Calculating the Present Value of Your Pension

[2retireearly]

In my case the lump was over 1 million. I got that money working for me right away and today it is just short of tripling.

I believe if mine was a small pension I would have taken have taking the annuity. I also factored in what a monthly pension payout would have done for my health insurance costs for wife and I. I got ACA from the start of ER at age 58 so I saved thousands and thousands of bucks not taking an annuity payout.

Everyone's case seems to be different and for some, one thing is a game changer, and for the other it is not.

I was just showing pure math, and how values are calculated for payout on annuities, and the cost of annuities. One should know this if presented with an option to take a payout or not. and also letting the OP know, his cacl shown in his inital posting is not right.. I , It is also what you would deposit into a Single Premium Immediate Annuity to get 85k a year at 3%, for 30 years (minus commission)

 

[street]

I was just showing pure math, and how values are calculated for payout on annuities, and the cost of annuities. One should know this if presented with an option to take a payout or not. and also letting the OP know, his cacl shown in his inital posting is not right.. I , It is also what you would deposit into a Single Premium Immediate Annuity to get 85k a year at 3%, for 30 years (minus commission)

Yes, and you explained that very well, thank you.

 

[Koolau]

In my case the lump was over 1 million. I got that money working for me right away and today it is just short of tripling.

I believe if mine was a small pension I would have taken have taking the annuity. I also factored in what a monthly pension payout would have done for my health insurance costs for wife and I. I got ACA from the start of ER at age 58 so I saved thousands and thousands of bucks not taking an annuity payout.

Everyone's case seems to be different and for some, one thing is a game changer, and for the other it is not.

I called my benefits office and they wouldn't even tell me what the lump sum was as it was not available to me. I reread my empl*yee manual and, sure enough, the pension was only available as an annuity type payment. No idea why, but that was policy.

Heh, heh, street, I think it's time to turn some of that money into some more land! Maybe the whole county!

 

[success108]

This may be a simple question. My wife and I will get a pension at age 60 and age 62. Both are non-cola pensions, and we know what the annual amounts will be.

To calculate the value, is it as simple as multiplying the annual amount by the number of years we expect to live?

A simple estimate would be to determine life expectancy first:

• Joint survivor: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Joint-Life-Expectancy-Table.pdf
• Individual: https://www.ssa.gov/oact/STATS/table4c6.html

Then determine the PV of the annuity using the life expectancy as the payment duration. You can use a calculator like this one: https://www.financialmentor.com/calculator/present-value-of-annuity-calculator

Example: 60-year-old, male, single life annuity paying 85k/year, discounted at 3%:
- Life expectancy: 20.5 years
- PV: 1.31M

In practice you would build a stream of future payments adjusted for survivorship each period, and discount those at an appropriate yield curve.

 

[livingalmostlarge]

In the past decade it is 0.27% return for my mom since raymond james are jerks.

It could have been aggressively invsted since pension and SS cover all expenses.

 

[threegoofs]

A formula I heard was, for every $100 per month, count $18K of value.

Thats about $1.25MM for a pension that pays 85k/yr.

That sounds more realistic, and closer to the lump sum value pensions would give you.

 

[Texas Proud]

Or go to immediateannuity.com (might be with an s on the end) and just put in the numbers...


This is a REAL estimate as it is what you would need to invest today to get that annuity...

 

[pb4uski]

A formula I heard was, for every $100 per month, count $18K of value.

Thats about $1.25MM for a pension that pays 85k/yr.

That sounds more realistic, and closer to the lump sum value pensions would give you.

According to immediateannuities.com, an SPIA that pays $85k a year for a 65 yo couple would cost $1.35 million, so your formula is only 8% off.

But something like immediateannuities.com is better because it takes age into account more accurately that your formula.

 

[pb4uski]

A simple estimate would be to determine life expectancy first:

• Joint survivor: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Joint-Life-Expectancy-Table.pdf
• Individual: https://www.ssa.gov/oact/STATS/table4c6.html

Then determine the PV of the annuity using the life expectancy as the payment duration. You can use a calculator like this one: https://www.financialmentor.com/calculator/present-value-of-annuity-calculator

Example: 60-year-old, male, single life annuity paying 85k/year, discounted at 3%:
- Life expectancy: 20.5 years
- PV: 1.31M

In practice you would build a stream of future payments adjusted for survivorship each period, and discount those at an appropriate yield curve.

That is pretty close the $1.290m cost of a SPIA for a 60yo male paying $85k a year on immediateannuities.com

 

[Drake3287]

Although I think my CalPERS pension is probably in a different category than many private pensions out there, in my 30+ years of working I can only think of one person that ever took the lump sum payout and it turned out to be the biggest mistake of his life even after everyone warned him not to do it.

In his case he bought a small business with it and eventually went out of business. He ended up becoming a truck driver until his death simply because he was broke and needed to work still.

 

[statsman]

That is pretty close the $1.290m cost of a SPIA for a 60yo male paying $85k a year on immediateannuities.com

I just checked my modest, non-COLA pension at the link above, and the amount needed to fund it is 60% higher than the lump sum I was offered 6 years ago. I knew the lump sum offer was a bad deal, and I really wanted the lump sum. But the Megacrop hemmed me into the pension payments. Payments that now have been farmed out to a separate annuity company, which falls under the state's insurance limits should the insurance company default.

 

[Koolau]

I just checked my modest, non-COLA pension at the link above, and the amount needed to fund it is 60% higher than the lump sum I was offered 6 years ago. I knew the lump sum offer was a bad deal, and I really wanted the lump sum. But the Megacrop hemmed me into the pension payments. Payments that now have been farmed out to a separate annuity company, which falls under the state's insurance limits should the insurance company default.

Years ago, when I called the benefits office, they simply said "We do not offer a lump sum option for the pension system." As much as anything, I wanted to know just how much that lump sum was - to see what kind of a rate was being applied (annuity rate - if that's a term.)

It happens that our pension is totally in house and they do a good j*b of it. Our funding has never dropped below (IIRC) 90+% and hover close to 100%. I just wish it came with a COLA. BEFORE I retired, the non-COLO'd pension was often adjusted for previous retirees (perhaps a dozen times over the years.) Once I retires 18 years ago, no adjustments have been made. I'm sure Megacorp points to the Defined Contribution as a reason they don't need to increase the pension for COL. Of course, there were a few years when megacorp reduced or withdrew it's contribution to the DC plan. Not much we could do about it due to the tightness of the golden handcuffs.