Is my pension a Fixed asset?

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CnC
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Is my pension a Fixed asset?

Post by CnC »

I ran into an other poster asking for investment strategy in addition to his pension and some of the answers got me thinking.

Is a pension a Fixed asset? :?:

I personally always considered my pension an annuity. Our pensions website even has a handy little annuity calculator that gives me the value of my pension based on what an annuity guaranteeing that amount +cola for life would cost to purchase.

I am only 31 and still a long way from retirement, but from the time I have spent here I always heard​ treat all your investments as one big pot, determine your risk tolerance and return expectations and make sure your entire portfolio meets that rather than trying to get each account to match that.


If that is the case having a half million pension would offset quite a bit of my IRA and 457 savings allocations because if I were to have 1 million total invested (500k pension 500k stocks) and the stock market were to lose 50% I would still have my $500,000 pension and $250,000 stocks and a net worth of 750k.

Am I missing something, I am still relatively new here.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

CnC wrote:I ran into an other poster asking for investment strategy in addition to his pension and some of the answers got me thinking.

Is a pension a Fixed asset? :?:

I personally always considered my pension an annuity. Our pensions website even has a handy little annuity calculator that gives me the value of my pension based on what an annuity guaranteeing that amount +cola for life would cost to purchase.

I am only 31 and still a long way from retirement, but from the time I have spent here I always heard​ treat all your investments as one big pot, determine your risk tolerance and return expectations and make sure your entire portfolio meets that rather than trying to get each account to match that.


If that is the case having a half million pension would offset quite a bit of my IRA and 457 savings allocations because if I were to have 1 million total invested (500k pension 500k stocks) and the stock market were to lose 50% I would still have my $500,000 pension and $250,000 stocks and a net worth of 750k.

Am I missing something, I am still relatively new here.
This is frequently discussed. Probably the balance of the viewpoint here is that a pension is income and not an asset. It seems particularly forced to compute a pension as an asset in order to eventually compute some sort of translation of assets back into an ability to supply an income in retirement.

The best answer to how to take account of the existence of a pension in how much risk to take in investing is that the pension will affect all three of the components of need/ability/willingness to take risk.
Helo80
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Re: Is my pension a Fixed asset?

Post by Helo80 »

Without reading all of the BH literature, I believe that DB pension plans are treated like bonds. Personally, I have one, though I have no idea what the NPV of it is. I do have an estimate on what the estimated annuity would be once I reach retirement age.

Personally, the DB plan "safety net", as well as, Social security, allow me to be more risky with my equities percentage.
alex_686
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Re: Is my pension a Fixed asset?

Post by alex_686 »

dbr wrote:This is frequently discussed. Probably the balance of the viewpoint here is that a pension is income and not an asset. It seems particularly forced to compute a pension as an asset in order to eventually compute some sort of translation of assets back into an ability to supply an income in retirement.
The balance of people I talk to, academics and practitioners, would disagree. They count pensions as a "Bond Like" ssets. Part of the trick is that when you plug stuff like this in you need consistent units. You have a choice between static units ($X at time $Y) or flow units ($X per year). It is easier to convert future cash flows into static units using Net Present Value calculations. It is a bit harder to do but the results are based on sound theory.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Silk McCue
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Re: Is my pension a Fixed asset?

Post by Silk McCue »

I recommend treating a Pension as a floor of income upon which other resources will need to be added to meet your spending needs. You can't rebalance it so it should not be a part of your asset allocation. If you do that your investments are going to go heavy on the equity side and in a market downturn may not provide enough income when added to your pension to meet your spending needs.

Taking a look at annuity with a COLA would cost to replace it is an interesting exercise that can make you say wow at the value. Choose your asset allocation and apply it only to what you invest and can rebalance.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

The issue goes to what it is we are considering when we consider an asset allocation. Allowing that anyone in particular is allowed to consider whatever they want, the general underlying context is that of selecting a way to invest our liquid assets at the right combination of risk and return to meet our objectives. A pension as an asset does not have a risk and return commensurate with those properties of stocks and bonds to make sense out of putting it into the portfolio and then asking what is the risk and return of that portfolio. That doesn't prevent someone from devising a plan to do that if they want and think it works, but it is not necessary.* There are other ways to systematically take account of the existence of the future pension, including entering it as an income stream in the cash flow plan and considering the effect of the pension on how one views need/ability/willingness to take risk with the stock and bond investments.

