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

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

Post by ubermax »

BarbBrooklyn wrote: Sat Oct 03, 2020 2:04 pm
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".
Yes , that's what I thought , pop-up is the normal term but bounce works too , good choice !!
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JBEB
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Re: If you have a pension, how do you view it?

Post by JBEB »

Didnt expect this much of a thread. Ive enjoyed it

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

Post by TravelforFun »

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
I didn't read all the responses but $1 of your annual pension should reduce your assets need by $33 if you believe in the 3% safe withdrawal rate.

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

Post by pahkcah »

DW and I both have COLA’d pensions and Social Security. We view the pensions as income. They cover all of our expenses, with a considerable amount left over each month. If I predecease my wife, she would receive 55% of my pension each month. If she predeceases me, I would receive 55% of her pension. The pensions allow me to stay invested in 100% equities in retirement accounts, as these accounts will all go to our children who are still fairly young (DW chose to invest her retirement account assets in a 60/40 mix). As I’ve stated in another post, the pensions push us into a higher tier for Medicare's Income-Related Monthly Adjustment Amount (IRMAA), but that’s a good problem to have. :beer
VINNY
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Re: If you have a pension, how do you view it?

Post by VINNY »

I view it as income that we don't have to pull out of our portfolio. And I don't count it in our asset allocation, even though it could be considered as a bond component. Instead I view it kind of like social security.

We are in the fortunate position of receiving pensions when we retire. I'll receive mine in 4 1/2 years when I turn 55. And my wife will receive hers in nine years.

Even though we have pensions, we still invested as if we didn't, maxing out every single account available to us, two Roth Ira's, two 457's and one 403(b) for 23 years. And after those accounts were maxed, we invested in taxable index funds.

Our pensions allowed us the luxury to remain aggressive for decades, 100% VTSAX. Our monthly pensions have also allowed us to invest our assets for our children's time horizon, 30 plus years. Which gives our current total portfolio of $2.4 million time to do some serious compounding- hopefully.

My pension will be $7,551.63 per month and I'll receive 3% COLA's every January. Plus paid for medical for both my spouse and I and my children under 26 years of age.

With my wife's pension, we'll be around $15K per month. We don't pay into social security, so I view this as our "social security".

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

Post by infotrader »

chipperd wrote: Sun Oct 04, 2020 2:20 pm
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?
she said:
Historically, I have also invested more aggressively (80/20) than I would if I did not have a pension, up until age 55.
goos_news
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Re: If you have a pension, how do you view it?

Post by goos_news »

My spouse has a private pension with both cash out and limited time frame payout options, and is now eligible (but will wait a couple of years as the discount factor goes down 5% per year). Like with SS, it could be viewed as a bonus as we are otherwise adequately funded, but it does have immediate cashout value today so we generally include a 15 year payout option in modeling.
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calmaniac
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Re: If you have a pension, how do you view it?

Post by calmaniac »

Taylor Larimore wrote: Sun Oct 04, 2020 1:09 pm 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
Taylor hits on many of my thoughts above. I have a military pension and am now working for a few years in private section before pretirement.

• When I was in my 30's & 40's I had no idea of the value of a pension, even though one of the reasons I kept with my job was "the pension"
• At present, my and DW's pensions provide the majority of our current expenses; by age 70 when we take SS, it should provide ≈100%
• That allows us to think more long-term about out assets and how they are allocated, since there is a relatively small chance we will need more than a fraction
• Pensions allows us to be more aggressive in our asset allocation, as our timeline is longer than an investor who is actively depleting funds
• Pension allows me a lot more freedom to make decisions based on what i want to do, not just on financial aspects
• I ❤️ my pension
• My pension is such an important part of my financial plan that I include in in my investing policy statement signature (below)
63 yo,1y til go part-time. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
brajalle
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Re: If you have a pension, how do you view it?

Post by brajalle »

I have a state gov pension. It is a modest pension calculation and we are still part of SS. No automatic COLA (so I assume nothing, but they have been doing $450 annual bonuses since about 2008 in lieu of COLAs). As of 2019's report it is funded at 80.1%, but that has been increasing after they adjusted the return assumptions downwards. It is fairly well protected, and they will just increase required contributions if necessary, so I'm fairly confident in receiving it.

