Author Topic: Do you account for future pension and SS in your calculations?  (Read 5723 times)

FIT_Goat

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I've been trying to run numbers to get an idea of where I am and how much I need to retire.  I've rounded the example numbers below.

Say I need $30,000 a year to maintain my current lifestyle.

To support that indefinitely with a 4% withdrawal rate requires $750,000 in investments.  So, I would need $750,000 plus the balance remaining on my mortgage.  But, in theory, I wouldn't need to rely on that alone.  After a certain age, I will start getting pension and social security payments.

With pension and social security, I will need significantly less than $750,000 and might even need $0 depending on how long it takes me to save up enough.  So, I do not need to save $750,000 in order to retire.  At my current investment rate, I can save until I hit around $380,000 + the remaining balance on my mortgage.

Then, I withdraw the investments down to the amount required at retirement.  Even not counting on social security, and just the pension, I need $435,000 plus the balance of the mortgage.  This cuts out a large amount of time working.  But, maybe it's too aggressive and depends on things that I can't control.

I feel that my pension is pretty secure, and that I can rely on it being there.  The social security is less secure, in my calculations.

The difference is around 10 years.  I hope to increase my contributions, regardless, but this is just looking at current numbers.

With only investments: ~ 260 months to retire
With investments + pension: ~ 200 months to retire
With pension + social security: ~ 160 months to retire

The only downside to this would be leaving less for my son after I am gone, because I won't be leaving an amount that provides a full income indefinitely.

Zamboni

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Re: Do you account for future pension and SS in your calculations?
« Reply #1 on: May 13, 2017, 09:04:36 AM »
My pension is small but guaranteed. Sure, I count it.

Social Security . . . whenever I put that in, the calculators tell me I don't need to save any more and I can just coast, because more calculators that include it also don't understand FIRE very well. So I mostly just ignore SS in my plans. I won't draw it until 70 unless I become disabled.

FIT_Goat

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Re: Do you account for future pension and SS in your calculations?
« Reply #2 on: May 13, 2017, 09:19:47 AM »
Yeah, a lot of the programs assume you're going to be working until that retirement age, and that you don't need to save anymore.  They don't account for you intending to live completely  off your current investments until that time.  I wrote my own short little program to run the numbers, as I want to know what it's doing.  $200,000 with a 4% return can be withdrawn down to $0 over about 7.75 years, if you take $30,000 a year from it.

My current calculations don't account for inflation, but they also don't account for pay increases, so I figure that's close enough.  It's all an estimate anyway.  I'd try to get better numbers if I was closer.  I could probably play with the program to account for inflation and pay raises.  But, I was looking for quick and dirty numbers.

Sarah Saverdink

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Re: Do you account for future pension and SS in your calculations?
« Reply #3 on: May 13, 2017, 09:25:38 AM »
I, personally, don't account for SS in my calculations. They could raise they eligibility age at any time or change the standard distributions. I'm pretty conservative in my financial calculations. Better to be safe than sorry.

Spork

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Re: Do you account for future pension and SS in your calculations?
« Reply #4 on: May 13, 2017, 09:48:14 AM »
I don't have a pension...  The company I worked for that DID have a pension cut it off for everyone under the age of 40 back when I was 39.75 years old. 

For SS... I didn't count it.  I know it will be there in some fashion.  Whether it's bigger or smaller or changed in any way -- I have no crystal ball to tell.  In general, I've always ignored anything that was fuzzy in my FIRE calculations.  It means I saved more than I needed to, but I have a tendency to be overly conservative in all estimates.  It made me feel better when it came time to pull the plug.  YMMV.

ubermom4

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Re: Do you account for future pension and SS in your calculations?
« Reply #5 on: May 14, 2017, 02:10:40 AM »
Is your company's pension guaranteed by the Pension Benefit Guaranty Corp. (PBGC)? This is a government agency that guarantees/insures the pensions of larger companies. PBGC handles pensions of publicly traded companies when they go through bankruptcy. If your pension is covered by the PBGC, it has a better chance of surviving bankruptcy without a haircut. When retiring, it is extremely difficult to forecast the future of your company decades in the future. Stories about pensions being cut or ended completely are in the newspaper every day.  From what I can see, we are going to see more and more companies, municipalities, states, etc.  trying to walk away from their pensions.

