If you have a pension, how do you view it?

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dziuniek
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Re: If you have a pension, how do you view it?

Post by dziuniek »

WS1 wrote: Sat Oct 03, 2020 8:21 am I view it with fear and it’s a source of anxiety.

If nothing goes horribly wrong
If I retire at 57 I can collect 45% of final salary with Full Joint Survivor with partial COLA
If I retire at 65 I can collect 58% of final salary with Full Joint Survivor with partial COLA

Bad news is I’m only 39
Good news is my career is very much a government function and the pension plan covers every state and local worker in the state; meaning I at least have the potential to job hop and relocate without complicating the pension question.

Perhaps it is my craving for precise planning, but I have no idea how to plan around this.
I’ve settled on assuming my salary will grow by inflation and my benefit will be 45% of salary at 65 and save to fill in the gap. Good enough for now...I hope

Edit - Just remembered my youngest won’t finish college until I’m 59, guess I’m probably working until then
haha, wow, same boat. We're planning on having another kiddo and if all things go well... he or she will wrap up their bachelors around the time I'm 59. So also.... not anytime before that. :)
vested1
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Re: If you have a pension, how do you view it?

Post by vested1 »

My wife's 30k pension is non-COLA but has a 100% survivor benefit. Her age 65 SS and my restricted application SS add another 37.5k. We found that with no mortgage and travel restricted by COVID that 67k was more than enough fixed income to avoid withdrawals from the portfolio this year, with plenty left over for discretionary spending.

I just applied for a reduction in a single prescription cost of 6k next year, which should be approved because we had combined income under 86k. Next year our property taxes will be lowered due to a homestead exemption and lower assessments on the cars and boats which also are subject to property taxes. I just finished negotiating lower subscription prices and cancelling unneeded services. This all adds up to a total of 10k less expense next year, meaning likely no withdrawals from the portfolio again in 2021.

I bring this up because even though the pension is non-COLA, the buying power of it now is more than it will be in the future due to inflation, thus the advisability of relying on it more now as part of the plan. The increased SS when I turn 70 of an additional 30k of COLA protected income less than 2 years from now will more than compensate for loss of value in the pension due to inflation far into the future, as well as providing more longevity insurance should I die after I turn 70, due to the SS survivor benefit.

The new law which changes the onset of RMD's until the year you turn 72 also helps with the overall plan.
Admiral
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Re: If you have a pension, how do you view it?

Post by Admiral »

Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.
jjbychko
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Re: If you have a pension, how do you view it?

Post by jjbychko »

It depends on the discussion. If the discussion involves net worth then I enter in the dollar value from an annuity site. If its a retirement analysis program most want you to enter it in as an income source. Same goes with the value of your house. If others include it then I will include it just for comparison. Retirement analysis programs do usually not include the value of the house, its reflected in your expenses.
Ron Ronnerson
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Re: If you have a pension, how do you view it?

Post by Ron Ronnerson »

jjbychko wrote: Sat Oct 03, 2020 9:33 am Same goes with the value of your house. If others include it then I will include it just for comparison. Retirement analysis programs do usually not include the value of the house, its reflected in your expenses.
I’m not sure I understand what you mean. How is the value of the house reflected in expenses? Someone with a house valued at x could have it paid off or still hold a large mortgage.
LittleMaggieMae
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Re: If you have a pension, how do you view it?

Post by LittleMaggieMae »

Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.
Since my pension has no cola - when I was first looking at the yearly estimated income from it - say 40K per year - it made me think of the 4% rule of thumb thing - where if you have 1 mil invested and you withdraw 4% per year (40K) your 1mil should last until you die. So, I, perhaps in error, started thinking of my pension income that will be in that 40-50K per year range (starting at 65) in terms of "it's a million or more dollars I didn't need to save/invest over my working career". Of course, I still saved/invested in addition to the pension. When I'm doing my retirement numbers - the pension is "fixed income" but in my head - the pension is a million dollars I didn't have to earn/save/invest.
Duhigg
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Re: If you have a pension, how do you view it?

Post by Duhigg »

I second what an earlier reviewer said - since a defined benefit pension is highly tied to single firm failure in mine and many cases, I count it not at all and if I get it in a single year I consider it “found/extra money” for fun or investment.
retire2022
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Re: If you have a pension, how do you view it?