There is no benefit for me delaying when I can take the pension, which, presuming I continue this employment until then, will be full value at age 55. I currently plan to retire at that age (at least from the day job). The pension will be about 33% of my former income at that point (the DB side), but with some adjustments to my work schedule I believe I can boost it to about 50%. Despite that math I also view my pension in terms of what it's value as a % of my salary is each year. I roughly value my regular contribution to it at the same level the state assigns my employer to contribute towards my pension - 11.2% for the defined benefit, and 3% for the defined contribution. Ie, I figure that my pension's value is worth 14.2% of my salary in terms of evaluating my savings rate. Despite that being a decent savings rate by itself, we further contribute to HSA, IRA, and 457 funds. All combined, I calculate we have a 41.5% retirement savings rate of our gross income currently. We're not high earners (thus the higher retirement savings rate), but the plan was to retire early and earn more in retirement than when working (we want to travel - camping & sailing).

As far as how I view the pension? Classic 3-legged stool once we claim SS. The lack of COLA on the pension does mean that the pension leg gets weaker over time, but I do presume we will continue to have income even at 55+, and that we will allow our investments to continue to grow during that time by not drawing on them heavily to offset.

As calmaniac indicates in the prior post, the pension's strength combined with some other factors, has also allowed me to be more aggressive with what I invest in - to be riskier. Even if I completely lost all of the money ever invested in the riskier investments, I'd still be over 100% of pre-retirement income when I draw SS even with the most conservative outcomes for my other retirement income.
chipperd
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Re: If you have a pension, how do you view it?

Post by chipperd »

infotrader wrote: Sun Oct 04, 2020 8:18 pm
chipperd wrote: Sun Oct 04, 2020 2:20 pm
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?
she said:
Historically, I have also invested more aggressively (80/20) than I would if I did not have a pension, up until age 55.
Right, missed that in the post.
Thanks
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
SQRT
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Re: If you have a pension, how do you view it?

Post by SQRT »

Didn’t really give it much thought before retirement. Retired at 56 pension started at 62. Currently 70. Very generous pension (mid 6 figures) but non cola. 100% survivor benefit to my spouse. The pension is from a very well established sponsor with very little risk. Having such a solid source of “fixed income” allows me to have a more aggressive portfolio AA. Plan is to cover inflation through increasing divs. Working out pretty well so far.
michaelingp
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Re: If you have a pension, how do you view it?

Post by michaelingp »

Between my pension and my wife's, plus SS, all our living expenses are covered, including fairly big ticket items. We did not expect this while we were working, but I'm not sure we would have done anything differently if we had. We always lived below our means and saved a lot. Our spending and AA is set more by internal values than rational financial thought.
tnr
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Re: If you have a pension, how do you view it?

Post by tnr »

I retired early at 55 and started receiving a modest pension immediately. I knew I wanted to work more so I found a rewarding lower paying job at a university. Most of the time I simply reinvest the monthly pension into a bond fund. Occasionally I use it for larger things like a new car. I’m 64 now and still working. When I retire for good in the next 3 years, the pension will simply be one of several income streams.
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Quirkz
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Re: If you have a pension, how do you view it?

Post by Quirkz »

Interesting discussion. I just took a new job a few weeks ago that comes with a pension, but I haven't learned enough yet. This thread's giving me a lot of good questions to ask.

- I won't vest for 5 years, so until that point I'll probably ignore it entirely. Even after that it's going to grow pretty slowly for a while.

- If I stay where I am through retirement, it's looking like it could be worth $30k-$50k per year. Big enough to make a difference, but not enough on its own. I also can't say with any confidence, after only 11 days of service, whether I'll be staying for another 20 years.

- If I pretend that pension is a 4% payout from some imaginary pool of money, I can reverse-engineer it into saying that represents somewhere between $750k and $1.2 million in a retirement account. I'm not sure whether it's more useful to imagine it that way, or just focus on the cashflow side. Maybe both, depending on the situation.

- I have no idea about survivorship, but that's going to be important for me to research.