*A famous example of devising a way to do that is set asset allocation by the rule age in bonds and then note that if one wants to allow the existence of a pension to influence that a way to do it would be to count the NPV of the pension as a bond. The result is that the non-pension assets are then invested more aggressively than they otherwise would be, up to even more than 100% stocks. This example is the one suggested by Mr. Bogle himself.
chinto
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Re: Is my pension a Fixed asset?

Post by chinto »

I am going to deliberately muddy the waters, when you noodle on this I think it would behoove you to consider the likelihood of actually being able to collect on the promised pension benefit. You might want to consider how far you are away from being able to take your pension and the funding ratio of the pension among other factors. I know just last weekend Ric Edelman was telling IL public sector pensioners that they might want to pull the trigger on early retirement to lock in their benefits now even though it would be a greatly diminished pension that they locked in.

Two links for you to reference that may give you a perspective:

https://www.thenewamerican.com/usnews/c ... ay-solvent

https://mishtalk.com/2017/03/14/illinoi ... nt-funded/

So a fixed asset...maybe...kind of, or not...there are a lot of factors to consider....food for thought.
alex_686
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Re: Is my pension a Fixed asset?

Post by alex_686 »

chinto wrote:I am going to deliberately muddy the waters, when you noodle on this I think it would behoove you to consider the likelihood of actually being able to collect on the promised pension benefit.
I don't think this actually muddies the water. The simple answer is to give the pension a haircut. Calculate the NPV then slice off 20%, 40%, or whatever number, to reflect the unfunded risk of the pension.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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WoodSpinner
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Re: Is my pension a Fixed asset?

Post by WoodSpinner »

CnC wrote:

If that is the case having a half million pension would offset quite a bit of my IRA and 457 savings allocations because if I were to have 1 million total invested (500k pension 500k stocks) and the stock market were to lose 50% I would still have my $500,000 pension and $250,000 stocks and a net worth of 750k.

Am I missing something, I am still relatively new here.
All I can tell you is what worked for me. I treated my pension as a bond proxy up until the point I decided to take it as an annuity and not a lump sum. After that I pulled it from my Asset Allocations completely.

It worked well for me and helped me weather 2008-2009 and keep my sanity and take some risks I don't regret.

I had to argue with every potential FA about it, but was always comfortable with that decision. Of course given the bull market it really worked well since that allowed me to invesft a larger percentage of my assets in 401k/IRA in equities.

One of the best decisions I ever made.

Good luck
Zedon
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Re: Is my pension a Fixed asset?

Post by Zedon »

I will have a pension also and I will consider it a fixed asset once I'm guaranteed it even with job loss. I am on year 18 of 20 to lock in. I am currently 70% equities in my invest-able money. Once I am locked in I will go close to 100% equities since I feel my pension will cover all of my expenses in retirement even with all realistic possible cuts. If I was just starting out I would not count it as a chance for job change may be likely. My investments will just be gravy.
At least that's the plan.
The Wizard
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Re: Is my pension a Fixed asset?

Post by The Wizard »

OP is 31. As you approach Financial Independence and retirement in a few decades, you need to determine your desired income, say $10,000 per month, and decide where that's going to come from.
If it all came from a 4% withdrawal from portfolio, you'd need $3M.
But if your pension + SS give you $7000 per month, then a smaller portfolio could provide the rest.
So yes, it's an income puzzle that needs solving...
Attempted new signature...
CantPassAgain
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Re: Is my pension a Fixed asset?

Post by CantPassAgain »

How did you get the idea to use the term "fixed asset" in this context? A fixed asset is tangible property, like an automobile or a building
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

I think the usual terminology is "fixed income (asset)" which is a colloquial term for bonds and savings accounts, including CDs. The fixed part is that these things all have a face value and a fixed coupon of interest payments that are made that are supposed to be the "income."

In the context of investing in a portfolio of stocks and bonds those individual properties start to get mushy as we hold lots and lots of bonds and buy and sell them all the time in bond funds, and so on. At the same time income is not taken directly from interest paid but rather by withdrawing by any variety of means from a portfolio. In the end "fixed income" becomes neither fixed nor income.

But an annuity can in theory be capitalized as an asset. That is true of any scheduled income stream using a method of net present value calculation. This is almost necessary in business if trying to evaluate the prospects for making an investment, for example. The fixed part in this case would be that the payments are fixed.
retiredjg
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Re: Is my pension a Fixed asset?

Post by retiredjg »

Whatever you consider it, you must be comfortable with your real investments.

If you pretend your pension is a bond, does that mean your investments will be all stocks? Or mostly stocks?

