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  #1  
Old 10-16-2012, 1:26 PM
Rico911 Rico911 is offline
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Default Should I buy additional retirement credit?

To retired and active LEOs:

Should I cash in a large chunk of my deferred comp to buy Additional Retirement Credit (ARC)?

I would get to retire up to five years earlier but with a smaller deferred comp. The deadline to buy is December 31st, 2012.
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  #2  
Old 10-16-2012, 1:35 PM
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We bought 5 years for the wife. The way I look at it is this, with the unstable economy you know the amount in deferred comp could change at a moments notice....like if some jackass terrorists fly a plane into a building and you then watch your investment disappear. By purchasing the time you know what your return will be. Just my opinion but when it comes to our retirement money I tend to be a little more conservative with investments.
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  #3  
Old 10-16-2012, 3:29 PM
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Quote:
Originally Posted by yzernie View Post
We bought 5 years for the wife. The way I look at it is this, with the unstable economy you know the amount in deferred comp could change at a moments notice....like if some jackass terrorists fly a plane into a building and you then watch your investment disappear. By purchasing the time you know what your return will be. Just my opinion but when it comes to our retirement money I tend to be a little more conservative with investments.
Not only that but that's 5 YEARS OF YOUR LIFE!
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Old 10-16-2012, 3:37 PM
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My brother bought down 5 years from the RSD. He did the math and for him it was a no brainer. Figure out the numbers carefully and go from there.
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Old 10-16-2012, 3:39 PM
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I can buy 11 months, at a torrential cost of about $25k, all for about 5% more retirement. Not worth it.
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  #6  
Old 10-16-2012, 3:46 PM
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You need to see how much they want to charge you for each year and how long it will take that increase in retirement pay to pay you back what you spent.

5 years is worth 15% of your gross salary if you have 3%@50. With a base of $150k, that's $22.5k extra you'd receive a year...or $1875 each month. If they want $25-30k for each year, it would take you over 6 years to break even

It is usually cheapest to buy it back when you first get on and most expensive when you get close to retirement..

If the buyback would let you retire before a drastic change in the retirement system...like the lost of 3@50...I'd do it in a heartbeat, unless they wanted something outrageous.
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  #7  
Old 10-16-2012, 7:36 PM
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Our county is eliminating the buy back as of Jan 1, 2013. The costs are based on age, length of service at the time and rank. At the time we bought my wife's the payback was about 8.5 years but she has gotten promoted and we have had a couple of small raises in the last 6 years so the payback is now down to about 4 years. Worth every cent of it to get out at 50 and have more of your life to live without the stresses of this job. No brainer for us and very worth it.
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  #8  
Old 10-16-2012, 8:06 PM
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I looked at buying 4 years of military time and it would cost me $98,000. Not worth it at this point in my career. I looked at it back in 2002 when I hit 4 years in the dept (you had to have as many years in as you were buying) it would have run me $14,000. What chaps my hide it it would cost me less to buy "Air time" (by $600) then it would to buy my military service credit.
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  #9  
Old 10-16-2012, 8:24 PM
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I just bought 5 years and I am making payments over the next 15 years. They take the money out pre-tax. I'm paying 225 dollars a month for 15 years. I figure if I never see it then I won't miss it. With buying these years I will retire at 50 with 90%. The highest possible pay out at the earliest possible age. I'm early in my LEO career and bought time at about 7,000 a year. I had other co-workers do the math and for them it wasn't worth it.
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  #10  
Old 10-16-2012, 9:07 PM
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If you are going to buy air time, understand if you go out on an injury at say age 41, then you would get the injury settlement but not 3% per year. Plus if you purchased the air time on a time plan you still have to pay the agreement off. To get to the 3% per year you need to also be at the required age. 50 or 55 or whatever.

So, if you had 20 years and 3 years air time you would be out at 50%. The air time purchase makes sense if you are at or past your retirement age.
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  #11  
Old 10-16-2012, 9:33 PM
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Quote:
Originally Posted by jgorman
I just bought 5 years and I am making payments over the next 15 years. They take the money out pre-tax.
That makes a huge difference. Pre-tax dollars buy you more for less and it lowers you taxable income at the same time

Quote:
Originally Posted by Rico911
Should I cash in a large chunk of my deferred comp to buy Additional Retirement Credit (ARC)
Be very careful about how you do it. A direct transfer would be ideal as you are using pre-tax dollars to buy a pre-tax benefit. If you tax it out first, it could be counted as income and there could be a tax liability on the withdrawal
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  #12  
Old 10-17-2012, 7:41 AM
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See how the numbers work out for your situation. The non-number concept to keep in mind is "buying 5 years of your life" and how much is that worth. Buying 5 years could mean, leaving at 20 years on with 75% or if things get too goofy, punching out at 15 years with 60%. Now you probably can’t around the house on 60% but finding a part time or a lower-stress-something-you-like-job is a whole lot easier when the salary requirement is lower.

