Author Topic: Buying Creditable Service State Pension System  (Read 2031 times)

rageth

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Buying Creditable Service State Pension System
« on: January 20, 2016, 03:05:33 PM »
Hi all,

I'm just wondering if anyone has had any experience with buying creditable service through their state pension system?  I a teacher in Wisconsin, and I've been looking at ways to retire earlier and I found that one can buy creditable service for their pension through the Wisconsin Retirement System Employee Trust Fund (WRS ETF).  Has anyone had any experience with this or something similar in another state?  Is it worth it?

I'm only 3 years into my teaching career but if I want ER to become a reality, I need to plan and create structures to make it a reality now.

Thanks!

Rural

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Re: Buying Creditable Service State Pension System
« Reply #1 on: January 20, 2016, 04:03:27 PM »
Hi all,

I'm just wondering if anyone has had any experience with buying creditable service through their state pension system?  I a teacher in Wisconsin, and I've been looking at ways to retire earlier and I found that one can buy creditable service for their pension through the Wisconsin Retirement System Employee Trust Fund (WRS ETF).  Has anyone had any experience with this or something similar in another state?  Is it worth it?

I'm only 3 years into my teaching career but if I want ER to become a reality, I need to plan and create structures to make it a reality now.

Thanks!


We may buy enough to get my husband vested in ours, but a couple of caveats here:


  • He's almost vested and the purchase would make the difference.
  • He's eligible for extremely cut rates because he can buy credit for years of active duty military service
  • We've set aside the money pretax in a 457 and can roll it over tax- and penalty-free because he's separated from service
  • He loses all the employer match and years of gains if he takes cash out instead
  • The state pension fund is in good shape
  • We still will not do it if he gets another pension-eligible position before the five-year window to purchase closes.

I would not pin my hopes on Wisconsin just now, but you can find out the details, How long to vest? Can you even use purchased years to get to vesting? What would it cost (roughly)? Can you find a way to use pretax money?


Then I'd have a long, hard look at the state of the pension fund. Then I still wouldn't do it until I was ready to leave.
« Last Edit: January 20, 2016, 04:06:42 PM by Rural »

mustachianteacher

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Re: Buying Creditable Service State Pension System
« Reply #2 on: January 21, 2016, 06:17:06 PM »
Fellow teacher here, and I've considered the same, but we are not allowed to use purchased credit to reach the vesting threshold. Definitely research that issue.

What about this? Work X years toward retirement while you diligently sock away your own money in a 403b or IRA, or both. As you near your retirement date, do the math on how much in annual income that purchase of an extra year (or more) would get you. Evaluate and decide.

Another option: Work X years toward retirement while you diligently sock away your own money in a 403b or IRA, or both. If your pension uses your age as a factor in determining your pension benefit (ours does), save up enough money that you can defer claiming your pension as long as possible. In my state, for example, waiting from age 55 to 60 without adding extra years of service results in a 36% increase in the pension benefit. So, if I stop working at 55 and just live off my savings until age 60, I am rewarded with a payout that is 36% higher than if I had claimed retirement at age 55. Amazing! It's like being rewarded for having my own savings, and it doesn't cost me a dime.

I think it's great that you're thinking about this early in your career. I did that as well, and I'm glad I did because it makes a huge difference in the long run. I have many teacher friends who rely solely on the pension for their retirement, and I find that sad and worrisome. They're 100% stuck until they can afford to retire on what the pension will offer them. Scary.

If you're doing this planning because you are feeling burnt out already, though, hang in there. I found the first 5 years to be brutal and exhausting. I'm in my 17th year now, and it gets much, much easier as you go on. I find teaching so much more enjoyable now than I did, say, ten years ago, and I did not expect that. I thought it would get more annoying or more boring, but nope -- it's gotten easier and a lot more enjoyable.

MrsPete

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Re: Buying Creditable Service State Pension System
« Reply #3 on: January 22, 2016, 07:16:35 AM »
I'm a teacher too, but in my state you can only buy "service years" if you were an employee who was "away" for a time period.  For example, if you were an employee but took off a semester to have a baby -- but were always "on the rolls" during that time, just not receiving a paycheck /not contributing to the pension fund -- you could "buy back" that semester.  Or if you were a National Guard person who was called away for a year, you could "buy back" that year.  You cannot just decide that you'd like to be 5 years closer to retirement and buy 5 years. 