Post by retire2022 »

JBEB wrote: Fri Oct 02, 2020 4:58 am If you are one of the lucky ones with a pension, how do you view it in terms of retirement planning? Do you pretend like it isnt there? Do you factor it in your % you invest? Do you still invest in other IRA's?

In a world where anything is possible, I always wondered how people with pensions plan for retirement.

(Or if there is already a thread and I am an idiot, post that too)

Thanks
The last time I had a projected pension payout was estimated to be 66K per year (2019).

I see it as a license to invest riskier investments.

I am 60, and have 1.29 Million in 457 plan and have 550K in Roth IRA, my SSA projected payout at 70 is 38K.

It is NYS state government Tier 4, which is contingent upon the health of state, and most of the contributions are paid through combination of employee contributions and the state comptroller invested in the stock market.

So far my state is not one of the yet impacted negatively as of lately, but it maybe too early to tell.

https://taxfoundation.org/state-public- ... ronavirus/

Pew's article

https://theconversation.com/covid-19-wi ... sis-139262

In any case I have not decided to leave the work force, my retirement is delay due to Covid, and its uncertainly of a vaccine or cure.

Nevertheless I the pension as a five million bond, states while are labeled municipal bonds, are more regulated I am told than smaller cities, think of Detroit.

I am not a bond expert, but state bonds are General Obligation Bonds and are different, I'll wait to someone else to opine or comment on the differences.
Last edited by retire2022 on Sat Oct 03, 2020 2:03 pm, edited 1 time in total.
ubermax
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Re: If you have a pension, how do you view it?

Post by ubermax »

BarbBrooklyn wrote: Fri Oct 02, 2020 8:53 am
This. My DH will get 100% if I die first. If he dies first, I get a "bounce".
Are you saying you elected a 100% J&S annuity with a "pop-up" provision and your husband is the contingent annuitant - not familiar with the meaning of "bounce" .
Lalamimi
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Re: If you have a pension, how do you view it?

Post by Lalamimi »

Mine is not even enough to have taxes taken out of, but I paid into the fund in the 80s, so its mine. M&Ms. Margaritas and Massages. I have it sent to the credit union savings account I opened at that company, to accumulate.
BarbBrooklyn
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Re: If you have a pension, how do you view it?

Post by BarbBrooklyn »

ubermax wrote: Sat Oct 03, 2020 1:58 pm
BarbBrooklyn wrote: Fri Oct 02, 2020 8:53 am
This. My DH will get 100% if I die first. If he dies first, I get a "bounce".
Are you saying you elected a 100% J&S annuity with a "pop-up" provision and your husband is the contingent annuitant - not familiar with the meaning of "bounce" .
So, as I understand it, I get a reduced pension benefit and if I die first, DH continues with 100% of that benefit. If HE predeceases me, I get a "pop-up" to the amount that I would have gotten had I not elected the 100% J and S. Our pension consultant (not the onebprovided by the Union, although their advice was pretty similar) said (after I told him my choice) "this is what ALL the wives choose; makes 'em look good".
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
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Doom&Gloom
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Re: If you have a pension, how do you view it?

Post by Doom&Gloom »

When I was contributing, I viewed my pension as buried treasure that I might or might not eventually find. Now that I have begun collecting it, I am afraid that it could one day disappear due to whims of the powers that be. Hence I now view it as an additional income stream that allows me to have a higher standard of living than I could comfortably enjoy otherwise.

DW is younger than I but has been collecting her pension (from the same entity) longer than I have. She not only has a larger base pension than I do, but her COLA grows faster and is larger than mine. She is more worried about the loss of the COLA than the loss of the entire pension benefit--probably a realistic perspective. She still works part-time (or did prior to the pandemic) and is not yet eligible for SS. Rather than viewing her pension as more of a supplement as I do, she views her pension as her primary source of income not only now but indefinitely.

We both live today as if our pensions will continue indefinitely. If they disappear, we'll certainly miss them but we'll still be ok. However, our kids might miss out on something they never expected anyway.
MathIsMyWayr
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Re: If you have a pension, how do you view it?

