How to calculate pension value?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP, don't think of retirement security as a number, but as an income stream.

Figure out how much income you will need in retirement. Say right now, your income is $60,000 and you are 45 years old.

Let's say you want to retire at age 60. You have calculated that your pension will be $35,000 per year, and your Social Security will be $15,000 per year.

If your income grows at 3% per year, your income at age 60 will be approx. $94,000. If you want to retire on 80% of your income, you will need an income of about $75,000 per year.

Your pension and Social Security will be $50,000 per year - so you will need enough retirement savings to bring in $25,000 per year.

This is a bit simplified, but shows you how to think it through - "net worth" does not tell you much compared to estimating your income needs.

OP - thanks that is helpful. In order to determine retirement income needed I assume we take out things like student loans, daycare, kids extra curriculars, mortgage (hopefully) and get down to the nitty gritty amount. We are currently spending closer to $30,000 a month all in but obviously hope that number goes down over time!

What are you spending $30 a month on?!?!

OP - mortgage, utilities, student loans, 529 savings, retirement savings, insurance, car payment, parochial school take up most of that $30,000. Then add on extras for 3 kids you end up getting close to $30,000 a month.

Whew you must have a huge mortgage!

[Anonymous]

Op if you have a 360k a year burn rate, someone is making a lot of money. You need to be investing that rather than relying on a pension!!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:New poster here. Why wouldn’t you mentally put a value on a pension? It seems a bit silly for everyone else to calculate/think about about their net worth, but families with $50-$100k+ in pension payments coming are supposed to mentally pretend that this has no cash value.

If both my spouse and I die without getting a chance to receive those pension payments, then that’s the way it goes (I’m guessing that I won’t care at that point, lol - and we have enough other savings that our children would still inherit a nice amount anyways). But while I’m alive, I’m including an estimate of our pension value in my own personal net worth calculations.

For what purpose? To feel richer? To compete with others? Should I do the same with social security?

NP. Why do you care? Why do you assume it's to compete or feel rich? You're projecting your own insecurities and character failings onto OP.

I also assign a value to my husband's pension. Because so much of what I read about retirement is "you should $x in assets by this age if you have x, y, and z." To track our progress against this kind of advice, it's helpful for me to know the asset value of that income. Otherwise, I'm perpetually coming up $1M short in my asset projections.

Well, first of all, the OP immediately agreed they were thinking about it all wrong when it was explained to them. So the OP is reasonable.

But you, on the other hand, are too dense or ill informed to do that. Have you actual done any real financial planning or met with a real advisor? Because what you're "reading" is sophomoric. That's not how any professional would advise you.

NP, but, my god, let it go, Karen. You can calculate an income stream as an asset value or as an annual income amount. OP apparently wants to do the former. Your meta-commentary is irrelevant.

[Anonymous]

Anonymous wrote:Op if you have a 360k a year burn rate, someone is making a lot of money. You need to be investing that rather than relying on a pension!!

Op - yes high income but it has steadily increased over the past decade. I have had my pensioned job for over 15 years.

HHI last year was $850,000

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

There is no guarantee you will make it to 78 years of age. Why are you trying to value this when tomorrow is not promised. It's not like a 401 or IRA that is inheritable.

So many haters lol

Not a hater. Just stating facts. A person can live to the ripe old age of 99 and collect a pension for thirty-five years. Or an otherwise relatively healthy person can retire at 62 and have a massive heart attack and drop dead at 63, which is considered young for death. One year of pension received. Not a hater, just someone with personal experience and no that it is a wonderful benefit that cannot be inherited in whole. That is why it should not be calculated for 20 year future value. If you live to see old age, a pension is gravy.

Please stop. You are just displaying your ignorance. Everyone understands that there is uncertainty and that you may live till 100 or die before your pension. But just because there is uncertainty doesn’t mean that you can’t put a value on something. Insurance companies do this every day when they sell annuities, hence this actuary is actually answering the question.

Different poster here. The question is WHY put a value on it? For what purpose, exactly? You don't put a value on it for retirement planning except as an income stream, and a bank won't count it in any other way when considering you for a loan, etc. And it won't qualify you as a high net worth individual for investment purposes, etc. So WHY do you need to put a value on it other than to make yourself feel better?

I am the actuary that gave the first answer. When people ask these things, from my experience, it is because some negotiations are going on or considered. Could be they are discussing divorce and the spouse said they won’t go after their pension if they get the house (or the other way around). Or, their employer is trying to buy them out of a defined benefit plan and is offering a lump sum. Or, they have a DB at work and are considering a job offer without one. It helps to get a quick estimate to see if these ideas are even viable.

