I'll have 10 yrs service credit in my CalPERS pension in 4.5 yrs when I plan to retire at age 63. I'm considering purchasing 5 yrs add'l retirement service credit which will cost me $140,700 for $927/mo add'l pension. My CalPERS plan is 2% at 55 & upto 5% COLA. I want to pay for the "air time" with my 401k. It seems like a reasonable rate of return. My investment would be paid off after 12 yrs when I'm 75. Since both of my parents have lived to ~90 yrs, it seems all the more desireable! Yes, I might be able to get better rate of return on investment if I invested this money in the stock mrkt, but already have ~$500k invested there already. I welcome all of your comments!
Sat Mar 31, 2012 5:21 pm
oldguy Senior Member
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quote: Yes, I might be able to get better rate of return on investment if I invested this money in the stock mrkt, but already have ~$500k invested there already.
$927/m return on a $140700 investment is about 8%/yr - good. I would do it, The risk of trying to get more than 8% in the Market at when in your 70's is far too great - and the spread between the typical Market return of 11% and your 8% is too thin.
As for "paying it off" in 12 yrs, that really isn't a valid way to compare it - you are leavin out the time-value of capital. The important factor is that you are getting 8%/yr on your investment.
Do you have other sources of capital other than taking $141k from your 401k? You will need to sell about $220,000 of your shares and pay $80,000 in Fed & CA income taxes. If you have other resourecs, eg, equity in a house, that you can borrow on for 4% or 5%, that would mean that you could avoid the $80k taxes plus the $141k would keep growing in the 401k fund for a decade. Later, when you are age 70 1/2, you can sell a small bit at a time in a lower bracket.
Sat Mar 31, 2012 6:57 pm
Hydrographer1 New Poster
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No, it's my understanding that I would basically write a check to CalPERS of $140,700 immediately. However, I don't believe that I will be taxed on this until I start receiving it in the form of my pension after I retire in 4 1/2 years from now. I would be paying the capital gains on the $927/mo in the year that I receive it, in addition to any other taxes that I might have.
Sat Mar 31, 2012 8:09 pm
maimai New Member
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Fri Apr 20, 2012 10:03 am
Carmen W Member
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