- While the pension is a nice feature, it's replacing a 10% retirement match from my old job (4% actual match + 6% profit sharing). My long-term goal, pulled from Dave Ramsey, has always been 15% or more. I'd been sort of coasting along committing only 11% of my salary to retirement, figuring with match that was 21%, which was plenty. Now I might have to up it a bit.
mnnice
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Re: If you have a pension, how do you view it?

Post by mnnice »

I suspect that the three small pensions that DH anticipate having (I’m vested I two he as just two remaining quarters to vest) should equal about a 1/4 to a 1/3 of our spending needs. Not chump change but smaller than either our portfolio or eventually social security. Ours are all public employee pensions, well funded, and in three different states so it does seem like a bit of a diversification play too.

CyclingDuos comment about wine money cracked me up. DH refers to his a beer money. I tell him he is going to have to drink less beer or cheaper beer if his pension is going to cover his beer money.
523HRR
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Re: If you have a pension, how do you view it?

Post by 523HRR »

DB pensions from mega corp will cover our spending/taxes, and consider this a fixed income component of our cash flows. This provides confidence for a high (>90%) asset allocation to equities.
BV3273
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Re: If you have a pension, how do you view it?

Post by BV3273 »

RevFran wrote: Sat Oct 03, 2020 10:19 pm
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?
I thought some would look at a pension as a major income
Generator for their retirement income.
soccerbogle
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Re: If you have a pension, how do you view it?

Post by soccerbogle »

I use my pension to calculate how much I need from other investments to retire, using various amounts of annual spending (I am mid 30s, so am using salary minus retirement savings as a potential target to have available in retirement each year).

It also, along with social security (maybe, lol) provide an income floor that I know I will have in retirement, which will likely allow me to stay 100/0 until closer to retirement than otherwise would be realistic.
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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 »

chipperd wrote: Sun Oct 04, 2020 2:20 pm
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?
As income. I am eligible to retire now, should I choose. It decreases the monthly income, but I could do it.

It has also allowed me to be more aggressive in my asset allocation these past 15 years.
bltn
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Re: If you have a pension, how do you view it?

Post by bltn »

BV3273 wrote: Mon Oct 05, 2020 7:40 pm
RevFran wrote: Sat Oct 03, 2020 10:19 pm
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?
I thought some would look at a pension as a major income
Generator for their retirement income.
A lot of the Bogleheads on this forum are like me. I always saved a significant anmount of my take home pay. Money left with the profit sharing /401k was considered icing on the retirement cake. While tax deferred money comes in handy now, the bulk of our retirement support comes from after tax accounts.
SRenaeP
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Re: If you have a pension, how do you view it?

Post by SRenaeP »

marti038 wrote: Fri Oct 02, 2020 9:44 am Personally, I don't account for it in our retirement planning. I suppose I'm pessimistic about the likelihood of it still being around in 20 years or so. Same for SS.

I do track the pension's present value by basically comparing it to what an annuity would cost with a similar monthly benefit.

We still invest at least 15% of our annual gross income in IRA's and 401k's, some years more.
Same here. I assume the pension won't be there in 20 years. (I do assume I'll get a lump sum buyout offer at some point between now and then).

Accordingly, my goal is 25x. Any pension or SS I get will be icing on the cake.
mindboggling
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Re: If you have a pension, how do you view it?

Post by mindboggling »

As a retiree, I view my pension with joy and gratitude! :D

But from a financial point of view, it's definitely income.
In broken mathematics, We estimate our prize, --Emily Dickinson
capran
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Re: If you have a pension, how do you view it?

Post by capran »

A lot of great info here. We knew we would have a school retiree pension but we didn't let that stop us from saving as much as possible- making our deferred comp, Roth IRA, traditional IRA, and 403b as well as the Individual investment of our own contributions to a second part of our school plan. But I did take less on my pension to have 100% survivor benefits for my Spouse, since the odds are women outlive men. Your tax system may be different, but I wish I had NOT deferred so much of my income, as I am in a much higher tax bracket now than when we worked.
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calmaniac
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Re: If you have a pension, how do you view it?

