Hello,

Quick question that I feel stupid asking. I'm getting ready to run our retirement numbers in cFIREsim at the end of the year, and wanted to check my math/methodology on something.

The situation:

My wife has a defined benefit pension that she has the choice of starting at multiple points: 1. When she hits 60 years old in 2035 for the full benefit of $1,423/month (based on earnings history as of today), 2. When she hits 55 years old for a reduced benefit of $1,135/month, and 3. after 25 years of employment, which would be in 2022 at age 47, for a benefit of $692/month, which she would begin to draw immediately. These figures are in the dollars of the year she begins drawing the pension, at which point they will be adjusted for inflation each year after. In other words, if she begins drawing the pension at age 60, she will get exactly $1,423/month to start -- not $1,423 in today's dollars adjusted for inflation for the period from 2017-2035.

So, I pulled up one of those online compound interest calculators online to compare each of these scenarios for planning purposes.

Scenario 1:

Starting Amount: $0

Years to Save: 25 (based on an assumption of living to 85)

Rate of Return: 4% (but could be anything, I think, as long as I use the same value in each scenario)

Additional Contributions: $1,423/month, compounded annually

Result: $726,461

Scenario 3:

Starting Amount: $0

Years to Save: 38

Rate of Return: 4%

Additional Contributions: $692/month, compounded annually.

Result:$729,273

So, Scenario 3 seems like the winner over time, all else being equal, even though the monthly amount would be much lower. This also doesn't even account for the inflation adjustment of the $692/month each year once she starts drawing the pension. The downside to #3 is that she'd have to work 4 more years to get to 25 years.

Am I missing something?

Thanks.

Pigpen