Retirement Planning Specific to Pensions

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Topic Author
Verbalkintify
Posts: 7
Joined: Fri Mar 27, 2020 4:07 pm

Retirement Planning Specific to Pensions

Post by Verbalkintify »

Asks
I feel like my retirement planning has been suffering from a shaky level of confidence, which has started getting me thinking about hiring a financial/retirement planner. I am looking to you folks for some additional eyes on my financial plan to help provide some direction on things to evaluate/adjust. I have a lot of calculations I have created but find myself questioning (and re-questioning) the inputs. Some key areas include:
  1. Retirement expenses. I’ve used our take home pay + deductions that won’t exist in the future - new expenses to arrive at monthly expenses in retirement. I question what I might be missing so any resources on helping flush this out further would help.
  2. Retirement planning; I want to be able to estimate what would be needed to retire at various ages (i.e. 67 vs 60 vs 55). Spouse has expressed disinterest in early retirement but I would also like to estimate what that would look like in case that changes.
  3. Assess what capacity is available to get some home projects done that we need and the estimated impact on retirement by directing funds there.
  4. Pensions - I already have a government pension and my wife recently got a job that also provides one. I’ve struggled with trying to assess the value of them, since years of service factor and early withdrawal heavily into their worth.
    Specifics on Spouse’s new government job offers a choice between a pension or a 401a. How would you recommend going about choosing? Details:
    1. Pension
      7.5% of salary - Employee mandatory contribution
      1.9% - years of service factor
      Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension
      Post-Retirement Benefit Increase 1.0% (incrementing to 1.5% by 2028)
    2. 401a
      7.5% of salary - Employee mandatory contribution
      6.0% of salary - Employer contribution
      Note: I’ve set up calculators to calculate the value of the pension based on service years and calculate the value of 401a based on average investment earnings percentage. I’m not sure what percent to use for investments (6%?) or how to value it relative to the pension (e.g. a 4% withdrawal rate on the investment vs annual pension). I’ve been assuming a 2.5% annual salary increase.
      Really any other guidance you can provide that would help me feel more confident in my overall approach so I can leverage assets not only in the far future but also near.

Age: Both 38

Income: 176.5k Total


Savings
Emergency: 20k
Cash: 15k - Mostly earmarked for home projects
Joint-Etrade: 43.5k
Mcdonalds (MCD)

Debt
Home
Value: 400k
Mortgage: 238k
Rate: 4.125%

Student Loans
Balance: $13.5k
Rate: %3.55 (variable)

Taxes
Filing Status: Married filing jointly
Federal: 22%
State: 6.8%

Pensions
Me [Actively Earning] 6.5 years of service @ $86k high-five
6.0% of salary - Employee mandatory contribution
1.7% - years of service factor
Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension
Post-Retirement Benefit Increase 1%

Spouse 1 [Inactive] Lump sum of $26k earning about 7% per year until retirement

Spouse 2 [Active] See questions for details


Asset Allocation
82% equities/18% securities
Equities - 70% Domestic/30% International


Investments: 565k
Me-Roth: 32.34%
22.95% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)
9.39% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)(.11%)

Me-401k: 23.19% *23.2
9.55% State Street S&P 500® Index Securities Lending Series Fund Class II (No ticker)(.01%)
6.84% State Street U.S. Bond Index Securities Lending Series Fund Class XIV (No ticker)(.02%)
6.81% State Street Global All Cap Equity Ex-U.S. Index Securities Lending Series Fund Class II (No ticker)(.045%)

Me-457b: 1.48%
0.33% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX)(.02%)
1.14% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX)(.03%)

Me-HSP: 1.42%
1.42% Vanguard Total Stock Market Index Fund Institutional Plus Shares (VSMPX)(.02%)

Me-HSA: 1.90%
0.35% Cash
0.83% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX)(.03%)
0.72% Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX)(.07%)

Spouse-Roth: 21.28%
14.84% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)
6.43% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)(.11%)

Spouse-403b: 17.16%
3.60% American Funds New Perspective Fund® Class R-6 (RNPGX)(.41%)
5.76% CREF Bond Market Account R2 (QCBMPX)(.26%)
7.79% Vanguard Institutional Index Fund Institutional Shares (VINIX)(.04%)

Spouse-HSA: 1.23%
0.44% Cash
0.79% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)

