Poll: Does a Pension factor into your FIRE Plans?

[exnavynuke]

It certainly does. There are calculators that give a present value over an annuity that grows by a set percentage every year. Can't find one offhand but it would make the pension worth a LOT more.

I put my age (40) in with a "life" annuity with 3% COLA adjustment for a $1750/month annuity. The price quotes that came back from immediateannuities.com ranged from $717k-914k to buy an annuity with those requirements. Without the 3% COLA the prices ranged from $418-501k.

 

[Hermit]

I have (what appears to be, at least on this site) a contrary view on my pension and AA. I have a significant local govt pension payable beginning in a decade and in my view the single biggest risk of the pension being diminished is equity risk. That is, when the equity markets experience a significant decline the funded status experiences a significant decline due to the 70% equity allocation of the pension fund. The local tax base is also largely correlated with the equity market. It is for this reason that I treat my pension as Equity, not FI. My own personal assets therefore have a much higher FI allocation.

That's kinda scary. For a fund that I assume has to pay out a certain percentage every year that sounds like a high equity allocation to me. I hope that 70% is in fairly conservative equities. It sounds like you are assuming the risks the city is taking are yours, not the city's. I think you are doing the right thing. My Megacorp dumps money (billions from annual profits if needed) in to the pension fund if it gets too low. Maybe someone with experience in this area can jump in here.

 

[RockyMtn]

That's kinda scary. For a fund that I assume has to pay out a certain percentage every year that sounds like a high equity allocation to me. I hope that 70% is in fairly conservative equities. It sounds like you are assuming the risks the city is taking are yours, not the city's. I think you are doing the right thing. My Megacorp dumps money (billions from annual profits if needed) in to the pension fund if it gets too low. Maybe someone with experience in this area can jump in here.

+1. If you're pension isn't fairly conservatively invested I would opt for a lump sum option if available.

 

[pablo]

It is not uncommon for public pension funds in the US to have up to 70% in equities. In this case, public equities account for nearly 60% of the 70% total. This is on the high end for public funds, but others have similar allocations. The equities are largely passive US equities followed by passive non-US equities. Russell 3000 and ACWI ex-US indexes are used - the entire public market is owned and there is no concept of 'conservative' equities here.

The equity risk of the pension fund is indeed a risk for me personally. It is one of the largest risks I have. If the equity market does well, my pension is assured. If the equity market does poorly my pension might be diminished or impaired.

Since I am vested there is no option for a lump sum payment.

 

[RockyMtn]

It is not uncommon for public pension funds in the US to have up to 70% in equities. In this case, public equities account for nearly 60% of the 70% total. This is on the high end for public funds, but others have similar allocations. The equities are largely passive US equities followed by passive non-US equities. Russell 3000 and ACWI ex-US indexes are used - the entire public market is owned and there is no concept of 'conservative' equities here.

The equity risk of the pension fund is indeed a risk for me personally. It is one of the largest risks I have. If the equity market does well, my pension is assured. If the equity market does poorly my pension might be diminished or impaired.

Since I am vested there is no option for a lump sum payment.

I don't know that I would consider those levels of equities to be out of line. How else are they supposed to be keep up with inflation? But if it makes you sleep better at night by all means count the pension as a % of your equity AA!

 

[pablo]

I sleep very well now that I'm FIRE'd!

 

[Huston55]

I don't know that I would consider those levels of equities to be out of line. How else are they supposed to be keep up with inflation? But if it makes you sleep better at night by all means count the pension as a % of your equity AA!

I just reviewed CalPERS' AA, and it is on the low end of this (~50-60% equities). CalPERS is the largest pension system in the US and, I suppose this is typical but, I'm surprised. Maybe I shouldn't be. BTW, CalPERS is underfunded & many small California municipalities covered by it seem to be struggling.

Guess those state & local defined benefit pensions are not as solid as I'd previously thought.

 

[Just_Steve]

I just reviewed CalPERS' AA, and it is on the low end of this (~50-60% equities). CalPERS is the largest pension system in the US and, I suppose this is typical but, I'm surprised. Maybe I shouldn't be. BTW, CalPERS is underfunded & many small California municipalities covered by it seem to be struggling.

Guess those state & local defined benefit pensions are not as solid as I'd previously thought.

