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Old 10-08-2014, 02:28 PM   #21
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How much of your retirement will already come from this source ?
I would consider topping it up but perhaps you will already be getting a significant chunk from it (and at State Pension risk), so then the question becomes how much more do you want to bet on this horse?
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Old 10-08-2014, 03:28 PM   #22
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That 3 legged thing is starting to sink in. Maybe something close to $30,000 portfolio, $30,000 pension, $30,000 social security.

Could probably even do a weird looking stool and go $20k portfolio, $40k pension, and $30k SS.

Thanks again for the input, it helps to be able to get all the ideas and cautions.


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Old 10-08-2014, 03:50 PM   #23
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FWIW, I have also run FireCalc assuming my pension is cut by 20% with NO COLA, and SS is cut by 30% but the COLA continues.

In both cases, I survive well. Instead of a weekend run to Paris for the fashion show, it will be a weekend flight to Pittsburgh for a museum visit.
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Old 10-08-2014, 03:59 PM   #24
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That 3 legged thing is starting to sink in. Maybe something close to $30,000 portfolio, $30,000 pension, $30,000 social security.
I think that, or something like it, makes a lot of sense.

Also, when it has been necessary to reduce pension benefits (due to a bankruptcy of the company, failure of the fund, etc), there is sometimes protection for some base amount of pension (say $30K per year, approx) with amounts above that subject to trimming (sometimes dramatic trimming). So, in the event the teacher's pension payout is later subject to cuts, it's possible you'd be hurt less if your annual amount from the pension was on the lower end.

Only time will tell--maybe the teacher's pension will do spectacularly well, or stocks will go to the moon. At this point, you aren't trying to get fabulously wealthy, you are trying to avoid a failure. The independent (as much as possible) income streams help do that.

Unmentioned so far: Any need/desire to leave assets to children, grandkids, charities when you are gone? Stocks would probably do that better than a pension that quits when you draw your last.
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Old 10-08-2014, 05:55 PM   #25
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Another way to think of this is if the 100K was your annual pension that you could cash in for a payout the comparable to the 1.5 million they are offering you would be 2.3 million dollars. Then you'd be thinking they are trying to save their pension system at your expense. I wonder if there is any way to take the income stream and then sell that to a 3rd party. Could pick up a few hundred grand real quick.

Having read the state pension documents and the manner they are calculating these it appears they are using the expected return on plan assets instead of the 30 year bond that most annuity companies are using to calculate the payout, Washington is using an 8 percent assumed rate of return for the pension liability calculation. Based on that assumed return which is higher than the 5.7 percent Moody's recommends, the TR1 plan is 79% funded and the TRS 2/3 plans are 104% funded. Overall Washington is rated the 5th best pension funded state in the nation, and one of the safest. They are tied for 14th in credit rankings for all states. I think from what I have heard you are in the TRS2/3 category and the risk of reduction of the pension is extremely low.
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Old 10-09-2014, 01:07 AM   #26
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My wife and I were in a similar situation with the opportunity to buy into her pension plan at an international organization (like the World Bank) for the 3 years that she was on leave without pay before resigning. Each year would cost us about 8% of her annual salary to increase her pension by 3% of her high two years working with the pension fully COLed (including while it was pending!). Virtually a no brainer! But I would still be careful about committing too high a proportion of my resources to something like this.
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Old 10-09-2014, 10:37 AM   #27
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If you were age 65, had a $1,500,000 portfolio and $60,000 estimated expenses how much would you convert to this pension?
1. NO LIMIT on buy in amount (send a check or convert from other retirement accounts).
I have never heard of such a deal.

May I ask who offers it?

My pension did have an offer to buy up to 5 more years of service credit. That was it. No more. And the return, at least initially, was OK, but nothing that could not be matched in a good bond fund. What I liked about it was the capped COLA, and it allowed me to get my pension leg up to where I thought it should be.

FWIW, the more I see of the nonsense going on with employee pension, the more I think people should control their own money. Had Detroit happened before I bought into my pensions extra service credit plan, I am not certain if I would have bought into it, or, perhaps, might have bought less years.
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Old 10-09-2014, 10:43 AM   #28
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I have noted that many people are critical of the capped COLA. Certainly, an uncapped COLA is better, but how many people have that offered to them? And how secure will it be over a 20-30 year period?

3% is a limited cap, but keep in mind that if a 60 year old lives to his expected 85 years, the monthly payments in that last year will have more than doubled. Not fantastic, but the guy with the non COLA'd pension will probably think it's pretty good.

And, if one is a woman, with their 5+ years of extra lifespan, the benefits of the capped COLA will be even greater. A final payment almost 2.5x greater than the initial payment.
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Old 10-09-2014, 11:04 AM   #29
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And, if one is a woman, with their 5+ years of extra lifespan, the benefits of the capped COLA will be even greater. A final payment almost 2.5x greater than the initial payment.
?? The longer the expected payout, the bigger the potential discrepancy between a capped COLA pension and the actual cost of things.

A capped 3% COLA is better than no COLA, but it should be recognized as posing a big risk of not keeping up with inflation.

