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Old 07-09-2021, 11:36 AM   #21
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^+1 the number son immediateannuities.com don't even come close. In fact they are so far off that it makes me think something is off?
My thought as well. There must be some wrinkle to this pension as usually the lump sum value offered in lieu of a $32k pension is much, much higher.
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Old 07-09-2021, 11:45 AM   #22
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A pension better be FI, because I am fortunate to have one .

But seriously, there is some risk in every source of retirement income. For me the best way to handle this risk was having multiple sources beyond the pension. I would not feel FI if I had a pension that covered 100% of our expenses but no savings or investments. My approach, which fortunately worked out, was to have pension + a high level of investment/savings + SS in the future, where if any of these was lost or curtailed we still would not have to work.
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Old 07-09-2021, 11:56 AM   #23
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Yes, there's risk in everything.

I have not checked single annuity payout for a while, so just did it at Schwab. The payout for us as a couple is $411/month for $100K, with a minimum payout of $100K. It means if neither of us live long enough to collect the principal of $100K back, our heir will get a lump sum to make the total payment $100K.

That at first looked pretty good at 4.932% annual rate, compared to the 4% WR rule of thumb. But then, I remember that the SPIA does not have COLA adjustment, while the 4% WR does. And the 4% WR usually leaves a lot of money to heirs.
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Old 07-09-2021, 12:03 PM   #24
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I was wondering that too. How can a 32.5K/yr pension only be worth a 118K lump sum? That doesn't sound right at all.
+1 makes me wonder if the OP misinterpreted something.
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Old 07-09-2021, 12:06 PM   #25
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.... No, a pension is not part of your net worth, as it can’t be passed along to heirs. ...
Interesting perspective relating to our periodic debates as what to include and not to include in NW.

SS = No and Pension = No because both cease when you die (or second to die if married).

Deferred taxes = Yes, because your heirs will still need to pay taxes on any inherited IRAs
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Old 07-09-2021, 12:26 PM   #26
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Remember that some ER (at least here in the USA) will want to do Roth conversions or rely on subsidized ACA plans pre-Medicare.

I won't be "creating income" anytime soon because of the above.

Though many of the retirement calculators I use recommend converting whatever's left in my retirement accounts to an immediate annuity (SPIA) around age 80.
I understand.
I retired and started hefty annuity income at age 63 which is not ER, just normal R.
I have been doing Roth conversions over past several years, up until RMDs start at age 73, but modest ones, and mostly in the 24% bracket.

I often think the annuitize at age 80 advice has it backwards. By annuitizing at 63, I had seven years to bridge to start of SS at age 70. I withdrew funds from tax-deferred for that bridge.

I now, age 71, seem to have excess retirement income most months which I invest in stock funds in my taxable account. This will increase even more when I start RMDs at age 73.
So at age 80, I could easily have higher total portfolio than at start of retirement.
We'll see...
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Old 07-09-2021, 01:21 PM   #27
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finnski1
^+1 the number son immediateannuities.com don't even come close. In fact they are so far off that it makes me think something is off?
I was wondering that too. How can a 32.5K/yr pension only be worth a 118K lump sum?
My old megacorp keeps offering me lump sums on my baby pensions (two managed, by the same megacorp due to acquisitions.) The lump sums are not even in the ballpark of a replacement annuity. But - I have a lot of former coworkers who've taken the lump sums because they feel they can invest better than the pension managers... And maybe they can. I know several who spent the money (paying a penalty because they were too young and didn't roll it to an IRA.)

I think companies/organizations make these crap offers periodically because people don't bother to do the math. There's an active thread about lack of financial literacy. People think 'hey - with the lump sum I can buy a boat!"

Another factor may be your age and whether you've already started your pension. If the pension is for some future date (age 65 for example), it is not $32.5k/year in todays dollars. It's some smaller amount.
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Old 07-09-2021, 01:42 PM   #28
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That is just like my CSRS pension. My pay-in was 7%, year in, year out. It doesn't account for inflation, so it is not a large amount. It is now the before-tax cost basis, which, prorated over 30 years, allows a modest tax deduction against my pension. The pension itself is considered ordinary income.