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  #13  
Old 10-19-2012, 9:03 PM
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Thank you for your feedback, going to pull the trigger Monday.
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  #14  
Old 10-20-2012, 12:34 AM
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Buy it. The only way you will regret it is if the whole damn thing collapses... Then, you'd wish you bought more bullets!
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  #15  
Old 10-20-2012, 12:53 PM
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I looked at buying just two years back (2% per year x2 years = 4%). LACERA wants just under $60K. I don't think it's worth it to me. It would give me an extra $385.00 per month after retirement. I'd rather use my own $60K when and IF I need it to supplement my retirement pay.

...that's just me. Everyone's different.
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  #16  
Old 10-20-2012, 4:00 PM
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I was able to buy one year of Military service a number of years ago, but it only cost me $15,500.00. It was worth it for me since I retired @ 90% at 55 years of age, but you have to crunch the numbers to see if it's worth your while. It may or may not be with the current rate.
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Old 10-24-2012, 10:04 PM
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San Berdoo Co. has various formulas for calculating buy backs.

Do it as soon as possible...cost increases exponentially as salary increases, and as you get closer to projected retirement date.

My 4 years military buy back was about 30k. 5 years of air time is running almost 205k (63k in interest. ) Unfortunately, since I was hired in my 30's, had to make up time somehow.

There is something to be said for pre-tax deduction, and "those 5 years" of my life.

Good Luck
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  #18  
Old 10-24-2012, 11:14 PM
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Quote:
Originally Posted by TrailerparkTrash View Post
I looked at buying just two years back (2% per year x2 years = 4%). LACERA wants just under $60K. I don't think it's worth it to me. It would give me an extra $385.00 per month after retirement. I'd rather use my own $60K when and IF I need it to supplement my retirement pay.

...that's just me. Everyone's different.
At one time, IIRC, it was $4K for each year, but of course that was when I first got on and we drove cars with one red light on the roof.
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  #19  
Old 10-25-2012, 7:29 AM
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I thought about it but I'm glad I didn't. Got hurt and now I'm about to retire medical. That money woulda been blown if I had done it. The odds of getting hurt working a beat seem pretty good, and if you're close to 50 and driving a desk, it seems like it would cost more.
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  #20  
Old 10-26-2012, 7:47 AM
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Bought 5 years for the wife so she could retire at 50 years old with 30 years in. Best thing we did. Money well spent for us.......... freedom with a few good years left is a blessing.
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  #21  
Old 10-26-2012, 3:11 PM
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I spent 43 grand to purchase 5 yrs last year. The way it worked out for me was that after working 25 years the ARC I purchased will increase my retirement by 9% every year. Based on my salary at the time, it would have taken me 8 years of retirement to recoup the 43K and see benefit after that. What made it better for me was that I rolled over 36K from my deferred comp which really only costed me 18K of my own money. The rest was matched by the county. The additional 7K that was lefrt over I set up as payroll deductions of 54 bucks a check for the next 10 years. So the 5 yrs of ARC actually costged me about 26K. I have since been promoted and will retire at a higher salary. As it stands now, I will recoup my 26K in a little less that 6 years. If I am lucky enough to make Lt. Before I retire, I will make my money back in just under 4 years. If the numbers work for you, you can't beet it. Its too bad that the ability to purchase additional retirement credit goes away at the end of the year for all of us.
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  #22  
Old 10-31-2012, 9:16 AM
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I used my deferred comp to buy two years of air time. Retired at 30 years total, with 27 of those years in a CalPERS agency, and the other three in a college PD. For me it was a no-brainer, especially after I did it the market took a big hit and the fund I was in reduced to about 55% of its original value.

The extra 6% I receive each month is well worth not having to worry about watching the stock markets really close.
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  #23  
Old 11-01-2012, 3:04 PM
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Well I just changed my mind after doing some research. I just faxed my contract in to buy two years worth. I'll have 90% upon retirement now at age 55. My dept never had a 3%@50 plan to begin with anyway and I've always planned on retirement at 55. 55 is a "magic" number for agencies that do not have 3%@50, so for me it was a good deal afterall

In my case, I also have enough social security "credits" to collect SS at whatever age that will be (65, 67 or 70???) However what sucks is that because I have a government retirement plan that does NOT currently pay into SS, I will be penalized and only receive about 1/3 of what the average "joe" will get. I was told that even though I've payed my full "dues" of SS taxes, I or anyone else in a similar position does NOT receive the full benefits!

How screwed up is that????? I pay taxes into SS with another side business, yet I can't collect my full benefits because i already have another government retirement! I HATE THE FEDERAL GOVERNEMENT!

Hopefully that 1/3 SS payments I'll eventually get will at least be enough to buy me some beer every month!
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