Poll: Does a Pension factor into your FIRE Plans?

[Aiming_4_55]

I voted: Yes, I have a non-cola'd pension, but it doesn't have a significant impact on my retirement budget.

If I RE in a few years at 50, I'll still have to wait about 12 years so that will limit the buying power.

I was thinking of looking for a State or Federal job in my 50's for the health benefits and pension. The typical position is about $50k difference in pay vs. a standard employer. If I continue to work, I rather take the money now to invest vs another small pension. This assumes I would only work to age 55.

 

[Danmar]

Great poll. It really sheds some light. I have stated before that any pension should be disclosed when providing info regarding investments and AA.


This is just an observation but it irritates me when the 100% equity people claim superior knowledge while many of them have their ***etts covered with a pension.
Thank-you

A pension should be incorporated into your AA in my opinion but this would not be a universal view. I certainly do this and have often disclosed such here. I haven't noticed the source of your irritation?

 

[gerntz]

The other common use of 'confidence interval' is "the range within which the true answer lies". With this meaning (the one I used & that is employed by the calculator I used), non-random samples have smaller confidence intervals; IOW, a narrower band in which we can infer from the results. I know it sounds counterintuitive but, it is what it is.

I don't buy this. You'd have to show the source for me to accept.

 

[youbet]

First, I will disagree with the many comments about trying to make something of the data. This is a self-selected poll, people! It really has almost no meaning.

Second, I wonder how people are calculating the significance of their pension? If it isn't COLA'd, it is likely worth ~ 1/2 its original amount over the long run (at least that's what my experiments using FIRECalc have shown). And what about survivor benefits? That changes the value for many of us.

My pension, if I took it w/o survivor benefits, and cut it in half to adjust for non-COLA, would be roughly 20% of my "SWR" number.

-ERD50

If you're saying that you're surprised that over half the folks responding indicate that a pension is a significant part of their ER funding, then I'm surprised you're thinking that.....

Most everyone here is either FIRE'd or has a good shot at being FIRE'd someday. And there is no doubt that a traditional pension, either private or public, plus SS is a big factor in making that happen for many. Other than the highly compensated, lottery winners, inheritance receivers or financially successful dink couples, it takes a loooong time to patiently LBYM and accumulate an adequate FIRE portfolio. A pension providing 20% - 30% or more or your retirement income requirements goes a long way towards shortening that.

I'm not surprised there are a lot of folks with pensions here.

 

[FreeBear]

Wow, I'm amazed at the number of people with strong pensions!

DW never had one. I had a private pension, but it was frozen long ago. I took a rollover option before FIRE. It was certainly helpful in becoming more confident in the numbers, but it didn't have a controlling impact. The pension was comparable to about 5% of our annual budget.

Hating w*rk and having more or less "enough" launched FIRE.

 

[IMATERP]

Greetings,

I will be receiving a State Pension at 60, as well. I have an interesting quandary, a. I can receive $1,300per month for the rest of my life, or
b. The State will give me a blended benefit of $2,750 per at age 60 until Age 62, then the benefit would decrease to $1,000 which added to estimated SS at 62 would give me $2,750 a month for the rest of my life.

My wife and I have our home paid off and have over 1.1M in 401ks with State Healthcare at age 60 - so there isn't really advantage to taking one pension over another.

I may work seasonally doing taxes so I will still have to run the numbers on the amount that I can make following my retirement from the State.

Michael

 

[Johanson]

Greetings,

I will be receiving a State Pension at 60, as well. I have an interesting quandary, a. I can receive $1,300per month for the rest of my life, or
b. The State will give me a blended benefit of $2,750 per at age 60 until Age 62, then the benefit would decrease to $1,000 which added to estimated SS at 62 would give me $2,750 a month for the rest of my life.

My wife and I have our home paid off and have over 1.1M in 401ks with State Healthcare at age 60 - so there isn't really advantage to taking one pension over another.

I may work seasonally doing taxes so I will still have to run the numbers on the amount that I can make following my retirement from the State.

Michael

With your financial situation, wouldn't you be better off waiting until you are 70 to start drawing SS?

 

[ERD50]

If you're saying that you're surprised that over half the folks responding indicate that a pension is a significant part of their ER funding, then I'm surprised you're thinking that.....

Most everyone here is either FIRE'd or has a good shot at being FIRE'd someday. And there is no doubt that a traditional pension, either private or public, plus SS is a big factor in making that happen for many. Other than the highly compensated, lottery winners, inheritance receivers or financially successful dink couples, it takes a loooong time to patiently LBYM and accumulate an adequate FIRE portfolio. A pension providing 20% - 30% or more or your retirement income requirements goes a long way towards shortening that.

