The 12th Commandment Posted November 23, 2008 Share Posted November 23, 2008 Por Favor! I have the opportunity to buy back 5 years of service from an old job with the same state run pension fund as my current one. The fund has historically done very, very well in the market but nobody is doing well now. Using the current calculation as to years served, 3 year highest salary, etc what it will amount to is an increase of about (likely to go up as my salary does) $300/month in my pension when it comes time to collect. It's going to cost me $28K today. There's also the possibility, though I'm going to fight it tooth and nail, that I may have to take early disability retirement which would slash the number considerably. Should I do it? If I could provide more info let me know. I think I should and still have faith that state will be ok, there are no problems on the horizon that I'm aware of, and I look. I'm not looking to abdicate my decision, I'm just curious what the thoughts of the ES financial wizards might be. Thanks Link to comment Share on other sites More sharing options...
Fergasun Posted November 23, 2008 Share Posted November 23, 2008 I don't know. I believe a lot of pension funds are going to blow up in the next 5 years... and then you could possibly be SOL. I'd be skeptical as to why someone would even offer you to buy back in... isn't that a sign of desperation? Link to comment Share on other sites More sharing options...
The 12th Commandment Posted November 23, 2008 Author Share Posted November 23, 2008 I don't know. I believe a lot of pension funds are going to blow up in the next 5 years... and then you could possibly be SOL. I'd be skeptical as to why someone would even offer you to buy back in... isn't that a sign of desperation? Thanks fergasun. Agreed on the funds in general but government should be a little safer right? I don't see it as possible that they'd cut off benefits entirely, at worst they may be reduced. As for buying back the years, the reason it's become an option is because I just recently have the money to do so. It's been an option since I pulled the money out in '97 to pay for myself to go back to school again. I purposely stayed 5 years that first round to become "vested" in the plan giving me the option to buy back in. The way it works in a nutshell is 3%/year times the number of years worked times the average of your highest three years. You can go with a max of 26 years 8 months (80%). The minimum is 25 years with no penalty but it's then 75%. You can also retire on age at 62 but that's not in play with me as I'll be done with years of service at 55. So in essence the time bought back is just as important in terms of getting me out earlier as it is for the money. Of course the reason I put it out here is because deep down I'm worried about funds and such too. The idea of cash on hand is satisfying if not absolutely practical. The possibility of the early withdrawl with a penalty that equates to 60% of what it would've been is also part of the story. I think I can make it to 25 (I'm half way there with the additional 5) but the fact is I may not. Link to comment Share on other sites More sharing options...
dockeryfan Posted November 23, 2008 Share Posted November 23, 2008 Dude talk to an accountant that can help you with tax planning. If you need one, I can recommend someone that can analyze the best option for you. You need to take your personal timelines into account. PM is the best if you want that. Link to comment Share on other sites More sharing options...
The 12th Commandment Posted November 23, 2008 Author Share Posted November 23, 2008 Dude talk to an accountant that can help you with tax planning.If you need one, I can recommend someone that can analyze the best option for you. You need to take your personal timelines into account. PM is the best if you want that. Yeah, I definitely need to get an accountant involved, that's good advice. I'm probably a little far away for the recommendation though. I know a couple good ones here. My personal timelines are paramount, primarily because there is some level of uncertainty involved. Link to comment Share on other sites More sharing options...
techboy Posted November 23, 2008 Share Posted November 23, 2008 What you are effectively doing here is buying an annuity, in that you are putting in a lump sum and getting back a monthly payment. You'd have to run the numbers against a traditional annuity purchased from a low-cost provider like Vangaurd and see if they make sense. Link to comment Share on other sites More sharing options...
The 12th Commandment Posted November 23, 2008 Author Share Posted November 23, 2008 What you are effectively doing here is buying an annuity, in that you are putting in a lump sum and getting back a monthly payment. You'd have to run the numbers against a traditional annuity purchased from a low-cost provider like Vangaurd and see if they make sense. Good advice. But one of the main differences, as I alluded to, is the concept of years served and the ability to get out earlier with the full pension. I agree if I don't make it full retirement that would then NOT be an issue but I can't give up on myself. Or would I be better to assume the worst and do my planning from that? In this case the old adage 'plan for the worst and you won't be disappointed' may not hold true if I did make still working at 55 because I'd have been able to retire without penalty but if I put the money in a Vangaurd account I would still have to work 5 more years (which I KNOW would really piss me off at that point). Basically I don't think I will work past then given even the best of situations so I'd take that 40% penalty for early withdrawl. That's a chunk for Vangaurd to have to make up and I don't imagine they could. I guess what I getting at is I think, as an annuity, my pension is the best thing going. But is there some other investment that might be more intelligent or should I consider keeping a cash reserve. Should I lose my insurance, my health care costs would eat that money up so fast that that would be a crying shame too. Ahhhhhhh......it's tooo ****ing complicated for my pea brain Link to comment Share on other sites More sharing options...
The 12th Commandment Posted November 24, 2008 Author Share Posted November 24, 2008 Bump for the workday gurus. I looked into Vangaurd briefly and the fact that my pension lasts until I die, makes the pension more attractive than the annuities I looked at. Really then the question is cash vs risk and the long term reward. What could I do with the cash that would be better? I can't think of anything but it's important enough to put out there on the chance that someone who knows more will see it differently. Link to comment Share on other sites More sharing options...
Fergasun Posted November 25, 2008 Share Posted November 25, 2008 You question intrigued me so I found some links for you: Link 1: Pension Envy and Lobster Traps Link 2: HIG Hopes to become S&L, Access TARP; very interesting comments on this one on unfunded liabilities for pensions. Link 3: Another update on State Pension Funds I encourage you to look more into this... Link to comment Share on other sites More sharing options...
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