How to calculate pension value?

[Anonymous]

I am doing some financial planning and trying to figure out how to calculate my pension value. I read some instructions and not sure if my math is right.

Currently (based on salary) my pension will be $6500 per month at age 58 assuming my salary does not increase. I am currently 41 so I have at a minimum another 17 years of working.

Using a calculator I found online my pension value is between $1.7-$1.9 million as of right now. Does that sound right? I also did some math and used 2% escalation (which is lower than our actual salary escalation year over year) until I retire and my pension would go up to $8500 per month.

Am I doing all this math wrong? I am trying to figure out if we have enough saved for retirement. Currently have around $500,000 in retirement funds (outside of pension) and around $200,000 cash reserves.

[Anonymous]

A very rough estimate: your annual pension at age 58 is $78K. The present value of a $1 annuity at that age is somewhere around 20. So, at age 58, the value will be $78K x 20 =$1.56M. Discounts it back 17 years to now, at 4%, it’s about $800K.

An actuary.

[Anonymous]

Anonymous wrote:A very rough estimate: your annual pension at age 58 is $78K. The present value of a $1 annuity at that age is somewhere around 20. So, at age 58, the value will be $78K x 20 =$1.56M. Discounts it back 17 years to now, at 4%, it’s about $800K.

An actuary.

OP here - Thanks! That is super helpful. Do you not include any escalation when you factor in pensions? I am assuming not?

Given that case we would say we have approximately $1.3 million in retirement savings right now then? Is that on track at this age - DH and I are both 41.

[Anonymous]

I did not include any escalation, but if your pension gets to $8.5K, the current value will increase to about $1M. The “official” value of the annuity and the discount rate really depend on who is calculating and for what purpose, but my point was that the online source you used is grossly overstating the value.

When you say your pension will be $6.5K/ month, you are including those future 17 years of work, correct? Or is it just what you’ve earned so far? Trying to understand the discrepancy.

[Anonymous]

Anonymous wrote:I did not include any escalation, but if your pension gets to $8.5K, the current value will increase to about $1M. The “official” value of the annuity and the discount rate really depend on who is calculating and for what purpose, but my point was that the online source you used is grossly overstating the value.

When you say your pension will be $6.5K/ month, you are including those future 17 years of work, correct? Or is it just what you’ve earned so far? Trying to understand the discrepancy.

OP - no pension is $6500/month as of right now. Not including future 17 years of work (if I am reading it correctly). I make $150,000 right now. So the pension is based off of that as my highest salary.

[Anonymous]

Why do you need to know your pension value for retirement planning? You don't need to know the value of your social security for example. All that matters is what you can expect to receive monthly from your pension, social security or other sources. Sounds to me like you want to count the value in your net worth, which is kind of pathetic.

[Anonymous]

Pensions are very valuable.
If ever divorcing, you are entitled to half of your spouse's pension via QDRO. This is an income stream for LIFE. Don't give it up.
Also, don't let his/her lawyer tell you it's only worth $thousands, when it's really worth $1-$2 million.
Don't give it up.
Don't take an undervalued buyout.
It also often has healthcare benefits or death payout attached. Don't give it up.

[Anonymous]

Anonymous wrote:I am doing some financial planning and trying to figure out how to calculate my pension value. I read some instructions and not sure if my math is right.

Currently (based on salary) my pension will be $6500 per month at age 58 assuming my salary does not increase. I am currently 41 so I have at a minimum another 17 years of working.

Using a calculator I found online my pension value is between $1.7-$1.9 million as of right now. Does that sound right? I also did some math and used 2% escalation (which is lower than our actual salary escalation year over year) until I retire and my pension would go up to $8500 per month.

Am I doing all this math wrong? I am trying to figure out if we have enough saved for retirement. Currently have around $500,000 in retirement funds (outside of pension) and around $200,000 cash reserves.

Doesn’t matter to you. Unless you bought an annuity and are calling it a pension.

