Should I buy additional retirement credit?

[Rico911]

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.

[yzErnie]

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.

[M&P40FAN]

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!

[TurboChrisB]

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.

[winnre]

I can buy 11 months, at a torrential cost of about $25k, all for about 5% more retirement. Not worth it.

[9mmepiphany]

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.

[yzErnie]

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.

[MarineJohn]

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.

[jgorman]

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.

[Spanky8601]

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.

[9mmepiphany]

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

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

[mixicus]

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.

PM sent

[Rico911]

Thank you for your feedback, going to pull the trigger Monday.

[fullrearview]

Buy it. The only way you will regret it is if the whole damn thing collapses... Then, you'd wish you bought more bullets!

[TrailerparkTrash]

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.