Post by MathIsMyWayr »

BarbBrooklyn wrote: Sat Oct 03, 2020 2:04 pm
ubermax wrote: Sat Oct 03, 2020 1:58 pm
BarbBrooklyn wrote: Fri Oct 02, 2020 8:53 am
This. My DH will get 100% if I die first. If he dies first, I get a "bounce".
Are you saying you elected a 100% J&S annuity with a "pop-up" provision and your husband is the contingent annuitant - not familiar with the meaning of "bounce" .
So, as I understand it, I get a reduced pension benefit and if I die first, DH continues with 100% of that benefit. If HE predeceases me, I get a "pop-up" to the amount that I would have gotten had I not elected the 100% J and S. Our pension consultant (not the onebprovided by the Union, although their advice was pretty similar) said (after I told him my choice) "this is what ALL the wives choose; makes 'em look good".
Simply speaking, 1) DH will get the reduced benefit with and without you, and 2) you will get 100% without DH. Sounds scary.
BarbBrooklyn
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Re: If you have a pension, how do you view it?

Post by BarbBrooklyn »

That is a great explanation, except for now, I get the pension, lol!
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tesuzuki2002
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Re: If you have a pension, how do you view it?

Post by tesuzuki2002 »

I left a former employer with a pension... several years later I had the option to take the lump sum and then invest that in my IRA and Roth IRA... That money will grow in there for the next 30 years... I would make that same choice in the future if I ever encounter that again.
rgs92
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Re: If you have a pension, how do you view it?

Post by rgs92 »

backpacker61 wrote: Fri Oct 02, 2020 5:40 am
I treat it as "longevity insurance", and plan to file for it at age 72 (which you can do now owing to the SECURE act). Previously, you had to file for pensions by age 70 (like taking RMD's from an IRA or 401K),

Is this true that a private company or corporation can no longer insist you start taking your pension at a given age they specify (like 65 or even 55) or even as soon as you separate from service? The companies I have associations with all have rules like this. And this applies to all types of pensions (defined benefit, cash-balance-pensions, and severance annuities). And these are major corporations or fairly large companies.
MathIsMyWayr
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Re: If you have a pension, how do you view it?

Post by MathIsMyWayr »

rgs92 wrote: Sat Oct 03, 2020 2:54 pm
backpacker61 wrote: Fri Oct 02, 2020 5:40 am
I treat it as "longevity insurance", and plan to file for it at age 72 (which you can do now owing to the SECURE act). Previously, you had to file for pensions by age 70 (like taking RMD's from an IRA or 401K),

Is this true that a private company or corporation can no longer insist you start taking your pension at a given age they specify (like 65 or even 55) or even as soon as you separate from service? The companies I have associations with all have rules like this. And this applies to all types of pensions (defined benefit, cash-balance-pensions, and severance annuities). And these are major corporations or fairly large companies.
Social Security Administration somehow knows the existence of a pension reminding that a certain IRA rule requires one to start taking at a certain age (65?) similar to RMD.
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2pedals
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Re: If you have a pension, how do you view it?

Post by 2pedals »

If you are not near retirement age and it is a private defined benefit pension plan, I don't think you can count on it. Many private pension plans have been and will be phased out.

I am currently receiving a from a defined benefit pension plan that covers most of our retirement expenses but consider myself lucky to get it before the company plan was frozen and changed forever for future retirees.
Smilodon
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Re: If you have a pension, how do you view it?

Post by Smilodon »

I am fortunate enough to be in the legacy pension program at mega corp. I am amazed it has not been frozen yet. It was removed as a benefit for new employees a long time ago, but those of us already in it continue to accrue benefits to this day. Hence the "golden handcuffs" my colleagues and I sometimes refer to.

The first of each month I check the monthly defined benefit and optional lump sum equivalent assuming mega corp gave me my walking papers that day. The lump sum equivalent value has grown significantly in the recent past, no doubt due to decreasing interest rates.

Knowing that I could (optionally) roll the lump sum equivalent into my 401k (or an IRA) when the time comes, I value my pension benefit to be its current lump sum value. As stated earlier, recent low interest rates have driven the lump sum equivalent significantly higher,even in just the past year. Funding this benefit must be on the radar for mega corp; it would be an easy lever for them to pull to freeze any future accrual.
backpacker61
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Re: If you have a pension, how do you view it?

