How much would you pay to retire a few years earlier? Firefighters in many departments have the option to do exactly that by purchasing “service credit” for the time they spent in the military or in other public service jobs. It sounds tempting; write a check now, add extra years to your pension record, and potentially retire or enter DROP sooner with a bigger pension. But is it a good deal? In this post, we’ll break down the return on investment (ROI) math, navigate a few state-by-state quirks, and explain how buying service credit interacts with programs like DROP and your overall retirement timing.
What Does “Buying Service Credit” Mean?
Buying service credit means paying into your pension system to get credit for years you didn’t actually work in your current firefighter job. Commonly, firefighters can purchase credit for prior active military service or for time spent working in other government jobs (sometimes even in other states or municipalities). Each pension plan has its own rules.
For example, Florida’s retirement system allows firefighters to purchase up to 4 years of military service or other public employment (with some limits on out-of-state or non-public roles) to add to their pension years1. Just to be clear, you actually had to serve those four years. You’re not buying ‘fake’ time in the military. Here’s how it works:
- You already served the time (say, 4 years in the Marines before joining the fire service).
- When you join a pension system like Florida Retirement System (FRS), those 4 years don’t automatically count toward your firefighter pension.
- The system potentially gives you the option to make a one-time payment (a “buyback”) so those military years get added to your credited service in the pension math.
New Jersey’s Police and Firemen’s Retirement System similarly lets members buy up to 10 years of government or military service to count toward their pension2. The goal is to boost your pension or hit retirement eligibility sooner by crediting these extra years.
Of course, this isn’t a free lunch. You have to pay for those years, and the costs can be significant. Typically, the pension fund will charge you an amount meant to cover the additional benefit you’ll receive. This might be calculated based on your salary and contributions, or an “actuarial cost” that factors in your age and life expectancy. Some plans give a relatively affordable rate (especially if you buy the time early in your career), while others charge hefty interest if you wait.
For instance, Florida charges 6.5% interest on top of a base cost (20% of your first-year salary per year of service in some cases) for buying past service, meaning the longer you delay, the more it will cost you1.
Doing the Math: Is the ROI Worth It?
When faced with a chance to buy extra pension credit, you should treat it like any other investment – what’s the return, and how long until it pays off? The basic calculation is straightforward. Take the total cost you’ll pay and divide it by the increase in your annual pension if you buy the service credit. This tells you how many years of retirement it will take to recoup your cost from the higher pension benefit.
Say it would cost you $20,000 to buy 3 years of service credit, and those 3 years boost your annual pension by $4,000.
Break-Even Analysis Example
Don’t forget about survivor benefits. If your pension has survivor options (for a spouse), the extra $3,000 per year in the earlier example might actually be, say, $2,000 to you and $1,500 continuing to your spouse after you pass (depending on your elected option). That could slightly extend the family’s break-even timeline, but it also adds peace of mind that your investment in service credit still pays off to your beneficiaries if you’re not around.
Service Credit Break-Even Calculator
This calculator provides a simplified break-even analysis and should not be considered financial advice. Actual results may vary based on cost-of-living adjustments (COLAs), survivor benefits, tax implications, interest rates, and plan specifics. Consult a financial advisor and your plan documents before making decisions. Protection Red does not guarantee accuracy or recommend specific actions.
State-by-State Quirks
Every pension plan has its own fine print. Before you pull out your wallet, you need to know your local rules cold. Here are some quirks that vary by state or system:
Eligibility of Service Types
What kind of prior service can you buy? Most commonly, active duty military service is purchasable. Some plans also allow other government employment (even from other states or federal civil service) to be credited. For instance, New Jersey lets firefighters purchase up to 10 years of out-of-state or federal service, as long as you’re not double-dipping on another pension for that time2. Florida even allows certain periods of unpaid leave or prior public school teaching service to be bought1. Always verify which past service counts – and if there are any special requirements (like having an honorable discharge for military time).
Limits on How Much You Can Buy
Many plans cap the number of years you can add. Often it’s 4 or 5 years maximum for military service. Some are more generous (as noted, NJ offers up to 10 in some cases). A few plans used to allow buying generic time (sometimes called “air time”) even if you hadn’t actually served it, essentially letting anyone purchase up to 5 extra years out of thin air. However, those days are largely over. In California, for example, the practice of buying up to 5 years of non-qualified “airtime” service was eliminated in 2013 as part of pension reforms4.
