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Need help computing Present Value
Old 09-28-2016, 03:54 PM   #1
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Need help computing Present Value

I will turn 65 in August 2017. At that time I will be getting a modest pension. But I just got an offer to start collecting that pension effective November 1 of this year. (they also offered a lump sum buyout but I'm not interested in that).
Any actuaries out there that can help me? I can provide the specific numbers. I'm presuming, for purposes of the pension, that I'll last until age 82, and DW until 96 (she'd get 3/4 survivor benefit).
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Old 09-28-2016, 04:26 PM   #2
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what's an actuary?
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Old 09-28-2016, 04:40 PM   #3
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Interesting you won't consider a lump sum, how did you figure it is not as good ?

I think if you provided the numbers given to you for both those dates it would become obvious which is better
I'm not actually an actuarial, but I would use your age 82 number as when you die is a guess anyhow.

So you want to compare:
Pension beginning: Nov 1, 2016 (lifespan 213.5 months)
vs
Pension beginning August 15, 2017 (lifespan 204 months)

(213.5 * y) compared to (204 * z ) which is bigger and by how much, vs cash in the bank from collecting early. Much like comparing SS early vs full retirement age comparison.

I don't really know how to compare, but that above would be my first crack at it.
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Old 09-28-2016, 04:43 PM   #4
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Post the numbers and someone will turn the crank......
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Old 09-28-2016, 04:58 PM   #5
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and let's see how many different results that you get.
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Old 09-28-2016, 05:01 PM   #6
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Here's how to calculate it.

Calculating Present Value | AccountingCoach
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Old 09-29-2016, 07:28 AM   #7
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A big shout-out to my new best friend, member pb4uski ! We exchanged PM's and he gave me all of the information I need to make an informed decision. Thanks again to pb4, and to this great website as well. No matter the issue, there's always someone here to help.
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Old 09-29-2016, 08:03 AM   #8
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Quote:
Originally Posted by mystang52 View Post
I will turn 65 in August 2017. At that time I will be getting a modest pension. But I just got an offer to start collecting that pension effective November 1 of this year. (they also offered a lump sum buyout but I'm not interested in that).
Any actuaries out there that can help me? I can provide the specific numbers. I'm presuming, for purposes of the pension, that I'll last until age 82, and DW until 96 (she'd get 3/4 survivor benefit).
Disclosure: NOT AN ACTUARY

To get a ballpark feel for this try the following approach.

From what I recall for your age a 6-7% reduction for a one year earlier draw is actuarial fair. You are talking about potentially a ~ 3/4 of a year earlier draw so the fair discount would be in this range: 4.5% - 5.25%.

To compute the discount that the employer is offering, use the following formula:

.............pmt (Nov 1 2016 start)
100* (1- ---------------------- )
.............pmt (Aug 1 2017 start)

(ignore the dots above. I needed to add them because spaces were being ignored by the ER forum software)

If it is significantly outside the 4.5% - 5.25% range then you can get a feel if the early offer is a subsidy to you or a penalty.

All this assumes that you will have an average lifespan which may not be the case (I suspect that most of those who post here and are healthy will have longer life spans than average).

-gauss

p.s. You may find the actuarial calculators available at this site interesting
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Old 09-29-2016, 08:13 AM   #9
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Quote:
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each payment needs to be discounted with the probability of payment (i.e. being alive on the date of payment)
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Old 09-29-2016, 08:14 AM   #10
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Originally Posted by mystang52 View Post
A big shout-out to my new best friend, member pb4uski ! We exchanged PM's and he gave me all of the information I need to make an informed decision. Thanks again to pb4, and to this great website as well. No matter the issue, there's always someone here to help.
he's a decent armchair actuary - he has a good coach
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Old 09-29-2016, 04:03 PM   #11
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Quote:
Originally Posted by Big_Hitter View Post
each payment needs to be discounted with the probability of payment (i.e. being alive on the date of payment)
That would be expected present value rather than present value (just factoring in the time value of money). OP just wanted to compare to relative similar scenarios assuming that he lived until a stated age and his spouse lived until a later stated age. PVs were within 2.5% of each other such that either alternative would be fine and it was more a matter of preference than a significant difference in the values.

We also supplemented the PV analysis with looking at the premium for an annuity with similar benefit payments which would include mortality and the direction and magnitude of the differences were the same.

Quote:
Originally Posted by Big_Hitter View Post
he's a decent armchair actuary - he has a good coach
The life actuaries I worked with used to kid me that I was an actuarial wannabe... not!
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