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Universal Buy-In – The Michigan School Retirement System

Written By: Gary on August 19, 2008 One Comment

So the school system in the State of Michigan has an option as part of it’s retirement plan. You can actually “purchase” up to five years of work (called Universal Buy-In) and then then when you have twenty-five years of work into the system it actually counts as thirty so you can retire five years early. Now it’s a convoluted formula based on your age, your maximum salary and how many years you have in the system; so the younger you are and the least you make they cheaper it is. Plus, they’ll take the money out of your check pre-tax dollars so you can get into this deal for as about $35 less every two-weeks (that’s $50 pre-tax). When I got in on the deal the plan was better, now they charge you interest on what you owe, so now you’re better off paying it off fast, before you had to spread it out. (Warning: if you’re bored now, the post really doesn’t get much more interesting. The part in bold near the bottom is the slightly/semi-interesting part that caused me to write this post.)

Ors logoI recommend this plan* to people who are in the Michigan retirement system and I always mention it to the new teachers at school. The younger you are when you start the cheaper this will be; I don’t want to hear you say you can’t afford it, you can start this at about $17 a week, that’s not that much and it should really pay off in the long run.

In my case, I didn’t hear about it until I had been in the system for a few years so it wasn’t cheap but since I knew I’d get five extra years of retirement payments so it seemed like a deal to me. I had it spread out evenly over the years I had left so it’s been getting paid down slowly.More details: If you leave the system (aren’t employed for a while by this system) they credit the years you’ve paid for and if you come back they’ll redo the above calculation with you being older, making more, having more years in system and factor in interest. This didn’t sound like such a good deal to me. Also, If you don’t actually work the 25 years, you have to wait until you’re sixty years old and it just increases your payment (or I think you can roll it in to some other kind of retirement).

So late last year I decided I wanted this paid off work was way too stressful late last year and I felt as if I could quit at any time, so I increased my contribution quit a bit. It wasn’t going very fast so I stopped contributing to my other IRA/403b retirement-type things and put almost all of my check into paying this off (I lived off of savings in the meantime) and eight paychecks later I was done. Hopefully, putting that much in pre-tax doesn’t goof up my exemptions come tax time.

This allowed me a few different things:

  • I don’t have to make those payments anymore.
  • I could move or take another job and not be concerned about this (if I left and wanted to pay it off it’d be one huge non pre-tax payment).
  • I could leave this retirement system for a few years and come back and this part is already taken care of.

    It was something I didn’t have to worry about anymore. I don’t like payments and since I paid it off it was something I didn’t even need to think about. I don’t even like thinking about payments, my house is really my only thing that I owe money on. Now I need to replenish the savings that I lived off of but that’s different feeling altogether…

    * I’m not a financial consultant nor do I portray one on TV (does anyone?), this is just my own thoughts on this.

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