CalPers is second largest in the country but the largest state fund.

1 Federal Retirement Thrift Investment Board

2 California Public Employees' Retirement System

3 California State Teachers' Retirement System

4 New York State Common Retirement Fund

5 New York City Retirement Systems

 

[Mulligan]

I have (what appears to be, at least on this site) a contrary view on my pension and AA. I have a significant local govt pension payable beginning in a decade and in my view the single biggest risk of the pension being diminished is equity risk. That is, when the equity markets experience a significant decline the funded status experiences a significant decline due to the 70% equity allocation of the pension fund. The local tax base is also largely correlated with the equity market. It is for this reason that I treat my pension as Equity, not FI. My own personal assets therefore have a much higher FI allocation.

I am with you Pablo... If I live long enough to make Methuselah jealous I still will not be a 1% er. But my pension is close to double what I need to live on the past 7 years of retirement. I dont need the risk of commons. So I dont.....

 

[NW-Bound]

Pension? What pension?

Had I stayed at megacorp with that cushy job instead of trying to get rich by striking out on my own, I would have probably a $3K/month pension and a 401k at least $500K richer. And that's even with early retirement.

When one is 40, he is gung-ho and does not think of retirement. Plus who cares about a megacorp pension when he is about to make millions with these hot ventures?

 

[Montecfo]

Fair enough, I should clarify that the majority of the members here are very upfront regarding their situation. We should all be sure to avoid flippant opinions that may have an adverse effect. The majority of those statements appear with little prior posting and disappear after awhile.

it is an interesting point. I do think perspectives offered are most valuable within the context of one's personal situation. Just think of asset allocation and withdrawal strategies (very frequent topics): The perspective of someone with a significant pension is different than one that has all of their future riding on saved assets, for example.

I think of myself in the latter camp, though DW does have a very small pension, diet colo, that she can begin taking at 60.

Though not a material part of our income planning, I do expect it to be a reliable one. She did not work most of her earning years, so we are very pleased that she managed to qualify (with a bit of jostling).

 

[kcowan]

When I was 55, the NPV of my pensions played a big role in my AA. Now 20 years later, it is a relatively minor factor. Surviving two equity market slumps was a major factor.

 

[RockyMtn]

I just reviewed CalPERS' AA, and it is on the low end of this (~50-60% equities). CalPERS is the largest pension system in the US and, I suppose this is typical but, I'm surprised. Maybe I shouldn't be. BTW, CalPERS is underfunded & many small California municipalities covered by it seem to be struggling.

Guess those state & local defined benefit pensions are not as solid as I'd previously thought.

Yes they are not as solid as many thought. Check out the Dallas Police and Fire Pension fund. People are retiring and taking lump sums because it is teetering.

Interestingly, in the CalPers fund the recent (6/30/2016) target AA shows 61% equities (of which 82% is equites, the rest Private Equity), 20% Income, 12% Real Estate, 1% Infrastructure and 6% Inflation (commodities, options, structured notes, credit default swaps, etc).

They manage a cool $295billion.

 

[Backdraft57]

I sleep very well now that I'm FIRE'd!

Amen Brother! No more cell phone or pager calls at 0200!

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

 

[Chuckanut]

Pension? What pension?

FWIW, which is probably very little, my first job out of college was with an oil company. Fully paid pension, savings plan where they matched my contribution up to 4% dollar for dollar, and an Employee Stock Ownership Plan.

Now that is a good way to plan for retirement, right?

For the oldsters yes. But, for my generation the good times lasted maybe another 20 more years at most. Downsizing, mergers, etc. put a lot of people who thought they had it made in the shade on the street where the great deal they had was not to be found again.

 

[Huston55]

FWIW, which is probably very little, my first job out of college was with an oil company. Fully paid pension, savings plan where they matched my contribution up to 4% dollar for dollar, and an Employee Stock Ownership Plan.

Now that is a good way to plan for retirement, right?

For the oldsters yes. But, for my generation the good times lasted maybe another 20 more years at most. Downsizing, mergers, etc. put a lot of people who thought they had it made in the shade on the street where the great deal they had was not to be found again.

