stepford
Thinks s/he gets paid by the post
DW and I are in good shape financially, but still need to optimally allocate some of our assets. We are both in our late 50's. I am retired and she is working another few years as a teacher in California (part of the CALSTRS system). She will get a pension through this system, but will have a limited number of years in the system and so will receive a reduced benefit as a result. She has the option of purchasing additional years of pension service credit. The question is whether to do so.
Numbers:
According to the CALSTRS calculator each year of pension credit will cost $26K and result in an increase in her annual pension benefit of $1800.
This is a little bit better than the annuity estimate one gets using immediateannuities.com. Furthermore since the pension will be COLA'd the actual value is greater than the immediateannuities estimate.
The negatives are the usual ones with annuities: possibility of greater payouts by investing the money ourselves, long term risk of insolvency of the CALSTRS system.
As I said, we're in OK shape financially. My non-COLA'd pension covers 80-90% of my expenses (including my share of our expenses in common). With no additions her pension will cover about 75% of her expenses (again including expenses in common). The shortfall will be paid for by a ~1.5% withdrawal rate from our savings. The question is whether to reduce our savings by 5-10% and purchase pension credits so that her pension then covers ~100% (or more) of her expenses.
This probably comes down to philosophy and how one weighs various risk factors, but I'd be interested in the opinions of those who've faced a similar decision.
Numbers:
According to the CALSTRS calculator each year of pension credit will cost $26K and result in an increase in her annual pension benefit of $1800.
This is a little bit better than the annuity estimate one gets using immediateannuities.com. Furthermore since the pension will be COLA'd the actual value is greater than the immediateannuities estimate.
The negatives are the usual ones with annuities: possibility of greater payouts by investing the money ourselves, long term risk of insolvency of the CALSTRS system.
As I said, we're in OK shape financially. My non-COLA'd pension covers 80-90% of my expenses (including my share of our expenses in common). With no additions her pension will cover about 75% of her expenses (again including expenses in common). The shortfall will be paid for by a ~1.5% withdrawal rate from our savings. The question is whether to reduce our savings by 5-10% and purchase pension credits so that her pension then covers ~100% (or more) of her expenses.
This probably comes down to philosophy and how one weighs various risk factors, but I'd be interested in the opinions of those who've faced a similar decision.