Post by calmaniac »

Quirkz wrote: Mon Oct 05, 2020 4:03 pm I- If I pretend that pension is a 4% payout from some imaginary pool of money, I can reverse-engineer it into saying that represents somewhere between $750k and $1.2 million in a retirement account. I'm not sure whether it's more useful to imagine it that way, or just focus on the cashflow side. Maybe both, depending on the situation.
From what I have read and made sense of, pension is best thought of as (future) income, not as "reverse-engineered" current asset value. In retirement, income is the name of the game, that is what you live off. Having multiple sources of income, such as pension and/or social security, provide stable income that will not run out (addresses longevity risk).

The above is predicated on having a solid well-supported pension with COLA benefit. From comments I have read, some companies have real stinkers.
63 yo,1y til go part-time. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
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MissHavisham
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Re: If you have a pension, how do you view it?

Post by MissHavisham »

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
I view it as my hooker and blow money.
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Third Son
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Re: If you have a pension, how do you view it?

Post by Third Son »

I took my pension as a lump sum and rolled it into an IRA. If I had it annuitized the break even point would have been 16.6 years. I decided the money would serve us better invested. I believe Megacorps would prefer lump sum payouts since then it gets written off their books and is more cost effective. I was glad to oblige.
"A part of all you earn is yours to keep" | | -The Richest Man in Babylon
Helo80
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Re: If you have a pension, how do you view it?

Post by Helo80 »

MissHavisham wrote: Tue Oct 06, 2020 8:21 pm
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
I view it as my hooker and blow money.
An honest BH....
RuralLivin
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Re: If you have a pension, how do you view it?

Post by RuralLivin »

I view my pension and SS as the main source of income. I plan to leave the bulk of my 401(k) to my only child.

A new benefit in my pension was started a number of years ago allows you to "leave" your pension to a child, trust, or significant other if you die before starting to receive it. I recall it was due to the changes of family structure today.

I just turned 62 in August and my wife passed away from cancer on my birthday after a two year battle. I plan to work until I'm 70 just to have something to do. The pension retirement age is 65 and the payout does increase while you work after that. Once retired, payment starts and there is no increase and it will end once I die. I expect to have retiree medical for now; but, I don't expect it in the future.

My wife had an old retirement plan I did not know existed at the hospital . I received a letter from them which stated the amounts and procedure to transfer it into an IRA, receive monthly payout, or lump sum. I had already started process of transferring her hospital 403 account to me; but, the pension lump sum part was a nice surprise.

I'm telling everyone not to forget about former employer's pensions that might exist for you or your spouse.
vested1
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Re: If you have a pension, how do you view it?

Post by vested1 »

Third Son wrote: Tue Oct 06, 2020 8:27 pm I took my pension as a lump sum and rolled it into an IRA. If I had it annuitized the break even point would have been 16.6 years. I decided the money would serve us better invested. I believe Megacorps would prefer lump sum payouts since then it gets written off their books and is more cost effective. I was glad to oblige.
We were lucky enough to have both. I took mine as a lump sum and my wife took hers as a pension. Best of both worlds as my pension was unfavorably low with the 100% survivor but fair for the lump sum option, and her pension was generous for the 100% survivor option with no lump sum available. My lump sum multiplied in investments while her pension covered most of our expenses.
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Third Son
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Re: If you have a pension, how do you view it?

Post by Third Son »

RuralLivin wrote: Tue Oct 06, 2020 9:27 pm I view my pension and SS as the main source of income. I plan to leave the bulk of my 401(k) to my only child.

A new benefit in my pension was started a number of years ago allows you to "leave" your pension to a child, trust, or significant other if you die before starting to receive it. I recall it was due to the changes of family structure today.

I just turned 62 in August and my wife passed away from cancer on my birthday after a two year battle. I plan to work until I'm 70 just to have something to do. The pension retirement age is 65 and the payout does increase while you work after that. Once retired, payment starts and there is no increase and it will end once I die. I expect to have retiree medical for now; but, I don't expect it in the future.

My wife had an old retirement plan I did not know existed at the hospital . I received a letter from them which stated the amounts and procedure to transfer it into an IRA, receive monthly payout, or lump sum. I had already started process of transferring her hospital 403 account to me; but, the pension lump sum part was a nice surprise.

I'm telling everyone not to forget about former employer's pensions that might exist for you or your spouse.
So sorry to learn about your wife's passing. That had to have been hard. Nice to hear she surprised you though. 😊
"A part of all you earn is yours to keep" | | -The Richest Man in Babylon
Enganerd
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Re: If you have a pension, how do you view it?