Post by backpacker61 »

rgs92 wrote: Sat Oct 03, 2020 2:54 pm
backpacker61 wrote: Fri Oct 02, 2020 5:40 am
I treat it as "longevity insurance", and plan to file for it at age 72 (which you can do now owing to the SECURE act). Previously, you had to file for pensions by age 70 (like taking RMD's from an IRA or 401K),
Is this true that a private company or corporation can no longer insist you start taking your pension at a given age they specify (like 65 or even 55) or even as soon as you separate from service? The companies I have associations with all have rules like this. And this applies to all types of pensions (defined benefit, cash-balance-pensions, and severance annuities). And these are major corporations or fairly large companies.
Most companies that I'm aware of don't insist on someone filing for the pension at a specific age. My pension will be from a megacorp also. You can file for it early (as early as 55), or defer to some maximum age (but no later than an age specified by the IRS). That age specified by the IRS was previously no later than April 1 following the year you turn 70 1/2. Now the applicable age is 72. The same age applies to IRA RMD's and DB pensions. The IRS wants to collect taxes from them.

http://www.bpas.com/blog/defined-benefi ... ecure-act/

Minimum Distributions

All plans, including DB plans, are subject to Required Minimum Distribution rules (RMDs). Under these rules, plans are required to begin distributions no later than the April 1st of the plan year following the later of the plan year in which the participant attains age 70½ or retires, except that more than 5% owners must commence whether or not they are retired.

The SECURE Act pushes back the applicable age to 72 effective for participants who attain age 70½ after December 31, 2019. IMPORTANT, employers should not lose sight of the fact that participants who attained age 70½ during 2019 or retired in 2019 after already having attained age 70½ still have a required beginning date of April 1, 2020.


I received paperwork from my employer telling me what my benefit would be if I received it at age 65 (what it calls my "normal retirement date"). But I can log in to the plan provider's web site (Hewitt in my case) and get quotes for what it would be at any age from the present (I'm over 55) up to April 1 of the year following the year I turn 72 (the max).
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Dougiefresh
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Re: If you have a pension, how do you view it?

Post by Dougiefresh »

I withhold most of my pension for estimated taxes. Easy Pizy.
IowaFarmWife
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Re: If you have a pension, how do you view it?

Post by IowaFarmWife »

My husband and I are both expecting modest pensions from IPERS due to our long years of working in public education. I am also stuffing as much money as I can every paycheck into my 403B and HSA accounts. I also have a very modest taxable brokerage account that I contribute to on a bimonthly basis. I view my pension as a stable fixed income portion of my portfolio, along with social security. I have my pretax money invested in the Vanguard 2030 TD fund, and my Roth, brokerage, and HSA accounts are all in S&P 500/total market funds. I take a little more risk with these other accounts because of the stability of the pension and TD funds.
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers
joetro29
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Re: If you have a pension, how do you view it?

Post by joetro29 »

A way to reduce needed amount to cover expenses and ability to be more aggressive.
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changingtimes
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Re: If you have a pension, how do you view it?

Post by changingtimes »

I have a no-COLA pension at the company I still work for, frozen more than a decade ago. At that time every created a cash balance program, so I have that too. And during the Great Recession they cut the 401k match down to a miniscule amount and replaced the rest with a different cash balance pot, which they are still contributing to even though they bumped the match back up a free years ago. And the pension is actually two pensions, one from when I was a peon and then one after I became exempt.

I also already have the very small non-COLA pension(s) from my late DH from the same company, which we were able to get set up as a 100% survivor / "retiring early" disbursal right before he died.

So there will (hopefully!) come a time when I am getting six separate deposits every month from one company, should it all hold together.

I look at it as longevity insurance and a nice bonus to have in the quiver. It does allow me to be a little more aggressive in my investments.
oldfort
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Re: If you have a pension, how do you view it?

Post by oldfort »

With a federal government pension, I view the default risk as similar to Treasury bonds, although theoretically anything could be changed by a future Congress. The bigger risk with a pension is it is based on years of service x average salary over your high three years x 1%. The pension may not be worth much if you don't spend an entire career in the government.
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CyclingDuo
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Re: If you have a pension, how do you view it?

