Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Preserving the buying power of a pension
Old 05-17-2021, 07:59 PM   #1
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
Preserving the buying power of a pension

Hi friends! 😃

If I have a pension that does not have a cola what would be a prudent amount to save in an etf index fund each year of the pension so that the buying power of the pension is preserved. Is it as simple as finding the CPI each year and saving that amount off the top of the next year's pension payment?

I will start my fers pension in 3.5 years at about 57 y.o. But will have no cola until 62 ad then it is a "diet cola"
(If the increase in the Consumer Price Index that is used to compute the COLA is 2% or less, the COLA is equal to the CPI increase. If the CPI increase is more than 2% but no more than 3%, the COLA is 2%. If the CPI increase is more than 3%, the adjustment is 1% less than the CPI increase. )

How would I compensate for this in retirement planning to equate a level pension amount throughout without saving too much? 😕
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-18-2021, 06:47 AM   #2
Recycles dryer sheets
 
Join Date: Jul 2011
Location: Reading, MA
Posts: 241
Another way to approach this situation is have a few hundred $K in investments at start of retirement which you could draw on to supplement that pension as time goes on.
I like that idea better...
TheWizard is offline   Reply With Quote
Old 05-18-2021, 07:10 AM   #3
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 3,012
Former Boeing Aerospace President "Bud" Henry K. Hebeler (RIP) has written several books and a web site that gives a methodical way to get to this answer that I found useful.

The books include:
J.K. Lasser's Your Winning Retirement Plan
and
Getting Started in A Financially Secure Retirement

I think that as a confirmation this can also be modeled in FireCalc and/or I-Orp.

-gauss
gauss is online now   Reply With Quote
Old 05-18-2021, 07:24 AM   #4
Thinks s/he gets paid by the post
street's Avatar
 
Join Date: Nov 2016
Posts: 4,572
So, you are talking about inflation. I would say one way to fight inflation is to stay invested in stock market for the long haul. If you can don't sell your holding etc..

Investing and stay invested. While switching to a more conservative portfolio seems like the safe option, diversifying with a mix of investments makes the most sense when protecting your portfolio against inflation.
street is online now   Reply With Quote
Old 05-18-2021, 07:55 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 29,043
Quote:
Originally Posted by militaryman View Post
How would I compensate for this in retirement planning to equate a level pension amount throughout without saving too much? ��
Quote:
Originally Posted by TheWizard View Post
Another way to approach this situation is have a few hundred $K in investments at start of retirement which you could draw on to supplement that pension as time goes on.
I like that idea better...
I have spent only a few minutes on this, and here is my thinking.

In the worst case, your pension with a diet COLA will run behind inflation by 1% each year. How do you make up for this? You need another source of income that gives you a supplemental 1%. But next year, your pension may be another 1% short, and now you need 2% extra, and so on. If high inflation persists for a few years, your supplemental requirement can grow quite large.

If you have an extra stash to draw on, you will have to draw more and more on it. That stash will have to generate more and more income, meaning it has to have a return far exceeding inflation. There's no such thing.

It follows then that this stash will dwindle with time. And this is OK if it is large enough to last your lifetime.

Now, how large is that? If we want to get more specific, then we need to model how bad inflation is going to be, and some assumption on what kind of return that stash can generate.

Seems to me like one can draw on past historical data to model the above. FIRECalc can model either a full COLA'd income, or a non-COLA one, but it does not have a diet COLA model.

Is there another calculator that can do this?
__________________
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 05-18-2021, 07:55 AM   #6
Recycles dryer sheets
 
Join Date: Jul 2020
Location: Western NC
Posts: 236
My pension will not have a set COLA, but has gotten a small increase every few years.
Wife is the same. We both have 401Ks for some reserve funds if needed.
__________________
Going from EMS to PDN
Earn Money Sleeping/ Paid Doing Nothing
old medic is offline   Reply With Quote
Old 05-18-2021, 08:08 AM   #7
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
Quote:
Originally Posted by NW-Bound View Post

Seems to me like one can draw on past historical data to model the above. FIRECalc can model either a full COLA'd income, or a non-COLA one, but it does not have a diet COLA model.

Is there another calculator that can do this?
Thanks for all the replies! Haven't found the "diet cola" pension modeling yet. I do have a decent TSP account that I will be using to keep me from drawing SS until 70 (67 for spouse) and there should be enough to cover inflation but was just wondering if there was a rule of thumb that could neatly compensate for an ever decreasing value of a pension that is not indexed to inflation via a full cola.

