Early Retirement Pension Question

[Spudd]

So, I have a job with a DB pension. It is my current intention to retire about 10 years before I am eligible to take that pension. My assumption is that although my pension is COLA adjusted, they won't adjust it for COLA in the interim period between my retirement and taking the pension - i.e. they will just calculate it based on best 3 years salary * years of service * percentage.

My question is, when I input that pension in Firecalc in the pension section, does it "inflate" that pension over the 10 years I'm not taking it, based on the CPI that it is applying to the spending? Or does it leave it as-is and only start inflating it once it is being taken?

 

[braumeister]

When you enter it in FIRECalc, you also enter the year you will start receiving it. So you have to do your own estimate of how much you will get -- FIRECalc can't do that for you.

 

[Hermit]

If I were in your shoes, I would be asking the pension administrator for the correct answer and not just assuming. If the question makes you nervous, ask a range of questions including what happens if you retire 10 years after the first retirement date.

 

[Spudd]

Since my assumption leads to a lower number, I'm happy with it.

I just got nervous that Firecalc might be inflating it "behind my back".

Thanks for the info/advice!

 

[ERD50]

When you enter it in FIRECalc, you also enter the year you will start receiving it. So you have to do your own estimate of how much you will get -- FIRECalc can't do that for you.

I'm not so sure. I think it might actually inflate it. I think we need to devise a test case to prove it one way or the other.

Perhaps SS is inflated between now and year you take it, but pensions are not?

And as Hermit says, get a solid answer on your pension.

-ERD50

 

[nash031]

...to retire about 10 years before I am eligible to take that pension.... they will just calculate it based on best 3 years salary * years of service * percentage.

Is this a military reserve retirement?

For reservists, the pay is high-3 adjusted for your paygrade's basic pay for the three years prior to 60. (i.e. you retire from the reserves as an O5 in 1995, and turn 60 in 2014: the "high three" is based on O5 pay in 2012, 2013, and 2014).

 

[Spudd]

Nope, just a private sector megacorp pension. Too bad, that reserve pension sounds lovely!

 

[nico08]

Assume I know that I will be receiving a monthly check for $1,000 as a pension beginning in 2030, for a total of $12,000 annually beginning in 2030. And assume I know that the pension will have a cost of living adjustment commencing in 2030. So for example, if inflation in 2030 is 3%, I would receive $12,360 in 2031. Then do I put PENSION INCOME $12,000 starting in 2030 and check off the inflation adj box?

I do not put in the present day value of $12,000 received in 2030, correct?

The reason I am concerned is that when I put in $12,000 starting in 2030 and include a COLA, the results I see in the Investigate tab of FIRECalc when I open a spreadsheet showing the year by year inputs, data, and formulas for the cycle beginning in 1960 show the pension amount to be received in 2030 as more than the $12,000 that I know I will be receiving.

Do I need to discount the $12,000 amount to present day value, and insert the present day value in FIRECalc, in order to get an accurate outcome?

If I don't discount to present day value, the success rate of my retirement plan is 91% but if I do discount the $12,000 to present day value then the success rate of my retirement plan drops to 84%.

Thanks.

 

[MikeWillRetire]

I was just wondering about this same issue this week, so I tested it. If you click the "inflation adjust" button, it looks like Firecalc starts the cola immediately, not on the retirement date.
So if you have a pension with a delayed cola, you would have to estimate what the reduced value of that pension would be when you get it, and enter that.