Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated August 3, 2026. Quick answer: buying service credit is worth it when you will draw the pension long enough to recover the cost, when it reaches an eligibility threshold you would otherwise miss, or when a survivor will keep drawing it. It is usually not worth it when bought late, at a cost that reflects a benefit starting almost immediately.
More on public pension systems, topic by topic: Massachusetts retirement late entry and make-up payments and Massachusetts teacher out-of-state service credit.
More on public pension systems, topic by topic: Arkansas LOPFI service credit purchase.
More on public pension systems, topic by topic: UCRP service credit purchase and South Carolina PORS purchasing service credit.
More on public pension systems, topic by topic: Illinois SURS service credit.
More on public pension systems, topic by topic: Arkansas ATRS purchasing service credit.
More on public pension systems, topic by topic: Ohio SERS purchasable service credit.
More on public pension systems, topic by topic: North Carolina LGERS service credit.
More on public pension systems, topic by topic: Maine PERS service credit purchase.
More on public pension systems, topic by topic: Nevada PERS service credit purchase.
More on public pension systems, topic by topic: Montana PERS purchase of service.
More on public pension systems, topic by topic: NHRS purchasing service credit.
More on public pension systems, topic by topic: PA SERS purchasing service.
More on public pension systems, topic by topic: NJ PFRS service credit purchase.
Put your own numbers through the CalPERS formula: CalPERS retirement calculator.
The arithmetic, then the exceptions
A purchased year is worth your final average salary times the plan multiplier, every year for life. At a 2% multiplier on an $80,000 salary that is $1,600 a year. If the year costs $28,000, you need about seventeen and a half years of pension to get your money back — and rather less if the plan has a COLA. The calculator runs your own numbers, including the cases that never recover.
The COLA changes the answer more than people expect. The identical purchase recovers in about 15.2 years in a plan with a 2% COLA and about 17.5 in a plan with none. And COLA treatment is not a detail that varies slightly between systems — it varies enormously:
| System | How the COLA works | What that means |
|---|---|---|
| Ohio PERS | CPI-linked but not compounded | every increase is computed against your initial annuity, forever |
| TRS Illinois (Tier 1) | 3% compounded | the most generous of the group — and the plan offers to buy it off you |
| TRS Illinois (Tier 2) | lesser of 3% or half CPI, not compounded | same system, materially weaker terms for later hires |
| TRS Georgia | conditional — in its own words, COLAs “are not automatically granted” | subject to a semi-annual test; not something to assume |
| PSERS (Pennsylvania) | ad hoc — only when the legislature acts | Act 21 of 2026 granted 15–24.5%, but only to those who retired on or before 1 July 2001 |
That PSERS line is worth sitting with. A member who retired in August 2001 received nothing from an increase their colleague of a month earlier received in full. Where a COLA is ad hoc, the honest planning assumption is that there will not be one, because there is no mechanism entitling you to it.
The three reasons to buy that the payback figure misses
- Reaching an eligibility threshold. This is the most common genuine reason. Buying a year that lets you retire earlier, or that triggers retiree health coverage, can be worth far more than the extra pension itself. The payback arithmetic cannot see it.
- Survivor value. If you elect a survivor option, purchased credit keeps paying after your death, which lengthens the real horizon.
- Vesting. If you are short of the vesting line, credit that carries you across it is the difference between a pension and a refund of your own money.
The reason to be careful
Cost is usually set on an actuarial basis — roughly, what the plan thinks the extra benefit will cost it. That means the closer you are to retirement, the more it costs, because the benefit starts sooner and runs for the same life expectancy. So the purchase becomes most expensive at exactly the moment it becomes most salient. Late purchases are the ones most likely never to recover.
What to check in your own plan before deciding
- The multiplier that will apply to the purchased year — in tiered systems it may not be the one you assume.
- Whether the purchased credit counts toward eligibility as well as toward the benefit amount. In some systems it does not, which defeats the vesting argument.
- The COLA class that will apply to you, by tier.
- Whether the purchase can be made with pre-tax rollover money.
Every one of those is answered in your own system’s member handbook, and the answers differ by tier within a single system. It is not a question that has a national answer.
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Source: WiserAdvisor’s service descriptionRelated: the buyback calculator · lump sum versus monthly · the federal equivalent for military service.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month – never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.