Author Topic: If you have a pension  (Read 7897 times)

Freda

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If you have a pension
« on: April 29, 2013, 06:11:50 AM »
Then how does that affect the rest of the math?

Hubby receives VA disability, as well as retirement pension from the USMC.

Right now he works for the Dept of Defense and is 12 years from retirement (he would be 57) we are trying to figure out if that third income stream is worth the next 12 years of his life.

We are about 3 1/2 years to debt free.

Thoughts?

destron

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Re: If you have a pension
« Reply #1 on: April 29, 2013, 06:17:08 AM »
You can look at your pension income as a reduction in spending. If you would normally spend 40,000 without the pension and it is worth 20,000, now your spending is 20,000. Don't forget to take taxes into account. I would play with the options in firecalc if I were you.

davisgang90

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Re: If you have a pension
« Reply #2 on: April 29, 2013, 08:07:48 AM »
This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.

Freda

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Re: If you have a pension
« Reply #3 on: April 29, 2013, 08:52:13 AM »
This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Are you doing the 20 or going over? 

Freda

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Re: If you have a pension
« Reply #4 on: April 29, 2013, 08:52:58 AM »
You can look at your pension income as a reduction in spending. If you would normally spend 40,000 without the pension and it is worth 20,000, now your spending is 20,000. Don't forget to take taxes into account. I would play with the options in firecalc if I were you.

I don't know what firecalc is but I'll go find out now. Thanks!

Freda

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Re: If you have a pension
« Reply #5 on: April 29, 2013, 08:54:38 AM »
A defined benefits (DB) pension reduces required savings in proportion to the size of the payout.

There's a convergence point where the amount paid out by the pension combined with a safe withdrawal rate from self-managed funds exceeds annual expenditures. That's the point where you can afford to quit if you want.

Debt adds another element to the mix. I would suggest deferring retirement at least until all debt is paid off.

That middle paragraph made my eyes cross.  Too many big words!  :P

But definitely debt free is step 1. We're well on our way.

matchewed

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Re: If you have a pension
« Reply #6 on: April 29, 2013, 08:59:30 AM »
That middle paragraph basically says if your money coming in from pension and self managed accounts is more than the money you spend you can quit.

davisgang90

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Re: If you have a pension
« Reply #7 on: April 29, 2013, 10:12:09 AM »
This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Are you doing the 20 or going over?
I'll hit 23 in about 6 days, doing at least 25 and probably 27 or 28.  At that point I won't have to work after retirement unless I want to.

Freda

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Re: If you have a pension
« Reply #8 on: April 29, 2013, 10:20:39 AM »
This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Are you doing the 20 or going over?
I'll hit 23 in about 6 days, doing at least 25 and probably 27 or 28.  At that point I won't have to work after retirement unless I want to.

Well done. Hubby ditched at 20 due to wanting to keep my daughter in the same school till she graduated.  Looking back I kind of wish we'd just kept with it.  He still deploys in his current job so it's not like life is that different.

davisgang90

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Re: If you have a pension
« Reply #9 on: April 29, 2013, 11:01:43 AM »
This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Are you doing the 20 or going over?
I'll hit 23 in about 6 days, doing at least 25 and probably 27 or 28.  At that point I won't have to work after retirement unless I want to.

Well done. Hubby ditched at 20 due to wanting to keep my daughter in the same school till she graduated.  Looking back I kind of wish we'd just kept with it.  He still deploys in his current job so it's not like life is that different.
Kids and school is driving me staying in.  I'm in DC at the Pentagon and will stay here for 2 more years then another Navy assignment in DC until 27 or 28.  That seems to be a good time to escape DC as far as the sweet spot in the pension and kids' grades in school (middle one graduated for HS and the youngest finishing Jr. High.).

davisgang90

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Re: If you have a pension
« Reply #10 on: April 29, 2013, 11:03:15 AM »
Freda, 

This calculator seems particularly well-suited to accounting for pensions.  Might be worth a look.  I've been playing around with it to run various options.

http://financialmentor.com/calculator/best-retirement-calculator

Freda

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Re: If you have a pension
« Reply #11 on: April 29, 2013, 11:14:01 AM »
Freda, 

This calculator seems particularly well-suited to accounting for pensions.  Might be worth a look.  I've been playing around with it to run various options.

http://financialmentor.com/calculator/best-retirement-calculator
Gorgeous, thanks!