You are guaranteed a monthly payout given your years of work, at time of leaving and retiring.

[Anonymous]

Anonymous wrote:Why do you need to know your pension value for retirement planning? You don't need to know the value of your social security for example. All that matters is what you can expect to receive monthly from your pension, social security or other sources. Sounds to me like you want to count the value in your net worth, which is kind of pathetic.

+1

Plus many do not get inherited when you pass or at most only to a spouse

[Anonymous]

Anonymous wrote:Pensions are very valuable.
If ever divorcing, you are entitled to half of your spouse's pension via QDRO. This is an income stream for LIFE. Don't give it up.
Also, don't let his/her lawyer tell you it's only worth $thousands, when it's really worth $1-$2 million.
Don't give it up.
Don't take an undervalued buyout.
It also often has healthcare benefits or death payout attached. Don't give it up.

No one's getting divorced bro. Lighten up.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I did not include any escalation, but if your pension gets to $8.5K, the current value will increase to about $1M. The “official” value of the annuity and the discount rate really depend on who is calculating and for what purpose, but my point was that the online source you used is grossly overstating the value.

When you say your pension will be $6.5K/ month, you are including those future 17 years of work, correct? Or is it just what you’ve earned so far? Trying to understand the discrepancy.

OP - no pension is $6500/month as of right now. Not including future 17 years of work (if I am reading it correctly). I make $150,000 right now. So the pension is based off of that as my highest salary.

The pension formulas are usually based on both the salary and the number of years worked, so if you work for another 17 years, your pension will be much higher. The online calculator probably took that into account somehow

But why do you need to know the value?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I did not include any escalation, but if your pension gets to $8.5K, the current value will increase to about $1M. The “official” value of the annuity and the discount rate really depend on who is calculating and for what purpose, but my point was that the online source you used is grossly overstating the value.

When you say your pension will be $6.5K/ month, you are including those future 17 years of work, correct? Or is it just what you’ve earned so far? Trying to understand the discrepancy.

OP - no pension is $6500/month as of right now. Not including future 17 years of work (if I am reading it correctly). I make $150,000 right now. So the pension is based off of that as my highest salary.

The pension formulas are usually based on both the salary and the number of years worked, so if you work for another 17 years, your pension will be much higher. The online calculator probably took that into account somehow

But why do you need to know the value?

OP - I am trying to make sure that we are saving enough in retirement and also college savings. We did not save enough for the past decade (triple daycares and college loans) and are trying to catch up!

[Anonymous]

I would just try to keep it simple, so no escalation or inflation involved in the calculation.

You are so far of from retirement that many things will change between them and now. I've known several people who were fired and never received a pension. And there is a 50% chance of a divorce, which would likely cut your pension in half.

Just figure out your pension based on expected step/grade when you retire. So every 40k is basically worth 1 mil based on 4% rule. And maybe add 250k value for the Fed healthcare benefits? Any attempts to optimize the number much further don't really mean much IMHO.

[Anonymous]

Anonymous wrote:I would just try to keep it simple, so no escalation or inflation involved in the calculation.

You are so far of from retirement that many things will change between them and now. I've known several people who were fired and never received a pension. And there is a 50% chance of a divorce, which would likely cut your pension in half.

Just figure out your pension based on expected step/grade when you retire. So every 40k is basically worth 1 mil based on 4% rule. And maybe add 250k value for the Fed healthcare benefits? Any attempts to optimize the number much further don't really mean much IMHO.

OP here - thanks! I am not a Fed but a state employee but this is helpful.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why do you need to know your pension value for retirement planning? You don't need to know the value of your social security for example. All that matters is what you can expect to receive monthly from your pension, social security or other sources. Sounds to me like you want to count the value in your net worth, which is kind of pathetic.

+1

Plus many do not get inherited when you pass or at most only to a spouse

And then it is only a percentage, not the full amount.