Spouse-HCP: 0%
None yet but 1% of salary mandatory going forward


Contributions
Me-Roth
Annual Max

Me-Pension
6% of salary - Employee mandatory contribution

Me-Health Savings Plan
1% of salary - Employee mandatory contribution

Me-457b
6.6% of salary

Spouse-Roth
Annual Max

Spouse-Pension or 401a
7.5% of salary - Employee mandatory contribution
401a would get 6.0% Employer contribution

Spouse-Health Savings Plan
1% of salary - Employee mandatory contribution

Spouse-457b
3.4% of salary


Edits in blue
Last edited by Verbalkintify on Thu Jan 13, 2022 4:33 pm, edited 1 time in total.
tibbitts
Posts: 16372
Joined: Tue Feb 27, 2007 6:50 pm

Re: Retirement Planning Specific to Pensions

Post by tibbitts »

"Direction on things to evaluate/adjust": stop wasting time seeking precision in the calculations you're making about the very, very distant future. Finances will work out fine for you and almost every Boglehead.

Concentrate on other problems that are equally impossible to solve, like trying to source materials and labor for those home improvement projects before it's time to move to the CCRC.
Topic Author
Verbalkintify
Posts: 7
Joined: Fri Mar 27, 2020 4:07 pm

Re: Retirement Planning Specific to Pensions

Post by Verbalkintify »

tibbitts wrote: Thu Jan 13, 2022 2:47 pm "Direction on things to evaluate/adjust": stop wasting time seeking precision in the calculations you're making about the very, very distant future. Finances will work out fine for you and almost every Boglehead.

Concentrate on other problems that are equally impossible to solve, like trying to source materials and labor for those home improvement projects before it's time to move to the CCRC.
I get that. One of the main factors prompting the questions is concern about over saving for the future when I could be apply money to things like those home improvement projects. They are very stressful to have lingering and quality contractors are pricing out of our current savings/improvement budget.
oldfatguy
Posts: 1126
Joined: Tue Feb 27, 2018 1:38 pm

Re: Retirement Planning Specific to Pensions

Post by oldfatguy »

Verbalkintify wrote: Thu Jan 13, 2022 1:19 pm
[*]Pensions - I already have a government pension and my wife recently got a job that also provides one. I’ve struggled with trying to assess the value of them, since years of service factor and early withdrawal heavily into their worth.
Specifics on Spouse’s new government job offers a choice between a pension or a 401a. How would you recommend going about choosing? Details:
  1. Pension
    7.5% of salary - Employee mandatory contribution
    1.9% - years of service factor
    Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension
  2. 401a
    7.5% of salary - Employee mandatory contribution
    6.0% of salary - Employer contribution
    Note: I’ve set up calculators to calculate the value of the pension based on service years and calculate the value of 401a based on average investment earnings percentage. I’m not sure what percent to use for investments (6%?) or how to value it relative to the pension (e.g. a 4% withdrawal rate on the investment vs annual pension). I’ve been assuming a 2.5% annual salary increase.
    Really any other guidance you can provide that would help me feel more confident in my overall approach so I can leverage assets not only in the far future but also near.
When I had that option (in NY) a long time ago, I opted for the 401 plan, and would do so again. In part, because I didn't know how long I would be there (ended up being 3 years), but also because I would prefer to have control over my own retirement funds.
zie
Posts: 364
Joined: Sun Mar 22, 2020 4:35 pm

Re: Retirement Planning Specific to Pensions

Post by zie »