Nords

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Re: If you have a pension
« Reply #12 on: April 30, 2013, 09:48:33 PM »
Then how does that affect the rest of the math?
Hubby receives VA disability, as well as retirement pension from the USMC.
Right now he works for the Dept of Defense and is 12 years from retirement (he would be 57) we are trying to figure out if that third income stream is worth the next 12 years of his life.
We are about 3 1/2 years to debt free.
Thoughts?
As another poster mentioned, the pension reduces the amount of income that you'll need from savings.  Not only that, but the military pension's CPI COLA will generally keep up with your spending inflation, so you'll be hedged against inflation for the rest of his life (and yours, too, if you took SBP). 

But wait, there's more.  A U.S. military pension is probably pretty likely to keep paying out, and it's the world's most reliable inflation-adjusted annuity.  That means you can afford to invest more of your savings in equities or rental real estate or more volatile asset classes. 

Still more!  Many VA disability recipients find that the degree of their disability rises with age.  As your spouse ages, more of his pension may be tax-free, saving you more on taxes.  I hesitate to call this a "benefit" because it's surely been paid for.

Having said that, I'm not sure what you mean by "worth it".  If your spouse enjoys work then he might as well keep doing it.  When you reach financial independence then he has a choice to stop working-- have you figured out when that happens?  At that point he can decide whether to stick around for more money than you need, or whether to enjoy life with "enough".

In our case, my military pension handles most of our spending.  We're drawing down our investments at less than a 4% rate, so our investment portfolio is over 90% in equities.  We keep two years' expenses in cash to ride out bear markets (since 2002, so far so good).  We also have a mortgage on our primary residence because it costs less than the equities are earning, but that's a highly individual decision that requires being able to sleep comfortably at night.

This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Again, if you enjoy what you're doing then I'd keep doing it.  But once you're over 20, even the Navy has a nasty reputation of pushing your tolerance limits.  You're the one who can decide whether the extra stress is worth the price, but I think when you're 5-10 years away from a projected retirement date then it's awfully difficult to expect that you'll still feel as motivated four years later.  If you're already eligible for a pension then I'd have a hard time planning to stick around longer than the end of the next service obligation.

More food for thought:
http://the-military-guide.com/2010/10/11/when-should-you-stop-working/
http://the-military-guide.com/2010/10/06/the-biggest-benefits-of-a-military-retirement/
http://the-military-guide.com/2010/12/30/tailor-your-investments-to-your-military-pay-and-your-pension/
http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/
http://the-military-guide.com/2011/03/21/asset-allocation-considerations-for-a-military-pension/
http://the-military-guide.com/2011/03/23/asset-allocation-considerations-for-a-military-pension-part-2/
http://the-military-guide.com/2011/03/24/asset-allocation-considerations-for-a-military-pension-part-3-of-3/

davisgang90

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Re: If you have a pension
« Reply #13 on: May 01, 2013, 04:13:04 AM »
Nords,

A couple weeks ago I would have agreed with you on retiring at the end of my current tour, but looks like I have a chance to go to National Defense University as an instructor for my twilight tour (this will take me to 27 or 28 years).  I'll stick around for that, but otherwise I'll retire when I hit TIG which will be at the 25 year point.

Thanks for your book by the way, just finished it!

The pension certainly makes ER easier.

Ozstache

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Re: If you have a pension
« Reply #14 on: May 01, 2013, 04:51:26 AM »
Another vote for Nords' book and website to help work out where a military pension should sit amongst other assets in producing a retirement income stream.  The PV calculation can return a very impressive number if you joined very young, retire still relatively young and are on a good exit salary.

marty998

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Re: If you have a pension
« Reply #15 on: May 01, 2013, 05:06:35 AM »
I get so frustrated at "early retirees" who go on pensions, be they carer's, disability support or aged etc.