Villanelle

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Re: Do you account for future pension and SS in your calculations?
« Reply #6 on: May 14, 2017, 02:20:40 AM »
Husband should get a military pension.  It's the cornerstone of your retirement plan.  Thankfully, it is even inflation adjusted.  for us SS is just an extra safety net and we don't actually count it. 

davisgang90

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Re: Do you account for future pension and SS in your calculations?
« Reply #7 on: May 14, 2017, 05:08:51 AM »
I certainly count my military pension (couldn't retire anytime soon without it), but I don't count SS.  I also don't count any potential VA disability pay I will (probably) be eligible to receive. 

BlueMR2

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Re: Do you account for future pension and SS in your calculations?
« Reply #8 on: May 14, 2017, 05:24:43 AM »
No pension and not counting on SS.  What I've got is all I count.

Pigeon

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Re: Do you account for future pension and SS in your calculations?
« Reply #9 on: May 14, 2017, 10:45:23 AM »
Yes, but I factor them at less than full value so there's a safety cushion.

catccc

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Re: Do you account for future pension and SS in your calculations?
« Reply #10 on: May 15, 2017, 01:28:22 PM »
I don't count SS.  If I get it, it will be gravy.  I suspect it will be a means tested benefit when I'm at the earliest collecting age (62).  I'm 37, so that's 25 years away, which sounds really long to me.

nobody123

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Re: Do you account for future pension and SS in your calculations?
« Reply #11 on: May 16, 2017, 12:23:57 PM »
I know what my estimated SS and pension will be, but I am ignoring them.  There is too much that can change with the rules for either before I am eligible to collect. 

I am almost rooting for my company to finish eliminating the pension plan (it was frozen for younger folks a year ago, new hires are ineligible) and offer me a lump sum buyout just so I can get the funds under my control.  My company seems strong now, but a lot can happen between now and my retirement.

Spork

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Re: Do you account for future pension and SS in your calculations?
« Reply #12 on: May 16, 2017, 12:39:48 PM »

I am almost rooting for my company to finish eliminating the pension plan (it was frozen for younger folks a year ago, new hires are ineligible) and offer me a lump sum buyout just so I can get the funds under my control.  My company seems strong now, but a lot can happen between now and my retirement.

This is exactly what happened with me.  In fact, the "control" didn't happen for 10 years or more after the plan was canceled.  (I was going to get a next-to-nothing pension that they no longer contributed to.)

The downside for me is that canceling the pension also meant canceling retirement health insurance benefits.

nobody123

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Re: Do you account for future pension and SS in your calculations?
« Reply #13 on: May 16, 2017, 12:51:25 PM »
The downside for me is that canceling the pension also meant canceling retirement health insurance benefits.

They eliminated those about 5 years ago for us.  They said that very few folks took advantage of the program because less costly alternatives were available in the marketplace, so folks of a certain age / years of service got some special one-time contribution to their 401k and the rest of us just lost the benefit entirely.

Jrr85

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Re: Do you account for future pension and SS in your calculations?
« Reply #14 on: May 16, 2017, 01:33:39 PM »
I've been trying to run numbers to get an idea of where I am and how much I need to retire.  I've rounded the example numbers below.

Say I need $30,000 a year to maintain my current lifestyle.

To support that indefinitely with a 4% withdrawal rate requires $750,000 in investments.  So, I would need $750,000 plus the balance remaining on my mortgage.  But, in theory, I wouldn't need to rely on that alone.  After a certain age, I will start getting pension and social security payments.

With pension and social security, I will need significantly less than $750,000 and might even need $0 depending on how long it takes me to save up enough.  So, I do not need to save $750,000 in order to retire.  At my current investment rate, I can save until I hit around $380,000 + the remaining balance on my mortgage.

Then, I withdraw the investments down to the amount required at retirement.  Even not counting on social security, and just the pension, I need $435,000 plus the balance of the mortgage.  This cuts out a large amount of time working.  But, maybe it's too aggressive and depends on things that I can't control.

I feel that my pension is pretty secure, and that I can rely on it being there.  The social security is less secure, in my calculations.

