Consider Buying Additional Service Years for Retirement!

One of the lesser known facts of financial life is that many public and corporate pension plans allow their employees to purchase additional years of service credit…sometimes at bargain rates. This means, for example, that for an up front lump-sum payment a teacher with 20 years service might buy 5 additional years and thereby qualify to retire early.

The cost of buying service years can vary greatly from plan to plan. A dwindling number require only a fixed dollar payment for each year purchased regardless of age; most plans have an actuary compute the cost based upon the employee’s age, income and other variables. In either case, it is worthwhile to learn about the options. Although up front costs are steep, you may find that financing the purchase of service years through a home equity loan or line of credit is a sound investment. Bear in mind you are looking at the purchase of an annuity: in exchange for an up front lump-sum payment, you are promised a steady stream of future payments.

One plausible scenario might be: you purchase service credits with a HELOC loan and retire, a portion of the retirement pension is dedicated to loan repayment, and you go to work at a second career of your dreams!

Also, look into other non-pension benefits you may qualify for by purchasing additional service credits. Some employers base retiree healthcare benefits on the number of years of service. Purchasing additional service credits may qualify you for valuable benefits you might not otherwise be eligible for.