If yes, are you comfortable with that? If no, what is the purpose of pretending the pension is a bond? All it does is change your numbers, not your investments.

I consider a pension an income stream, not a bond. I invest my real stuff in a way I'm comfortable, leaving the pension out of it completely. Well, not completely. It is possible I invest a little bit more aggressively than I would if there were no pension.

BTW, I understand that Jack Bogle disagrees. He thinks people should consider their SS as bonds.
aristotelian
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Re: Is my pension a Fixed asset?

Post by aristotelian »

It doesn't matter what you call it. it is certainly part of your portfolio to consider when planning finances, just like social security. Two considerations are whether it is COLA adjusted and whether there is any question about long term sustainability. Certainly if you have a pension that replaces 60% of your income at retirement, you have a much smaller income gap to fill from your investments.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

retiredjg wrote:Whatever you consider it, you must be comfortable with your real investments.

If you pretend your pension is a bond, does that mean your investments will be all stocks? Or mostly stocks?

Yes, this cannot be overemphasized. A theory about assets cannot fly in the face of what you actually have at the broker.

If yes, are you comfortable with that? If no, what is the purpose of pretending the pension is a bond? All it does is change your numbers, not your investments.

I consider a pension an income stream, not a bond. I invest my real stuff in a way I'm comfortable, leaving the pension out of it completely. Well, not completely. It is possible I invest a little bit more aggressively than I would if there were no pension.

BTW, I understand that Jack Bogle disagrees. He thinks people should consider their SS as bonds.

Which means that he explicitly intends for people that don't have much in assets and do have SS to put those assets entirely in stocks. One should state that outright and contemplate it before considering actually doing this. For people that have a lot in assets and maybe not a lot in pensions and SS one can compute what this actually means and see that in fact it doesn't necessarily amount to much of a difference.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

aristotelian wrote:It doesn't matter what you call it. it is certainly part of your portfolio to consider when planning finances, just like social security. Two considerations are whether it is COLA adjusted and whether there is any question about long term sustainability. Certainly if you have a pension that replaces 60% of your income at retirement, you have a much smaller income gap to fill from your investments.
The difficulty that always comes up in the discussions of this topic is trying to separate two questions:

1. Should the existence of a pension and SS be taken into account when setting asset allocation?

2. How should the existence of a pension and SS be taken into account when setting asset allocation.

The answer to 1. is most definitely yes for most people. The answer to 2. is more varied. In your post above you say the pension is "certainly part of your portfolio" which moots one very definite answer to 2. although you probably mean that statement as an answer to 1. At the end of your post you offer the opposite answer to 2., namely that how the pension affects AA is that it reduces the need for income which may or may not influence what AA you choose for the investment that will produce that lower than otherwise income. Probably what you meant to say is not that the pension is "part of the portfolio to consider" but rather is "part of what to consider about the portfolio." Now, obviously, I apologize if I am distorting what you meant to say. The interest is in being sure that what anyone says about this is clear.

The discussion always has to start by being specific about how one chooses an asset allocation. Once you know that you can figure out how that is affected by a pension and SS. Generally if one approaches asset allocation via the need/ability/willingess process a lot of people find it most logical to not attempt to capitalize the pension. That does not mean such could not be done. If you approach asset allocation by an age in bonds rule there is simply no way to account for pensions other than to capitalize the pension. Of course, one could devise a table where pension as a percent of income alters the age in bonds rule. But now things start to get too complicated.
aristotelian
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Re: Is my pension a Fixed asset?

Post by aristotelian »

dbr wrote:
aristotelian wrote:It doesn't matter what you call it. it is certainly part of your portfolio to consider when planning finances, just like social security. Two considerations are whether it is COLA adjusted and whether there is any question about long term sustainability. Certainly if you have a pension that replaces 60% of your income at retirement, you have a much smaller income gap to fill from your investments.
The difficulty that always comes up in the discussions of this topic is trying to separate two questions:

1. Should the existence of a pension and SS be taken into account when setting asset allocation?

2. How should the existence of a pension and SS be taken into account when setting asset allocation.

The answer to 1. is most definitely yes for most people. The answer to 2. is more varied. In your post above you say the pension is "certainly part of your portfolio" which moots one very definite answer to 2. although you probably mean that statement as an answer to 1. At the end of your post you offer the opposite answer to 2., namely that how the pension affects AA is that it reduces the need for income which may or may not influence what AA you choose for the investment that will produce that lower than otherwise income. Probably what you meant to say is not that the pension is "part of the portfolio to consider" but rather is "part of what to consider about the portfolio." Now, obviously, I apologize if I am distorting what you meant to say. The interest is in being sure that what anyone says about this is clear.