Post by Enganerd »

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.
I agree with how you view the present value of the pension and plan to use it in the future upon drawing it. However, how would you view it when considering a job offer?

I have not read the entire thread but upon skimming it it seemed to be mostly retired or soon to be retired folks discussing how they view the pension. I personally agree with the outlook of subtracting the pension from expenses and managing the investment portfolio to cover remaining expenses.

The more challenging question is how does one in their midcareer evaluate a pension. If you are considering changing jobs to look for more compensation how does one reasonably compare pension participation to higher salary/401k match. It's difficult because it relies on multiple assumptions: rate of return of investments of higher salary/401k match and probability pension remains fundamentally unchanged. And of course the closer you get to drawing the pension the financial benefits for staying 1 more year increases substantially.
Last edited by Enganerd on Wed Oct 07, 2020 7:17 am, edited 1 time in total.
Admiral
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Re: If you have a pension, how do you view it?

Post by Admiral »

Enganerd wrote: Wed Oct 07, 2020 6:21 am
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.
I agree with how you view the present value of the pension and plan to use it in the future upon drawing it. However, how would you view it when considering a job offer?

I have not read the entire thread but upon skimming it it seemed to be mostly retired or soon to be retired folks discussing how they view the pension. I personally agree with the outlook of subtracting the pension from expenses and managing the investment portfolio to cover remaining expenses.

The more challenging question is how does one in their midcareer evaluate a pension. If you are considering changing jobs to look for more compensation how does one reasonably compare pension participation to higher salary/401k match. It's difficult because it relies on multiple assumptions: rate of return of investments of higher salary/401k match and probability pension remains fundamentally unchanged. And of course the closer you get to drawing the pension the financial benefits for staying increase 1 more year increase substantially.
It's a good question and there have been threads about it before. One thing I will say is that it's not safe to make any assumptions about a pension until it is vested. Until that time, all you get is your contributions back when you separate. So, the vesting period matters. In some jobs, it can be as little as 3-5 years (or perhaps even immediately in some P/F unions, not sure about that). In others, it can be 10 years. Thus, much depends on your age and other career prospects. For example, if you are two years from vesting, then in may not make sense to take a different (non-pensioned) job even if it pays more and has a nice retirement match. Similarly, if you are young and in a civil service job where longevity in your job is relatively assured, then it can make sense to stay even if you could make more in the private sector...ASSUMING you are not miserable in your job.

OTOH, if you are years away from vesting and receive a job offer that would allow you to max out your retirement savings, that might be the better choice. But, most people do not maximize retirement savings. A pension is also forced savings, so one cannot "opt out" of it.

(All of this is putting aside the funding level of the pension plan. I'd be more worried about a private pension than a gov't one, though many state plans are precarious.)
Enganerd
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Re: If you have a pension, how do you view it?

Post by Enganerd »

Admiral wrote: Wed Oct 07, 2020 6:45 am
Enganerd wrote: Wed Oct 07, 2020 6:21 am
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.
I agree with how you view the present value of the pension and plan to use it in the future upon drawing it. However, how would you view it when considering a job offer?

I have not read the entire thread but upon skimming it it seemed to be mostly retired or soon to be retired folks discussing how they view the pension. I personally agree with the outlook of subtracting the pension from expenses and managing the investment portfolio to cover remaining expenses.

The more challenging question is how does one in their midcareer evaluate a pension. If you are considering changing jobs to look for more compensation how does one reasonably compare pension participation to higher salary/401k match. It's difficult because it relies on multiple assumptions: rate of return of investments of higher salary/401k match and probability pension remains fundamentally unchanged. And of course the closer you get to drawing the pension the financial benefits for staying increase 1 more year increase substantially.
It's a good question and there have been threads about it before. One thing I will say is that it's not safe to make any assumptions about a pension until it is vested. Until that time, all you get is your contributions back when you separate. So, the vesting period matters. In some jobs, it can be as little as 3-5 years (or perhaps even immediately in some P/F unions, not sure about that). In others, it can be 10 years. Thus, much depends on your age and other career prospects. For example, if you are two years from vesting, then in may not make sense to take a different (non-pensioned) job even if it pays more and has a nice retirement match. Similarly, if you are young and in a civil service job where longevity in your job is relatively assured, then it can make sense to stay even if you could make more in the private sector...ASSUMING you are not miserable in your job.