I think it's also fairly expensive.  I only know one person who's done it. 

The right answer for you is simple:  Check into it with your own state so you'll know what your options are. 

Working away from your actual question, here are some suggestions from a fellow teacher: 

Ours is a career in transition.  I'm much further down the road than you are, and my generation has definitely been surprised by these changes:  We "bought into" this career believing that we'd have a low paycheck but good benefits and a secure modest retirement -- well, the paycheck has remained low, but the benefits have been whittled away ... and we're looking at BIG changes in the retirement soon.  Those of us who are "old timers", who are fully vested in the program, we're fine.  But next year --  or maybe the next? -- our state is leaving the defined benefit program for a defined contribution program ... which means our newest teachers are no longer going to be in the pension program.  As a young teacher, this should concern you:  If you change districts, or if you take a leave of absence and disconnect yourself from the system ... you'll come back in under the new program, meaning no pension. 

Again, ours is a career in transition.  When I started teaching, I never imagined anything except standing in front of students in my own classroom.  Now I am teaching "blended classes", which means my students are with me one day ... and the next day they're at home working on lessons I designed /placed on the internet.  Other teachers are teaching online classes, and they've literally never laid eyes on their students.  I'm not convinced these are in the student's best interest, but they are the way of the future.  And that doesn't even touch the concept of charter schools.  Options exist for you that I couldn't have imagined when I was your age -- and as a young teacher, you need to ride the wave of these changes -- me, I have one foot out the door and don't care to embark on something entirely new.  You might find some of these easier than a traditional career. 

One last thing:  In my experience, about 2/3 of all teachers don't really think much about retirement.  Rather, they seem to think, "I have my pension.  It'll all work out for me."  You're wise to be in the 1/3 that is planning.  Teaching has definitely been a good financial choice for me; partially because my husband has a completely different job, and our jobs compliment one another well -- he earns more money but has less security; my work schedule saved us thousands in after-school care and summer care, and has greater security. 

rageth

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Re: Buying Creditable Service State Pension System
« Reply #4 on: January 22, 2016, 07:49:08 PM »
Thank you everyone for all of the awesome advice.  I had wanted to call the Wisconsin Retirement System since I had no school, but they were closed, and fellow teachers know that making a phone call during the 30 minute lunches is near impossible.  I definitely have a lot of things to think about.  I can let you all know once I've had a talk with the pension system.

Ours is a career in transition.  I'm much further down the road than you are, and my generation has definitely been surprised by these changes:  We "bought into" this career believing that we'd have a low paycheck but good benefits and a secure modest retirement -- well, the paycheck has remained low, but the benefits have been whittled away ... and we're looking at BIG changes in the retirement soon.  Those of us who are "old timers", who are fully vested in the program, we're fine.  But next year --  or maybe the next? -- our state is leaving the defined benefit program for a defined contribution program ... which means our newest teachers are no longer going to be in the pension program.  As a young teacher, this should concern you:  If you change districts, or if you take a leave of absence and disconnect yourself from the system ... you'll come back in under the new program, meaning no pension. 

Again, ours is a career in transition.  When I started teaching, I never imagined anything except standing in front of students in my own classroom.  Now I am teaching "blended classes", which means my students are with me one day ... and the next day they're at home working on lessons I designed /placed on the internet.  Other teachers are teaching online classes, and they've literally never laid eyes on their students.  I'm not convinced these are in the student's best interest, but they are the way of the future.  And that doesn't even touch the concept of charter schools.  Options exist for you that I couldn't have imagined when I was your age -- and as a young teacher, you need to ride the wave of these changes -- me, I have one foot out the door and don't care to embark on something entirely new.  You might find some of these easier than a traditional career.

That is definitely something I have heard from my colleagues and my parents even who work in the school systems in non-teaching roles.  My current plan is to try to sock away as much into my 403(b) as possible without living in complete squalor to try to not have to rely on the pension system at all if possible.  Ideally, with my current plan for 403(b) contributions, I'd like to retire no later than 52 and live off my own personal retirement funds until 55 when I become eligible to claim my pension (in my state).  Kids (at some point) and my wife may force me to change plans because I will always be the main breadwinner with my wife's chosen career.