Post by CyclingDuo »

IowaFarmWife wrote: Sat Oct 03, 2020 8:59 pmMy husband and I are both expecting modest pensions from IPERS due to our long years of working in public education. I am also stuffing as much money as I can every paycheck into my 403B and HSA accounts. I also have a very modest taxable brokerage account that I contribute to on a bimonthly basis. I view my pension as a stable fixed income portion of my portfolio, along with social security. I have my pretax money invested in the Vanguard 2030 TD fund, and my Roth, brokerage, and HSA accounts are all in S&P 500/total market funds. I take a little more risk with these other accounts because of the stability of the pension and TD funds.
Assuming you both qualify for the rule of age and service, let's not be too modest with that pension assessment. :beer

Dual pensions + dual Social Security should put your household in good stead before you even begin to think about the third leg (403b/HSA/Roth/Taxable).

Image

Are either of you planning on purchasing additional years of service at retirement?

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
ColoRetiredGirl
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Re: If you have a pension, how do you view it?

Post by ColoRetiredGirl »

MathIsMyWayr wrote: Sat Oct 03, 2020 3:21 pm
rgs92 wrote: Sat Oct 03, 2020 2:54 pm
backpacker61 wrote: Fri Oct 02, 2020 5:40 am
I treat it as "longevity insurance", and plan to file for it at age 72 (which you can do now owing to the SECURE act). Previously, you had to file for pensions by age 70 (like taking RMD's from an IRA or 401K),

Is this true that a private company or corporation can no longer insist you start taking your pension at a given age they specify (like 65 or even 55) or even as soon as you separate from service? The companies I have associations with all have rules like this. And this applies to all types of pensions (defined benefit, cash-balance-pensions, and severance annuities). And these are major corporations or fairly large companies.
Social Security Administration somehow knows the existence of a pension reminding that a certain IRA rule requires one to start taking at a certain age (
This is exactly what happened to me. Out of the blue the SSA notified me to contact a former employer to start my pension.
IowaFarmWife
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Re: If you have a pension, how do you view it?

Post by IowaFarmWife »

CyclingDuo wrote: Sat Oct 03, 2020 9:44 pm
IowaFarmWife wrote: Sat Oct 03, 2020 8:59 pmMy husband and I are both expecting modest pensions from IPERS due to our long years of working in public education. I am also stuffing as much money as I can every paycheck into my 403B and HSA accounts. I also have a very modest taxable brokerage account that I contribute to on a bimonthly basis. I view my pension as a stable fixed income portion of my portfolio, along with social security. I have my pretax money invested in the Vanguard 2030 TD fund, and my Roth, brokerage, and HSA accounts are all in S&P 500/total market funds. I take a little more risk with these other accounts because of the stability of the pension and TD funds.
Assuming you both qualify for the rule of age and service, let's not be too modest with that pension assessment. :beer

Dual pensions + dual Social Security should put your household in good stead before you even begin to think about the third leg (403b/HSA/Roth/Taxable).

Image

Are either of you planning on purchasing additional years of service at retirement?

CyclingDuo
We have discussed this, and are considering using the 403B money to purchase additional quarters. When I go to the IPERS website and run the projections, it looks rather spendy. I was also thinking of taking our personal savings and turning it into an annuity through TIAA or perhaps an insurance company. We have about 8-10 years to figure it out, though.
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers
RevFran
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Re: If you have a pension, how do you view it?

Post by RevFran »

BV3273 wrote: Fri Oct 02, 2020 6:33 am I don’t have a pension, but I’m enjoying reading how those who do one one view it. Much different then what I thought I would read.
What did you think you’d read?
RevFran
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Re: If you have a pension, how do you view it?

Post by RevFran »

I am currently schedule to receive a modest non-Cola pension (private) beginning in 21 years. I don’t, currently, assume it will in fact materialize. Which is to say, if it does, it will provide some luxuries. 15 years from now, if the pension seems healthy, I might feel different.
SwampDonkey
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Re: If you have a pension, how do you view it?

Post by SwampDonkey »

Our plan is to retire when we have our "forever home" paid off + $1M in investments/savings. If things continue to track, this will be in 5-10 years and I'll retire with a military pension. With no mortgage to worry about in retirement, I expect my pension to cover 90-100% of our monthly expenses. Target retirement age is mid-40's so we'd have to wait ~15 years before pulling SS.
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MNGopher
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Re: If you have a pension, how do you view it?

Post by MNGopher »

My teachers pension will cover all my basic needs in retirement (food, clothing, housing, utilities, minimal entertainment). I still save 50% of my gross income, not including my pension contributions. This will be for travel and fun stuff.
chalet
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Re: If you have a pension, how do you view it?

