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Old 08-24-2012, 08:40 PM   #21
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I have the same option to buy up to 5 years of additional pension that pays about the same; $135,000 gets me $850 a month plus a COLA capped at 5%. I'm turning it down. The reason is; I think there's a much greater chance that I would want access to the $135,000 as a lump than I need another $850 a month. I don't think I 'need' $850 a month although I'm sure I'd spend it if I had it. However, if I have $135,000 in my 401K I could use it to help a child buy a house, fund a business, pay for grand kids college, etc.
I see it like the lottery; take the lump sum or take the payments over 20 years. The liquidity of having my own cash is pretty important. And if I die tomorrow? Kiss that $135,000 good-bye.

Also, who's to say the pension won't or will be there in 20 or 30 years? For me it's California PERS. Every governor since Gray Davis has been trying every trick in the book to get access to that PERS fund. Some day some judge is going to agree it's the state's money until it's paid out to the account holder. Then what...?
Then there's social security. If it ever does go to a means testing method of distribution, I think I'd rather have my trust account holding the money than me personally having an additional $800+ a month.

Keep your 3 legged stool with even legs. If putting a lump sum of money into your pension results in an uneven distribution of your retirement sources of income, you need to assess that as a risk.
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Old 08-24-2012, 09:06 PM   #22
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Quote:
Originally Posted by skipro3
I have the same option to buy up to 5 years of additional pension that pays about the same; $135,000 gets me $850 a month plus a COLA capped at 5%. I'm turning it down. The reason is; I think there's a much greater chance that I would want access to the $135,000 as a lump than I need another $850 a month. I don't think I 'need' $850 a month although I'm sure I'd spend it if I had it. However, if I have $135,000 in my 401K I could use it to help a child buy a house, fund a business, pay for grand kids college, etc.
I see it like the lottery; take the lump sum or take the payments over 20 years. The liquidity of having my own cash is pretty important. And if I die tomorrow? Kiss that $135,000 good-bye.

Also, who's to say the pension won't or will be there in 20 or 30 years? For me it's California PERS. Every governor since Gray Davis has been trying every trick in the book to get access to that PERS fund. Some day some judge is going to agree it's the state's money until it's paid out to the account holder. Then what...?
Then there's social security. If it ever does go to a means testing method of distribution, I think I'd rather have my trust account holding the money than me personally having an additional $800+ a month.

Keep your 3 legged stool with even legs. If putting a lump sum of money into your pension results in an uneven distribution of your retirement sources of income, you need to assess that as a risk.
I certainly understand why you would do that. For me I had to buy years to be retirement eligible. I worked 24 years, but you couldn't retire unless you had 25. I remember that 25 would have been about a $50k pension and 28 got me into the $70s. Its been a few years ago, but I paid I believe a little under $90k to buy 4 years. So it increased my pension over 40% from 25, and I only had 24 to begin with. We didn't pay into SS and WEP swallows up most of my SS from other jobs, so I never got a chance for a 3 legged stool. Our pension, though public, is in a trust fund out of reach of legislature and is close to 90% pre funded. All things being equal, I would certainly prefer the 3 legged stool as opposed to my 1 legged stool with 2 small stubs.
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Old 09-14-2012, 05:24 PM   #23
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How times have changed. Since I posted the original message the price has gone up to $71,000 and the benefit down to $4,600. Of course, the initial estimate was just that - an estimate. Today's figure is the real deal. I still think I will do it since it will help even out the 3 legs of my retirement funding stool.

In effect, I am buying a more dollars every month with a side order of longevity insurance in the event I live much past my mid 70's.
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Old 09-15-2012, 03:13 PM   #24
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The price didn't exactly go up. You became a year older. The further you are from retirement, the lower the price. I'm not sure why your pension amount would decrease by $200 a month.
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Old 09-15-2012, 04:09 PM   #25
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The price didn't exactly go up. You became a year older. The further you are from retirement, the lower the price. I'm not sure why your pension amount would decrease by $200 a month.
I don't know specifically about Chuckanuts situation, but in mine, a persons age had no bearing on it. The purchase cost was based on actual salary. In my case, a purchase credit is annual salary times 29% (employer and employee match combined). Eight years ago you could have bought at 22%, but employer/employee contribution rates went up to cover the market shortfall. In my system, the only the payout could drop is if the multiplier was reduced. Other systems I'm sure have different formulas though.
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Old 09-15-2012, 04:17 PM   #26
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The price didn't exactly go up. You became a year older. The further you are from retirement, the lower the price. I'm not sure why your pension amount would decrease by $200 a month.
That is a yearly number. The extra amount went down $200 a year. Of course, the initial number was an estimate, not a commitment. Overall, not a bad estimate.
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Old 09-18-2012, 04:06 PM   #27
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After a lot of thought and a lot of number crunching I decided to go through with purchasing the service credits. What pushed me over to that side of the fence was the partial COLA that came with the credits. That makes a big difference going out 15+ years.

Of the three legs on my retirement stool the strongest (most money, good potential COLA) is the one made up of my personal saving and investments over 40+ years of work. The next strongest is SS due to its full COLA and its coming from the guys who own the money printing press. The weakest leg (least money and shakiest COLA) was my pension. This strengthens that leg at relatively small cost to my personal savings leg.

Overall, the stool should be in better balance in the long run. Time will tell, of course.
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