Tag Archives: buying years back

The Pension Couch: Pension Roll-Over Questions

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What should pensionable employees who leave their job before normal retirement age (NRA) do with their pension at their former employer? Should they roll the pension over into a self-directed retirement account like an IRA? Or, should they wait until NRA and collect the annuity?

These are simple enough questions, but not ones I ever had to deal with personally since my pension never accrued a value while I worked. That said, there are ways to determine the answers to these questions. But, as with many things connected to pensions, such as the Golden Albatross inflection point, it often involves a mix of math and emotion. It certainly did for one reader who had a pension roll-over question, so I made it the topic of this Pension Couch post.

For those that don’t remember, Pension Couch articles are created from lightly edited and sanitized email/message exchanges in which I answer readers’ pension questions. Names and some details have been sanitized to protect the innocent. Also, don’t forget that I speak in general about pensions throughout this post because every pension plan is different. So, make sure you research your specific plan before taking any action! Continue reading →

The Pension Couch: Pension Buyback or Freedom Buyback?

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Based on the title of this post, can you guess which article on the Golden Albatross blog has the most views? If you said The Pension Series (Part 17): Buying Years – A Case Study, then have a beer on me. I promise I’ll pay you back when I get my next US $20 royalty check from my publisher! In any case, the contest isn’t even close. Part 17 has triple the number of views than the second most-viewed post, The Pension Series (Part 3): What Is Your Pension Worth?. It’s probably as close to viral as one of my pension-related posts will ever get. Although, it did this over two years instead of two weeks. I guess that means a lot of readers have access to a pension buyback.

As I describe in Part 17, a pension buyback (aka buying back years) is a process through which pensionable workers can transfer the number of years they worked in a former pension plan into their current pension plan through a cash purchase. This allows the pensionable employee to increase tenure (in the eyes of their current pension system) when the value from their previous pension doesn’t transfer over. Therefore, it makes a pending pension annuity from the current pension plan more valuable. As a result, buying back years isn’t typically cheap. Pensionable employees with this option need to determine if the purchase is worth it.

The option to buy back years isn’t offered universally by pension plans. If you want to know more about the basics of a pension buyback, and how to calculate if it’s worth it, I encourage you to read Pension Series Part 17 if you haven’t already. Doing so will boost your understanding for the remainder of this article … and increase those view numbers even further! Continue reading →

The Pension Series (Part 17): Buying Years – A Case Study

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The Set Up

A reader (let’s call her Buffy) recently asked me if I could help her and her husband (let’s call him Angel) determine if “buying years back” from Angel’s pension would be worth it. For those of you unfamiliar with the concept of “buying years back”, it basically means under certain circumstances a worker can pay the pension fund to add years onto their final pension calculation. I only learned of the concept of “buying years” after starting this blog. Although the concept appears common in many European retirement systems, and the Canadian national system; the feature is reserved for public pension systems at the local, state, and (non-military) federal level in the U.S. The worker usually qualifies through special circumstances like prior military service (that fell short of pension eligibility), or previous participation in a separate public pension system (e.g. a teacher who moves from one school system to another).

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