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Is a pension really FI?
Old 07-09-2021, 08:13 AM   #1
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Is a pension really FI?

Is it income or net worth?
My pension will provide us about $32.5K/yr... Income correct.
And if one of us lives at least 30 years.. worth nearly $1M, but leaves nothing for our estate purpose. (We can, and want to, place some of this income in places to leave, cash, investments and such.)
Now I can take a payout of $118K instead of the pension. so is that the actual net worth of the account? Aint worth crap for a FI retirement account is it.
We have no control over the money or investments, and when we're gone, whatever is left stays.... That's not independent.
Now the DW has about the same pension and $ figures, retiring in 5 years. If we cashed out everything across the board instead of taking the pensions, we might have $500K for investing to retire on.
Defiantly not the best financial choice.
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Old 07-09-2021, 08:51 AM   #2
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$118K won't buy an annuity worth anything close to $32.5K/yr payout so I'd take the annuity. While it's true you can't leave a pension to your heirs you can use it to avoid spending down the other assets they will inherit, so in that sense it can have a similar impact on net worth (assuming you live long enough).


PS. The value of an an annuity depends on many factors including your age and how soon you'll commence receiving it, but the online calculator at immediateannuities.com suggests the value of yours is probably at least 5-6x the $118K you've been offered. I'd only consider taking the payout if pension funding was seriously in doubt or you expect to die really soon.
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Old 07-09-2021, 09:03 AM   #3
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If you can get a $32k pension with a $118k cash value GRAB IT!!! 4 years of draw is break even.
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Old 07-09-2021, 09:11 AM   #4
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Originally Posted by bobandsherry View Post
...GRAB IT!!! 4 years of draw is break even.
^^^this^^^

For the general question, it comes down to how secure you believe the pension to be. Many companies go bankrupt and stop paying out. Even some government pensions are in jeopardy.
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Old 07-09-2021, 09:31 AM   #5
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If your pension is secure and it's enough to cover your living expenses, then yes, that makes you FI.
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Old 07-09-2021, 09:34 AM   #6
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If you can get a $32k pension with a $118k cash value GRAB IT!!! 4 years of draw is break even.
^+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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Old 07-09-2021, 09:34 AM   #7
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You can’t leave your pension to your kids but not being a burden to your kids because you have a pension is priceless!
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Old 07-09-2021, 09:36 AM   #8
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Money In > Money Out = FI, no matter how it comes in.
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Old 07-09-2021, 09:36 AM   #9
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Originally Posted by finnski1 View Post
^+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? That doesn't sound right at all.
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Old 07-09-2021, 09:48 AM   #10
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In a theoretical sense there is no such thing as FI, as we are all dependent upon certain things/concept/agreements.

While I have faith that things will continue along fine, we have all seen in other countries/time events that destroyed the idea of FI.

Even if I have $10M , should the gov't collapse, or we get invaded by a foreign country, or 1929 stock market event occurs, or a hacker wipes out the bank records.
or a 1 km meteorite hits earth, or 10,000 % inflation occurs.

I'm suddenly POOR again.
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Old 07-09-2021, 09:49 AM   #11
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As you approach retirement, to need to focus more on having a viable income plan and less on maintaining your net worth.

Others point out that your pension annual payout is quite excellent, so definitely keep that.

I annuitized a hefty amount from my 403(b) for lifetime income at start of retirement eight years ago. My net worth fell by maybe 30% at the time.
But since the WHOLE PURPOSE of that retirement account was to provide a handsome retirement income, it bothered me not a whit...
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Old 07-09-2021, 09:51 AM   #12
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You can’t leave your pension to your kids but not being a burden to your kids because you have a pension is priceless!
In regards to a company pension when my father passed his electrical engineering pension is now being collected by my mother.
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Old 07-09-2021, 09:55 AM   #13
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Nothing like a money spigot awaiting you. If it covers your expenses you are absolutely FI.
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Old 07-09-2021, 10:41 AM   #14
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As you approach retirement, to need to focus more on having a viable income plan and less on maintaining your net worth.

Others point out that your pension annual payout is quite excellent, so definitely keep that.

I annuitized a hefty amount from my 403(b) for lifetime income at start of retirement eight years ago. My net worth fell by maybe 30% at the time.
But since the WHOLE PURPOSE of that retirement account was to provide a handsome retirement income, it bothered me not a whit...
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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Old 07-09-2021, 10:56 AM   #15
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Money In > Money Out = FI, no matter how it comes in.
Right. FI and 'wealth' are often two different things.

FI can come through your own wealth of course (stocks, dividends, rents etc), but FI can also come from SS, pensions, sale of assets, family trust funds and so on.
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Old 07-09-2021, 10:58 AM   #16
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Yeah - pension heritability depends totally on the pension terms. Some can get passed on 100% to spouse; some require you to take a big deduction if you want to bequeath anything.

Haven't heard of any pension that kids can inherit; again, it all depends on the terms of that pension plan.

Quote:
Originally Posted by Nick12 View Post
In regards to a company pension when my father passed his electrical engineering pension is now being collected by my mother.
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Old 07-09-2021, 11:00 AM   #17
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Thanks all... let me respond to a few posts.
Hawkeye... it comes down to how secure you believe the pension to be. We are both in state retirement... not a 100% guarantee but close.

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?
It is funny .... mandatory contributions are matched by our employers, but that stays in the account... So half the money they ever collect is forever there....

Sunset...In a theoretical sense there is no such thing as FI. We are of the line of SR...
Self Reliance... should the worst case occur we hope to manage to survive.

Wizard... focus more on having a viable income plan and less on maintaining your net worth.

I agree... dying worth $2M and not living before hand is stupid... We want to leave a safety net behind us, not a cushy bed to just lay around in.
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Old 07-09-2021, 11:02 AM   #18
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To me, FI = "don't need to work."

No matter how you got there.

For OP, +100 on taking the pension, not the $118K (which may be what you paid into the pension fund during your career, perhaps?).
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Old 07-09-2021, 11:08 AM   #19
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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.
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Old 07-09-2021, 11:08 AM   #20
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To me, FI = "don't need to work."
which may be what you paid into the pension fund during your career, perhaps?).
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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