Purchasing Service Credits
Often it makes good financial sense to purchase Service Credits for qualifying experience
in other venues. Informed analysis can provide confidence in your decision either way.
An Example Will Help:
Computing the price to purchase each year of Service Credits is simple. And eye-opening.
Essentially, you multiply your highest annual PSRS salary on record by the sum of both
halves of the contribution to your pension plan (12.0% by the PSRS and 12.0% by you totaling
24%). So, the cost per year of purchase:
AAs of July 1, 2010 the percentage increased to 28%(14.0% each).
On a highest annual salary of $50,000 the cost is $14,000. On $75,000 the cost is $21,000. On $100,000 the cost is $28,000.
Of course, an obvious conclusion to draw is that it requires a great deal of money to afford to
pay you your pension over the years (maybe two decades, three decades, or more). This reinforces
the basic concepts of Pension Maximization:
- It takes a large pot of money for the PSRS to keep its promise to pay you year after year;
- There is a sizeable cost also to the promise to pay your survivor (if your spouse outlives you);
- The cumulative amount to be paid to you/your survivor is likely to be high six figures to lower seven figures;
- The cumulative cost paid by you in the form of pension reduction is likely to range from $100,000 to $500,000, and for many, much more. You forfeit this entire amount; there is no cost recovery;
- The death of either or both of you "too soon" leaves a very large sum "on the table". It reverts to the PSRS, and does not go to those you love.