I get, but I am being vigilant, as I don't want to be looking for a job at 70. Heck I barely wanted to work in my 40's.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-17-2015, 01:14 PM   #15
Recycles dryer sheets
Greencheese's Avatar
 
Join Date: Oct 2013
Posts: 261
Quote:
Originally Posted by ripper1 View Post
While Illinois is in trouble with their pensions that doesn't mean people are not going to be made whole. The system is in trouble because legislators decided to take pension holidays and not fund them for years. Instead used that money on pet projects and various services where people ordinarily would be paying an increased tax for. Illinois has had an artificially low flat tax for years and now the chicken has come home to roost. Illinois has a pension reform bill (SB1) presently awaiting the Illinois Supreme Court. Already was ruled unconstitutional by lower court. Attorney general Lisa Madigan will argue the state can use its soveriegn police powers to urge the Supremes to uphold the law because the state is in such dire straits. A couple of things stand out that hurt her argument. First being the corporate welfare that goes on this state where two thirds of major corporations effectively pay 0 in state taxes. Some of them actually collect their employees income taxes. Also they just reduced the state income tax from 5% to 3.75%. Seems like a lot of revenue for a state to leave on the table when they are hurting so much
I think its highly unlikely Illinois pensioners will ever get what's promised them. The state is experiencing population decline and slower job growth than states around it. Factor in how much weight Cook County/Chicago pull for the state economy and THOSE pension funds are also a mess. On top of that there is a general hostility towards Illinois government retirees because of the benefits packages and the fact that every time a solution is passed it gets ruled unconstitutional. The state can't keep and jobs now, what makes individuals think the state is going to have better luck doing that when taxes go up to pay for retirees benefits. At least with a school or road I see what my dollars built, not when its the retirement for some person I've never met who lives in Florida 6 months out of the year.
__________________
Greencheese is offline   Reply With Quote
Old 01-17-2015, 01:38 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Greencheese brings up another valid point of government pensions. Even though some may be adequately funded there is also an element of political risk. Already twice our local legislatures have discussed the concept of folding all the state pensions under one fund under the guise of "efficiency and less expenses for greater return". But nobody in our system was falling for that ruse as they were wanting to move those other independent systems that are underfunded and try to use the $40 Billion sitting in our trust as a way to rob Peter to pay Paul. It has been successfully beaten back so far.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-17-2015, 02:15 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,331
Quote:
Originally Posted by Greencheese View Post
At least with a school or road I see what my dollars built, not when its the retirement for some person I've never met who lives in Florida 6 months out of the year.
A poor excuse for picking a working person's pocket. Somebody had to teach the children in those schools as well as plan, police and maintain those roads.

Quote:
Originally Posted by Mulligan View Post

Well the past 5 years I have saved more (and some side gigs) than I had my entire working career as a buffer down the road.... Give me 10 more years and I can survive a big haircut if it ever would happen. The trouble is if things went bad which lever are they gonna pull? Lower the multiplier? Hit the newbies and extend years of service? Raise retirement age? End Cola's? Cut existing pension?
Just for 'fun' I ran FireCalk with the following alterations:

1.) Social Security is reduced by 25% (this seems to be the max reduction that has been mentioned.)

2.) My pension is cut by 20%. I picked this number because at the depths of the last economic collapse the pension was 80% funded. I'm not sure that makes much sense.

3.) The pension COLA (capped at 3% a year) is eliminated.

FWIW, I can still survive fairly well. That's mostly due to delaying SS until I am 70. But, there will be no weekend flights to Paris to have dinner at a 3 star Micheline restaurant.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 01-17-2015, 02:55 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,379
Quote:
Originally Posted by Chuckanut View Post
A poor excuse for picking a working person's pocket. Somebody had to teach the children in those schools as well as plan, police and maintain those roads.



Just for 'fun' I ran FireCalk with the following alterations:

1.) Social Security is reduced by 25% (this seems to be the max reduction that has been mentioned.)

2.) My pension is cut by 20%. I picked this number because at the depths of the last economic collapse the pension was 80% funded. I'm not sure that makes much sense.

3.) The pension COLA (capped at 3% a year) is eliminated.

FWIW, I can still survive fairly well. That's mostly due to delaying SS until I am 70. But, there will be no weekend flights to Paris to have dinner at a 3 star Micheline restaurant.

I am glad my standard of living isn't extravagant either. The one thing worse than being poor is being rich prior to becoming poor! I can't even count on SS, as the WEP whacked it to the max based on my pension. I think I am eligible for about $102 at age 62 in today's dollars. Delaying it until 70 doesn't appear to be a life saver for me.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 01-17-2015, 05:01 PM   #19
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 867
Quote:
Originally Posted by Greencheese View Post
I think its highly unlikely Illinois pensioners will ever get what's promised them. The state is experiencing population decline and slower job growth than states around it. Factor in how much weight Cook County/Chicago pull for the state economy and THOSE pension funds are also a mess. On top of that there is a general hostility towards Illinois government retirees because of the benefits packages and the fact that every time a solution is passed it gets ruled unconstitutional. The state can't keep and jobs now, what makes individuals think the state is going to have better luck doing that when taxes go up to pay for retirees benefits. At least with a school or road I see what my dollars built, not when its the retirement for some person I've never met who lives in Florida 6 months out of the year.
First of all don't believe everything you read about public employees having gold plated pensions and living in Florida and being perpetually in shorts. The vast majority of public employees live on a modest pension and do not get social security. So this is their only lifeline for most. Also the unions did agree to a pension reform package and Madigan never called the bill to the floor. You say your retirement year is 2042. It seems to me you are a little GREEN to be making statements about something you may know little about.
__________________
ripper1 is offline   Reply With Quote
Old 01-17-2015, 05:40 PM   #20
Recycles dryer sheets
 
Join Date: May 2014
Location: Yuma AZ
Posts: 270
Tossing alternative numbers… in 2013 we bought a small rental for $77,500, which is bringing in $805/month. After expenses it is putting in our pocket (ignoring tax write off's) a consistent $583/month. ($6996 per year) This is a 9% "annuity", from an appreciating asset that can be left to the spouse, kids, etc.
__________________

__________________
unno2002 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
27 years old buying Pension Service Credits namesbond FIRE and Money 9 04-28-2016 07:06 PM
AA/investment options for home sale net proceeds and not buying for 4-5 years? prototype FIRE and Money 10 04-02-2014 12:35 PM
Buying into State pension plan. nun FIRE and Money 18 11-21-2013 05:46 PM
Buying service credit on a PERS pension skipro3 FIRE and Money 21 08-04-2013 01:04 PM
Buying additional pension credits? Chuckanut FIRE and Money 26 09-18-2012 04:06 PM

 

 
All times are GMT -6. The time now is 06:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.