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Public Pensions: Nice Deals If They Can Be Delivered

Thursday, May 16, 2013 - 6:29 PM
Q&A for those dealing with public pensions:

       Q. I am facing a difficult retirement funding decision. I
       am a 52-year-old municipal employee. I’m vested in a
       defined-benefit plan. It will provide me a lifetime annuity
       beginning at age 62.  I have the option of purchasing an
       additional five years of service for about $75,000.  This
       will bump my monthly annuity at 62 up by $1,200 a month,
       which seems like a really good deal. What bothers me is that
       I have to rob my 401(k) for the $75,000. That means I have
       to give up its potential market growth for 10 years.  How
       would you suggest doing a comparison of these options?
       —J.A., Austin, TX

       A. [...] What you can be certain of is that anyone who is
       given the opportunity to buy years will be very tempted to
       do it: the retirement income offered is looking better by
       the day. This means further stress on the pension fund and
       more pressure on pension managers. It also means you're
       supposed to believe that the folks who haven't been able to
       make 7.5 percent in the past can make 11.88 percent over the
       next 10 years. That turns what you've been offered into a
       pretty risky bet.

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cumuluscumulus297 posts since
Jan 16, 2010
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