Reminds me of when I left Air Force active duty and was offered a Civil Service engineering job; would have been under CSRS retirement system. I decided instead to work in the commercial sector, for a large engineering & construction company for 31 yrs. But, 31 yrs under CSRS would have resulted in a great pension; likely in the $70k/yr range, which is the equivalent of well over $1M lump sum.

Always interesting to think about the path not taken.

 

[Danmar]

it is an interesting point. I do think perspectives offered are most valuable within the context of one's personal situation. Just think of asset allocation and withdrawal strategies (very frequent topics): The perspective of someone with a significant pension is different than one that has all of their future riding on saved assets, for example.

To think that someone would make a significant change to something as important as their retirement finances based on opinions presented in an anonymous internet chat room, boggles my mind. Surely not.

 

[NW-Bound]

FWIW, which is probably very little, my first job out of college was with an oil company. Fully paid pension, savings plan where they matched my contribution up to 4% dollar for dollar, and an Employee Stock Ownership Plan.

Now that is a good way to plan for retirement, right?

For the oldsters yes. But, for my generation the good times lasted maybe another 20 more years at most. Downsizing, mergers, etc. put a lot of people who thought they had it made in the shade on the street where the great deal they had was not to be found again.

Indeed many megacorps canceled their pension plan, but my former employer did not. Actually, they grandfathered that for existing employees, and only stopped for new hires. And their 401k matching was more generous than that of many other megacorps. The pension income number that I quoted earlier was based on that of a guy I know who is about my age, and also retired early at 55.

My itsy-bitsy teeny-weeny yellow polkadot [-]bikini[/-] FERS pension covers 10% of what FIRECalc says I can spend*...

I saw this earlier, thought about it, and put it aside. But I cannot help now but post that song for the youngsters who might not have known it. I learned of this song in French as sung by Dalida (it made #1 in France), but I just found the original version. It made #1 in the US and in New Zealand, in addition to being among top 10 in several other countries.

 

[NavAir]

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.

This hits the nail on the head! Have a (or more than one) pension, you have good prospects for retiring early (whatever early is for you). No pension, it is much more difficult.

Steve

 

[Walt34]

Guess those state & local defined benefit pensions are not as solid as I'd previously thought.

It depends on which ones. Many are in fine shape but that makes for a boring news story. Can you picture the headline:

County Pension System Responsibly Managed and Fully Funded! No One is Going to Eat Cat Food!

How many people are gonna read that?

 

[Teacher Terry]

Ours is doing well but my siblings retired from IL and their plans are not doing as well.

 

[ABQ2015]

This hits the nail on the head! Have a (or more than one) pension, you have good prospects for retiring early (whatever early is for you). No pension, it is much more difficult.

Steve

It helps but any significant pension can mean the golden handcuffs. Retiring early (e.g., age 50) may involve not collecting the pension until years later at age 62 or 65 with no COLA for those years. With salary increases and ten more years my pension at age 60 with 30 years of service doubled from what it would have been at age 50 with 20 years of service. And I would not have been able to collect until age 60.

 

[Badbreath]

I have to agree with Jollystomper I have one that is worth $300k but I do not take it into my retirement calculation. Just will give us a bit more in the end

 

[Koolau]

I voted "over 25%" but that will continue to drop since it is not COLA protected. Perhaps a better "gift" Megacorp gave me was Health Insurance subsidy. There have been years when that has been more valuable than my pension. Coordinating with MC, our out of pocket costs have been quite manageable of late. As HC costs escalate, and as we slip into decrepitude I don't know where we will end up on that daunting front. YMMV

 

[NW-Bound]

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...

MIL smoked her entire life and finally succumbed at 93. So do not count on it!

+1
My Dad was a very heavy smoker all his life plus worked underground as a coal miner for 42 years and lived to age 84...

Life is full of uncertainties, and not everyone who does the same thing faces the same fate. A while back, I read that out of 10 lung cancer patients, only one is a non-smoker. Yet, only one out of 10 smokers eventually gets cancer.

Lung cancer is not the only health risk with smoking, however. My 92-year-old MIl was hospitalized recently with pneumonia. When examining her X-ray, and seeing that she said not to be a smoker, the doctor said that she had to have been a smoker in the past because it showed. Indeed she used to smoke, but I do not know how heavily. She is now classified as having COPD, and is on oxygen, perhaps permanently.