Verbalkintify wrote: Thu Jan 13, 2022 1:19 pm Asks
I feel like my retirement planning has been suffering from a shaky level of confidence, which has started getting me thinking about hiring a financial/retirement planner. I am looking to you folks for some additional eyes on my financial plan to help provide some direction on things to evaluate/adjust. I have a lot of calculations I have created but find myself questioning (and re-questioning) the inputs. Some key areas include:
  1. Retirement expenses. I’ve used our take home pay + deductions that won’t exist in the future - new expenses to arrive at monthly expenses in retirement. I question what I might be missing so any resources on helping flush this out further would help.
  2. Retirement planning; I want to be able to estimate what would be needed to retire at various ages (i.e. 67 vs 60 vs 55). Spouse has expressed disinterest in early retirement but I would also like to estimate what that would look like in case that changes.
  3. Assess what capacity is available to get some home projects done that we need and the estimated impact on retirement by directing funds there.
  4. Pensions - I already have a government pension and my wife recently got a job that also provides one. I’ve struggled with trying to assess the value of them, since years of service factor and early withdrawal heavily into their worth.
    Specifics on Spouse’s new government job offers a choice between a pension or a 401a. How would you recommend going about choosing? Details:
    1. Pension
      7.5% of salary - Employee mandatory contribution
      1.9% - years of service factor
      Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension
    2. 401a
      7.5% of salary - Employee mandatory contribution
      6.0% of salary - Employer contribution
      Note: I’ve set up calculators to calculate the value of the pension based on service years and calculate the value of 401a based on average investment earnings percentage. I’m not sure what percent to use for investments (6%?) or how to value it relative to the pension (e.g. a 4% withdrawal rate on the investment vs annual pension). I’ve been assuming a 2.5% annual salary increase.
      Really any other guidance you can provide that would help me feel more confident in my overall approach so I can leverage assets not only in the far future but also near.
[*] Retirement expenses one way: <gross pay> - <savings> = <yearly expenses> This usually gets pretty close to reality especially if retirement is decades away. Then <yearly expenses> - <social security/pensions/etc> = <yearly amount investments need to cover>. take <yearly amount investments need to cover> x 25 or 30 (25 for a 30yr retirement(4% WR), x 30 if you want to be safer or for a longer retirement). That tells you the balance on your investments you need to retire.

There is a problem though, not all pensions are COLA(i.e. increased payments due to inflation). If yours is not COLA, then you probably want to knock 1/3(33%) off the yearly income amount and use that number instead for the above calculations, assuming you think your inflation rate will match the historic inflation rate. 1/3 is very rough, but "close enough" for longer-term planning. Otherwise you have to do a bunch of nominal vs real calculations which is complicated and annoying.

[*] Retirement planning see above, do it for your spending targets.

[*] Other financial goals just do some math. do you need help figuring that out?

[*] Pensions besides what I mentioned above, for your wife's pension option, I bet they are expected to be identical choices for most everyone, so for your wife, you can lazily assume the choices are generally close enough. Some things to think about that might help one decide.

If the pension is COLA, and you expect your personal inflation rate to match, then a tilt to the pension option. If your wife(or you) are expected to live a really long time(age 90+) then pensions are favoured. If you/wife are a futzer or controlling type, then the 401a option is likely better from an emotional perspective. If you expect outperformance in investments(unlikely to be true) then the 401a is likely better.

Basically, assuming math-wise the pension vs 401a option is identical(which is almost surely the case, but I'm lazy) then the pension is favoured for people that want the safety(longevity, guaranteed income) that comes with it. The 401a is favoured for people that want control or think they can outperform the pension with their investments, or for people that will have way more than enough, and want to leave a bunch to heirs or for charities, etc.

Around "I’m not sure what percent to use for investments (6%?)", most people use 4% or 6%, 4% is the unhappy path, and 6% for the normal path. Both of these #'s are in real terms. i.e. if you can make your goals with 4%, then you are likely going to be just fine. If you can barely reach your goals with 6%, then you better hope the markets are kind. I like the investor.gov calculator here: https://www.investor.gov/financial-tool ... calculator for figuring out future planning purposes.
Verbalkintify wrote: Thu Jan 13, 2022 1:19 pm
Joint-Etrade: 43.5k
Mcdonalds (MCD)
This isn't very bogleheads like.
Verbalkintify wrote: Thu Jan 13, 2022 1:19 pm
Debt
Home
Value: 400k
Mortgage: 238k
Rate: 4.125%
You should look into re-financing and see if you can get that interest rate down, you might be able to get it cut almost in 1/2 assuming good credit, etc, etc.

