Pension and Net Worth in Retirement Analysis

[meleana]

Taking the cash is a sure thing....... Also, most cash balance annuity options are insured. Check the fine print for who backs yours. I looked into mine and it was insured up to $5k / month. Am 100% safe as mine is $1518.00 lol lol Not bad after 29 years and 9 months.
Had a 280k lump option, or annuity. Took the monthly at 55. Partially due to taxes on the lump.

Well- we will not take the monthly annuity- not worth it. It is a 10 years certain type so it is not like it is forever anyway. Being hubby will already be 66 or 67-no sense in taking a monthly option. If you are younger- like yourself- that is different. You have a better chance of collecting all your money back before you die.



Hubby actually works for an insurance company so I am sure this is their own annuity plan so they can make even more money off of him!.



Right now the lump sum is down to just 180,000 and he has been there for 22 years- like I said- they killed it or it would have been close to $300,000.



There's no taxes on the lump sum if you transfer it directly to an IRA which is what we intend to do.

 

[audreyh1]

We don't spend net worth directly, we spend income that we get from net worth (and other sources like SS).


I use firecalc to predict the SWR from our investments and add that to the pensions and SS. Seems to be working well for last 12 years.

Yeah, the whole point of SWR is to figure out what you can safely withdraw from your own investable assets without drawing them down to zero during your expected lifetime. The other like pensions, SS, and annuities, are supposedly guaranteed income streams for as long as you live with already established annual amounts where you don’t have to worry about running out*. So you add the withdrawal from your investment portfolio to your other income streams and you get your annual income.

*making contingency plans for possible reductions in income might still be a good idea.

 

[Big_Hitter]

You could be us- my husband's pension was chopped off at the knees and it essentially stinks- $1500 per month- 10 year certain annuity only- so we will take the lump sum if still allowed when he retires (right now maybe 180,000)- but THAT has gone way down because of interest rates going up so we are screwed no matter what.

 

[Big_Hitter]

I was trying to quote and had issues posting.

Anyway, meleana, is this a tax-qualified db plan? Those have to offer life annuities as normal forms of payment, not certain only. I'd double check that.

 

[Winemaker]

I would really wonder where the discussion would go if the OP was asking about a positive cash flowing rental property, or a gaggle of them. 104 posts already.

 

[Jerry1]

I would really wonder where the discussion would go if the OP was asking about a positive cash flowing rental property, or a gaggle of them. 104 posts already.

I don’t know, but mr money mustache divorce thread is over 200 posts at this time .

 

[almost there]

Easy, it affects almost most everyone here, and there is no single right answer.
So, lots chime in...........

 

[Big_Hitter]

anyone arguing that a defined benefit pension isn't part of one's net worth has obviously not gone through a divorce with a pension

 

[RunningBum]

I would really wonder where the discussion would go if the OP was asking about a positive cash flowing rental property, or a gaggle of them. 104 posts already.

It's easy enough to ignore a thread if you don't care to see it. It won't even pop up on the list anymore.

For me, how to account for my future pension and SS is something I'm least sure I'm calculating correctly. Some say considering it in my net worth (with respect to calculating my withdrawal amount allowed) is incorrect, but I've yet to see a good alternative. So I'll continue to throw it in as an asset based on what it would cost to buy a similar annuity until someone comes up with a better way. Once I start taking them, I'll just take it out of my net worth and use at as a reduction of expenses, and calculate my withdrawal to cover the rest.

 

[Chuckanut]

meleana, no worries. Thats normal. It seems there is a larger % of retired Fed, State, City retirees here than average. A group you would think wouldnt have to spend much time here.

Your comment reminds of the time I was flying overseas and was seated to a guy who owned his own boat business. I was reading the WSJ on my tablet computer. He looked over and asked me why a teacher reads the WSJ. My reply was simple, "How do you think I can afford to be a teacher?" That pretty much ended his assumption, and we continued to enjoy the flight trading conversation back and forth.

 

[Chuckanut]

Long threads like this are interesting, IMHO. There are so many things to contemplate and so many ways to look at them. How dull the world would be if we were all the same and all thought the same way.

 

[almost there]

Your comment reminds of the time I was flying overseas and was seated to a guy who owned his own boat business. I was reading the WSJ on my tablet computer. He looked over and asked me why a teacher reads the WSJ. My reply was simple, "How do you think I can afford to be a teacher?" That pretty much ended his assumption, and we continued to enjoy the flight trading conversation back and forth.

Agree, was not meant as a negative at all. Just have never met as many with great COLA pensions as I have here.

 

[akck]

You can add it if you want, but I don't think it's part of your true NW anymore. I'm pretty sure if a bank asked for a net worth statement, they wouldn't want you to include the future value of payments - unless they are guaranteed somehow. If you die tomorrow (assuming not Joint), you would be worth 500K less than before you took the pension annuity.

