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Question for the Money Doctors

Question submitted on Nov 1, 2012.

Question

I can buy extra years to add to my pension at a cost of $15,000 per year. I will take the money from a 403b account to buy three years. This would increase my benefits by $300.00 per month for life. I am 55 and eligible to retire now. I may retire at 56.5 years. my other retirement savings are about 500K. I am married and my wife has the same pension plan as I. We will receive social security. Should I buy the extra years, and why?

Answer

Without knowing your full financial picture, I can not guide you through this process. Your answer will become clear as you put together a retirement financial plan so that you know your total financial picture which will include reviewing your assets, liabilities and projected annual cashflow (after taxes) during retirement.

You probably have an idea of your life expectency based on your family's history and your health. Your plan should go out to that age and you should run your plan with and without buying the extra years to add to your pension benefit. Other considerations you should consider are 1) are there fees/taxes associated with moving money out of your 403(b) plan and 2) would you get a better investment return and lower fees by rolling the $15,000/year cost from your 403(b) to an IRA or ROTH IRA? I hope that this helps.


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