Also, the student debt @ 3.55% isn't great. It's not a lot of money, you might think about just getting that out of the way asap. Anything at 6% or greater, you really want to pay off ASAP. Anything below say 2% you should probably keep, but that middle bit is sort of a tossup, the closer to 6% the more likely it is better to pay it off sooner.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
fposte
Posts: 1993
Joined: Mon Sep 02, 2013 1:32 pm

Re: Retirement Planning Specific to Pensions

Post by fposte »

Have you checked the health of that government pension, and how it's protected under law? A lot of pensions are struggling, and if this is one of them that would tilt it toward the 401a.
BernardShakey
Posts: 555
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Retirement Planning Specific to Pensions

Post by BernardShakey »

Verbalkintify wrote: Thu Jan 13, 2022 1:19 pm Asks
I feel like my retirement planning has been suffering from a shaky level of confidence, which has started getting me thinking about hiring a financial/retirement planner. I am looking to you folks for some additional eyes on my financial plan to help provide some direction on things to evaluate/adjust. I have a lot of calculations I have created but find myself questioning (and re-questioning) the inputs. Some key areas include:
  1. Retirement expenses. I’ve used our take home pay + deductions that won’t exist in the future - new expenses to arrive at monthly expenses in retirement. I question what I might be missing so any resources on helping flush this out further would help.
  2. Retirement planning; I want to be able to estimate what would be needed to retire at various ages (i.e. 67 vs 60 vs 55). Spouse has expressed disinterest in early retirement but I would also like to estimate what that would look like in case that changes.
  3. Assess what capacity is available to get some home projects done that we need and the estimated impact on retirement by directing funds there.
  4. Pensions - I already have a government pension and my wife recently got a job that also provides one. I’ve struggled with trying to assess the value of them, since years of service factor and early withdrawal heavily into their worth.
    Specifics on Spouse’s new government job offers a choice between a pension or a 401a. How would you recommend going about choosing? Details:
    1. Pension
      7.5% of salary - Employee mandatory contribution
      1.9% - years of service factor
      Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension
    2. 401a
      7.5% of salary - Employee mandatory contribution
      6.0% of salary - Employer contribution
      Note: I’ve set up calculators to calculate the value of the pension based on service years and calculate the value of 401a based on average investment earnings percentage. I’m not sure what percent to use for investments (6%?) or how to value it relative to the pension (e.g. a 4% withdrawal rate on the investment vs annual pension). I’ve been assuming a 2.5% annual salary increase.
      Really any other guidance you can provide that would help me feel more confident in my overall approach so I can leverage assets not only in the far future but also near.

Age: Both 38

Income: 176.5k Total


Savings
Emergency: 20k
Cash: 15k - Mostly earmarked for home projects
Joint-Etrade: 43.5k
Mcdonalds (MCD)

Debt
Home
Value: 400k
Mortgage: 238k
Rate: 4.125%

Student Loans
Balance: $13.5k
Rate: %3.55 (variable)

Taxes
Filing Status: Married filing jointly
Federal: 22%
State: 6.8%

Pensions
Me [Actively Earning] 6.5 years of service @ $86k high-five
6.0% of salary - Employee mandatory contribution
1.7% - years of service factor
Pension Calculation: Average of highest 5 earning years salary * years of service factor * years of service = annual pension

Spouse 1 [Inactive] Lump sum of $26k earning about 7% per year until retirement

Spouse 2 [Active] See questions for details


Asset Allocation
82% equities/18% securities
Equities - 70% Domestic/30% International


Investments: 565k
Me-Roth: 32.34%
22.95% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)
9.39% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)(.11%)

Me-401k: 23.19% *23.2
9.55% State Street S&P 500® Index Securities Lending Series Fund Class II (No ticker)(.01%)
6.84% State Street U.S. Bond Index Securities Lending Series Fund Class XIV (No ticker)(.02%)
6.81% State Street Global All Cap Equity Ex-U.S. Index Securities Lending Series Fund Class II (No ticker)(.045%)

Me-457b: 1.48%
0.33% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX)(.02%)
1.14% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX)(.03%)

Me-HSP: 1.42%
1.42% Vanguard Total Stock Market Index Fund Institutional Plus Shares (VSMPX)(.02%)

Me-HSA: 1.90%
0.35% Cash
0.83% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX)(.03%)
0.72% Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX)(.07%)

Spouse-Roth: 21.28%
14.84% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)
6.43% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)(.11%)

Spouse-403b: 17.16%
3.60% American Funds New Perspective Fund® Class R-6 (RNPGX)(.41%)
5.76% CREF Bond Market Account R2 (QCBMPX)(.26%)
7.79% Vanguard Institutional Index Fund Institutional Shares (VINIX)(.04%)

Spouse-HSA: 1.23%
0.44% Cash
0.79% Vanguard 500 Index Fund Admiral Shares (VFIAX)(.04%)