Post by chalet »

Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.

(nitpick) ........... 750k
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Watty
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Re: If you have a pension, how do you view it?

Post by Watty »

Smilodon wrote: Sat Oct 03, 2020 4:58 pm The first of each month I check the monthly defined benefit and optional lump sum equivalent assuming mega corp gave me my walking papers that day. The lump sum equivalent value has grown significantly in the recent past, no doubt due to decreasing interest rates.
I know someone that retired this summer, there were many other factors but a big one was that she was concerned that her large lump sum would decrease if she waited to retire and interest rates are higher next year.

One other caution about the lump sum option. That is that you might not always be able to actually take the lump sum. I have a smaller old pension that where the funding ratios got too low and they were required to suspend the lump sum option for about five years until the funding ratios improved. I think that was a PBGC requirement which makes sense to prevent a troubled pension plan from being drained.
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galawdawg
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Re: If you have a pension, how do you view it?

Post by galawdawg »

IowaFarmWife wrote: Sat Oct 03, 2020 10:02 pm
CyclingDuo wrote: Sat Oct 03, 2020 9:44 pm
IowaFarmWife wrote: Sat Oct 03, 2020 8:59 pmMy husband and I are both expecting modest pensions from IPERS due to our long years of working in public education. I am also stuffing as much money as I can every paycheck into my 403B and HSA accounts. I also have a very modest taxable brokerage account that I contribute to on a bimonthly basis. I view my pension as a stable fixed income portion of my portfolio, along with social security. I have my pretax money invested in the Vanguard 2030 TD fund, and my Roth, brokerage, and HSA accounts are all in S&P 500/total market funds. I take a little more risk with these other accounts because of the stability of the pension and TD funds.
Assuming you both qualify for the rule of age and service, let's not be too modest with that pension assessment. :beer

Dual pensions + dual Social Security should put your household in good stead before you even begin to think about the third leg (403b/HSA/Roth/Taxable).

Image

Are either of you planning on purchasing additional years of service at retirement?

CyclingDuo
We have discussed this, and are considering using the 403B money to purchase additional quarters. When I go to the IPERS website and run the projections, it looks rather spendy. I was also thinking of taking our personal savings and turning it into an annuity through TIAA or perhaps an insurance company. We have about 8-10 years to figure it out, though.
Food for thought...since you will already have income streams in retirement from pensions and social security, consider foregoing the purchase of an annuity with your portfolio. Having a portfolio of investments in addition to the income streams allows you more flexibility to make large purchases with cash as needed or desired, gives you options that you otherwise might not have (such as paying a large entrance fee for a CCRC), and provides the means for legacy giving. And as you have already done, you can take a more aggressive approach to asset allocation in your portfolio when you have secure and stable income streams in retirement.
chipperd
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Re: If you have a pension, how do you view it?

Post by chipperd »

Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.
So is it the above, (Many posit that $100 per month in pension income is worth $18,000)
or this from your earlier post
(Value of Pension = (Annual Amount / Reasonable Rate of Return) x Probability of payout
So, ($35,000 / 1%) x 75% = $2,625,000)


you suggest one use to calculate the value of a pension?

Large disparity in results.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
backpacker61
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Re: If you have a pension, how do you view it?

Post by backpacker61 »

ColoRetiredGirl wrote: Sat Oct 03, 2020 9:52 pm
This is exactly what happened to me. Out of the blue the SSA notified me to contact a former employer to start my pension.
Was it by chance in February or March of the year after the year in which you turned 70 1/2 (to begin receiving the pension by April 1)?
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
Admiral
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Re: If you have a pension, how do you view it?

Post by Admiral »

chipperd wrote: Sun Oct 04, 2020 5:29 am
Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.
So is it the above, (Many posit that $100 per month in pension income is worth $18,000)
or this from your earlier post
(Value of Pension = (Annual Amount / Reasonable Rate of Return) x Probability of payout
So, ($35,000 / 1%) x 75% = $2,625,000)


you suggest one use to calculate the value of a pension?

Large disparity in results.
I did not post that I endorsed one method or the other. I was simply posting how Financial Samurai did the calculation, plus one other (simpler) method that is common.

