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Re: Value of a Pension (Net Worth Additive)
Old 08-20-2006, 09:50 PM   #21
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Re: Value of a Pension (Net Worth Additive)

Since I expect a COLAd pension this an issue I had to engage with. Despite being a vanguard diehard I do no subscribe to the theory that such a pension is not like a bond, that it only reduced the amount one needs to plan to cover with the portfolio.
I do see the pension as an income stream akin to bonds. And as Nords said, this permits (but does not require that I can hold more in equities. I expect to be able to ride out most market downturns by choosing which account to use and even working a bit if necessary.
While I am in the accumulation phase this has worked well, I didn't cringe too much when the market turned down in 2000. I saw those declines as a chance to buy. Now how I will feel once retired may be different.

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Re: Value of a Pension (Net Worth Additive)
Old 08-21-2006, 05:46 AM   #22
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Re: Value of a Pension (Net Worth Additive)

I am just about ready to take my cola survival benefited state funded pension.

I will be 51 when it starts, about 2700 a month. I have a small amount in savings as we spent plenty over the years with college, medical school for the kids, buying homes.

We now have a small mortgage which is about 48K, the house is worth 340K, cars newer and paid, wife starts her small pension in 2 years of about 225 a month.I figure that I want to work part time for the rest of my life, selling kayaks running shoes working in a place like whole foods, heck even sub teaching to make an additional 15K a year, this is all before SS, which would start in 9 years the wife is older by 2 years and she worked over 20 years as an ICU nurse who is burned out and does not work now.

So I figure if I were to live 40 more years at 33K =1.2 million

Hey it is all good.

In addition we have medical bennies paid for with this pension for the both with small deductibles 400 a year and small co pays for prescriptions 15 dollars 90 day generic supply.

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Re: Value of a Pension (Net Worth Additive)
Old 08-21-2006, 11:03 AM   #23
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Re: Value of a Pension (Net Worth Additive)

< 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

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