To the “life is not certain” poster, by law, the DB plans force you to take your pension in a way where the benefits for your spouse don’t stop if you die, unless the spouse signs that option away. So, the answer to “but what happens with the family” is that in most cases spouse keeps getting money for life.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:New poster here. Why wouldn’t you mentally put a value on a pension? It seems a bit silly for everyone else to calculate/think about about their net worth, but families with $50-$100k+ in pension payments coming are supposed to mentally pretend that this has no cash value.

If both my spouse and I die without getting a chance to receive those pension payments, then that’s the way it goes (I’m guessing that I won’t care at that point, lol - and we have enough other savings that our children would still inherit a nice amount anyways). But while I’m alive, I’m including an estimate of our pension value in my own personal net worth calculations.

For what purpose? To feel richer? To compete with others? Should I do the same with social security?

NP. Why do you care? Why do you assume it's to compete or feel rich? You're projecting your own insecurities and character failings onto OP.

I also assign a value to my husband's pension. Because so much of what I read about retirement is "you should $x in assets by this age if you have x, y, and z." To track our progress against this kind of advice, it's helpful for me to know the asset value of that income. Otherwise, I'm perpetually coming up $1M short in my asset projections.

Well, first of all, the OP immediately agreed they were thinking about it all wrong when it was explained to them. So the OP is reasonable.

But you, on the other hand, are too dense or ill informed to do that. Have you actual done any real financial planning or met with a real advisor? Because what you're "reading" is sophomoric. That's not how any professional would advise you.

NP, but, my god, let it go, Karen. You can calculate an income stream as an asset value or as an annual income amount. OP apparently wants to do the former. Your meta-commentary is irrelevant.

Nope. OP merely thought that's how it was done. Once it was explained to her she got it. You're just plain wrong, and it hurts you so. You so desperately want to have a higher net worth than you do.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

There is no guarantee you will make it to 78 years of age. Why are you trying to value this when tomorrow is not promised. It's not like a 401 or IRA that is inheritable.

So many haters lol

Not a hater. Just stating facts. A person can live to the ripe old age of 99 and collect a pension for thirty-five years. Or an otherwise relatively healthy person can retire at 62 and have a massive heart attack and drop dead at 63, which is considered young for death. One year of pension received. Not a hater, just someone with personal experience and no that it is a wonderful benefit that cannot be inherited in whole. That is why it should not be calculated for 20 year future value. If you live to see old age, a pension is gravy.

Please stop. You are just displaying your ignorance. Everyone understands that there is uncertainty and that you may live till 100 or die before your pension. But just because there is uncertainty doesn’t mean that you can’t put a value on something. Insurance companies do this every day when they sell annuities, hence this actuary is actually answering the question.

Different poster here. The question is WHY put a value on it? For what purpose, exactly? You don't put a value on it for retirement planning except as an income stream, and a bank won't count it in any other way when considering you for a loan, etc. And it won't qualify you as a high net worth individual for investment purposes, etc. So WHY do you need to put a value on it other than to make yourself feel better?

I am the actuary that gave the first answer. When people ask these things, from my experience, it is because some negotiations are going on or considered. Could be they are discussing divorce and the spouse said they won’t go after their pension if they get the house (or the other way around). Or, their employer is trying to buy them out of a defined benefit plan and is offering a lump sum. Or, they have a DB at work and are considering a job offer without one. It helps to get a quick estimate to see if these ideas are even viable.

To the “life is not certain” poster, by law, the DB plans force you to take your pension in a way where the benefits for your spouse don’t stop if you die, unless the spouse signs that option away. So, the answer to “but what happens with the family” is that in most cases spouse keeps getting money for life.

Well, Mr or Mrs Actuary, you should learn how to read. OP specifically said she wanted to know for retirement planning.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

There is no guarantee you will make it to 78 years of age. Why are you trying to value this when tomorrow is not promised. It's not like a 401 or IRA that is inheritable.

So many haters lol

Not a hater. Just stating facts. A person can live to the ripe old age of 99 and collect a pension for thirty-five years. Or an otherwise relatively healthy person can retire at 62 and have a massive heart attack and drop dead at 63, which is considered young for death. One year of pension received. Not a hater, just someone with personal experience and no that it is a wonderful benefit that cannot be inherited in whole. That is why it should not be calculated for 20 year future value. If you live to see old age, a pension is gravy.

Please stop. You are just displaying your ignorance. Everyone understands that there is uncertainty and that you may live till 100 or die before your pension. But just because there is uncertainty doesn’t mean that you can’t put a value on something. Insurance companies do this every day when they sell annuities, hence this actuary is actually answering the question.

