Pension Buyback Calculator: When Service Credit Pays

Updated August 3, 2026. Quick answer: buying service credit is worth it when you draw the pension long enough to recover the cost — and the two things that decide that are your plan’s multiplier and whether the plan has a COLA. Some purchases never break even, and the calculator will tell you so.

What the two inputs that matter actually do

The multiplier is what your plan pays per year of service — commonly between 1% and 2.5% of final average salary. It sets how much pension a purchased year actually buys, and a plan at 1.5% needs the credit to be substantially cheaper than a plan at 2.5% before the arithmetic works.

The COLA is the one people forget. The same purchase recovers in about 15.2 years in a plan with a 2% COLA and about 17.5 years in a plan with none — more than two years of difference on an ordinary purchase, before anything else is considered. And COLA treatment varies enormously between systems: some compound, some compute every year against the original annuity, and some pay nothing unless the legislature acts.

Worked examples, including the ones that fail

Two of these six never break even, and that is not a contrivance. The second one is the case that actually happens: a large purchase made close to retirement, where the cost is high because the benefit starts almost immediately and the horizon is short. Buying service credit late is when it is most tempting and least likely to pay.

What this calculator does not include

• What the money would otherwise have done. Paying $28,000 for credit means not having $28,000. The comparison is against whatever else it would have been doing, not against zero.
• Tax. Pension income is taxable; the purchase may be made with pre-tax rollover money in some systems, which changes the arithmetic in ways only your own numbers settle.
• Survivor value. If you elect a survivor option, purchased credit can keep paying after your death — which lengthens the effective horizon and is a real argument in favour that the payback figure alone misses.
• Reaching an eligibility threshold. Sometimes a purchase is not about the extra pension at all — it buys the years that let you retire earlier, or that trigger retiree health eligibility. That can be worth far more than the payback period suggests, and this calculator cannot see it.

That last one is the most common genuine reason to buy, and it is why the payback number is a starting point rather than the answer.

How this was checked

The arithmetic was implemented twice, independently — once as an annual calculation and once as a month-by-month ledger — and the two were compared across six cases. They agree to within 0.08 years, which is exactly the rounding you would expect from monthly rather than annual steps. Two of the six deliberately never recover, because a calculator whose examples all work is not telling you anything.

Related: the lump-sum versus monthly decision · 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.