Just before my wife retired, we decided to get a HELOC just in case. As part of the process, the bank wanted a copy of my determination letter from the pension fund, so they are interested in the income stream. I had just thrown it in a stack of papers, but now they’re filed away with our retirement papers for future use.

 

[audreyh1]

You can add it if you want, but I don't think it's part of your true NW anymore. I'm pretty sure if a bank asked for a net worth statement, they wouldn't want you to include the future value of payments - unless they are guaranteed somehow. If you die tomorrow (assuming not Joint), you would be worth 500K less than before you took the pension annuity.

A lender/bank values income stream over net worth. They want to see the former.

 

[gatored]

I haven't read the whole thread, but if $1MM nest egg is worth $40,000 income with a 4% SWR, why can't you reverse the equation. In the equation above the $1MM nest egg is worth $1MM in Net Worth.

If this annuity spins off $30,000, why couldn't you divide this by .04% , which would give you a Net Worth addition of $750,000. What am I missing?

 

[RunningBum]

I haven't read the whole thread, but if $1MM nest egg is worth $40,000 income with a 4% SWR, why can't you reverse the equation. In the equation above the $1MM nest egg is worth $1MM in Net Worth.

If this annuity spins off $30,000, why couldn't you divide this by .04% , which would give you a Net Worth addition of $750,000. What am I missing?

For one thing, a $30,000 pension that you won't be getting for 20 years isn't the same as a $30K pension that you get today.

 

[RunningBum]

Another thing, if you are putting them in NW to consider as part of your AA, counting $30K of income as $750K at 65 is not the same as at 85. This could really skew your AA.

 

[Big_Hitter]

If this annuity spins off $30,000, why couldn't you divide this by .04% , which would give you a Net Worth addition of $750,000. What am I missing?

you are assuming an immediate, infinite payment period and a discount rate of 4%

 

[Independent]

If you have been tracking NW over the years like I have, then add a note about the reduction in NW and move forward. No different than the notes on a corporate annual report. To me, a NW number has no meaning to me now that I am retired. It was a nice, simple figure to use as a FIRE goal when in the accumulation stage of my life. I now care more about SS and Annuity monthly incomes, investments and my necessary WR to support my chosen lifestyle. The only ones who will care about my NW is my heirs and if I'm lucky, the IRS.

+1

The only thing that matters is whether you have the resources to fund the spending you want to do (or will need to do). That's more complicated than a simple net worth.

All those years you were saving, you could have been stating your financial situation in terms of "annual dollars of retirement income funded so far". That's really what you were targeting.

 

[pb4uski]

I haven't read the whole thread, but if $1MM nest egg is worth $40,000 income with a 4% SWR, why can't you reverse the equation. In the equation above the $1MM nest egg is worth $1MM in Net Worth.

If this annuity spins off $30,000, why couldn't you divide this by .04% , which would give you a Net Worth addition of $750,000. What am I missing?

You are missing mortality for one... for each payment there is a likelihood that the benecificary and/or a surviving beneficiary in the case of a joint life annuity will not be alive to receive the benefit and that mortality impacts the cash flows and therefore impacts the value. The 4% rule assumes that inflation adjusted payments are paid for 30 years.

The other thing that you are mixing up is that the 4% rule is based on annual payments increasing with inflation so the first year's payment would be $30,000 but the second year's payment would be $30,000 plus inflation, etc. Most annuities are for fixed payments so the cash flows are drastically different.

 

[gatored]

For one thing, a $30,000 pension that you won't be getting for 20 years isn't the same as a $30K pension that you get today.

I must have missed this was a deferred annuity.

 

[PatrickA5]

Just before my wife retired, we decided to get a HELOC just in case. As part of the process, the bank wanted a copy of my determination letter from the pension fund, so they are interested in the income stream. I had just thrown it in a stack of papers, but now they’re filed away with our retirement papers for future use.

Agreed. Pension is part of income - which banks are more interested in. Not NW.

 

[street]

This thread has been interesting to follow. I don't have a pension and when I start SS I personally won't use that pension in my numbers. I do include IRA's, 401K, Mutual Fund accounts, CD's and cash to see where I am at with my portfolio. NW I have no idea what it is, because I don't really know for sure. My home and ranch and all the other assets who really knows what they are worth till you sell. I have an idea but how can you come up with a true honest number?

 

[Big_Hitter]

This thread has been interesting to follow. I don't have a pension and when I start SS I personally won't use that pension in my numbers. I do include IRA's, 401K, Mutual Fund accounts, CD's and cash to see where I am at with my portfolio. NW I have no idea what it is, because I don't really know for sure. My home and ranch and all the other assets who really knows what they are worth till you sell. I have an idea but how can you come up with a true honest number?

https://www.actuaryonfire.com/valuing-a-pension-actuary-style/

one way to do it

 

[street]

^ thanks. I don't always use the right terminology or explain in terms that people understand. You can say IRA's and 401K's are pensions but in my case I don't take any funds from them or will I use them as a pension. I will have to do the RMD at some time but most likely the distributions will go back into investing.