
FireCalc and a Cola'd Pension
06102007, 11:44 AM

#1

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FireCalc and a Cola'd Pension
I have a pension that has a cost of living increase but its a little strange.
On the day I retire, I automatically get a raise of 4% of whatever my pension amount is.
Each year I get this same amount as a raise. I dont get 4% of the new amount, I get the same amount added on every year so it slowly becomes a smaller percentage each year.
I cant find any way to account for this in FireCalc since there are only a couple boxes to enter an inceasing or decreasing amount of income or withdrawals. Theres not enough boxes for a new amount every year.
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06102007, 01:55 PM

#2

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Quote:
Originally Posted by utrecht
On the day I retire, I automatically get a raise of 4% of whatever my pension amount is.
Each year I get this same amount as a raise. I dont get 4% of the new amount, I get the same amount added on every year so it slowly becomes a smaller percentage each year.

Is your base pension fixed every year after the first year? Because it sounds like you're actually getting two pensions for example, one is $40K/year and the other is $1600/year.
So your actual annual pension receipts would be a fixed 104% of the amount of your pension on the day you retire, right?
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06102007, 02:03 PM

#3

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Quote:
Originally Posted by Nords
Is your base pension fixed every year after the first year? Because it sounds like you're actually getting two pensions for example, one is $40K/year and the other is $1600/year.
So your actual annual pension receipts would be a fixed 104% of the amount of your pension on the day you retire, right?

Exactly as I read the post. Enter into FireCalc as 2 pensions if this is the case.
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06122007, 05:27 AM

#4

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Quote:
Originally Posted by Nords
Is your base pension fixed every year after the first year? Because it sounds like you're actually getting two pensions for example, one is $40K/year and the other is $1600/year.
So your actual annual pension receipts would be a fixed 104% of the amount of your pension on the day you retire, right?

Im not sure if you understand correctly. When I retire, they figure my pension. If my 1st year calculates to be $40000, I actually get 4% extra the 1st year so I get $41600 the 1st year. The 2nd year I get another $1600 raise so its $43200 the 2nd year. The 3rd year I get another $1600 raise so its $44800.
I get a $1600 raise each year forever. So its not 4% raise every year. Its 4% of the orignal amount and then the "raise" is set at that exact amount forever.
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06122007, 05:58 AM

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Enter a fixed pension of 40000 and a COLA'd pension of 1600 that doubles every year.
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06122007, 06:24 AM

#6

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Quote:
Originally Posted by utrecht
Im not sure if you understand correctly. When I retire, they figure my pension. If my 1st year calculates to be $40000, I actually get 4% extra the 1st year so I get $41600 the 1st year. The 2nd year I get another $1600 raise so its $43200 the 2nd year. The 3rd year I get another $1600 raise so its $44800.
I get a $1600 raise each year forever. So its not 4% raise every year. Its 4% of the orignal amount and then the "raise" is set at that exact amount forever.

Enter the $40K as an decrease in withdrawal with an inflation adjustment of about 2.59% (an average percentage over a period of 30 years).
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06122007, 09:11 AM

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Quote:
Originally Posted by utrecht
Im not sure if you understand correctly. When I retire, they figure my pension. If my 1st year calculates to be $40000, I actually get 4% extra the 1st year so I get $41600 the 1st year. The 2nd year I get another $1600 raise so its $43200 the 2nd year. The 3rd year I get another $1600 raise so its $44800.
I get a $1600 raise each year forever. So its not 4% raise every year. Its 4% of the orignal amount and then the "raise" is set at that exact amount forever.

Interesting. Maybe even unique. FIRECalc, as it's currently programmed, can't handle that. You should send a PM to Dory for him to address in FIRECalc v3.0 someday.
The "good" news is that after 10 years of 3% inflation, that $1600/year has withered to less than $1200/year and after another 10 years it's less than $900/year. By year 30 it's only $660/year. Depending on your pension and your expenses, could you safely ignore the whole thing?
In other words if this $1600 is an important makeorbreak factor to your ER calculations, perhaps it's worth whittling away at those expenses some more or working for a while longer.
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06122007, 12:05 PM

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I have ignored it in my retirement plans up to this point, but wanted to enter into FireCalc and see how big a difference it makes. The idea of using 2.59% as an "avg" increase isnt bad I guess.
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06132007, 01:02 AM

#9

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Quote:
Originally Posted by utrecht
I have ignored it in my retirement plans up to this point, but wanted to enter into FireCalc and see how big a difference it makes. The idea of using 2.59% as an "avg" increase isnt bad I guess.

that's the best you can do. I haven't run your numbers, but if you use an 'average', then you will be a bit ahead of your assumption in the early years and a bit behind in he later years.
I have a similar situation that cannot be modeled by Firecalc. I get no COLA for 5 years, then 50% of the CPI for 5 years, then 75% of the CPI thereafter.
If you actually crunch the numbers, you realize that receiving, for example, 50% of the CPI is not the same thing as pension that is 1/2 COLA'd and 1/2 not. It's a bit worse.
Any 'average' you fit to these kinds of sequence depend ultimately on the exact inflation numbers that come in, and they also depend on when those numbers occur. I put it all in a spreadsheet and (for my age, and assuming 4% infation) concluded that I would get reasonably accurate results to enter my pension as 2 pensions, one COLA'd (38% of total) and one not (62%). If inflation is mild over the first 5 years, I'll come out better than that. But I'm not counting on that.
you pays your money and takes your chances.....
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06132007, 05:46 AM

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OK, I know this is a stupid question, but can anyone tell me how / where to enter the COLA portion of my pension? I assume its done in the "decrease withdrawals" area, but I dont see anything other then the box that says "inflation adjusted?" I dont see anywhere to enter a percentage of increase.
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06132007, 07:24 PM

#11

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Quote:
Originally Posted by utrecht
OK, I know this is a stupid question, but can anyone tell me how / where to enter the COLA portion of my pension? I assume its done in the "decrease withdrawals" area, but I dont see anything other then the box that says "inflation adjusted?" I dont see anywhere to enter a percentage of increase.

There are pensions with a CPI COLA (for example, the military). FIRECalc can handle these types of pensions through its "inflation adjusted" checkbox.
FIRECalc is unable to handle your pension because it's not a CPI COLA.
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