The discussion always has to start by being specific about how one chooses an asset allocation. Once you know that you can figure out how that is affected by a pension and SS. Generally if one approaches asset allocation via the need/ability/willingess process a lot of people find it most logical to not attempt to capitalize the pension. That does not mean such could not be done. If you approach asset allocation by an age in bonds rule there is simply no way to account for pensions other than to capitalize the pension. Of course, one could devise a table where pension as a percent of income alters the age in bonds rule. But now things start to get too complicated.
I am not following what is unclear about the statement. I am only claiming #1, that it should be considered as part of your overall financial plan. What that means for your stock/bond portfolio is up to you. For some, reduced need to take risk means increasing your bond allocation. For others, increased ability to take risk argues for larger stock allocation. It doesn't matter whether you consider pension/SS to be separate from bonds with a smaller income gap to fill, or consider them part of bonds with a larger income gap. Either way your risk calculation for stock allocation is the same
jimmyrules712
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Re: Is my pension a Fixed asset?

Post by jimmyrules712 »

It should depend on what type of pension it is. I have a defined contribution "cash balance" pension that maintains a cash balance value over time and at retirement can be cashed out as a lump sum or annuity. If I leave the company before then I can roll the cash balance it into an IRA. I classify it as part of my bond allocation.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

aristotelian wrote: I am not following what is unclear about the statement. I am only claiming #1, that it should be considered as part of your overall financial plan. What that means for your stock/bond portfolio is up to you. For some, reduced need to take risk means increasing your bond allocation. For others, increased ability to take risk argues for larger stock allocation. It doesn't matter whether you consider pension/SS to be separate from bonds with a smaller income gap to fill, or consider them part of bonds with a larger income gap. Either way your risk calculation for stock allocation is the same
Well, your actual words are "it is certainly part of your portfolio . . ." Yes, I know I am cutting that quote. But what else are we readers to understand you to mean by "part of your portfolio."? The only parts of a portfolio I know of are the assets that make up the portfolio.

But, here, I am not trying to trade on sophistry. I think it is clear you don't advocate capitalizing income streams as assets. But there are plenty of people who do advocate that very clearly, and others that wonder if they should. One poster definitely stated that point of view. That poster would be saying that the capitalized value of the pension is most definitely an asset that is part of the portfolio. So, I am trying to help people be clear what they really are saying. That's all.
dbr
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Re: Is my pension a Fixed asset?

Post by dbr »

jimmyrules712 wrote:It should depend on what type of pension it is. I have a defined contribution "cash balance" pension that maintains a cash balance value over time and at retirement can be cashed out as a lump sum or annuity. If I leave the company before then I can roll the cash balance it into an IRA. I classify it as part of my bond allocation.
Correct, there are some nuances about pensions, and this situation comes up. I think consensus of thinking on the forum would agree with you. Furthermore this illustrates that at the time one buys an annuity, if that is the choice, the analysis all changes. The assets become less; the income stream becomes more; and one rethinks how the remaining assets might be allocated.
Topic Author
CnC
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Re: Is my pension a Fixed asset?

Post by CnC »

Thanks for all the responses.


The Crux of my problem is this.

Why hold bonds?

To decrease volatility, to make sure a crash doesn't happen at the "wrong time" where you are forced to sell stocks at a loss to pay bills, to help you stomach big drops with out panicking. And finally, to ensure that you have atleast "something".

Well having a 'guaranteed' 40-60% of any expenses covered at age 55 by my pension does all of that. With the exception of watching our actual Fidelity total account value be cut by 40% and getting sick.


I'm just trying to figure out what I should count for myself with the 100-age= bond rule.

Because if I end up at age 50 with a 1.5m value pension 1 m in bonds and 1m in stocks I will feel extremely overweight in "safe investments" and be missing out on potential growth with possibly no reason why.
retiredjg
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Re: Is my pension a Fixed asset?

Post by retiredjg »

Well, there's another reason to hold bonds. There are times, even decades, when bonds outperform stocks.
trueblueky
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Re: Is my pension a Fixed asset?

Post by trueblueky »

Numbers may help. Here are some scenarios:

1) $60,000 annual spending; $40,000 COLA'd DB pension; $500,000 IRA. Here the pension leaves $20,000 needed from the IRA, which is 4%. This individual cannot afford to be 100/0 or 0/100 stocks/bonds. Either is too risky.