A graph of prices (as opposed to annual inflation%) shows this best. For person who retired in 1980 to 2000 (a period of historically moderate inflation), prices went up by a factor of 2.15. A pension going up at 3% every year would have gone up by 1.81, so the monthly pension lost about 15% of its value. Between 1970 and 1990 (just 20 years), prices went up by a factor of 4.13, and a pension growing at 3% per year (a factor of 1.81 over this time) would have lost over 55% of its real value. Let's hope we don't have another stretch like that, but there are indications it may be in the cards.



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Old 10-09-2014, 11:35 AM   #30
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?? The longer the expected payout, the bigger the potential discrepancy between a capped COLA pension and the actual cost of things.

A capped 3% COLA is better than no COLA, but it should be recognized as posing a big risk of not keeping up with inflation.

A graph of prices (as opposed to annual inflation%) shows this best. For person who retired in 1980 to 2000 (a period of historically moderate inflation), prices went up by a factor of 2.15. A pension going up at 3% every year would have gone up by 1.81, so the monthly pension lost about 15% of its value. Between 1970 and 1990 (just 20 years), prices went up by a factor of 4.13, and a pension growing at 3% per year (a factor of 1.81 over this time) would have lost over 55% of its real value. Let's hope we don't have another stretch like that, but there are indications it may be in the cards.


The capped COLA is better than a no COLA pension. We agree on that, right?

In the case of the longer lived woman, would not the discrepancy be even greater if she had a non COLA'd pension? Or am I missing something?

I am not arguing for a person to live in blissful ignorance of inflation just because they have a capped COLA.

Pensions, for those who have them, are just one part of an investment strategy. Many of us take advantage of a pension's income certainty to invest our other assets in ways we think will give us a fighting chance against inflation in the long run, albeit with many short term ups and downs. All things being equal, a capped COLA pension gives us a bit more ammunition than a non COLA'd pension. Nothing wrong with that unless we are lulled into complacency.

You are right to warn us of the dangers of being complacent while inflation chews away at our buying power. I think we basically agree, but these forums make is hard at times to fully understand what others are saying. My bad if I was unclear.
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Old 10-09-2014, 01:05 PM   #31
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A question for the readers here: does the US Government or Federal reserve have an inflation target?

The EU has: "close to but under 2%"

Just a factor to consider. I kindof trust the EU for example to be able to achieve its goal in the longer term. We don't understand inflation fully but alot better than the 80s.
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Old 10-09-2014, 01:07 PM   #32
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The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment.
Why is 2 percent the Federal Reserve’s inflation target? Because it is. - The Washington Post
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Old 10-09-2014, 04:59 PM   #33
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The capped COLA is better than a no COLA pension. We agree on that, right?
Yes--a capped COLA pension is better than one that stays at the same dollar figure.

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In the case of the longer lived woman, would not the discrepancy be even greater if she had a non COLA'd pension?
Yes, the difference between "uncapped COLA" and "capped COLA" is
larger and more important for the woman, who is likely to live a longer time.

The difference between "no COLA" and "capped COLA" is also more important to the woman than to the man. She can expect to "lose ground" against inflation for a longer time, so the ultimate impact of these compounded losses will be greater.

I think we understand each other now. In your earlier post, the term "benefits of a capped COLA" threw me. The COLA is a benefit, the "capped" part is obviously not. The woman benefits from the COLA, but the cap hurts her more than it would hurt a male.
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Old 10-09-2014, 05:03 PM   #34
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None of this topic to my situation at all but I enjoy reading it and learning. It's just another example of an ER thread that shows how great this forum is and how awesome the people are who share their knowledge freely!
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Old 10-10-2014, 09:37 PM   #35
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Unlimited Pension Buy In

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Old 10-13-2014, 04:26 PM   #36
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Reran our expected income using the additional pension option and as it turns out it doesn’t make much difference. This is due to having multiple sources of income, namely pension, social security, and portfolio.
Some things to ponder with 3 evenly weighted legs:
A market meltdown hits the portfolio temporarily and even a 50% hit reduces income by only 17%
Inflation hits the pension permanently.
Government may make changes to pension, social security, and taxes. Starting to understand how a mix of income sources is important. Maybe something will survive.
I am only 47 and trying to plan for something that might happen at age 65 is probably pointless. I hope I still have the mental capacity later. Want to get some of this written down just in case.
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Old 10-13-2014, 04:38 PM   #37
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[SIZE=3][FONT=Calibri]
A market meltdown hits the portfolio temporarily and even a 50% hit reduces income by only 17%
Inflation hits the pension permanently.
Good points on what is permanent and what is temporary.
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Old 10-13-2014, 11:20 PM   #38
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Looking at annuity for 65 year old couple. I am seeing a best quote of 5.5% for joint survivor with no COLA. So if it was my choice I'd invest 1/4 to 1/2 of my assets depending, on factors like heirs and how much money I really planned on spending.

A really don't understand what a government know that private insurers don't know that allow them to offer such a superior investment.
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Old 10-14-2014, 05:47 AM   #39
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A really don't understand what a government know that private insurers don't know that allow them to offer such a superior investment.
That's a good point. I suspect the answer is that they don't but it is to their advantage to offer this "superior investment." If it sounds too good to be true....

The only people I distrust more than insurance companies are government bureaucracies.
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