As for what I personally believe, assuming you care what a layperson thinks about their own pension, I would say that:
A) Financial Samurai is more optimistic but with the proper inputs it can be helpful
B) $100 per $18,000 is likely not too far off
C) pricing an annuity USING THE PROPER SURVIVORSHIP BENEFIT is likely the best method to placing a present value on a pension

AS I posted, I do not use the present value of my pension to determine my savings or asset allocation decisions. What I DO do is use the vested income amount that will be received to help determine when it’s feasible to retire, because it offsets expenses and thus reduces income need from portfolio. That’s it.
Admiral
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Re: If you have a pension, how do you view it?

Post by Admiral »

chalet wrote: Sun Oct 04, 2020 12:24 am
Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.

(nitpick) ........... 750k
Yes, sorry 750 is correct!
Admiral
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Re: If you have a pension, how do you view it?

Post by Admiral »

Here is the previous thread I referred to yesterday:

viewtopic.php?t=272192
Nowizard
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Re: If you have a pension, how do you view it?

Post by Nowizard »

The presence of all income sources in retirement, including a pension, simply determine the amount required from other assets to meet annual expenses. This has an immediate impact on assessment of risk in investing those assets.

Tim
Enjoy11
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Re: If you have a pension, how do you view it?

Post by Enjoy11 »

I'll get about a 50% pension, which is better than nothing.

It's 84% funded by the plan. Not so good. So I decided I'd better have some bonds in the 401(k) and I'm really concentrating on the 401(k) as my main retirement savings method.
jjbychko
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Re: If you have a pension, how do you view it?

Post by jjbychko »

Ron Ronnerson wrote: Sat Oct 03, 2020 9:46 am
jjbychko wrote: Sat Oct 03, 2020 9:33 am Same goes with the value of your house. If others include it then I will include it just for comparison. Retirement analysis programs do usually not include the value of the house, its reflected in your expenses.
I’m not sure I understand what you mean. How is the value of the house reflected in expenses? Someone with a house valued at x could have it paid off or still hold a large mortgage.
Poorly worded I guess. Expenses are the expenses whether paid off or not.
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gr7070
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Re: If you have a pension, how do you view it?

Post by gr7070 »

dziuniek wrote: Sat Oct 03, 2020 9:08 am
WS1 wrote: Sat Oct 03, 2020 8:21 am Edit - Just remembered my youngest won’t finish college until I’m 59, guess I’m probably working until then
haha, wow, same boat. We're planning on having another kiddo and if all things go well... he or she will wrap up their bachelors around the time I'm 59. So also.... not anytime before that. :)
I'm done having kids, but I'm late 40s looking at about 6 years till I'm done paying for college. That's the only thing holding me back - we don't have enough in 529 to pay for all of college. So I will be working through college to cash flow the remainder.

If I wasn't planning on paying for college I'd probably hang it up in a year or two...
chipperd
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Re: If you have a pension, how do you view it?

Post by chipperd »

Admiral wrote: Sun Oct 04, 2020 7:57 am
chipperd wrote: Sun Oct 04, 2020 5:29 am
Admiral wrote: Sat Oct 03, 2020 9:25 am Many posit that $100 per month in pension income is worth $18,000 (I started a long thread about this a few years back, I will find it and post the link later).

So that’s some simple math that demonstrates that a $50k pension is worth $900k.
So is it the above, (Many posit that $100 per month in pension income is worth $18,000)
or this from your earlier post
(Value of Pension = (Annual Amount / Reasonable Rate of Return) x Probability of payout
So, ($35,000 / 1%) x 75% = $2,625,000)


you suggest one use to calculate the value of a pension?

Large disparity in results.
I did not post that I endorsed one method or the other. I was simply posting how Financial Samurai did the calculation, plus one other (simpler) method that is common.

As for what I personally believe, assuming you care what a layperson thinks about their own pension, I would say that:
A) Financial Samurai is more optimistic but with the proper inputs it can be helpful
B) $100 per $18,000 is likely not too far off
C) pricing an annuity USING THE PROPER SURVIVORSHIP BENEFIT is likely the best method to placing a present value on a pension

AS I posted, I do not use the present value of my pension to determine my savings or asset allocation decisions. What I DO do is use the vested income amount that will be received to help determine when it’s feasible to retire, because it offsets expenses and thus reduces income need from portfolio. That’s it.
Gotcha. Thanks for taking the time to respond.
Chipperd :sharebeer
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
nolesrule
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Re: If you have a pension, how do you view it?

