AA when figuring in pension and SS

[CTEC_Stache]

Hey everyone, I have a question for all of you regarding AA when you factor in "guaranteed" income like pension and SS. As I understand it there are multiple schools of thought on this topic such as:

1. Having a pension and / or SS should not change your AA (whatever it is that you feel comfortable with).

2. Because the pension is all but guaranteed you have more freedom to remain tilted towards stocks later in life.

3. You can consider your pension / SS to be a portion of your bond allocation.

4. Some combination of the above, etc.

For background and a bit more information, I am a teacher in the Wisconsin public school system. That gives me access to a fully funded pension system (currently) that does not give a COLA. I am currently the only income for my household, DW is a SAHM and we have one child. I actually like my job and plan to stay in my current position until 55-60 if possible, I am currently 31.

If I stay in the public school's pension system until 60 my pension payments will amount to roughly 60% of my final year's salary. If I decide to leave the system earlier I can collect the money with no penalty beginning at the age of 55.

I have been inclined to consider the income from my pension in retirement to be income rather than a portion of my stache. For example, if in my final year I earn $100k and my pension will replace $60k of that, then my stache / portfolio would only need to cover $40k in retirement. Being that the pension is not inflation adjusted I am aiming for a total portfolio closer to $1.5M in today's dollars instead of the $1M needed to replace $40k with a 4% SWR.

Does this seem like a good plan? Or more realistically a good starting point?

[SaucyAussie]

GCC has a good article on factoring SS into your stache.

[CTEC_Stache]

GCC has a good article on factoring SS into your stache.

Thank you, do you happen to remember the name of the blog post or even have a link? I searched GCC's posts for "pension" and there are too many posts that mention pension and the sort to determine which article you're referring to.

Thanks

[SaucyAussie]

https://www.gocurrycracker.com/spending-future-social-security-income-now/

I know it doesn't answer your question directly but I found it interesting and maybe it will be helpful to you.

[CTEC_Stache]

https://www.gocurrycracker.com/spending-future-social-security-income-now/

I know it doesn't answer your question directly but I found it interesting and maybe it will be helpful to you.

Great! Thank you SaucyAussie.

[jeroly]

The Boglehead variable withdrawal rate spreadsheets take both inflation-adjusted and fixed pensions into account. 

[Capsu78]

I look at 3 AA "gauge's on my financial dashboard"-  My investment portfolio onlyincluding all moveable assets- cash, cash value, bonds and stocks.
Another that includes your ... 3. You can consider your pension / SS to be a portion of your bond allocation.
And a third that adds in my home under an additional "real estate" asset in addition to all of the above.

I view them all as "data points" and don't try to align or tweak them across gauge's... My investable assets are the ones I make "decision tree"adjustments to, but just like to do the others to cross check my comfort level.  If I had a "wait a minute" number that concerned me in the other 2, I would drill down deeper.

[SwordGuy]

Let's say:

You make $100k per year.
You save $20k of that per year.
Your pension will cover $60k per year.

Now for the good news: Your stash needs to cover $20k, not $40k. 

Now for the bad news if I understood you correctly.   If your pension (once you collect it) won't go up as time goes by, your stash also has to cover the lost purchasing power on that $60k as inflation causes prices to rise.

[DaMa]

I count my pension and CDs as "bonds," but my pension is a cash balance pension with a minimum 4% guarantee and my CDs are getting 3%.  Since your pension has no increase after retirement (i.e. COLA), I think your way is better.

I FIREd at 49, and I did not factor in SS.  My plan was to take it at 70.  I think of it as a great safety margin on my retirement, because I'm confident I'll get something, but too much could change in 21 years. 

[CTEC_Stache]

Let's say:

You make $100k per year.
You save $20k of that per year.
Your pension will cover $60k per year.

Now for the good news: Your stash needs to cover $20k, not $40k. 

Now for the bad news if I understood you correctly.   If your pension (once you collect it) won't go up as time goes by, your stash also has to cover the lost purchasing power on that $60k as inflation causes prices to rise.

Yes you are correct, there is no COLA or adjustment of my distribution in retirement; so my 60% will be a fixed dollar amount per year (not 60% in perpetuity). That is why my thinking is to provide the additional 20% of my final year of work (as you mentioned) through my stache to the tune of 2%-3% SWR. I think this would be sufficient due to the fact that I am not planning on retiring super early, only 5-10 years earlier than "Full retirement age".

 

[CTEC_Stache]

I count my pension and CDs as "bonds," but my pension is a cash balance pension with a minimum 4% guarantee and my CDs are getting 3%.  Since your pension has no increase after retirement (i.e. COLA), I think your way is better.

I FIREd at 49, and I did not factor in SS.  My plan was to take it at 70.  I think of it as a great safety margin on my retirement, because I'm confident I'll get something, but too much could change in 21 years.

Thanks for the insight! My plan for SS is the same as yours, it will be a safety margin / net.