for $4,500 a year for the rest of your life and in the likelihood your spouse outlives you it continues on the rest of her life.
I can buy time toward my pension. It would increase my pension payout by $4,500 per year.
If choose to buy I will be able to walk at anytime I choose and it will guarantee me being done in 4 years instead of 6.
Or would you just leave it in your 457 account?
If I don’t buy I can’t walk for another 2 years and will likely work 6 more.
Only rub is if I become disabled prior to retirement the money essentially would have been for nothing because our disability retirement is a different calculation and does not factor in time purchased.
Our pension is very very healthy, actually the best in the state and most of the country. My take home pension will be essentially equivalent to what my working take home will be at time of retirement and I will be 44 and only have to work at my leisure.

Should have bought the day I could have and it would have cost $20k and doubled that amount. But that was a long time ago and getting hurt/disabled had many many more years to happen and coming up with $20k that had no effect on daily finances was not possible.

Well almost impossible to answer without knowing your complete situation financially, health factors etc. However I had to make a similar decision a few years ago. For me it came down to the fact my wife didn’t have a great job or pension so if I passed on she would get 75% of my pension.
I decided to buy the 4 years I could buy so she would get more money monthly in the event of my demise. Thankfully I have collected long enough after retiring from that job to be even with the investment. Now it’s gravy for us both live or die.
Your situation may be different of course. Best of luck in deciding and executing.
Mike

I think I would buy it down. It gives your wife an increased payment if she outlives you and it gives you an option for an earlier retirement. Both add to current peace of mind.
It's similar to having to choose "Single" or "Joint Annuity" options on a pension pay out. I chose the lower option that guaranteed my wife that full amount for the remainder of her life. Gave her peace of mind and since her mom is still kicking at 104 the annuity company will likely end up paying out much more over the contract.

The key here for me, were I in your situation, would be earlier retirement. The additional later income for my spouse would be a bonus. If it were financially feasible, and health was not an issue, I would buy down without hesitation.

Inflation kills every thing.

Health wise I have no real issues and my family tends to live well into their 90s and even 100s.
Financially, I have plenty to cover the 40k in a 457 account that I can roll to the pension buyout with no penalties, taxes, fees, or repayment requirements. I’ll continue to fund that 457 as I do now and when I retire. I’ll have a 2nd income that will fund even more to that account. In all reality that 40k will be paid back in 3 years at most once I retire. So essentially 7 years at most if I buy now.
So financially I don’t really think I will notice it. 7 years of interest earned on 40k is all I really see loosing but expect that $4,500 a year for life would exceed that interest earned if I just leave it planted.

Without knowing all the details about your pension and disability payouts the simple math favors buying time as a prudent option. If you stay healthy it shouldn't be hard to calculate a breakeven, even after accounting for time value of money lost on the $40k to buy time. If it were me I would also be interested in the taxation for each scenario and how it fits into your household income. It's a commonly overlooked factor and at the end of the day what matters most is what you're able to net after taxes. The breakeven analysis should reflect post tax dollars.


If you're concerned about the disability aspect I'd look into private standalone disability policies that pay out separately from whatever your department will pay. It is a more expensive option but will give you peace of mind and will offer greater financial security should you need to use it. Just my $0.02.

Taxation at least by current tables are favorable to the purchase because the $4,500 would be taxed as retirement income which is lower than what I am paying in standard income tax.
If I just keep it in the 457 my understanding is it will be taxed at a higher capitol gains tax when I withdrawal it way down the road, since the 457 is a pretax investment.

I already have a separate longterm disability policy.

I spent 20k to retire a year early by converting a year’s worth of sick time in addition to the buyout. I rolled over the 20k from deferred comp penalty free.

It was probably the best decision I ever made.

I secured a full time position at a better job with a tenth of the stress. I make more than I did at the LE gig with none of the risks. I chose the option where my wife gets 100% upon my demise.

