Author Topic: How to Value My Market-Indexed Pension  (Read 1557 times)


  • Stubble
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  • Age: 46
  • Location: NJ
How to Value My Market-Indexed Pension
« on: January 22, 2016, 03:41:46 PM »
I'm struggling to come up with a way to value one component of my pension in my retirement analysis, and I was hoping someone on this board could help. 

Each year I buy shares of a fund that has an AA of approximately 50/50 bonds/equities worth 0.5% of my salary.  At 65, I will receive a yearly benefit that is determined by the share price of the fund times the number of shares I have.  Each year the benefit value changes based on the current share price of the fund.  It seems like a sort of deferred indexed annuity, but with no floor or cap on the index. 

Thinking about it, this isn't really a pension, since the pension fund bears no longevity risk at all, since if the value of the investments go down, they just pay out less.  It won't offset any market risk in my portfolio, since when the market goes down, I get less.  I see it as having a somewhat conservatively invested additional amount in my retirement portfolio that is roughly equivalent to 12.5% of my salary each year (25x the 0.5% benefit amount).  That's not quite right, because the withdrawal strategy is not the same as the case for the 4% SWR.  The withdrawal strategy is effectively a constant percentage of the current year portfolio value. 

Also, while it's currently invested 50/50 I have no idea whether that could change, there's no information on how the trust is instructed to manage this investment.  Historical CAGR over the last 30 years is about 4.5% (nominal).

Any thoughts?


  • Stubble
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Re: How to Value My Market-Indexed Pension
« Reply #1 on: January 22, 2016, 06:00:47 PM »
Sounds like a variable annuity plan, which has a pretty standard valuation (but it's been a while since I ran such numbers).