Value of a pension

[militaryman]

Hey everybody!

At almost 57 (I'm 54) I'll be eligible to begin retirement through Fers and get a pension of about $35k in today's dollars. It will have no cola until 62 and then will start a "diet" cola.

My question is, with average inflation what will the value of the pension be (in today's dollars) at the 62 year age mark after 5 years of no cola? I don't want to count the pension as more than it is in calculations/calculators. It's tough entering a pension that has a no cola time frame followed by a diet cola perpetual timeframe! ��

 

[militaryman]

Also. If my healthcare premium is $5k per year at 57, what is it likely to be after 5 years in relation to the non cola pension ?

 

[mrfeh]

I don't like putting a value on a pension. It is an income stream - just reduce your planned expenses by that amount.

 

[militaryman]

I don't like putting a value on a pension. It is an income stream - just reduce your planned expenses by that amount.

I guess I am not clear with my question.

What is the annual buying power of the pension after 5 years for average inflation on the 35K?

 

[mrfeh]

I guess I am not clear with my question.

What is the annual buying power of the pension after 5 years for average inflation on the 35K?

Nobody knows what inflation will be the next 5 years. Here's the formula you can use for calculating the value (where X is inflation rate and Y is number of years):

((100−X)÷100)^Y×35000


Here's the equation with 3% inflation for five years:

((100−3)÷100)^5×35000 = $30055

 

[militaryman]

Nobody knows what inflation will be the next 5 years. Here's the formula you can use

Thanks! This is exactly what I needed!

 

[mrfeh]

Thanks! This is exactly what I needed!

Sorry, but I gave you the wrong formula for the question you asked...you want to know what the purchasing power of the $35000 will be, right? That answer is $29425

 

[zinger1457]

Also. If my healthcare premium is $5k per year at 57, what is it likely to be after 5 years in relation to the non cola pension ?

Healthcare premiums seem to increase much more than the inflation rate so any number would be a WAG, maybe look back at how much your premiums have gone up on average the last 10 years and use that. Are you retiring under FERS MRA+30? If so you should also get a FERS supplement, in addition to your non-cola pension, until you turn 62.

 

[militaryman]

Are you retiring under FERS MRA+30?

Yes I am FERS MRA + 30 --- Also will have Military Reserves Retirement @ 60 and am considering that I may "suspend" FEHB than and use Tricare Prime or Select -- Or at least try it for a year and see if we can make that work. If not maybe we can look at it again (Tricare for Life) when we turn 65 and enroll in Medicare Part B

 

[mrfeh]

Sorry, but I gave you the wrong formula for the question you asked...you want to know what the purchasing power of the $35000 will be, right? That answer is $29425

I think the general formula is:

35000 x (2 - (1 + X/100)^Y))

Where X is inflation and Y is number of years, but somebody else should confirm that.

35000×(2−(1+3÷100)^5) = 29425

 

[wrigley]

Yes I am FERS MRA + 30 --- Also will have Military Reserves Retirement @ 60 and am considering that I may "suspend" FEHB than and use Tricare Prime or Select -- Or at least try it for a year and see if we can make that work. If not maybe we can look at it again (Tricare for Life) when we turn 65 and enroll in Medicare Part B

My wife turned 60 in Feb and drew her first military reserve pension payment on March 1st. In Feb she also hit 30 years with the Fed government. Still working.

Mike

 

[mountainsoft]

What is the annual buying power of the pension after 5 years for average inflation on the 35K?

I think the easiest way to estimate this is to use a program such as "Flexible Retirement Planner". You can enter in your pension amount, your best guess at the average inflation rate (i.e. 3%), as well as any other income/expenses. Then run the simulation to see how it all works out over time. It lets you account for inflation, taxes, social security, etc.