Never been happier nor as financially sound as we are now. My new job pays into a 401k and I e already “made” about 1/3 of the 20 I spent a year ago.

There was no “downside” other than the loss of the company ride but I don’t miss that thing sitting in my driveway.

Regards.

457 distributions are taxed as ordinary income. Not cap gains. Assuming age requirement met.

So 40k now for 4500 a year starting in 4 years ? I’d have to back into some math for the opportunity cost over the next 4 years but assuming you live 40-50 more years yeah I’d take that deal. If you can’t pull this till your 60 or 65 and it will only give you same 4500 I’d have a different answer

So, if I did my math right, after 4 years of a 5% return, your 40K is roughly 48.5K

So, you get a roughly 9% return, at that point, without any adjustment for inflation.

I’m not sure that it makes sense.

I assume the disability factor only extends while you are actively working in your current job, that is, if you retire THEN become disabled, it would have no impact. If that is true, I would definitely buy out your time and get out at as early an age as possible. I retired at 50, and worked another 13 years as a contractor in a related field, and was able to pack a bunch into a 401k and an IRA while putting a child thru a fairly elite college.

Yes, I'd do that. Earlier retirement and increased benefit. Either one is a win, and together, is a slam dunk.

quote:

Originally posted by Black92LX:


I already have a separate longterm disability policy.

Does it pay in conjunction with other disability benefits or as a standalone payout?

Example: You're disabled and your employer's disability policy pays 70% of your salary for X period of time. You have a separate policy that pays 70% in conjunction with other policies meaning the 2nd policy pays nothing because the 1st policy already pays 70%. Now if the first policy pays 50% then the 2nd policy would pick up the difference for the specified benefit period.

A standalone policy would pay the terms of the contract regardless of what the other disability policies are paying. This is the type of policy that would protect from financial loss if you were disabled before you hit that 2-6 year mark because whatever disability payout you get (essentially losing out on the bought time) you can supplement the disability income with a standalone policy to equal what you would have gotten had you not been disabled.


As for the taxation of the 457 income vs retirement income, that's a no brainer if the $4500 is more tax favorable.

Yes, disability is only when working. I think a couple folks have gone out on years of service and had an old documented duty related injury degrade in a way that they became disabled because of it and they were able to switch to a disability pension status after a bit of a legal battle. Few and far between there.

It is a supplemental/conjunction policy.
Our disability is 50% or 60% based upon level of disability. My policy takes that to 85%.

Yes

If you are generally healthy and have longevity on your side, I say yes. If you collect on this for 30 yrs, 40,000 turns into 135,00.

I think I’d do it. I agree that the ability to walk away anytime would be worth it. More money, ability to retire early, and the money to buy those years isn’t needed at this point are the 3 things that I’m looking at here. I wish I could buy years of service. If I remember correctly Im in the same system as you but I started in 2007 so I can’t buy time.

quote:

Originally posted by cooger:
I think I’d do it. I agree that the ability to walk away anytime would be worth it. More money, ability to retire early, and the money to buy those years isn’t needed at this point are the 3 things that I’m looking at here. I wish I could buy years of service. If I remember correctly Im in the same system as you but I started in 2007 so I can’t buy time.

Different system.
We are completely our own system with our fire department.

quote:

Originally posted by Black92LX:

quote:

Originally posted by cooger:
I think I’d do it. I agree that the ability to walk away anytime would be worth it. More money, ability to retire early, and the money to buy those years isn’t needed at this point are the 3 things that I’m looking at here. I wish I could buy years of service. If I remember correctly Im in the same system as you but I started in 2007 so I can’t buy time.

Different system.
We are completely our own system with our fire department.

Ahh ok.

I don’t know your plans for retirement but Buying the time and being able to walk away any time would allow you to jump on a job should one open up. Several firefighters around here have taken good industrial safety jobs after retirement and with the new factories and supporting industries coming to the state it could be something to consider.