OTOH, if you are years away from vesting and receive a job offer that would allow you to max out your retirement savings, that might be the better choice. But, most people do not maximize retirement savings. A pension is also forced savings, so one cannot "opt out" of it.

(All of this is putting aside the funding level of the pension plan. I'd be more worried about a private pension than a gov't one, though many state plans are precarious.)
Even after vesting it is a hard problem. Ultimately I would say you can get close enough to make the decision based off other factors such as job satisfaction, security, freedom to move around etc.

But say you are vested for $20k pension right now but you cannot draw for another 25 years and if you leave there will be no cola adjustment. How much value that revenue stream is largely impacted by inflation and pension modifications. However, if you stay the pension value will increase by the years participation factor plus presumably your salary would increase with inflation.
SSide1967
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Re: If you have a pension, how do you view it?

Post by SSide1967 »

I have worked for 3 firms who all froze or eliminated their pension while I was working there. From one I have a very modest ($200/month) pension that will start in 13 years. I figure it will pay the phone bill.
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Re: If you have a pension, how do you view it?

Post by abuss368 »

My wife has a pension with the school district. I view that as simply additional cash flows one day. I do not include in any asset allocation or anything else as the pension is held and managed by the state system.
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Re: If you have a pension, how do you view it?

Post by Soon2BXProgrammer »

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
I view my pension as a bond. It has a cash value and currently accrues interest credits at 5%. I could take the lump sum today.. or 30 years from now. or anywhere in between. I could take it as an annuity at retirement age.

However, from now until i decide to lump sum or annuitize it, i view it as bonds.
rgs92
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Re: If you have a pension, how do you view it?

Post by rgs92 »

Just plug it into FIRECALC in your retirement analysis and see what happens. (Remember to mark it as fixed or inflation-adjusted.)
It doesn't really matter how you view it, FIRECALC doesn't care.
Of course, if it goes away or gets reduced, that's an issue, but that's more subjective.

So if you assume the pension is safe, and also trust FIRECALC, that's all you need to know. If you don't trust how FIRECALC predicts things, that takes you into a frontier that is far more complicated than the question here, and is covered in many other threads in very many ways.

(I just use cFireSim myself.)
Last edited by rgs92 on Thu Oct 08, 2020 2:26 pm, edited 1 time in total.
BigMoneyNoWhammies
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Re: If you have a pension, how do you view it?

Post by BigMoneyNoWhammies »

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
I'll have a small federal pension in retirement, but as it won't be adjusted for inflation it almost certainly won't be enough to cover any real expenses 30 years from now when I begin to draw it. I don't factor it into my planning at all, but that's only due to the low $ value. If I had spent enough time in gov to where the pension approached 80-85% of yearly earnings as with some federal career employees, I'd certainly factor it in and just subtract the pension from my projected expenses.
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Re: If you have a pension, how do you view it?

Post by nguy44 »

mindboggling wrote: Tue Oct 06, 2020 1:02 pm As a retiree, I view my pension with joy and gratitude! :D

But from a financial point of view, it's definitely income.
Completely agree! I am fortunate to have a non-COLA, but very good pension from a solid corporation that no longer provides pensions. It
I treat it as income. It is one of my three support "legs" for retirement - pension, SS (now for wife, future for me), and stock/bond/cash assets.

When planning for retirement I did not look at it as part of my net worth. All I assumed was I would get it but for how long I do not know, since I cannot predict my life expectancy. From a very basic perspective, I looked at planned annual expenses - pension = what I would need to withdraw from stocks/bonds/cash each month to support our lifestyle. My target for withdrawal was < 3%, so I worked and saved to get to that point.
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Re: If you have a pension, how do you view it?

Post by barberakb »

I have a pension for 20 yrs in the military. It really isn't that much since I was enlisted but its nice to know that its pretty much guaranteed and it is COLA'd so that is nice. I view it as a bucket of $. I like to have multiple buckets or income streams to keep me diversified, that way if one fails I am still good to go. So for now I have these. My W2 job, military retirement, stocks/bonds, rental properties. When I retire I will lose the W2 and then after a while gain SS.
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JBEB
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Re: If you have a pension, how do you view it?

