Calculating the Present Value of Your Pension

street said:
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.
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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)
 
2retireearly said:
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)
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Yes, and you explained that very well, thank you.
 
street said:
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.
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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!:LOL:
 
G-Man said:
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?
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A simple estimate would be to determine life expectancy first:

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.
 
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.
 
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.
 
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...
 
threegoofs said:
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.
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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.
 
success108 said:
A simple estimate would be to determine life expectancy first:

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.
Click to expand...

That is pretty close the $1.290m cost of a SPIA for a 60yo male paying $85k a year on immediateannuities.com
 
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.
 
pb4uski said:
That is pretty close the $1.290m cost of a SPIA for a 60yo male paying $85k a year on immediateannuities.com
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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.
 
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statsman said:
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.
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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.
 
indiajust said:
How Much is My Pension Worth? Nick is converting the value of a pension to help determine net worth. Uses different approaches.
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Looking at the site, you can get just about any number you want - depending upon your assumptions.

My question is: Once you get a Net Worth "value" for your pension, what do you do with it? I think of NW as being a measure of how much money I can take on a yearly basis and spend. I don't need to do that with my pension. I know to the penny what it will be (it hasn't changed in 19 years, unfortunately.) So "adding" its NPV or whatever to my NW doesn't seem to make any sense but I could be missing something and YMMV.
 
Koolau said:
Looking at the site, you can get just about any number you want - depending upon your assumptions.

My question is: Once you get a Net Worth "value" for your pension, what do you do with it? I think of NW as being a measure of how much money I can take on a yearly basis and spend. I don't need to do that with my pension. I know to the penny what it will be (it hasn't changed in 19 years, unfortunately.) So "adding" its NPV or whatever to my NW doesn't seem to make any sense but I could be missing something and YMMV.
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In addition to SS, I have lifetime annuity income which stops when I do.
I do not impute a Net Worth value for possible monthly annuity income going forward.

But my combined retirement income from all sources exceeds my monthly expenses most of the time, hence, a zero withdrawal rate from my investments.

My monthly annuity payment hit my checking account a few days ago and, after paying some bills, I transferred the excess ($4000) to my taxable investment account. So my net worth officially increased by that amount.

If I'm still around on November 1st, I expect another modest increment to my NW. That's how it works...
 
You have an annuity but you need cash now?
CALL J G WENTWORTH, 877-CASH NOW!!!
 
Koolau said:
Looking at the site, you can get just about any number you want - depending upon your assumptions.

My question is: Once you get a Net Worth "value" for your pension, what do you do with it? I think of NW as being a measure of how much money I can take on a yearly basis and spend. I don't need to do that with my pension. I know to the penny what it will be (it hasn't changed in 19 years, unfortunately.) So "adding" its NPV or whatever to my NW doesn't seem to make any sense but I could be missing something and YMMV.
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I think this is a consequence of my interest in asset allocation. Getting to a net worth number is part of the process of defining portfolio risk, and how much needs to be in each bucket. From a practical standpoint, I suspect I am sailing into the wind. Far easier to bracket inflation risks around the pension payment and ignore all else.
 
When I took my DB pension I was given multiple choices. A few pension options depending on which survivor option I selected.

Plus a current dollar value of the pension that I could take as a lump sun instead of the monthly payments. That is the value I assigned to the pension because that was my only cash option.

That value was completely meaningless to me if I went with the annuity. The income stream, with it's attached T's and C's is what was meaningful.
 
gcgang said:
You have an annuity but you need cash now?
CALL J G WENTWORTH, 877-CASH NOW!!!
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I hate the concept, but love their commercials. How much sense does that make?? :blush:
 
mrfeh said:
"Safe" withdrawal rates are based on portfolio value, not net worth.
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I consider them virtually the same thing (or interchangeable) as I do not include house value as part of my NW. We all do things a bit differently. My house value is just a "back up" plan (for LTC if needed, for example.)
 
My frozen pension has a lump sum amount. It changes depending on the interest rates, lower rates = higher lump.
 
Koolau said:
I consider them virtually the same thing (or interchangeable) as I do not include house value as part of my NW. We all do things a bit differently.
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Net worth has a specific definition. If you aren't including your home (an asset), you're calculating something else.
 
I was a state employee and there’s no lump sum option. We get raises and when I have been retired 15 years I will get a 5 percent raise yearly. My pension is similar to withdrawal of 4 percent yearly from a 730k nest egg.
 
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