2) $60,000 annual spending; $40,000 COLA'd DB pension; $1,000,000 IRA. Again, the pension leaves $20,000 needed, but now it's 2%. This individual can afford to take risk, but doesn't need to. Any asset allocation is likely to succeed.

3) $60,000 annual spending; $40,000 non-COLA DB pension; $500,000 IRA. This individual's dependence on the IRA will increase over time as inflation erodes the value of the pension. They may not be able to retire yet.

4) same as 3) but the IRA is $1,000,000. Run various inflation estimates thru your favorite software. For some combinations of long retirement, high inflation, mediocre market returns this will fail. For many, the individual may die a millionaire.

To me, the way to count a pension is as reducing the required funds from retirement funds.
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munemaker
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Re: Is my pension a Fixed asset?

Post by munemaker »

"One of Bogle's points was to frame your permanent sources of income as if they were fixed income investments."

https://seekingalpha.com/article/155614 ... ent-income
rgs92
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Re: Is my pension a Fixed asset?

Post by rgs92 »

I think when people ask this question the are *really* trying to find a justification to going to a very high allocation in stocks (usually because the stock market is at a new high and their greed-emotions are kicking in).

I sense that this is another form of the "why not be 100% in stocks" question that frequently appears during late stage bull markets or bubbles.

Beware of rationalizations to serve emotional impulses. Look in the mirror and ask yourself it you would want to do this in during a stock market collapse that seems to have no end in sight.

And this is especially true when someone is looking at a pension decades in the future like a bird in hand.
Maybe if someone had a big current pension and social security that met a good portion of their expenses this would be sensible to some degree, but not on a wing and a prayer.
indexonlyplease
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Re: Is my pension a Fixed asset?

Post by indexonlyplease »

Your pension is only a pension and that is it. To many tried to make it more than it is. At 31 your have no idea what your pension will be in 20-30 years. The pension could change and decide to give you less, change the cola, take it away or politics get involved and change it for no reason. I have a pension from the state of Florida, top 3 funded in the country. But the governor and his friends decided to change it in 2011 for know reason but take away what was promissed when hired.

So, invest like you don't have one. Max out the 457, Roth IRA. Then if your pension never changes or does change you will still be way ahead of most.

I think the same about SS. You will get it some day (maybe) but you have no idea what it will be because of changes. So, if you get when you are 62-70 that is bonuse money on top of everything you already have. So you can live even better in the retiremnet years.
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grabiner
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Re: Is my pension a Fixed asset?

Post by grabiner »

Your pension is not an asset in the same sense as a stock or a bond, because you can't convert it to another asset. If the stock market falls, you can sell bonds to buy more stocks and keep the same asset allocation; you can't sell your pension to buy more stocks.

But your pension does affect your risk tolerance. If you have no pension and are planning to take $50K per year from your portfolio, a 20% account decline will reduce your retirement income from $50K to $40K. If you have a pension paying you $20K, and you need to take $30K per year from your portfolio, a 20% account decline will reduce your retirement income from $50K to $44K, so you are less sensitive to risk. If you have a pension paying you $20K and your retirement account is large enough to generate $50K per year, then you can be more aggressive because you aren't depending on all of that account for your own retirement; you can plan to use 60% of it for your own retirement, and invest the other 40% appropriately for your heirs' needs.
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Dandy
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Re: Is my pension a Fixed asset?

Post by Dandy »

Your pension -- if you get to collect one is an income stream. It is an asset, once vested, similar to having a college degree is an asset. It isn't a $500,000 bond--It allows you to take more risk, if you want, compared to if you didn't have it. It is a good thing. Unfortunately, it is under attack and often underfunded. So, it would be wise not to count those chickens until they hatch. And I think wise not to create a pseudo bond and distort your actual investment allocation. If you wait long enough you are likely to get a buyout offer (maybe that you can't refuse). Then you can buy real bonds :happy
Thesaints
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Re: Is my pension a Fixed asset?

Post by Thesaints »

Eventually, all assets turn into a cash stream. Since the cash stream from a pension is known in advance, yes I'd consider it a "fixed asset" (subject on what you really mean by that term)
robertalpert
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Re: Is my pension a Fixed asset?

Post by robertalpert »

Only the vested portion of pension can be considered a bond or annuity. If not yet vested or able to draw, then the "pension" has zero value; Except perhaps for that vested portion that you could retrieve if leaving your employment today.
Thesaints
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Re: Is my pension a Fixed asset?

