Is a pension really FI?

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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.
 
$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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If you can get a $32k pension with a $118k cash value GRAB IT!!! 4 years of draw is break even.
 
If your pension is secure and it's enough to cover your living expenses, then yes, that makes you FI.
 
bobandsherry said:
If you can get a $32k pension with a $118k cash value GRAB IT!!! 4 years of draw is break even.
Click to expand...
^+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?
 
You can’t leave your pension to your kids but not being a burden to your kids because you have a pension is priceless!
 
Money In > Money Out = FI, no matter how it comes in.
 
finnski1 said:
^+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?
Click to expand...
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.
 
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.
 
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...
 
Vacation4us said:
You can’t leave your pension to your kids but not being a burden to your kids because you have a pension is priceless!
Click to expand...
In regards to a company pension when my father passed his electrical engineering pension is now being collected by my mother.
 
Nothing like a money spigot awaiting you. If it covers your expenses you are absolutely FI.
 
TheWizard said:
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...
Click to expand...

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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Aerides said:
Money In > Money Out = FI, no matter how it comes in.
Click to expand...

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.
 
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.

Nick12 said:
In regards to a company pension when my father passed his electrical engineering pension is now being collected by my mother.
Click to expand...
 
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.
 
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?).
 
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.
 
Amethyst said:
To me, FI = "don't need to work."
which may be what you paid into the pension fund during your career, perhaps?).
Click to expand...

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
 
finnski1 said:
^+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?
Click to expand...

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.
 
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.
 
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.
 
audreyh1 said:
.... No, a pension is not part of your net worth, as it can’t be passed along to heirs. ...
Click to expand...

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
 
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