Should you buy back pension service from your employer? Jun 22nd

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While defined benefit (DB) pensions are the Cadillac of retirement plans, they also entail a unique set of decisions. Buybacks are one of them.
There are a few ways to build up the value of your DB pension: by working to accumulate years of “pensionable service,” of course; by transferring service you earned from a previous job to your current plan upon retirement; and through buybacks, which are basically what they sound like—you purchase periods of service to add to the total years used to calculate the value of your DB pension.
DB pensions provide a fixed future income base based on a formula for final/highest average earnings and an interest rate for accumulated years of service. According to Matthew Ardrey, vice-president of Toronto-based TriDelta Financial, a pension buyback affects the years of service part of that formula. Each year you earn, or buy back, has a multiplier effect on the overall pension. “[It’s] evident why someone may want to do the buyback,” says Ardrey, “as pension plans reward employees with longer service…

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