Would you purchase additional pension credit for an 8% return?
When I retire this year, I will have a teacher pension of 40K a year. I have about 2 million in retirement accounts, so I am thinking of using some of that to purchase additional pension credit. I can purchase up to 4 years of pension credit at a cost of 24426 per year purchased which results in 167 more per month per year purchased. So buying four years would cost 97666 and result in 669 more a month/8028 more a year. Compared to a similarly priced annuity, this seems like a good deal.
This is about an 8% return with a breakeven of 11.9 years.
Considerations:
1. Pension goes up about 1% a year and is taxed like regular income.
2. I could pay this 97K straight from my IRA/401k, so no immediate taxes. This is also appealing because I am heavy in traditional retirement accounts.
3. There is an opportunity cost of not leaving the 100K invested in the market.
4. There is a loss of flexibility in tax planning for things like rolling over to Roth
5. That money is "gone" once the purchase is made, so there is a flexibility lost of not having that 100k available for an emergency
6. I might die before the breakeven point
7. I am not married, but if I am when I retire, I could pass 50% of this pension on to my surviving spouse for the rest of their life, or 100% with a 6% monthly reduction in my pension pay out.
8. Anything else I am missing?