The difference is around 10 years.  I hope to increase my contributions, regardless, but this is just looking at current numbers.

With only investments: ~ 260 months to retire
With investments + pension: ~ 200 months to retire
With pension + social security: ~ 160 months to retire

The only downside to this would be leaving less for my son after I am gone, because I won't be leaving an amount that provides a full income indefinitely.

Yes and no.  For SS, I include it at half what is projected.  SS taxes are projected to cover around 75% of SS payments, and then I figure in another 25% haircut because of the expectation that higher earners/net worth people will end up taking a bigger haircut so that low earners or savers don't take any haircut. 

For pension, I basically count 50% of mine as it's a state pension and like most state pensions, underfunded.  For my wife's, I count basically 100%, as it's a healthy, fully funded private pension, and I think ERISA pretty much prevents companies from shorting their pension payments going forward.

But currently, we probably won't retire until we can live off of our investment returns, so the pension and social security income will be about play money, giving, and/or helping kids.  Even if we don't wait until we can live off our investment returns, we will be a lot closer to the time the pensions and SS would kick in, so we will have a better idea of what kind of haircut we should plan for for each one. 

BFGirl

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Re: Do you account for future pension and SS in your calculations?
« Reply #15 on: May 16, 2017, 02:43:32 PM »
I count all of my pension as my governmental unit is required to fully fund every year.  I put SS at less than I expect to receive because I imagine it will get cut before I get there.   

Dr.Jeckyl

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Re: Do you account for future pension and SS in your calculations?
« Reply #16 on: May 16, 2017, 02:58:02 PM »
I don't consider SS when doing my FIRE calculations. Also, my wife is a teacher and will receive a pension but I haven't considered that in my numbers either. I'm wondering if I should.

Lady SA

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Re: Do you account for future pension and SS in your calculations?
« Reply #17 on: May 16, 2017, 03:10:28 PM »
I don't consider SS in our calculations. No pensions for us. I like to consider SS to be a pleasant bonus if it's still around in some fashion in 50ish years when we would actually be drawing from it.

G42

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Re: Do you account for future pension and SS in your calculations?
« Reply #18 on: May 16, 2017, 09:41:23 PM »
Unless you're close to SS age, I wouldn't count on it.  As several folks mentioned, the rules can be changed and arguably need to be changed.  Means testing, pushing the benefit dates out further, and/or reduced benefits have all been discussed by the economists and the politicians.
As for pensions, unless it's Federally Insured and/or in your control, I would be wary about depending on all of it being there when you retire - for all the reasons folks mentioned.

Paul der Krake

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Re: Do you account for future pension and SS in your calculations?
« Reply #19 on: May 16, 2017, 11:33:29 PM »
It's over 3 decades away, so no.

Not that I don't think it will be there, but I can't come up with a reliable estimate.

Jrr85

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Re: Do you account for future pension and SS in your calculations?
« Reply #20 on: May 17, 2017, 10:35:51 AM »
Unless you're close to SS age, I wouldn't count on it.  As several folks mentioned, the rules can be changed and arguably need to be changed.  Means testing, pushing the benefit dates out further, and/or reduced benefits have all been discussed by the economists and the politicians.
As for pensions, unless it's Federally Insured and/or in your control, I would be wary about depending on all of it being there when you retire - for all the reasons folks mentioned.

Being federally insured just means you're not going to get knocked down to zero.  I'm not sure exactly how they calculate haircuts, but my impression was that if you're a high earner, you can expect a pretty big haircut. 

G42

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Re: Do you account for future pension and SS in your calculations?
« Reply #21 on: May 17, 2017, 08:14:51 PM »
Unless you're close to SS age, I wouldn't count on it.  As several folks mentioned, the rules can be changed and arguably need to be changed.  Means testing, pushing the benefit dates out further, and/or reduced benefits have all been discussed by the economists and the politicians.
As for pensions, unless it's Federally Insured and/or in your control, I would be wary about depending on all of it being there when you retire - for all the reasons folks mentioned.

Being federally insured just means you're not going to get knocked down to zero.  I'm not sure exactly how they calculate haircuts, but my impression was that if you're a high earner, you can expect a pretty big haircut.

