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07-09-2021, 11:36 AM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,151
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Quote:
Originally Posted by 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?
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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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"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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07-09-2021, 11:45 AM
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#22
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2012
Posts: 6,135
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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.
__________________
FIREd date: June 26, 2018 - "This Happy Feeling, Going Round and Round!" (GQ)
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07-09-2021, 11:56 AM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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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.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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07-09-2021, 12:03 PM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by disneysteve
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.
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+1 makes me wonder if the OP misinterpreted something.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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07-09-2021, 12:06 PM
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#25
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by audreyh1
.... No, a pension is not part of your net worth, as it can’t be passed along to heirs. ...
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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
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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07-09-2021, 12:26 PM
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#26
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Reading, MA
Posts: 1,714
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Quote:
Originally Posted by ncbill
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.
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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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07-09-2021, 01:21 PM
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#27
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,171
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Quote:
Originally Posted by old medic
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?
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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.
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 6%, rental income 20%
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07-09-2021, 01:42 PM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Posts: 12,598
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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.
Quote:
Originally Posted by old medic
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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__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success – to be able to spend your life in your own way.’ Christopher Morley.
Even a blind clock finds an acorn twice a day.
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07-09-2021, 01:53 PM
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#29
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Thinks s/he gets paid by the post
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 1,499
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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.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
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07-09-2021, 02:02 PM
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#30
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Dryer sheet aficionado
Join Date: Oct 2020
Posts: 43
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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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07-09-2021, 02:05 PM
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#31
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Thinks s/he gets paid by the post
Join Date: Aug 2012
Posts: 1,824
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Quote:
Originally Posted by flintnational
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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I'll have one of those please
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07-09-2021, 02:18 PM
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#32
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Thinks s/he gets paid by the post
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 1,499
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To quote Monty Python, "I told them we already got one. Its very nice!"
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
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07-09-2021, 02:27 PM
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#33
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Recycles dryer sheets
Join Date: Nov 2017
Posts: 87
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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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07-09-2021, 02:51 PM
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#34
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Thinks s/he gets paid by the post
Join Date: Jun 2017
Location: Western NC
Posts: 4,610
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Quote:
Originally Posted by rodi
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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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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07-09-2021, 02:59 PM
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#35
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Full time employment: Posting here.
Join Date: Sep 2016
Location: Way up North
Posts: 561
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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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07-09-2021, 03:14 PM
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#36
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Thinks s/he gets paid by the post
Join Date: Jun 2013
Posts: 2,518
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Quote:
Originally Posted by retire202052
A pension is most certainly part of your Net Worth. I calculate mine out to 20 years.
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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.
__________________
"Luck favors the prepared mind"
Pasteur
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07-09-2021, 03:20 PM
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#37
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Thinks s/he gets paid by the post
Join Date: Feb 2016
Location: SoCal
Posts: 1,286
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Quote:
Originally Posted by audreyh1
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.
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I chose to receive about $300 less per month so my heirs can collect my pension after I die.
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07-09-2021, 03:27 PM
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#38
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Recycles dryer sheets
Join Date: Jan 2020
Posts: 246
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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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07-09-2021, 03:59 PM
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#39
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,204
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Quote:
Originally Posted by Golden sunsets
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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This would be my answer…
…but what earthly difference does it make? None.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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07-09-2021, 04:39 PM
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#40
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Thinks s/he gets paid by the post
Join Date: Jun 2021
Posts: 1,504
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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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