< Reposted from an old post... - MB >
Anyone know how to convert today's $33,864/year pension with future CPI-U COLAs into a lump sum
The Lump sum (present value) calculations must always assume a prevailing interest rate. Some people use the 30 year T-bond rate (maybe 4.50 % or so) or you can use whatever is reasonable.
For present values of annuities that have an inflation adjusted kicker then just use the prevailing rate (ie. T-bond rate) less the prevailing inflation (CPI rate - maybe 3.3 percent or so).
So if my numbers are correct the interest rate you'd use to compute your present value would be (4.5-3.3 = 1.2 percent)
You'll need to compute the present value of the annuity over your life expectancy which (of course) varies with age and gender.
So using my interest numbers numbers, and guessing a life expectancy of 25 years, I get a prese4nt value of $727,674.42 for your payout.
Here's a link to a calculator that will figure your lump sum given an interest rate