Post by JBEB »

Sorry to bump this.

Prior to retiring, did you somehow track anything in terms of networth? Just contributions? Contributions and interest? Etc
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Toons
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Re: If you have a pension, how do you view it?

Post by Toons »

We view it as living expenses
:happy
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gr7070
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Re: If you have a pension, how do you view it?

Post by gr7070 »

JBEB wrote: Wed Nov 04, 2020 6:44 pm Sorry to bump this.

Prior to retiring, did you somehow track anything in terms of networth? Just contributions? Contributions and interest? Etc
I have net worth spreadsheet. I have two different line items for both our pensions that I use to calculate two different net worths.

One is simply the cash value of each pension, which is the amount contributed plus a flat, nominal interest applied each year. The rate is stipulated in the plan.

The other pension value is a net present value of each pension based off how much we'll collect annually in retirement.

Either way does a reasonable job of putting a value on the pensions, though they are rather different.

They are an item of value and thus belong in a net worth calculation. I have subtotals with pension and without.

However, as most comment, even though they're in my net worth calculation I don't view them as a lump sum for financial planning I view them as future income to subtract from expenses in retirement.
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JBEB
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Re: If you have a pension, how do you view it?

Post by JBEB »

gr7070 wrote: Wed Nov 04, 2020 7:05 pm
JBEB wrote: Wed Nov 04, 2020 6:44 pm Sorry to bump this.

Prior to retiring, did you somehow track anything in terms of networth? Just contributions? Contributions and interest? Etc
I have net worth spreadsheet. I have two different line items for both our pensions that I use to calculate two different net worths.

One is simply the cash value of each pension, which is the amount contributed plus a flat, nominal interest applied each year. The rate is stipulated in the plan.

The other pension value is a net present value of each pension based off how much we'll collect annually in retirement.

Either way does a reasonable job of putting a value on the pensions, though they are rather different.

They are an item of value and thus belong in a net worth calculation. I have subtotals with pension and without.

However, as most comment, even though they're in my net worth calculation I don't view them as a lump sum for financial planning I view them as future income to subtract from expenses in retirement.
Really appreciate the thoughtful response. Thanks
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CyclingDuo
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Re: If you have a pension, how do you view it?

Post by CyclingDuo »

JBEB wrote: Wed Nov 04, 2020 6:44 pm Sorry to bump this.

Prior to retiring, did you somehow track anything in terms of networth? Just contributions? Contributions and interest? Etc
We have only tracked it - in that regard - as the current cash out value only if it was taken as a lump sum.

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

Post by Nicolas »

I’m retired 4-1/2 years and drawing a non-COLA’ed pension which meets all my normal expenses and then some. Because of my pension I’m invested more aggressively than I otherwise would be.
Last edited by Nicolas on Thu Nov 05, 2020 11:22 am, edited 1 time in total.
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Monster99
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Re: If you have a pension, how do you view it?

Post by Monster99 »

I count my pension as income - it reduces the amount I need to withdraw from my tax deferred accounts to live on. It is a fixed amount (no COLA) so the purchase power reduces into the future....
daacrusher2001
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Re: If you have a pension, how do you view it?

Post by daacrusher2001 »

My pension has always been in my plan as fixed income. I could, and may, take a lump sum (have to decide by March). But...I set my fixed income as:

My Pension
Wife's Pension
My SS
Wife's SS

That way, I have a good base that I can pretty much count on, barring anything crazy happening. That leaves me a lot of retirement money to use for fun stuff.
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Re: If you have a pension, how do you view it?

Post by vinhodoporto »

JBEB wrote: Wed Nov 04, 2020 6:44 pm Sorry to bump this.

Prior to retiring, did you somehow track anything in terms of networth? Just contributions? Contributions and interest? Etc
My wife and I both have pensions with COLA but no lump sum option (military and teacher). We don’t count them in net worth at all, but do consider them an important component of future retirement income, like social security (hopefully).
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Bogle7
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Post by Bogle7 »

Well, mine is a non-COLA $405/month with survivorship.
Minus taxes is $300/month.
It buys new computer hardware and software.
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