I have the opportunity to buy back pension contributions and/or time in my Government Defined Benefit pension. These are the three purchases I can make (which would be done by simple transfer from my existing RRSP - currently in high-MER mutual funds). I'm having a tough time figuring out if all, some or none of these options are worth purchasing. Is it likely I'll be better off leaving my RRSP where it is? Help me try to decode this, mustachians! I am currently 34 years old, and will be entitled to an unreduced pension at age 57.
(Pensionable Service is used to calculate the amount of benefit I would receive and Contributory Service is used to calculate when I am entitled to a full pension)
Option 1:
Cost: $3085
Gain: 7.75 months of Pensionable Service and an extra $55 per month for life
Option 2:
Cost: $2635
Gain: 6.6 months of Pensionable Service, 7 months of Contributory Service and an extra $46 per month for life
Option 3:
Cost: $1574
Gain: 1.8 months of Pensionable Service, 1 month of Contributory Service and an extra $13 per month for life
Total to buy all 3: approx $7300 for the ability to be eligible for an unreduced pension 8 months sooner, and a gain of approx $100 per month for life
What say the mustachians? By what measure should I be weighing each of these options?
Many, many thanks for any advice!
Not sure if I understand the question. I bought back pension time so that I wouldn't be required to work it at the back end. When I started work as a full time/part timer, I got an hourly rate and did not contribute to the pension.
When I became full time, I got a contracted salary and began contributing to the pension. I was then offered the ability to buy back that hourly time and add it to pensioned time, so instead of having to work a fresh 25 years from getting contracted, I would only need 24 and change.
So the buy back was really going towards hitting the 25 year maximum benefit.
So for clarification, are you trying to hit a certain number of years in, or like a previous poster responded are you just trying to nail a high enough salary to base the final retirement on?
If the buy back is for time served, do it now while its super cheap. If you try that at the end the costs are enormous. I watched another employee buy back almost 2 years at the end at a cost of 60k+ then spent the next 5 years drinking himself nearly to death.
My advice is to buy the time ASAP especially if it counts towards vesting time.