Author Topic: What is my pension worth as it pertains to FIRE?  (Read 643 times)

rolliefingers

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What is my pension worth as it pertains to FIRE?
« on: July 08, 2020, 06:06:04 AM »
Iím aiming to have $24,000 non-COLA pension income at 65.  More if I defer until 67.

Is estimating the addition to net as simple as dividing by 4%???

I am guessing not. So Iím seeking a math brain among these masses.

Thanks all.

Greystache

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Re: What is my pension worth as it pertains to FIRE?
« Reply #1 on: July 08, 2020, 07:51:48 AM »
I think what you are asking is the present value of your future pension. There are lots of present value calculators on line. Here is a link to one:
https://finance.zacks.com/calculate-net-present-value-future-pension-9929.html

MDM

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Re: What is my pension worth as it pertains to FIRE?
« Reply #2 on: July 08, 2020, 02:52:41 PM »
Iím aiming to have $24,000 non-COLA pension income at 65.  More if I defer until 67.

Is estimating the addition to net as simple as dividing by 4%???
Yes.  In the sense that it is an estimate, nothing more.  The lower inflation becomes, the better the estimate.

Due to the non-COLA, you'll need to use something like I-ORP or FIRECALC to account for inflation's effect.

jim555

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Re: What is my pension worth as it pertains to FIRE?
« Reply #3 on: July 08, 2020, 10:20:07 PM »
Defined benefit pension lump sums are defined in the IRS code.  The lump price is usually much lower than it should be if you compared it to immediate annuity pricing.

rab-bit

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Re: What is my pension worth as it pertains to FIRE?
« Reply #4 on: July 09, 2020, 04:55:12 AM »
I include the impact of our non-COLA pensions in the "Other Income/Spending" tab in FIRECalc. There is a checkbox there for whether or not the pension is inflation-adjusted.

Laura33

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Re: What is my pension worth as it pertains to FIRE?
« Reply #5 on: July 09, 2020, 08:38:15 AM »
Why do you need to figure out the overall value of the pension?  I just knock the $24K (or whatever) off of the total amount I need for my FIRE budget and calculate the size of the needed 'stache based on the remainder.  Same with SS. 

DeepEllumStache

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Re: What is my pension worth as it pertains to FIRE?
« Reply #6 on: July 09, 2020, 09:01:42 AM »
I run a lot of scenarios with my non COLA pension. It makes things a bit more complex than just a 4% rule, but I like that type of thing. In the model scenarios where I consider keeping it, I offset my spending by year by the calculated amount. In the scenarios where I consider a lump sum, I treat it as an IRA since thatís where itíll end up.

@chasesfish wrote about pension values on his blog and itís worth the read.

DeniseNJ

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Re: What is my pension worth as it pertains to FIRE?
« Reply #7 on: July 09, 2020, 11:19:23 AM »
I posted this on What's Your FIRE Figure thread but I think it's most relevant here.
As I figure it there seem to be 3 ways.
1. 25x your yearly pension, so you pretend you have that amount and are drawing 4% or it. So if your pension is 20K per year you pretend you have 25 that amount or .5M in the "bank" as part of your stash.
2. The cost of an annuity for that amount.  Not sure what the cost of an annuity for 20K would be but pretend you have that amount extra in your stash.
3. Consider it income. So if your pension is 20K and you need 50K to FIRE, then you really need to cover 30K, so your number will be at least 25x 30K, or 750K.

I think the last is the most useful, but I guess it depends on your circumstnces and what you are trying to figure out.

chasesfish

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Re: What is my pension worth as it pertains to FIRE?
« Reply #8 on: July 09, 2020, 11:33:24 AM »
I run a lot of scenarios with my non COLA pension. It makes things a bit more complex than just a 4% rule, but I like that type of thing. In the model scenarios where I consider keeping it, I offset my spending by year by the calculated amount. In the scenarios where I consider a lump sum, I treat it as an IRA since thatís where itíll end up.

@chasesfish wrote about pension values on his blog and itís worth the read.
Thanks for the mention.

Inflation is going to be the big factor for those of us with non-COLA adjusted pensions.  I have no idea what my $1500/mo will be worth in seventeen years