Post by Thesaints »

Agreed, although it may have an actuarial value.
ztn
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Re: Is my pension a Fixed asset?

Post by ztn »

I have suggested this before: If you have a public pension you need to consider the underlying investments of the pension fund itself. Most public pension funds are 60-70% equity. If the equity markets decline significantly the pension fund's financial health will be hit. That is hardly a fixed income vehicle. Therefore I suggest you consider the pension to be up to 70% equity, far from the 100% fixed income most suggest. As a result, your personal investments should likely have increased fixed income holdings.
CurlyDave
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Re: Is my pension a Fixed asset?

Post by CurlyDave »

dbr wrote:...BTW, I understand that Jack Bogle disagrees. He thinks people should consider their SS as bonds.

Which means that he explicitly intends for people that don't have much in assets and do have SS to put those assets entirely in stocks. One should state that outright and contemplate it before considering actually doing this. For people that have a lot in assets and maybe not a lot in pensions and SS one can compute what this actually means and see that in fact it doesn't necessarily amount to much of a difference.
I think you are putting words in Jack Bogles mouth that he never said.

I very much agree with him that a guaranteed income stream should be considered a bond for AA purposes. The fact that the money can not be re-allocated does not matter.

In fact, I would contend that not doing this distorts our AA in a way that has negative consequences.

For instance, DW and I have enough pensions from reliable sources and SS that with our investable money 100% in stocks we can not get our stock allocation above 40-to 60%. And this is not because we have only a little in stocks. It is because the pensions and SS are high. This is an enviable position to have, and one thing to consider is that it means portfolio failure is just not likely. The pensions would have to fail, the USPBGC would have to fail, and SS would have to fail before we we really in bad shape.

We would be doing ourselves, and our heirs, a huge disservice by not considering our pensions and SS as assets.
CurlyDave
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Re: Is my pension a Fixed asset?

Post by CurlyDave »

ztn wrote:I have suggested this before: If you have a public pension you need to consider the underlying investments of the pension fund itself. Most public pension funds are 60-70% equity. If the equity markets decline significantly the pension fund's financial health will be hit. That is hardly a fixed income vehicle. Therefore I suggest you consider the pension to be up to 70% equity, far from the 100% fixed income most suggest. As a result, your personal investments should likely have increased fixed income holdings.
I disagree. While the pension fund may well be invested primarily in equities, this only serves to underscore the wisdom of a high equity allocation. If the fund fails, the shortfall will be made up through the taxing power of the public entity.
ztn
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Re: Is my pension a Fixed asset?

Post by ztn »

If the pension fund fails, the shortfall might not be made up at all. Permanent haircuts might be made instead. Look at Illinois and New Jersey. A tax increase won't be enough to make the pension plans solvent. And if the equity markets decline enough to cause haircuts for the pension plan, a large equity allocation for investments outside of the pension plan will only hurt more and provide insufficient diversification.
Thesaints
Posts: 3465
Joined: Tue Jun 20, 2017 12:25 am

Re: Is my pension a Fixed asset?

Post by Thesaints »

ztn wrote:If the pension fund fails, the shortfall might not be made up at all. Permanent haircuts might be made instead. Look at Illinois and New Jersey. A tax increase won't be enough to make the pension plans solvent. And if the equity markets decline enough to cause haircuts for the pension plan, a large equity allocation for investments outside of the pension plan will only hurt more and provide insufficient diversification.
Bonds can and do default. Should we consider them non-fixed assets as well ?

Although, I'm still confused about what a "fixed asset" might be. i know fixed-income assets.
However, if the OP means bonds, as I think, yes: pensions are "bonds-like", they are not "stocks-like", and there are no other investmentypes.
Zedon
Posts: 64
Joined: Thu Nov 06, 2014 2:37 am

Re: Is my pension a Fixed asset?

Post by Zedon »

ztn wrote:If the pension fund fails, the shortfall might not be made up at all. Permanent haircuts might be made instead. Look at Illinois and New Jersey. A tax increase won't be enough to make the pension plans solvent. And if the equity markets decline enough to cause haircuts for the pension plan, a large equity allocation for investments outside of the pension plan will only hurt more and provide insufficient diversification.
While there are a few pensions in trouble that we see in the news, the vast majority are fine or will be propped up if needed. Overall, I think pensions are as definite as any other part of your portfolio could be. I treat mine as my lowest possible take *.7. That's a base of $52k a year if I retire at 55. To consider it any less would be unrealistic.

I definitely sleep well at night knowing I have a pension coming to me.
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