Spouse-HCP: 0%
None yet but 1% of salary mandatory going forward


Contributions
Me-Roth
Annual Max

Me-Pension
6% of salary - Employee mandatory contribution

Me-Health Savings Plan
1% of salary - Employee mandatory contribution

Me-457b
6.6% of salary

Spouse-Roth
Annual Max

Spouse-Pension or 401a
7.5% of salary - Employee mandatory contribution
401a would get 6.0% Employer contribution

Spouse-Health Savings Plan
1% of salary - Employee mandatory contribution

Spouse-457b
3.4% of salary
Wow, two government pensions ---- and very likely with COLA. That is outstanding.

At your ages, retirement is so far out it's really hard to know what your expenses will be, inflation, etc. I think I'd focus on your careers, settle on an overall AA, and maybe make a rough budget (that you both agree to) that maximizes your ability to save since savings rate is the major determinant in building your portfolio.

As for the pension choices, the previous poster makes some good points relative to what kind of a person / investor you are.

I agree also on paying off the student loan and looking to refi that mortgage. If you could get into a 15-year, you could have it paid off to support an early retirement.

Are there any kids in the picture ?
An important key to investing is having a well-calibrated sense of your future regret.
Topic Author
Verbalkintify
Posts: 7
Joined: Fri Mar 27, 2020 4:07 pm

Re: Retirement Planning Specific to Pensions

Post by Verbalkintify »

Thanks for all the replies everyone, very much appreciated. I will run through responses here. If I miss something, please don't hesitate to call it out. FYI - I've also added pertinent information back to the original post (in blue) so that is available in a single place/for future readers.
  1. Both active pensions have a "Pension Benefit Increase" on current retirees' benefits that is currently set at 1%. I am not sure if this is a true COLA or not because they do not use that terminology and did not want to assume.
  2. I've wanted to refinance since earlier in the pandemic. The main problem is that one of the projects that got started but is not finished would impact the appraisal, so we have not been able to move forward. This ties into the issue with finding funding/quality contractors loop. Credit for both of us is excellent to it would otherwise be easy to get.
  3. The McDonalds stock is a weird outlier. It was a gift to my spouse by a relative a good while ago. It did not become joint until a couple years ago. To be honest, I was not sure how to handle and the returns have been good so I did not prioritize it (likely dangerous thinking ).
  4. No kids and we are not planning to have any.
I know there are other items in the posts that I will spend some more time with. Above were the quick context pieces.
zie
Posts: 364
Joined: Sun Mar 22, 2020 4:35 pm

Re: Retirement Planning Specific to Pensions

Post by zie »

Verbalkintify wrote: Thu Jan 13, 2022 4:45 pm Thanks for all the replies everyone, very much appreciated. I will run through responses here. If I miss something, please don't hesitate to call it out. FYI - I've also added pertinent information back to the original post (in blue) so that is available in a single place/for future readers.
  1. Both active pensions have a "Pension Benefit Increase" on current retirees' benefits that is currently set at 1%. I am not sure if this is a true COLA or not because they do not use that terminology and did not want to assume.
  2. I've wanted to refinance since earlier in the pandemic. The main problem is that one of the projects that got started but is not finished would impact the appraisal, so we have not been able to move forward. This ties into the issue with finding funding/quality contractors loop. Credit for both of us is excellent to it would otherwise be easy to get.
  3. The McDonalds stock is a weird outlier. It was a gift to my spouse by a relative a good while ago. It did not become joint until a couple years ago. To be honest, I was not sure how to handle and the returns have been good so I did not prioritize it (likely dangerous thinking ).
  4. No kids and we are not planning to have any.
I know there are other items in the posts that I will spend some more time with. Above were the quick context pieces.

1% isn't a true COLA, but you can probably treat it as such for general long-term planning, it's certainly way easier than trying to handle nominal pensions(like mine is). If you want to get into the weeds, you could start calculating a personal inflation rate for yourselves, and see over the years if it matches closer to 1% or closer to whatever CPI-U is. The closer it gets to 1%, the more your pensions can be considered COLA(for you anyway). If you wanted to be more conservative in your planning you could just take off say 16% of your pension for doing the retirement math, instead of 33% for a non-cola pension.