I'm not surprised there are a lot of folks with pensions here.

I'm not surprised at the results, I'm only saying no one should take much/any stock in results of a self-selected poll.

-ERD50

 

[Huston55]

I'm not surprised at the results, I'm only saying no one should take much/any stock in results of a self-selected poll.

-ERD50

The 'unsubscribe' button is always a choice.

 

[IMATERP]

With your financial situation, wouldn't you be better off waiting until you are 70 to start drawing SS?

Thanks for your input.

As a former 30 year smoker I have set a realistic estimated age of death at 83. I do not believe that my quality of life will be that good past 70, hence that is why I am considering front loading my pension and social security distribution.
Hence, health is driving my decision.

This is also why I am spending the next 10 years completing any and all bucket list items.

Michael

 

[gerntz]

The 'unsubscribe' button is always a choice.

Why should he/she do that when the person finds the poll interesting but not meaningful?

 

[RockyMtn]

Began taking pension #1 at 57. Non cola'd 100% joint and survivor. $30k per year after taxes taken out. Retiree subsidized health care (pay the same portion as when I was an employee). Pension #2 at 65. Non cola'd 100% joint and survivor for another $15k per year. Once SS kicks in am expecting that the combination of the three will be covering at least 70% of expenses. Remaining expenses easily covered by portfolio.

Pension #1 didn't really grow much between 57 and 65 without continued company contributions so I decided to pull the trigger and start receiving now.

 

[target2019]

A pension should be incorporated into your AA in my opinion but this would not be a universal view. I certainly do this and have often disclosed such here.

One argument says do not include pension, and reduce future required expenses by the amount.

I include spouse's cash-out amount as a short term bond fund. Thinking on this has changed over the years, so I have a toggle in spreadsheet which removes this from AA. The amount is 15% of AA. It is non COLA.

 

[Backdraft57]

One argument says do not include pension, and reduce future required expenses by the amount.

I include spouse's cash-out amount as a short term bond fund. Thinking on this has changed over the years, so I have a toggle in spreadsheet which removes this from AA. The amount is 15% of AA. It is non COLA.

I'm curious about this. How would I figure my pension in AA? Would I take the yearly amount and divide by .04 and use that figure as cash then add that to my portfolio as cash?

Sent from my SM-G935V using Early Retirement Forum mobile app

 

[Huston55]

I'm curious about this. How would I figure my pension in AA? Would I take the yearly amount and divide by .04 and use that figure as cash then add that to my portfolio as cash?

Sent from my SM-G935V using Early Retirement Forum mobile app

Yes. So, for a pension you are currently receiving, use 4% as the discount rate (others might suggest 3% but, you choose) to calculate equivalent NPV and include the resulting value as part of your fixed income allocation (not cash since it's not liquid) in your AA.

Example: You currently receive $3,333/mo pension ($40k/yr). $40k/.04=$1M equivalent NPV to be included in your AA as fixed income. Your total NW (in this calculation) is now $1M larger so, you need to recalculate your equivalent AA using the $1M.

If you have a pension (or SS) that starts in the future, you can use this same technique with an extra step. First, do the calc above; then discount that value to the present time. Example: your future pension starts in 10 yrs; divide the annual payout by .04, then discount that value (by 3% or whatever you think appropriate as a discount rate) for the 10 yrs until it starts.

Hope this helps. I'm sure others will add views on what discount rates to use.

PS: You will find that views here vary on whether to include pensions/SS in your AA. Regardless of one's view on that, I advocate doing the calculations to have that info when determining what AA you think appropriate for your situation.

 

[target2019]

I'm curious about this. How would I figure my pension in AA? Would I take the yearly amount and divide by .04 and use that figure as cash then add that to my portfolio as cash?

Sent from my SM-G935V using Early Retirement Forum mobile app

We use the survivors benefit. It is shown on an annual statement.
Prime money market as proxy. When the statement comes, I add this new total.

 

[Backdraft57]

Yes. So, for a pension you are currently receiving, use 4% as the discount rate (others might suggest 3% but, you choose) to calculate equivalent NPV and include the resulting value as part of your fixed income allocation (not cash since it's not liquid) in your AA.

Example: You currently receive $3,333/mo pension ($40k/yr). $40k/.04=$1M equivalent NPV to be included in your AA as fixed income. Your total NW (in this calculation) is now $1M larger so, you need to recalculate your equivalent AA using the $1M.

If you have a pension (or SS) that starts in the future, you can use this same technique with an extra step. First, do the calc above; then discount that value to the present time. Example: your future pension starts in 10 yrs; divide the annual payout by .04, then discount that value (by 3% or whatever you think appropriate as a discount rate) for the 10 yrs until it starts.

