How to read the result
Each year of service you buy adds your multiplier times your final average salary to your yearly pension. With a 2.2% multiplier and a $72,000 average, two years add 4.4% of $72,000, which is $3,168 a year or $264 a month. If the price is $24,000, the extra pension pays that back in a little over seven and a half years of retirement.
The payback period is the quickest test. A payback under ten years is usually a good deal for someone retiring in their early sixties, because the pension keeps paying for life and often rises with COLAs. The "invested instead" figure is a second check. It shows what the same money could pay you if you invested it yourself and spent it down by your chosen age. When the pension amount is clearly higher, buying wins, and you also skip the market risk.
Things the calculator cannot see
Purchased years can push you over a Rule of 80, a 30-year mark or a higher age factor. When that happens, the benefit jumps by more than the formula for the purchased years alone, and buying becomes far more valuable. Use the pension estimate with and without the extra years to see the full change. Prices also tend to rise each year as your salary grows, so if the numbers work, buying sooner is usually cheaper. Our service credit guide covers the common types and how plans price them.
Questions
What kinds of service can I buy?
Common types are out-of-state teaching, military service, approved leaves of absence, years in a private school, and service you cashed out when you left a job earlier. Each plan has its own list and its own price rules.
How is the price set?
Some plans charge your contribution rate times your current salary for each year. Many now charge the full actuarial cost, which is what the extra benefit is worth, and that can be several times higher. Your plan quotes the exact price.
Can I pay with my 403(b) or 457(b)?
Most plans accept a direct trustee-to-trustee transfer from a 403(b), 457(b) or IRA, which avoids tax on the money moved. Many also allow payroll deductions over several years.
Does buying service help me retire earlier?
Often, yes. Purchased service usually counts toward Rule of 80 or 30-year milestones, which can remove an early-retirement cut. That can be worth much more than the extra years in the formula, so check both effects.