Around MCD, it's now almost certainly to be treated as long term cap gains, so you probably won't incur much taxes on selling it. If selling, it would let you pay off the student loans, bolster your cash and let you finish off the remodel, get your appraisal and finish your refinance. If you do sell, just make sure to keep enough aside in cash to pay off the taxes when they come due(or just pre-pay to the IRS the taxes you will owe on it and be done).

It's not dangerous thinking about keeping MCD, it's not a materially large enough part of your net worth to be dangerous, also the chances of MCD going bankrupt are probably very low. The largest danger with MCD would probably be it "underperforming" relative to your AA, which isn't really a danger, just unfortunate.

I'd definitely put the debt at the top of the finance todo list. Either by aggressively paying off the debt, refinancing or some combination. paying 4+% is unfortunate and not doing you any favours. Otherwise you seem to be in pretty good shape. It's not bad, just unfortunate. Good Luck!
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
dbr
Posts: 38867
Joined: Sun Mar 04, 2007 9:50 am

Re: Retirement Planning Specific to Pensions

Post by dbr »

In general terms the tool for addressing these sorts of retirement planning questions are the retirement models such as www.firecalc.com and a host of others with various features. It is a warning that investment is an uncertain enterprise and that models do not give you engineering quality answers. What models do is demonstrate the features involved and the structure of planning for retirement.

In the context of taking risk according to need, ability, and willingness to take risk, such models are a tool to evaluate need in terms of how to meet one's objectives.
vtsnowdin
Posts: 116
Joined: Thu Dec 30, 2021 3:54 pm

Re: Retirement Planning Specific to Pensions

Post by vtsnowdin »

Check your retirement rules for early retirements (usually under age 60) I took a 27 percent cut for retiring at age 51. 3% per year.
It looks like you have way too many high expense funds and a lot of bond funds for your ages.
Consider taking the wife's pension as the 401A and consolidating some of those other funds and then going with whole market low cost index funds.
You can always re-balance back into more bonds five and ten years down the road.
Expenses twenty years out are impossible to predict but if you have the house paid for and all other debts paid off they can be a lot less then your current salaries.
dbr
Posts: 38867
Joined: Sun Mar 04, 2007 9:50 am

Re: Retirement Planning Specific to Pensions

Post by dbr »

Regarding pensions, the rules at my company resulted in a 12% increase per year in pension payments over the five years before I retired. This kind of thing results from formulas that factor in years worked, early retirement penalty, and inflation of last year's average pay.

They also had a survivor scheme wherein the 50% survivor was at the same payout at the life only, but the 100% survivor was significantly less. You have to pay a lot of attention to what the sources of income will be if one of you passes. Probably reasonable expenses for a survivor are about 2/3 those of the couple, but you have to look. Retirement planning models can be run to create a new scenario for income and expenses starting at choices of date when things change. Such transitions as downsizing to rental can also be incorporated.
User avatar
beernutz
Posts: 738
Joined: Sun May 31, 2015 12:50 pm

Re: Retirement Planning Specific to Pensions

Post by beernutz »

OP I suggest using a retirement calculator/app to get a better feel of your income streams post-retirement. I used Pralana Gold ($99) before I recently retired and recommend it but there are many others, some of which are free to use. Pralana gave me the peace of mind to pull the retirement trigger.

If you want an estimated value of your pension you can see what it would cost to buy the equivalent SPIA at immediateannuities.com but consider that if your pension has a COLA it will be more valuable than a non-COLA SPIA.

My state pension is similar in some ways to yours with the same 7.5% required contribution, and with the benefit calculated as 2.0% / year times number of service years times average of top 3 of last 10 yearly salaries. I was surprised to find than a non-COLA joint life SPIA equivalent in benefit to my pension would cost $1.55 million.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. --Will Rogers
vtsnowdin
Posts: 116
Joined: Thu Dec 30, 2021 3:54 pm

Re: Retirement Planning Specific to Pensions

Post by vtsnowdin »

Very similar. mine took out 5.3% and paid 1/60 times years of service (half pay at 30) times average of three highest years but was sweetened by including severance check leave payouts into your final year. So 700 hours plus a lot (500hrs per year average) OT in the last years let me take a 27% penalty for only being 51 and still ended up with 50% of my base salary. And they don't take 5.3% or SS taxes out of that check. I took an option that level funds us un-reduced when the first one passes. But the big kicker was that it included Healthcare for both of us at a cheap price per life which has been worth about $8,000 per year. Considering the cost of commuting to work I had as much left after bills payed Mondays as I did when I was working.
Topic Author
Verbalkintify
Posts: 7
Joined: Fri Mar 27, 2020 4:07 pm