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Yes it is.. and matched by the employer... I can only get my contributions back, not the employers or interest earned over the last 30 years
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Old 07-09-2021, 01:53 PM   #29
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A relative passed away last year. She had a State pension. The lump sum option was only 3.5 times the annual pension amount. And, the pension has a 2% cola. So, yes the OP's numbers may be correct. This is why some of us say the first step in choosing the lump sum or the pension option is to determine if the two options are actuarially equivalent. As others have mentioned, Immediate Annuities.com is a good place to calculate the value of the pension.
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Old 07-09-2021, 02:02 PM   #30
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Take the pension per year.
Use a portion of it to pay for life insurance to replace the yearly amount (at least) should you pass early.
The end.
My military pension and disability are my FI.
Haven't RE yet, but we will once my investment and savings cushions are larger.
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Old 07-09-2021, 02:05 PM   #31
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A relative passed away last year. She had a State pension. The lump sum option was only 3.5 times the annual pension amount. And, the pension has a 2% cola. So, yes the OP's numbers may be correct. This is why some of us say the first step in choosing the lump sum or the pension option is to determine if the two options are actuarially equivalent. As others have mentioned, Immediate Annuities.com is a good place to calculate the value of the pension.
I'll have one of those please
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Old 07-09-2021, 02:18 PM   #32
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I'll have one of those please

To quote Monty Python, "I told them we already got one. Its very nice!"
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Old 07-09-2021, 02:27 PM   #33
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A pension is most certainly part of your Net Worth. I calculate mine out to 20 years.
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Old 07-09-2021, 02:51 PM   #34
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My old megacorp keeps offering me lump sums on my baby pensions (two managed, by the same megacorp due to acquisitions.) The lump sums are not even in the ballpark of a replacement annuity. But - I have a lot of former coworkers who've taken the lump sums because they feel they can invest better than the pension managers... And maybe they can. I know several who spent the money (paying a penalty because they were too young and didn't roll it to an IRA.)

I think companies/organizations make these crap offers periodically because people don't bother to do the math. There's an active thread about lack of financial literacy. People think 'hey - with the lump sum I can buy a boat!"

Another factor may be your age and whether you've already started your pension. If the pension is for some future date (age 65 for example), it is not $32.5k/year in todays dollars. It's some smaller amount.
Not too long ago someone in my area won a state lottery prize...they took the lump sum (IIRC, ~$300k after taxes) because they thought they could beat the $25k, 20-year annuity...bad choice IMHO.
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Old 07-09-2021, 02:59 PM   #35
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Relying on a pension is commonly referred to as SIRE rather than FIRE and my take is they are related but not identical situations. I think I feel this way from observing my Dad's happy 40 year retirement as a military pensioner without every having much of anything for a "portfolio".

Even if the OP could cash in the pension for a commensurate lump sum, there are lifestyle differences associated, with drawbacks and relative benefits to both. It isn't just a simple financial calculation IMO.
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Old 07-09-2021, 03:14 PM   #36
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A pension is most certainly part of your Net Worth. I calculate mine out to 20 years.
No. This is untrue. It is part of your income. It is part of your cash flow. It is a very important part of being financially independent. Unless there is a value to your estate of your pension upon your/your spouse's death, it is not part of your net worth. Full stop.
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Old 07-09-2021, 03:20 PM   #37
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Yes, having a pension in addition to investments, if needed, really is FI.

No, a pension is not part of your net worth, as it can’t be passed along to heirs.

Of course a pension means less investments needed to support a given level of annual spending.
I chose to receive about $300 less per month so my heirs can collect my pension after I die.
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Old 07-09-2021, 03:27 PM   #38
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I know most disagree with this but imho: gov-based pensions are more stable than stock market. No matter what the shape or form of funds/budgets or lack thereof (even IL/NY pensions). Government will always bail them out before they bail out stock market. Like they did with 2021 Covid relief.

I personally don't have Gov pension. But those who do - should multiply the annual pension by 30 (roughly). That is the equivalent Networth that pension is providing them. Also factor in the peace of mind it comes with.

For ex: if you annual pension is $40k/year, then that (in my humble opinion), is equivalent to $40k x 30 = 1.2 mil of networth. I know the argument on other side: "But you can invest 1.2 mil in stock market and it grows faster".

And other arguments like: you can not pass it to your heirs or what if you die tomorrow. If you die tomorrow, then that is end of the universe (known to you, or not anymore) and you leave this mirage of life behind.
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Old 07-09-2021, 03:59 PM   #39
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It is part of your income. It is part of your cash flow. It is a very important part of being financially independent. Unless there is a value to your estate of your pension upon your/your spouse's death, it is not part of your net worth. Full stop.
This would be my answer…

…but what earthly difference does it make? None.
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Old 07-09-2021, 04:39 PM   #40
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Just like if you take a chunk of money to buy annuities. Net worth down, income up.
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