On a different track somewhat but kinda tied to it is the idea that my FEHB premiums and Dental Premiums will come from my FERS pension and health care cost usually rise MUCH faster than inflation. SO the premiums will be taking a bigger and bigger chunk of the FERS pension and 15 years or so down the road it could look like a paltry amount that actually gets paid to my checking account after the premiums are taken out. So I was wondering if it would be too risky to at 65 years old just use Medicare and Tricare (suspend FEHB) which I should qualify for (retired Guard) at 60 years old?
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Old 05-18-2021, 08:13 AM   #8
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
Also what about from age 60-65? Anyone in my boat (Retired reserves/Guard and Federal Retiree also) use Tricare Prime and a very low cost FEHB premium plan as a backup? OR Tricare alone?
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Old 05-18-2021, 08:21 AM   #9
Thinks s/he gets paid by the post
jollystomper's Avatar
 
Join Date: Apr 2012
Posts: 3,637
Quote:
Originally Posted by TheWizard View Post
Another way to approach this situation is have a few hundred $K in investments at start of retirement which you could draw on to supplement that pension as time goes on.
I like that idea better...
+1

This is what I have done with my non-COLA pension. I prefer this simpler approach. I put enough in cash to supplement it until I start drawing SS.
__________________
FIREd date: June 26, 2018 - wwwwwwhat a rush!
jollystomper is offline   Reply With Quote
Old 05-18-2021, 08:36 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 12,225
Quote:
Originally Posted by NW-Bound View Post

Seems to me like one can draw on past historical data to model the above. FIRECalc can model either a full COLA'd income, or a non-COLA one, but it does not have a diet COLA model.
FWIW, I 'solved' this problem by splitting my pension in half. One half is labeled as non COLA'd and the other half is labeled as COLA'd. It's an estimate of course, but I can't help thinking it must be more accurate than choosing 100% no-COLA or 100% full COLA'd which I know for certain is not correct.

Just for kicks I ran FireCalc with my pension fully non COLA'd and SS cut by 25%. I would have to eliminate my occasional weekend trips to Paris for dinner at Alain Ducasse au Plaza Athenee (fixed price - $425), but, I won't lose the farm. Besides, I can always make up a big pot of 'bachelor stew' at home that will feed me for a long weekend.

If the cost of living should skyrocket I can change the percentages allocated to COLA and non-COLA and rerun FireCalc.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 05-18-2021, 08:44 AM   #11
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
If I can figure out the FEHB suspend thing and still maintain good coverage then I think that will more than make up for my inflation compensation as well as eliminating one of the biggest inflation eating portions of my budget (healthcare premiums) The plan I currently carry with FEHB is $4918/year in premiums and switching to Tricare when allowed at 60 would exchange that $4918/yr for $606/yr in todays dollars.

https://www.nitpinc.com/tricare-plus...en-you-retire/
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Old 05-18-2021, 08:53 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Apr 2015
Posts: 2,433
OP
There is a long time member and former moderator here, Nords, who has written much about military retirement/benefits/etc.
Look under FAQs or look him up and try to pm him.
I am not military, but have learned much from his posts in the past.
__________________
You are no longer in a savings mode.
You are now in a slow spend down mode.
pacergal is offline   Reply With Quote
Old 05-18-2021, 10:07 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 29,043
Quote:
Originally Posted by Chuckanut View Post
FWIW, I 'solved' this problem by splitting my pension in half. One half is labeled as non COLA'd and the other half is labeled as COLA'd. It's an estimate of course, but I can't help thinking it must be more accurate than choosing 100% no-COLA or 100% full COLA'd which I know for certain is not correct.

Just for kicks I ran FireCalc with my pension fully non COLA'd and SS cut by 25%. I would have to eliminate my occasional weekend trips to Paris for dinner at Alain Ducasse au Plaza Athenee (fixed price - $425), but, I won't lose the farm. Besides, I can always make up a big pot of 'bachelor stew' at home that will feed me for a long weekend.

If the cost of living should skyrocket I can change the percentages allocated to COLA and non-COLA and rerun FireCalc.

Hey, that sounds like a reasonable approximation to me.

About Michelin rated restaurants, I have not been to one. One of these days...

I would have to bring nice clothes and formal shoes with me on a trip, and that brings another complication.
__________________
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 05-18-2021, 10:20 AM   #14
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: Country Living
Posts: 4,974
Quote:
Originally Posted by militaryman View Post
Also what about from age 60-65? Anyone in my boat (Retired reserves/Guard and Federal Retiree also) use Tricare Prime and a very low cost FEHB premium plan as a backup? OR Tricare alone?
Not sure why you would want/need a backup plan if you are eligible for Tricare Prime. The max OOP is *only* $3,000 year (if you are group A which I am guessing you are). I don't know if there is a difference in the Prime cost between reserve/guard retirees or active duty retirees (my case) but I don't think there is except the group A and B differences.
__________________
"I did nothing. I did absolutely nothing, and it was everything I thought it could be." -Peter Gibbons
Retired in 2014 at the Ripe Age of 40
ExFlyBoy5 is online now   Reply With Quote
Old 05-18-2021, 10:29 AM   #15
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
Quote:
Originally Posted by ExFlyBoy5 View Post
Not sure why you would want/need a backup plan if you are eligible for Tricare Prime. The max OOP is *only* $3,000 year (if you are group A which I am guessing you are). I don't know if there is a difference in the Prime cost between reserve/guard retirees or active duty retirees (my case) but I don't think there is except the group A and B differences.