Re: Retirement Planning Specific to Pensions

Post by Verbalkintify »

dbr wrote: Fri Jan 14, 2022 11:11 am In general terms the tool for addressing these sorts of retirement planning questions are the retirement models such as www.firecalc.com and a host of others with various features. It is a warning that investment is an uncertain enterprise and that models do not give you engineering quality answers. What models do is demonstrate the features involved and the structure of planning for retirement.

In the context of taking risk according to need, ability, and willingness to take risk, such models are a tool to evaluate need in terms of how to meet one's objectives.
Glad you posted this. I found I on Reddit and put it on my shortlist of things to look into. With your response it bounced to the top.

I was running some different entries and one area stuck me; pensions (surprise). There is an option for inflation adjusted on them. With that checked, 100% of scenarios succeed. With that unchecked, ~25% succeed. I know none of it is exact but how would folks recommend entering the pensions I described above since they aren't true COLA?
dbr
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Re: Retirement Planning Specific to Pensions

Post by dbr »

Verbalkintify wrote: Sun Jan 16, 2022 12:52 pm
dbr wrote: Fri Jan 14, 2022 11:11 am In general terms the tool for addressing these sorts of retirement planning questions are the retirement models such as www.firecalc.com and a host of others with various features. It is a warning that investment is an uncertain enterprise and that models do not give you engineering quality answers. What models do is demonstrate the features involved and the structure of planning for retirement.

In the context of taking risk according to need, ability, and willingness to take risk, such models are a tool to evaluate need in terms of how to meet one's objectives.
Glad you posted this. I found I on Reddit and put it on my shortlist of things to look into. With your response it bounced to the top.

I was running some different entries and one area stuck me; pensions (surprise). There is an option for inflation adjusted on them. With that checked, 100% of scenarios succeed. With that unchecked, ~25% succeed. I know none of it is exact but how would folks recommend entering the pensions I described above since they aren't true COLA?
A 1% COLA is not even remotely an inflation indexed pension. The truly destructive effect of inflation on pensions is at levels of 4%-5%-6% and up. I think fixed COLAs on pensions and annuities rarely exceed 1%-3%. A danger, of course, is whether or not a truly inflation indexed pension actually survives without the agency backing it going bankrupt. A Federal pension might be a safer bet. Firecalc is not flexible with respect to entering a fixed COLA. Some other calculator might allow that. I would consider 1% to be "not inflated" in FireCalc.

It would seem your retirement income is heavily dependent on that pension. How do you fall on SS or are you employed in an agency that does not offer SS?
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Verbalkintify
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Re: Retirement Planning Specific to Pensions

Post by Verbalkintify »

The current factor was playing around with reducing annual contributions (outside of Roth) relative to pension. I probably should have mentioned that I excluded SS from the inputs as well although both our current and past employments have all paid into SS.
MHA556
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Joined: Wed Sep 01, 2021 8:01 am

Re: Retirement Planning Specific to Pensions

Post by MHA556 »

As to whether the pension or savings plan is better- hard to tell with a 1-1.5% “cola” . If it was something like 3% COLA I would say just go pension.

I would personally just run the numbers about 50 different ways, assuming different returns, etc etc, then just take a reasonable guess.

You are both doing multiple savings paths, not sure how long you intend to work, but at a 1.9% per year factor your spouse is in a decent pension plan position. Yours is not bad either.

Pensions and SS give you a lot of flexibility to not be forced to withdraw funds on down years if you can meet a lot of expenses via the fixed incomes they provide.

I have delved into this a lot with my pension, and my wife’s split pension/savings retirement, and I don’t see an obvious better answer in your situation with the info provided.

You need to look at the pension plan’s rules and such for retiring at different ages. If they are like my wife’s, where if you retire prior to age 60 or 30 yrs service, they knock off like 1/3 of the pension value right off the top...and if you think that retiring before age 60 might be in the cards, then I would go with the 401. We are kind of locked into my wife either working until 60, or retiring but not collecting until 65...and both of those choices are not what we really want to do. So that stuff matters later.
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