Post by nolesrule »

My wife has a non-COLA'd pension with her employer, but we're 21 years away from being able to start taking it. So we use the estimated value of what it will be worth then based on if she stopped working today (we update this value every 6-12 months in our spreadsheet). Plug that into our estimated future income streams to determine how much we'd need to pull from retirement accounts, and work backwards to calculate our real "magic number".
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Taylor Larimore
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Re: If you have a pension, how do you view it?

Post by Taylor Larimore »

JBEB wrote: Fri Oct 02, 2020 4:58 am If you are one of the lucky ones with a pension, how do you view it in terms of retirement planning?
JBEB:

I view my government pension as the centerpiece of my Social Security, IRA, and 2 SPIA annuities which give me a comfortable retirement income. This combination of monthly income allows me to give my remaining money to my heirs and charity without worrying about running out of money. Fortunately, I have good government medical insurance. My portfolio is no longer needed and is now very small.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "What I'm ultimately looking for is an industry that is focused on stewardship--the prudent handling of other people's money solely in the interest of our investors."
"Simplicity is the master key to financial success." -- Jack Bogle
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Sandi_k
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Re: If you have a pension, how do you view it?

Post by Sandi_k »

My pension will cover the vast majority of our monthly expenses by retirement (37 years of service, x 2.5% = 92.5% of highest three averaged years of pay, minus ~ 12% for 100% survivor benefits).

My employer also includes lifetime medical for myself and DH (with a payment of ~ 25% of the cost, and the pension also has adjusted historically with COLA.

Assuming all goes well (T-5 years!), everything else we save is on top of that.

In addition to the pension + savings, we both will have SS.

Mine will be by far the larger, so we're likely to file for DH's when he wants it; I think optimal is age 65.5 for him (FRA is 67), but if he wants the income stream any time after I retire, that would be fine. He's past the second bend point, so there's not a huge effect, and it allows me to delay until age 70.

Historically, I have also invested more aggressively (80/20) than I would if I did not have a pension, up until age 55. I have now rebalanced to ~ 65/35, as we begin to glide towards retirement, and preservation of capital is more meaningful for us.

In broad swaths in terms of retirement income: the pension will provide 60%, SocSec will provide 20%, and investments will provide 20%.
chipperd
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Re: If you have a pension, how do you view it?

Post by chipperd »

Sandi_k wrote: Sun Oct 04, 2020 1:21 pm My pension will cover the vast majority of our monthly expenses by retirement (37 years of service, x 2.5% = 92.5% of highest three averaged years of pay, minus ~ 12% for 100% survivor benefits).

My employer also includes lifetime medical for myself and DH (with a payment of ~ 25% of the cost, and the pension also has adjusted historically with COLA.

Assuming all goes well (T-5 years!), everything else we save is on top of that.

In addition to the pension + savings, we both will have SS.

Mine will be by far the larger, so we're likely to file for DH's when he wants it; I think optimal is age 65.5 for him (FRA is 67), but if he wants the income stream any time after I retire, that would be fine. He's past the second bend point, so there's not a huge effect, and it allows me to delay until age 70.

Historically, I have also invested more aggressively (80/20) than I would if I did not have a pension, up until age 55. I have now rebalanced to ~ 65/35, as we begin to glide towards retirement, and preservation of capital is more meaningful for us.

In broad swaths in terms of retirement income: the pension will provide 60%, SocSec will provide 20%, and investments will provide 20%.
Nice.
So, as per the OP's question, how do you value such a large portion of your retirement security?
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Dontwasteit
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Re: If you have a pension, how do you view it?

Post by Dontwasteit »

Dontwasteit wrote: Fri Oct 02, 2020 7:36 am My wife and I both have pensions. Hers less than mine. Since I wasn't able to get life insurance due to medical reasons I opted for the plan that instead of me getting my $40,000 per year pension I receive $33,000 but my wife collects it after I die. I've been retired 9 years so far which comes out to $63,000 less but at least I have peace of mind that when I die wifey will collect it for as long as she lives. It is a great feeling to sit back and get a pension check every month!
forgot to mention I get COLA which is another $28 starting next month. I'll take it, lol
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