How do you value a pension in your net worth?

[Anonymous]

I am a federal employee, I joined the government in my early 20s and can retire at my minimum retirement age of 57 with over 30 years of service. I’m calculating at age 57 I’d have 33
years and my high 3 average salary would be around $200k so I could have around $66k in pension annual income for the rest of my life, more if I stay longer.

My DH didn’t join the government until his 40s so at 57 he’ll be closer to half that or $30k annually for life.

We do have over $1m in the TSP with several years to go and will both get the maximum SS, but when I see all of these posters with a lot more retirement savings I wonder if we’re behind or doing ok due to the pensions.

[Anonymous]

There are two ways to look at this. To answer your immediate question, look at the cost of an inflation-adjusted annuity that pays out what you expect your pension to pay and that will give you a "value" for the pension.

The second way to look at this which is a bit less precise is to think about how much you expect to spend in retirement and think about how your pension plays into that. So, for you, $96K guaranteed income + social security for both of you should provide a nice life even without factoring in what you have in the TSP.

[Anonymous]

I second the PP. I'm also a fed at the top of the pay grade, so we'll be getting around 200k/year at retirement from my pension and both SS (my H is not a fed). We can live on that comfortably without touching the tsp or 401k. Don't forget that we have very cheap health insurance with capped costs.

[Anonymous]

OP, I’m a fed and we have a website that literally values our pension to the penny. I’ll go to it later and share the name. You probably have it as well.

[Anonymous]

I look at it from the income perspective. DH has just started taking the government pension, which turns out to be 80k. I will get $55k in SS at 70. We have an income/dividends estimate from our investments on our monthly statements of around $70k. And I include drawing down 3% of our assets (excluding home equity).

[Anonymous]

Anonymous wrote:I look at it from the income perspective. DH has just started taking the government pension, which turns out to be 80k. I will get $55k in SS at 70. We have an income/dividends estimate from our investments on our monthly statements of around $70k. And I include drawing down 3% of our assets (excluding home equity).

DP. I'm curious. Are you saying you will live on $205K (80K + 55K + 70K) + the 3% of investments?

[Anonymous]

I don't think you will get Social Security plus a government pension.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I look at it from the income perspective. DH has just started taking the government pension, which turns out to be 80k. I will get $55k in SS at 70. We have an income/dividends estimate from our investments on our monthly statements of around $70k. And I include drawing down 3% of our assets (excluding home equity).

DP. I'm curious. Are you saying you will live on $205K (80K + 55K + 70K) + the 3% of investments?

Yes, that’s the plan. The 3% brings it to around $400k. Pension and SS have COLAs. Given market growth taking 3% doesn’t mean you are depleting to $0. And we may not need all of it, although at the moment we earn quite a bit more than that.

Curious why this seems unusual?

[Anonymous]

Anonymous wrote:I don't think you will get Social Security plus a government pension.

That is correct for the old plan. There is a SS offset. I think you get some of it though.

[Anonymous]

back of the envelope calculation based on the general retirement theory that 1mm in funds safely generates 40-45k/year in income that can last c. 30 years. So a pension of 66k is about 1.6 million equivalent in funds. Both DH and I have pensions and that's how we are valuing them. (we will have about 2 million equivalent in pension). THe part where it gets tricky (and where i need to see a FA soon) is how that calculus changes if/when one of us dies, right now I think DH's calculation not based on survivor benefits so we may change that. you should check on that too (smaller pension monthly but with survivior benefits).

[Anonymous]

https://www.calculator.net/pension-calculator.html?cretirementage=60&clumpsumamount=800%2C000&creturn=5&cmonthlyincome=5%2C000&ccola=3.5&ctype=1&x=Calculate#lumpsumormonthly

You have to think of the value in expected payout over the lifetime and if it has a joint survivor benefit:
https://www.calculator.net/pension-calculator.html?cretirementage=60&clumpsumamount=800%2C000&creturn=5&cmonthlyincome=5%2C000&ccola=3.5&ctype=1&x=Calculate#lumpsumormonthly

So at age 60 is could be worth 1.2 million to 1.8 million compared to a 401k at 4%

[Anonymous]

So the rule of thumb in retirement planning is to plan to draw down 4% of your account annually, ie a million dollars in TSP can be valued at 40k annual income.

You can do the opposite of that by multiplying your annual expected pension by 25. In that case a pension of 66k per year would be equivalent to an additional 1.65 million in TSP because in theory it gives you the same spending power.

[Anonymous]

also the SS offset--as I understand it, that is if you did not pay in SS taxes as an employee. I am pretty sure that if you have paid SS taxes for the prior 60 months of employment there is not an offset. would love someone else to confirm or correct.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I don't think you will get Social Security plus a government pension.

That is correct for the old plan. There is a SS offset. I think you get some of it though.

With FERS and anyone who joined the government after 1984 has FERS, you get full SS plus pension. As an employee you are paying just as much in to SS as you would as a private sector employee

[Anonymous]

I don’t consider my pension or SS as part of my net worth. It’s simply my base income. I consider my net worth to be all of my other assets principally those income producing assets that generate the income I need above and beyond pensions and SS. Yes, my mortgage free homes are valuable assets but they generate expenses not income. A CPA would argue with me on this but I like to keep things simple.