Hope this helps. I'm sure others will add views on what discount rates to use.

PS: You will find that views here vary on whether to include pensions/SS in your AA. Regardless of one's view on that, I advocate doing the calculations to have that info when determining what AA you think appropriate for your situation.

Thanks. Well, I'm a conservative guy but including the pension takes me to 95% cash or fixed income . That's a bit conservative I would say.

Sent from my SM-G935V using Early Retirement Forum mobile app

 

[DEC-1982]

If you're saying that you're surprised that over half the folks responding indicate that a pension is a significant part of their ER funding, then I'm surprised you're thinking that.....

Most everyone here is either FIRE'd or has a good shot at being FIRE'd someday. And there is no doubt that a traditional pension, either private or public, plus SS is a big factor in making that happen for many. Other than the highly compensated, lottery winners, inheritance receivers or financially successful dink couples, it takes a loooong time to patiently LBYM and accumulate an adequate FIRE portfolio. A pension providing 20% - 30% or more or your retirement income requirements goes a long way towards shortening that.

I'm not surprised there are a lot of folks with pensions here.

My non-COLA'd pension (100% survivor) is currently 7% but it will become 14% at some point. 14% is significant to me but that's a matter of opinion.

I am not surprised to see a large % of folks here have a safe and sizable pension. Youbet made the same point earlier, and I agree with the reasoning. Having higher incomes (versus the deserved pension) also comes with the risk of "lifestyle creep", IMO.

 

[Danmar]

One argument says do not include pension, and reduce future required expenses by the amount.

Yes, many (most?) people use this approach. In my view it is too conservative and would be somewhat akin to including bond interest received as an offset to expenses and then covering the rest of your expenses with a traditional AA. But it is simple and easy to conceptualize I guess.

 

[target2019]

Thanks. Well, I'm a conservative guy but including the pension takes me to 95% cash or fixed income . That's a bit conservative I would say.

Sent from my SM-G935V using Early Retirement Forum mobile app

You are younger, correct?
My first president was Eisenhower, for reference.

 

[Huston55]

PS: You will find that views here vary on whether to include pensions/SS in your AA. Regardless of one's view on that, I advocate doing the calculations to have that info when determining what AA you think appropriate for your situation.

Thanks. Well, I'm a conservative guy but including the pension takes me to 95% cash or fixed income . That's a bit conservative I would say.


Sent from my SM-G935V using Early Retirement Forum mobile app

That's exactly why I think it's a good calc to do. When we include the NPV of our guaranteed income streams in our NW, it changes our AA (lowers % of equites) significantly.

As a FIRE(d?)man, you likely have a good pension that is/will be a significant portion of your FIREd income. Kitces & Pfau have done some excellent analysis on AA with annuities/equities that might be close enough to your situation (pension~=annuity) for you to read/apply. Can't find the links now but, they both have extensive blogs.

PS: Dirk Cotton's "RetirementCafe" is also a great blog. He's a 'safety first' advocate, which might suit a retiree who has a pension which supplies a large portion of his retirement income.

 

[Clone]

When I look at what I estimate to be our annual expenditures, I find that my pension covers 60% of that.

And our Social Security will cover 62%.

And a long term rental agreement will cover 45%.

And then RMDs will cover around 33%.

 

[Huston55]

When I look at what I estimate to be our annual expenditures, I find that my pension covers 60% of that.

And our Social Security will cover 62%.

And a long term rental agreement will cover 45%.

And then RMDs will cover around 33%.

Looks like you need to double your spending.

 

[Midpack]

Interesting poll, bi-modal result. That's why I'm often concerned with the responses given here, especially to newbies who don't know the alum responders income sources. The response from someone with no pension would often be completely different than someone relying primarily on a pension, especially a COLA'd pension.

No need to argue Soc Sec or the merits of with/without pensions, they're just different.

 

[Nature Lover]

Lots of good discussion on whether to include Pension as fixed income in AA. All valid points, too. I include pensions in all of my calculations except AA.

For net worth calculations, I use the FIDO Immediate Annuity calculator each year to estimate the value of my pension income and include that in my net worth.

From a budgeting perspective, I use a bucket approach, calculating a SWR from my investments and then adding in the expected pension income separately to come up with a max spending limit.

For managing my investments I use a bucket approach, too, with longer term accounts holding more equities, and shorter term accounts less. For each account, I determine my AA on my those assets only. While this may not maximize my spending, or my legacy, it allows me to stay the course with my investments and sleep well at night.

Overall, my AA on investments is nearly 60/40 invested assets; would be more like 35/65 if I included my pensions.

NL