Yes, there's a lot of "it depends" out there, depending on circumstances of the plans, what's covered, etc. 

I happen to work right now for an old fashioned company that had a defined contribution pension style plan.  It is now closed to new employees, in favor of a higher 401K match... but since I joined 4+ yrs ago, I'm still in the plan.
They are currently putting 8% salary equivalent into a defined contribution account for me, with a minimum 4.5% return.  I'm fully vested and from everything I can read, the money is fully funded and not available to the company if they divest, declare bankruptcy, etc., so hopefully federal insurance wouldn't be a factor at all.
The money is mine if I retire or leave, so I am including it in my calculations, just like I include matching 401K funds that I am fully vested in.

chasesfish

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Re: Do you account for future pension and SS in your calculations?
« Reply #22 on: May 18, 2017, 05:37:05 AM »
I use cFireSim and include the pension calculation.  I'm confident in the pension but don't really need it.  I don't use social security, I just assume it'll be means tested 30 years from now.

Runrooster

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Re: Do you account for future pension and SS in your calculations?
« Reply #23 on: May 18, 2017, 09:45:15 AM »

Being federally insured just means you're not going to get knocked down to zero.  I'm not sure exactly how they calculate haircuts, but my impression was that if you're a high earner, you can expect a pretty big haircut.

85% of people get no reduction in benefits.  In 2017, the haircut is set at $64,000 for the age 65 pension.  I suspect that if you're on this site and earning enough to merit a pension higher than that, you will be fine.  Note also that the haircut goes up every year and is based on when your plan goes under, not when you retire.

eddie

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Re: Do you account for future pension and SS in your calculations?
« Reply #24 on: May 18, 2017, 02:14:01 PM »
My wife and I don't have a pension and I don't count SS in my calculations.  We're both 34.  I assume it will still be there in some form when we are 65+ but I'd rather be conservative.

des999

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Re: Do you account for future pension and SS in your calculations?
« Reply #25 on: May 19, 2017, 07:23:48 AM »
surprised so many people are just assuming SS won't be there, or greatly reduced.  I understand current state it would get reduced, but I don't see them leaving it as is.  If anything, I can see high income earners taking a bit more of a cut, but I don't expect it to affect me too much.

I'm factoring it in, I'm not putting myself into a position where if it gets cut I won't be able to eat.  But I am def considering it when I do my numbers, and I plan to draw down more than 4% in the early years b/c of SS, plus a small pension I'll have at 65.

I see a lot of doom and gloom around SS, but in all honesty too many people rely on it, no way they let is stay as is and reduce payout.  Most likely I'll have to wait a little longer to get it, or pay a little more out of my paycheck during my remaining working years. 


chutneyohio

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Re: Do you account for future pension and SS in your calculations?
« Reply #26 on: May 19, 2017, 10:02:50 AM »
You can estimate your SS benefit by creating an account at www.ssa.gov/myaccount and downloading your SS report.  This has a listing of your reported annual earnings.  Then you can use this online tool (https://www.ssa.gov/planners/retire/AnypiaApplet.html) to input those value in to estimate your benefit.

Being on the path to FIRE this enabled me to gauge my potential benefit if I stopped working now :-)

sparkytheop

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Re: Do you account for future pension and SS in your calculations?
« Reply #27 on: May 20, 2017, 05:04:47 AM »
I use firecalc when I really want to play with different scenarios.  I've ran numbers with pension/ss, with just pension, and with no pension/ss.  I'm on track with all calculations, I just have to lower the spending if I don't have pension/ss (which really isn't a big deal, as the lower spend amount I have put in is still more than I currently budget each month, even with my mortgage).

notactiveanymore

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Re: Do you account for future pension and SS in your calculations?
« Reply #28 on: May 20, 2017, 09:42:32 AM »
I'm actually SS exempt in my current position and I've been there 4 years. I will count my pension in some way after I vest next year, but I haven't determined how much. I feel confident in it as it's 98% prefunded, but having only put in 5 years my monthly amount is not high.

Basically, I worry a lot more about vesting in it right now and then after that I'll give it a small amount of weight in calculations by slightly reducing my expected expenses instead of factoring it on the front end of the calculations.