But Vets....Vets deserve everything and more. I can't imagine what it is like to serve on the front line. Make sure you milk everything you can.

Freda

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Re: If you have a pension
« Reply #16 on: May 02, 2013, 02:11:51 PM »
Then how does that affect the rest of the math?
Hubby receives VA disability, as well as retirement pension from the USMC.
Right now he works for the Dept of Defense and is 12 years from retirement (he would be 57) we are trying to figure out if that third income stream is worth the next 12 years of his life.
We are about 3 1/2 years to debt free.
Thoughts?
As another poster mentioned, the pension reduces the amount of income that you'll need from savings.  Not only that, but the military pension's CPI COLA will generally keep up with your spending inflation, so you'll be hedged against inflation for the rest of his life (and yours, too, if you took SBP). 

But wait, there's more.  A U.S. military pension is probably pretty likely to keep paying out, and it's the world's most reliable inflation-adjusted annuity.  That means you can afford to invest more of your savings in equities or rental real estate or more volatile asset classes. 

Still more!  Many VA disability recipients find that the degree of their disability rises with age.  As your spouse ages, more of his pension may be tax-free, saving you more on taxes.  I hesitate to call this a "benefit" because it's surely been paid for.

Having said that, I'm not sure what you mean by "worth it".  If your spouse enjoys work then he might as well keep doing it.  When you reach financial independence then he has a choice to stop working-- have you figured out when that happens?  At that point he can decide whether to stick around for more money than you need, or whether to enjoy life with "enough".

In our case, my military pension handles most of our spending.  We're drawing down our investments at less than a 4% rate, so our investment portfolio is over 90% in equities.  We keep two years' expenses in cash to ride out bear markets (since 2002, so far so good).  We also have a mortgage on our primary residence because it costs less than the equities are earning, but that's a highly individual decision that requires being able to sleep comfortably at night.

This is my situation.  I'm eligible to receive a  fairly generous retirement from the Navy which makes the math for FI interesting.  I'm planning to retire from the Navy and live on less than my pension with the goal of not touching my investments.
Again, if you enjoy what you're doing then I'd keep doing it.  But once you're over 20, even the Navy has a nasty reputation of pushing your tolerance limits.  You're the one who can decide whether the extra stress is worth the price, but I think when you're 5-10 years away from a projected retirement date then it's awfully difficult to expect that you'll still feel as motivated four years later.  If you're already eligible for a pension then I'd have a hard time planning to stick around longer than the end of the next service obligation.

More food for thought:
http://the-military-guide.com/2010/10/11/when-should-you-stop-working/
http://the-military-guide.com/2010/10/06/the-biggest-benefits-of-a-military-retirement/
http://the-military-guide.com/2010/12/30/tailor-your-investments-to-your-military-pay-and-your-pension/
http://the-military-guide.com/2011/03/17/present-value-estimate-of-a-military-pension/
http://the-military-guide.com/2011/03/21/asset-allocation-considerations-for-a-military-pension/
http://the-military-guide.com/2011/03/23/asset-allocation-considerations-for-a-military-pension-part-2/
http://the-military-guide.com/2011/03/24/asset-allocation-considerations-for-a-military-pension-part-3-of-3/

Fantastic post, thanks so much!


I was talking to a guy at the post office a while ago and he said that since he already earned a 50% pension, that it was like going to work for half his pay.

I didn't get it. 

He said "look at it like this.  If I wake up today, and go to work, they will give me two hundred bucks".

Okay...

"but if I wake up today and I DON'T go to work, they will STILL GIVE ME ONE HUNDRED BUCKS".

Ohhhhhhhhhhh.  Hmm. 

For him, he still enjoyed working, but it was a really new and interesting train of thought for me.