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Value of US government pensions
Old 02-18-2009, 04:58 PM   #1
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Value of US government pensions

With all of this recent financial turmoil and weak corporate earnings, the thought occurred to me that the USA government is just about the most stable organization going. The proof is in the trillions of dollars that are being doled out/promised in various stimulus plans. Because of this demonstrated strength, would the intrinsic value of a US government pension be worth more today that one year ago?

Don't know how one would calculate such a thing, but I have a feeling that my government pension is worth a lot more intrinsically than my corporate pension (other than that COLA thing).
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Old 02-18-2009, 06:18 PM   #2
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The traditional way to value it, I have been led to believe, is to use the 4% SWR or to multiply the annual payout by 25 (example is $25K payout X 25 or $625,000). Of course there is some additional premium added if it also covers medical benefits, but to keep it simple that is what I use. The same applies IMO to SS benefits. Of course in effect these are ANNUITIES that have, in many cases, a follow on benefit for the spouse, if applicable.











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Old 02-18-2009, 06:26 PM   #3
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OAG: I believe that the OP wants a risk based value that takes into account the probability of pension payer default. This is somewhat akin to comparing values of government long bonds with (perhaps) medium grade corporate bonds. If the coupon rate for each is the same then the value of the corporate bond is inherently less because of the perceived greater risk in the corporate sector.
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Old 02-18-2009, 06:32 PM   #4
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Originally Posted by mickeyd View Post
The proof is in the trillions of dollars that are being doled out/promised in various stimulus plans. Because of this demonstrated strength, would the intrinsic value of a US government pension be worth more today that one year ago?
Well, as the Treasury yield drops, it takes more money to buy enough Treasuries to yield the same amount as the pension check being collected all along.

What's surprised me during the world's bashing of Imperial America is that as soon as the global economy gets really crappy, the U.S. dollar starts soaring-- "back by popular demand".

Maybe what the rest of the world is really expressing their faith in is the taxing power of Congress... and the tax-collecting powers of the IRS.
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Old 02-19-2009, 09:27 AM   #5
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For those of us relying on govt pensions or SS for much of our cash flow, let's just hope the gummint remains solvent. The size of the bailouts brings this concern into play.

There are (at least) two ways we could go south: a dollar collapse, or hyperinflation. If foreigners stop buying our debt and the dollar collapses, there will be a lot of pressure to reduce pensions. Under hyperinflation, all kinds of games can be played with inflation indexed pensions to keep them below the real inflation numbers. This was done in the 1980s with military pension caps, and we were nowhere near hyperinflation.

I don't lose a lot of sleep over this, but in the meantime I've split my funds between cash and TIPS. And will add gold if/when it comes down.
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Old 02-19-2009, 10:29 AM   #6
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For those of us relying on govt pensions or SS for much of our cash flow, let's just hope the gummint remains solvent.
If it doesn't, then I don't think it matters whether we have a government pension or not -- we're all screwed in that case...
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