Cost Formulas
Some systems charge only the employee contributions plus interest for the time you’re buying (essentially what you would have paid in if you’d been working then). This can be a bargain, because the employer-funded portion of the pension benefit is not being charged to you directly. Other systems (especially if they are trying to prevent unfunded liabilities) charge the full actuarial cost, meaning they want the check to cover both your contributions and the expected lifetime cost of the extra benefit. In those cases, the price tag might be tens of thousands of dollars for just a couple of years.
Cost Formulas at a Glance
- You pay what you would have contributed, plus interest.
- Employer share is not directly charged to you.
- Often the lower-cost option, when available.
- Covers both your share and the plan’s expected lifetime cost.
- Designed to limit unfunded liabilities.
- Price can be tens of thousands for a few years.
One common theme: interest. If you delay your purchase, most plans will add annual interest to the cost. The federal system, for example, lets you buy back military time interest-free if you do it within your first 3 years of federal employment. Wait longer, and interest accrues. Likewise, many state plans start the interest meter running after a certain point. The sooner you initiate a purchase, the cheaper (in nominal dollars) it will be. It can literally save you thousands to buy service credit in your 5th year on the job versus in your 25th year.
Counting Toward Retirement vs. Just the Pension Calculation
Does purchased service count toward the years of service needed to retire, or only toward the pension amount? This varies. In some plans, bought time counts fully for retirement eligibility. For example, if your plan lets you retire with 25 years of service at any age, and you have 22 actual years plus 3 purchased years, you’re done – collect that gold watch! Anecdotally, many municipal firefighter plans do count bought military time for eligibility (one firefighter on an online forum noted, “I can buy 3 years of military and retire with 22 years of fire service (as long as I am 48 years old)” in his state).
However, other plans make a distinction: you might still have to serve the minimum years in the department, and the purchased credit only pads the pension formula. The federal FERS system is an example often cited – buying military years increases your pension calculation and total years for pension, but it doesn’t let you retire earlier if you haven’t met the minimum civilian service and age requirements. Always confirm this detail. It determines whether buying credit can actually accelerate your retirement date or just your pension amount.
“Use It or Lose It” Scenarios
Some unique programs exist. In Utah, for instance, there is a provision for public safety workers (including firefighters) to purchase up to 5 years of service only if you retire immediately after the purchase. You can even have your employer contribute up to 95% of the cost, but you, as the employee, must pay at least 5%, and once the transaction is done, you’re walking out the door5. This kind of arrangement is basically an early retirement incentive – a way for a department to encourage an expensive senior firefighter to retire a few years early by jointly funding additional service credit. Not many places have this, but it’s good to be aware of any “buy and retire” rules in your system.
Pension Caps
Be mindful if your pension has a cap on benefits. Some plans cap your maximum pension (for example, at 75% or 80% of your final salary). If you’re already going to hit the cap with your actual years of service, purchasing extra years won’t increase your benefit beyond that limit. For instance, the Illinois Municipal Retirement Fund caps pensions at 75% of final pay (achieved with 40 years of service in that plan) – buying service beyond 40 years would be throwing money away since it wouldn’t boost the pension any further6. Many firefighter plans have high or no caps (because not many firefighters serve 40+ years!), but double-check. You don’t want to pay for something you can’t fully use.
Payment Methods
How you can pay also differs. Some plans let you roll over funds from a 457 deferred comp or IRA to purchase service credit, which can be a smart move to avoid paying out-of-pocket cash (and avoid current taxes on that money). Others might allow installment payments via payroll deduction. And some require lump sums. The method of payment might not change the value of the deal, but it can affect your personal finance strategy (and tax implications), so it’s worth looking into your options.
Interaction with DROP and Retirement Timing
Firefighters in certain cities (Los Angeles, Miami, Dallas, and others) have access to a Deferred Retirement Option Plan (DROP). DROP is a program wher, once you’re eligible to retire, you can “retire on paper” but keep working for a few years, and your pension payments accumulate in a separate account (often earning interest) until you finally exit.
Interaction with DROP and Retirement Timing
The key thing to understand: when you enter DROP, your pension is calculated and locked in at that point. You stop earning new service credit from that day forward. In other words, if you plan to go into DROP, you’ll want to have all your service credit purchases done before entering. You cannot decide halfway through DROP that you want to buy extra years; by then, your benefit formula is already frozen.
