Present Value Calculator and Equation for a Pension

[nico08]

Hi:

Does anyone know where I can find a present value calculator and an equation for a defined benefit pension with and without a cost of living adjustment.

I am trying to figure out the present value of my state government pension. The COLA is pending a class action appeal decision, so I want to figure out the best case/worst case scenario.

Ultimately, I will use the present value of the pension when making my stock/bond portfolio allocation decision.

Thank you for your help.

 

[HFWR]

Net Present Value Calculator | Investopedia

Can also use NPV function in a spreadsheet.

 

[nico08]

Thank you HFWR. But based on that Investopedia calculator, where/how do I include the COLA part of the pension?

 

[HFWR]

Try this one instead...

Pension calculator

 

[nico08]

Thank you HFWR. But that one has to do with the value of a survivor benefit for married people. I am single. I am having a hard time finding a calculator and an equation that will give me the present value of my pension both with and without a COLA.

 

[HFWR]

Sorry, I'm actually supposed to be w*rking...

Try Graduated Annuities Using Excel | TVMCalcs.com

Or google "NPV of cola-adjusted pension"...

 

[HFWR]

I'm posting a spreadsheet in the thread, so others can do a sanity check. Didn't think posting it here would cause any particular invasion of privacy or personal info.

DR% = discount rate, COLA% self-explanatory, and ER% is the "effective rate", derived by dividing DR by COLA ((1+DR)/(1+COLA))-1. Change DR to see the effect of different discount rates.

The data indicate the current age, and the pension payout for that year. Each following year is adjusted by the COLA%. Since no payments occur until age 60, those cells are zeroes. These cells can also be changed, and the changes will be reflected in the resulting NPV.

Note that things get weird if, say, you input a 1% DR and a 3% COLA. The numbers get really large, because the ER goes negative...