value of pensions?

[Bimmerbill]

Hello all,
     I've been working on my investment/retirement planning and found this website.
     Here is a question I have:  Whenever I use a retirement planning calculator it never has an option for adding in the value of a pension. 
     How do I value a pension for retirement planning purposes? 
     
Thanks,
Bill

 

[brewer12345]

Hello all,
     I've been working on my investment/retirement planning and found this website.
     Here is a question I have:  Whenever I use a retirement planning calculator it never has an option for adding in the value of a pension. 
     How do I value a pension for retirement planning purposes? 
     
Thanks,
Bill

The best way I can think of is to pricce a payout annuity that matches what you would get from the pension. So if it is a COLAd pension, price an inflation adjusted pension that pays the same amount.

 

[cute fuzzy bunny]

Doesnt firecalc have a way to put in additional income at a predetermined year, optionally inflation adjusted?

 

[BigMoneyJim]

http://fireseeker.com/

FIRECalc can handle new income sources as "(Cute Fuzzy Bunny)" says. This calculator is designed to take a portfolio balance at the beginning of retirement, an inflation-adjusted yearly withdrawal and an stock/bond allocation mix and uses historical returns sequences to test the portfolio survivability over 30-year (or more/less) periods.

Others have been creative with it and made it do some other things.

Is this a defined benefit pension or defined contribution? If the former I'd just calculate it as an income stream. If the latter you could assume an annuity payout and project an income stream or just add the balance to your portfolio I suppose.

Are you trying to see how it will affect withdrawals / spending during retirement?

 

[maddythebeagle]

People have suggested multiplying your annual pension income x 25 for a cola pension. Seems like a good rule of thumb.

 

[MasterBlaster]

Just a warning about ORP. It is not up to date with respect to current tax law.

Use it as a guide but don't rely on it's numbers as gospel.

 

[cute fuzzy bunny]

You can put any tax rates you want in. Its only inaccurate if you're making a good chunk of change. Its about 2 tax brackets away from being inaccurate for me

 

[MasterBlaster]

The ORP tax brackets (internal) are wrong.

Just run an ORP case and look at the tax brackets it uses.

everything in it is suspect !

 

[SteveR]

...Its only inaccurate if you're making a good chunk of change.  Its about 2 tax brackets away from being inaccurate for me

Nice problem to have!

 

[cute fuzzy bunny]

From the calculator:

After-Tax Account Estimated Federal Tax Rate (leave blank to use default = 20%):
State Personal Income Tax Standard Deduction and Exemption:
State Personal Income Tax Rate:
Will EGTRRA be repealed in 2010 and tax code reverts to 2001?:


You can put in whatever rate you wish. If you do leave these blank, the product uses tax tables from a few years ago before the top rates were reduced.

Otherwise, if you put a rate in the calculator will produce perfectly accurate results. I use the tool all the time.

everything in it is suspect !

Uh...ok...it hasnt been updated for tax bracket changes, so the whole thing is suspect. What other areas of basic math have been changed to result in the calculator not working properly, or what other internal tables have you found to be flawed?

By that logic, isnt firecalc 'suspect' as well because it doesnt have the latest return data implemented or because it uses synthesized data for some asset classes that didnt exist until recently?

 

[MasterBlaster]

You are just too smart for me. ORP was supposed to be an Optimal planner. Now that the levels and brackets and maybe other rules have changed how can it be optimal ?

You go right ahead and use it. You are just too smart.

 

[cute fuzzy bunny]

Sorry you're upset, but if I have a tool that lets me put in whatever numbers I want it to use, then simply multiplies, subtracts and whatnot with those numbers and give me a set of answers, I dont discard the tool or label it 'suspect' if the numbers it uses if I dont give it any arent good.

(shrug)

 

[MasterBlaster]

Well are you going to use the ORP withdrawal amounts to get "optimum"  tax efficiency ?

Is the after tax income correct ?

If you are just projecting forward then there are many calculators that will give you a future number.

It sounds like you aren't really using ORP for what it was designed for, and if you did the answers that it gives are wrong.

By the way - go back and read my first post in this thread. What did I say ?

 

[cute fuzzy bunny]

The cute and fuzzy bunny thinks you're trying to say that a tool that creates a make-believe future full of numbers that may or may not be right will be influenced by a few percentage points of taxation at the highest bracket levels, providing the user doesnt supply his/her own tax rates for it to use.

The cute and fuzzy bunny agrees the numbers might not be completely right and that nobody should count on them. For this or any other calculator.

 

[Bimmerbill]

Well, I have 3 pensions in the works right now. One is an annuity from a severance package I deferred when I was laid off from a major Telcom company in 2002. One is a national guard retirement, payable at age 60 and the other is a FERS retirement, payable at age 57 min, age 60 max.
I'm a bit fuzzy on whether they are defined benefit pension or defined contribution plans.

 

[tryan]

People have suggested multiplying your annual pension income x 25 for a cola pension. Seems like a good rule of thumb.

John Bogle says use 14x the annual payoff. 25 seems a little heavy .... can we really expect to live to 90 (65+25). Seems a little optomistic.

 

[ats5g]

Well, I have 3 pensions in the works right now. One is an annuity from a severance package I deferred when I was laid off from a major Telcom company in 2002. One is a national guard retirement, payable at age 60 and the other is a FERS retirement, payable at age 57 min, age 60 max.
I'm a bit fuzzy on whether they are defined benefit pension or defined contribution plans.

FERS consists of three things: The defined benefit [for which you pay something like 0.80% of your salary]; The Thrift Savings plan [a defined contribution plan]; and Social Security [a defined benefit pension].

I'd bet my right eye that the national guard retirement is a defined benefit pension. I'd also bet that the Telecomm annuity that you deferred is a defined benefit pension. Usually, anything that is quoted to you as a X dollar per year/month payment, it is a defined benefit pension, and it usually says something like "your benefit is defined by [insert formula]." Anything that says "your benefit is defined on the market value of your investments of your choosing" is a defined contribution plan.

- Alec

 

[darelian]

John Bogle says use 14x the annual payoff.  25 seems a little heavy .... can we really expect to live to 90 (65+25).  Seems a little optomistic.

FYI, 25x has nothing to do with the number of years you are going to live in retirement. It is based on studies that show 4% to be a 95%(+) safe withdrawl rate from a 70/30 stock/bond portfolio for over a 30 year span. My familiarity with this is through Intercst's work with the Trinity data at retireearlyhomepage.com. 25x a pension stream, if inflation adjusted, will give you the "lump sum" amount that this pension stream would be "worth" if it were part of your principal.