Q: Buying non-contributory service in a defined benefit pension plan is a no-brainer when you’re young, but how about near retirement? I can purchase 6 months of non-contributory service for $8,000. It will take 11 years after retirement to break even, with $60 added to my monthly pension. I’m 56 and hope to retire at 62. Is the buyback worth it? —Wanda Davis, via emai
A: Pat Johnston is a Principal at Pension Strategies Inc., in Calgary. He says you need to know how the pension will be paid. Is it for your lifetime only? Or your spouse’s too? Second, if your life expectancy might be less than “standard,” the value of the added pension would be reduced. Estimated investment return and income tax rates also come into play, complicating the math even further. Then there is the psychology. Johnston recommends that you think about the “value you put into the comfort of the additional income security, regardless of how long you live.” That alone might be enough to push you in one direction or the other.