Buying service credit can enhance your DROP benefit in two ways:
Reaching DROP Eligibility
First, it might help you become eligible to enter DROP in the first place. Many DROP programs require that you’ve hit the normal retirement criteria (say 20 or 25 years of service and a minimum age). If you’re a bit short, purchasing a year or two could get you there. For example, Ohio’s police & fire pension (OP&F) explicitly allows using purchased service to reach normal retirement eligibility and enter DROP4. If you were hired late or have a gap in service, this could be your ticket to start DROP on time.
Boosting the DROP Payout
Second, if you’re already eligible without it, buying extra service will increase your pension calculation, which means higher monthly credits going into your DROP account during those DROP years. Essentially, you lock in a bigger pension by including the purchased time. OP&F’s DROP guidance notes that any service purchased before the DROP effective date will result in a higher pension and thus larger DROP deposits4. The math is the same as earlier – more years = higher percentage of final average salary = higher pension. That higher pension is what accrues in DROP while you continue to work. Over a 5-year DROP, even a modest increase in your monthly pension can lead to a sizeable extra lump sum at the end.
One thing to be careful about: some DROP programs have time limits. For example, you might max out at 5 years in DROP. So if you purchase service credit that allows you to retire (or DROP) earlier, consider whether you truly want to leave earlier or just enter DROP sooner and still serve those extra years in DROP. Each department’s policies differ on whether you can do a shorter career + longer DROP vs. longer career + shorter DROP. It’s a balancing act between how long you keep working, when you start drawing pension money, and how long that pension money is set aside earning interest.
In Conclusion
Buying service credit can be one of the savviest moves a firefighter makes – or an expensive misstep – depending on the circumstances. In the best cases, it’s a ticket to an earlier, healthier retirement and a fat ROI courtesy of your pension plan (especially if you live to a ripe old age). In less ideal cases, it might take decades to break even, or the extra years might not actually help you retire any sooner due to plan rules. The only way to know is to run the numbers for your situation.
At the end of the day, purchasing service credit is about investing in yourself, buying yourself time, literally. Run the numbers, read the fine print, and if it all checks out, it just might be the best money you ever spend. Stay safe, and happy planning for that well-earned retirement!
Appendix – Sources
- Florida Retirement System – Purchase of Additional Retirement Service Credit (MyFRS.com) – details on types of service eligible (military, out-of-state, etc.) and cost formula (20% of first-year salary per year, plus 6.5% interest) for buying service in the FRS Pension Plan.
Source: MyFRS Financial Guidance Program – FRS Pension Plan Service Credit Purchase Optionsmyfrs.commyfrs.com - New Jersey Police & Firemen’s Retirement System – Purchasing Service Credit fact sheet – outlines purchase limits (up to 10 years for civilian public employment, up to 10 years for military, with an extra 5 years for qualified wartime vets) and eligibility rules in NJ’s pension system.
Source: NJ Division of Pensions & Benefits, Fact Sheet #01 (May 2025)nj.govnj.gov - Ohio Police & Fire Pension Fund – DROP Information Guide – explains that purchased service credit can be used to reach normal retirement eligibility for DROP entry, and that buying service before DROP will increase the pension calculation (and thus DROP deposits).
Source: OP&F Deferred Retirement Option Plan Guideop-f.orgop-f.org - Utah Retirement Systems – Purchase of Future Service Credit brochure – describes a provision allowing up to 5 years of service to be purchased if the member retires immediately, with the employer able to pay up to 95% of the cost (employee at least 5%).
Source: Utah Retirement Systems Tier 2 Public Safety/Firefighter plan documenturs.orgurs.org - Illinois IMRF “Deciding Whether to Purchase Service” guidance – discusses calculating break-even point and notes that purchasing service beyond the plan’s 40-year/75% cap will generally not increase your pension benefit.
Source: Illinois Municipal Retirement Fund (IMRF) member guideimrf.orgimrf.org - California pension reform legal update – confirmation that the option to purchase up to 5 years of “airtime” service credit (non-worked years) was eliminated effective Jan 1, 2013 by the Public Employees’ Pension Reform Act (PEPRA).
Source: California Supreme Court decision summary in Cal Fire Local 2881 v. CalPERS (BB&K Law alert)