Thanks, I am hoping that is right --- Just didn't know if for some reason you need to choose an "out of TRICARE network" specialist for a procedure (that FEHB would cover if you had as backup) if that would come into play. Like whether any provider out of network counts towards the $3,000 max OOP ---

I am group "A"
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Old 05-18-2021, 10:33 AM   #16
Recycles dryer sheets
latexman's Avatar
 
Join Date: Mar 2014
Location: Apex
Posts: 486
Quote:
Originally Posted by militaryman View Post
I will start my fers pension in 3.5 years at about 57 y.o. But will have no cola until 62 ad then it is a "diet cola"
(If the increase in the Consumer Price Index that is used to compute the COLA is 2% or less, the COLA is equal to the CPI increase. If the CPI increase is more than 2% but no more than 3%, the COLA is 2%. If the CPI increase is more than 3%, the adjustment is 1% less than the CPI increase. )
Sounds like Bernicke's Reality Retirement Plan by design, right? Actually, it's (Bernicke's Reality Retirement Plan)^2, one spends less as one ages and slows down, X (times) the employer not providing a full COLA.

But, you are lucky, my megacorp pension is no COLA!
latexman is offline   Reply With Quote
Old 05-18-2021, 10:37 AM   #17
Recycles dryer sheets
Osprey's Avatar
 
Join Date: Jul 2016
Posts: 109
Will you also be eligible to get the FERS social security supplement which is paid from retirement until you reach age 62? For me, setting aside money to replace the social security supplement until I decide to take social security is of greater concern that the inflation issue which I will deal with by drawing down from my TSP as needed.
Osprey is offline   Reply With Quote
Old 05-18-2021, 10:38 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Jun 2002
Posts: 1,310
As a military retiree, I never used Tricare Prime in my pre-Medicare days because I didn’t want to deal with an HMO-type plan. I used Tricare Standard with a supplement from MOAA. Once I became Medicare-eligible I used it plus the free Tricare for Life (TFL) as the supplement. I have been completely satisfied. I have had virtually no out-of-pocket expenses except for the co-pays on the TFL drug plan (but that coverage is included in TFL).
__________________
friar1610
friar1610 is offline   Reply With Quote
Old 05-18-2021, 11:04 AM   #19
Full time employment: Posting here.
 
Join Date: Oct 2014
Posts: 982
Quote:
Originally Posted by militaryman View Post
Thanks for all the replies! Haven't found the "diet cola" pension modeling yet. I do have a decent TSP account that I will be using to keep me from drawing SS until 70 (67 for spouse) and there should be enough to cover inflation but was just wondering if there was a rule of thumb that could neatly compensate for an ever decreasing value of a pension that is not indexed to inflation via a full cola.

On a different track somewhat but kinda tied to it is the idea that my FEHB premiums and Dental Premiums will come from my FERS pension and health care cost usually rise MUCH faster than inflation. SO the premiums will be taking a bigger and bigger chunk of the FERS pension and 15 years or so down the road it could look like a paltry amount that actually gets paid to my checking account after the premiums are taken out. So I was wondering if it would be too risky to at 65 years old just use Medicare and Tricare (suspend FEHB) which I should qualify for (retired Guard) at 60 years old?
You seem to have mutiple streams of income. FERS in a few years with COLA (lite), Guard pension at age 60 which is full COLA, SS at 62-70 which is COLA. You have TSP which hopefully has some equities (C fund) component to it. Medicare at 65 so no need for FEHB. I think that you are sitting pretty. If your TSP return is a % or 2 above CPI every year on average you will be ahead of the game. Good luck and thanks for your service.
__________________
-Big Dawg-FI since 9/2010. Failed ER in 2015. New target 2021.-

-"Blow that dough"-Robbie

" People say I'm lazy, dreaming my life away Well, they give me all kinds of advice designed to enlighten me When I tell them that I'm doing fine watching shadows on the wall "Don't you miss the big time, boy. You're no longer on the ball" -John Lennon-
Bigdawg is offline   Reply With Quote
Old 05-18-2021, 11:11 AM   #20
Recycles dryer sheets
 
Join Date: Jun 2007
Location: Oklahoma City
Posts: 301
Quote:
Originally Posted by Osprey View Post
Will you also be eligible to get the FERS social security supplement which is paid from retirement until you reach age 62? For me, setting aside money to replace the social security supplement until I decide to take social security is of greater concern that the inflation issue which I will deal with by drawing down from my TSP as needed.
Yes, I will collect the FERS "SS" Supplement and then use more of my TSP balance to maintain a budget of $85K per year which is approx. $15K above what I spend now while working (after adjusting for no retirement contributions and SS/Medicare tax)
__________________
USAF Veteran -- Retired Air National Guard -- OSW -- ONW -- OIF
militaryman is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Preserving your wealth.... Art G FIRE and Money 32 11-07-2008 04:16 PM

» Quick Links

 
All times are GMT -6. The time now is 02:01 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.