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Posted by bo peep on January 22, 2010, 2:14 am
I recently retired at age 63 and 9 months. I'm a fairly moderate
income person - in the past, my nominal federal income tax rate has
run about 10%, but should be a bit lower in the future. The state
where I live has a moderate income tax rate.
When I turn 65 in 2011, I will be able to receive a pension based on a
defined benefit plan with my last employer. In addition to the vested
amount, I have the option to purchase an additional 3 years of service
credits (based on my military service). I'm wondering if this is a
good idea vs leaving the money in a fixed income producing vehicle.
I'm fairly risk-averse. I don't have a need to preserve a large
estate, as I have no spouse or children.
The purchase would cost $22,817.90 and would initially increase my
monthly income by about $220/month for the rest of my life.
Additionally, there is an annual variable COLA that typically runs
anywhere from zero to 3% depending on the whim of the state
government. The funds would come from a pre-tax IRA, would not be
taxed when transfered, and would not be a burden.
I wrote 3 spreadsheets based on earning 1%, 2%, and 3% on this amount,
while withdrawing $220/month from my IRA and paying 10% tax on the
withdrawal. The "break even" times (when the $22,817.90 is gone) vary
from about 8 years/3 months to 9 years.
Does this purchase sound like a good thing to do?
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Posted by Dave Dodson on January 22, 2010, 9:39 am
> The purchase would cost $22,817.90 and would initially increase my
> monthly income by about $220/month for the rest of my life.
> Additionally, there is an annual variable COLA that typically runs
> anywhere from zero to 3% depending on the whim of the state
> government. The funds would come from a pre-tax IRA, would not be
> taxed when transfered, and would not be a burden.
>
> Does this purchase sound like a good thing to do?
Go to an annuity quote site that offers inflation-adjusted fixed
annuities, such as
http://www.aigretirementgold.com/vlip/VLIPController?page=RequestaQuote,
and get a quote.
Just putting in guesses for your birthdate, state of residence, etc.,
it looks like your $22,818 might buy you about $100/month in initial
income. Since your pension plan offers considerably more, it looks
like a good deal, at least in the current interest rate climate.
Dave
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Posted by rick++ on January 22, 2010, 10:47 am
> The purchase would cost $22,817.90 and would initially increase my
> monthly income by about $220/month for the rest of my life.
> Additionally, there is an annual variable COLA that typically runs
> anywhere from zero to 3%
Nobody offers close to 12% a year, especially with COLA.
Go for it.
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Posted by Yadda on January 26, 2010, 5:07 am
on 1/22/10 9:47 AM rick++ said the following:
>
>> The purchase would cost $22,817.90 and would initially increase my
>> monthly income by about $220/month for the rest of my life.
>> Additionally, there is an annual variable COLA that typically runs
>> anywhere from zero to 3%
>
> Nobody offers close to 12% a year, especially with COLA.
> Go for it.
>
What was the T-Bill in May 1981? 15%
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Posted by Bill on January 26, 2010, 10:16 am
Yadda wrote:
> What was the T-Bill in May 1981? 15%
What does that have to do with the return he can get today? Rates were
high in 1981 due to inflation. Since his pension includes a COLA any
increase in inflation should be compensated by the COLA and is
therefore irrelevant. Any way you evaluate it the pension buy-in looks
like a great deal.
--
.Bill.
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