Commuted Pension Questions

[Deano]

I'm hoping there are some others on here with pensions who've wrestled with these very same questions. The first one is easy-

1) Do you include the commuted value of your pension in your net worth? I know it fluctuates with bond markets etc., but I track mine and it goes up by about 2500/mo. That amount certainly pads my otherwise meagre net worth. Thoughts?

2) My pension plan is large and relatively healthy-but currently there are about 10 retirees for every working person in my pension plan. That's ugly. The indexing went from 100% down to a fluctuating amount-I believe it is at 40% at the moment. I can reach FI in 8 or 9 years-my wife is on the same pension plan and would commute her pension at the same time. To commute or not commute our pensions? I would receive about 1800 a month if I retire in 10 years (earliest pension), with only the above indexing likely. My wife would not be eligible for a pension for 14 years-about 1600 a month. If I worked 18 more years I would be getting around 5k a month, slightly less for my wife. We don't want to work that long (full time-I'd be happy to work part-time, consult, whatever).

We don't want to live with golden hand-cuffs-any advice would be appreciated!

[wtjbatman]

Just as an aside, your pension is more than likely insured up to a certain amount. I know mine is. So that might help you sleep better at night knowing your pension won't just disappear overnight.

That said, I definitely wouldn't work an extra 8 or 9 years just to get a larger pension. Unless it was necessary for a safe retirement.

[Deano]

Yes, my pension is insured, but without decent indexing, a few years of high inflation will suck the life out of my pension-that's my main concern I suppose.

My hope is that I would have about 400k or more to commute in 8 years, with about 2/3's in a RRIF (locked in). My wife might have 250-300k. Combined with our savings I think we'll be ok for FI. I won't know for sure for another few years however.

[wtjbatman]

When you say indexed at 40% I assume you mean 40% of CPI? It will take more than a few years to suck the life out of your pension. Although I suppose when you're talking extreme early retirement, and you need your pension for 40+ years, sooner or later your purchasing power will definitely fall off. Does your pension have a rollover option? I know mine does, and I'm thinking that if I'm with my current employer long enough, I can decide at the time whether I want to take my non-COLA pension @ 4.64% or Inflation (whichever is higher), or just roll it all over into an IRA and invest it properly. I know my self-directed investments will do a hell of a lot better job keeping up with inflation than my pension will.

Sounds like you just need to keep chugging along and reevaluate in a few years.

[Deano]

Yes, 40% of CPI, though I believe it will be going down to 0% in the next few years-which means any pension earned after that will not grow.

The pension I have is one of the best in the world-very strong with fantastic returns, but with people retiring in their early 50's with a demographic that has an avg life expectancy of near 90, it can't keep up much longer.

I agree, I'll need to take a good look in 2 or 3 years. Just wondering if there is anyone on here who has commuted-I think it's a rare thing to do, at least with my pension plan.