FIRE Calc and Pension

[LinCella]

I am assuming that because I have a lifetime pension that my FireCalc would be 100%? There is no other income.

 

[Fishingmn]

Well - Income is half the equation. Are your expenses less than the amount of your pension income and is your pension indexed for inflation?

 

[youbet]

I am assuming that because I have a lifetime pension that my FireCalc would be 100%? There is no other income.

Not a very good assumption unless your pension easily covers 100% of your planned budget and your pension is cola'd. Even then, you have to assume you'll have no extraordinary expenses pop up and that the cola formula your pension uses tracks your personal rate of inflation very closely.

Is your pension cola'd or not? What is the formula?

Have you plugged the numbers into FireCalc?

You said you have no other income other than your pension. Do you have an investment portfolio of any substance?

 

[LinCella]

My pension has a COLA of 2% and will cover my expenses and allow for savings and fun. I'll also have an emergency fund of $10k. My medical is 100% paid for by employer. I have a 457 but will be cashing it out to purchase a home, it's small - will be about $75k in June 2014. I'm retiring in June 2014.

 

[ERD50]

My pension has a COLA of 2% and will cover my expenses and allow for savings and fun. I'll also have an emergency fund of $10k. My medical is 100% paid for by employer. I have a 457 but will be cashing it out to purchase a home, it's small - will be about $75k in June 2014. I'm retiring in June 2014.

Hmmmm, I don't see any direct way to model a fixed 2% 'COLA-lite' in FIRECALC.

Basically, you have close to zero portfolio, so if long-term inflation exceeds 2% (likely), your spending will need to be adjusted downwards over time. For an early retirement, inflation can be a huge factor. And/or build up some buffer by saving some of it in the early years.

You could enter your pension as non-inflation adjusted starting this year, and then in 13 years enter an amount to show the added 2% compounded, and do it again after 26 years (splitting a 40 year retirement). That's not perfect as it doesn't include the previous 13 years increases, and there are only three entries allowed. You could add some lump-sum additions on the "Portfolio Changes" page to compensate.

Bottom line is, I expect you will need to trim your initial spending significantly lower than the total pension, and save some of that against future inflation.

-ERD50

 

[braumeister]

I would tend to agree with ERD50. Historically, inflation has averaged around 3.5% so your 2% COLA is going to be OK for only so many years.

Figure how many years your retirement is likely to last, and what your essential expenses actually will be. Only then can you begin to calculate your status.

 

[youbet]

My pension has a COLA of 2% and will cover my expenses and allow for savings and fun. I'll also have an emergency fund of $10k. My medical is 100% paid for by employer. I have a 457 but will be cashing it out to purchase a home, it's small - will be about $75k in June 2014. I'm retiring in June 2014.

Enter one half of your pension into FireCalc as non-cola'd. Enter the other half as cola'd. That should get you a reasonable swag for how your pension will perform vs. the CPI (at least historical CPI).

Enter you expenses as you've planned them.

Depending on how much your pension exceeds your initial expenses (you said the pension is large enough you'd be saving initially), you'll be OK for some time. Eventually, it's likely that the 2% cola will fall victim to inflation and you'll run out of money. This could be several decades down the road.

 

[Amethyst]

Assuming your pension is taxable (Federal, and state/local if those apply), be sure to consider "taxes" when you add up your retirement expenses.

Amethyst