Different poster here. The question is WHY put a value on it? For what purpose, exactly? You don't put a value on it for retirement planning except as an income stream, and a bank won't count it in any other way when considering you for a loan, etc. And it won't qualify you as a high net worth individual for investment purposes, etc. So WHY do you need to put a value on it other than to make yourself feel better?

I am the actuary that gave the first answer. When people ask these things, from my experience, it is because some negotiations are going on or considered. Could be they are discussing divorce and the spouse said they won’t go after their pension if they get the house (or the other way around). Or, their employer is trying to buy them out of a defined benefit plan and is offering a lump sum. Or, they have a DB at work and are considering a job offer without one. It helps to get a quick estimate to see if these ideas are even viable.

To the “life is not certain” poster, by law, the DB plans force you to take your pension in a way where the benefits for your spouse don’t stop if you die, unless the spouse signs that option away. So, the answer to “but what happens with the family” is that in most cases spouse keeps getting money for life.

Well, Mr or Mrs Actuary, you should learn how to read. OP specifically said she wanted to know for retirement planning.

I know, everything I read on DCUM is a complete and absolute truth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

There is no guarantee you will make it to 78 years of age. Why are you trying to value this when tomorrow is not promised. It's not like a 401 or IRA that is inheritable.

So many haters lol

Not a hater. Just stating facts. A person can live to the ripe old age of 99 and collect a pension for thirty-five years. Or an otherwise relatively healthy person can retire at 62 and have a massive heart attack and drop dead at 63, which is considered young for death. One year of pension received. Not a hater, just someone with personal experience and no that it is a wonderful benefit that cannot be inherited in whole. That is why it should not be calculated for 20 year future value. If you live to see old age, a pension is gravy.

Please stop. You are just displaying your ignorance. Everyone understands that there is uncertainty and that you may live till 100 or die before your pension. But just because there is uncertainty doesn’t mean that you can’t put a value on something. Insurance companies do this every day when they sell annuities, hence this actuary is actually answering the question.

Different poster here. The question is WHY put a value on it? For what purpose, exactly? You don't put a value on it for retirement planning except as an income stream, and a bank won't count it in any other way when considering you for a loan, etc. And it won't qualify you as a high net worth individual for investment purposes, etc. So WHY do you need to put a value on it other than to make yourself feel better?

I am the actuary that gave the first answer. When people ask these things, from my experience, it is because some negotiations are going on or considered. Could be they are discussing divorce and the spouse said they won’t go after their pension if they get the house (or the other way around). Or, their employer is trying to buy them out of a defined benefit plan and is offering a lump sum. Or, they have a DB at work and are considering a job offer without one. It helps to get a quick estimate to see if these ideas are even viable.

To the “life is not certain” poster, by law, the DB plans force you to take your pension in a way where the benefits for your spouse don’t stop if you die, unless the spouse signs that option away. So, the answer to “but what happens with the family” is that in most cases spouse keeps getting money for life.

Well, Mr or Mrs Actuary, you should learn how to read. OP specifically said she wanted to know for retirement planning.

Oh, and many DB plans now offer a lump sum option where your income stream is converted to a one time payment, so the question is valid for the hypothetical retirement planning.

[Anonymous]

Anonymous wrote:I wouldn't trust state pensions in red states. If you are in a red state and you have a pension, don't count on them looking for you if the pension fund run into financial troubles.

You must be color blind.

The blue state pensions are the ones struggling.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:New poster here. Why wouldn’t you mentally put a value on a pension? It seems a bit silly for everyone else to calculate/think about about their net worth, but families with $50-$100k+ in pension payments coming are supposed to mentally pretend that this has no cash value.

If both my spouse and I die without getting a chance to receive those pension payments, then that’s the way it goes (I’m guessing that I won’t care at that point, lol - and we have enough other savings that our children would still inherit a nice amount anyways). But while I’m alive, I’m including an estimate of our pension value in my own personal net worth calculations.

For what purpose? To feel richer? To compete with others? Should I do the same with social security?

NP. Why do you care? Why do you assume it's to compete or feel rich? You're projecting your own insecurities and character failings onto OP.

I also assign a value to my husband's pension. Because so much of what I read about retirement is "you should $x in assets by this age if you have x, y, and z." To track our progress against this kind of advice, it's helpful for me to know the asset value of that income. Otherwise, I'm perpetually coming up $1M short in my asset projections.

Well, first of all, the OP immediately agreed they were thinking about it all wrong when it was explained to them. So the OP is reasonable.

But you, on the other hand, are too dense or ill informed to do that. Have you actual done any real financial planning or met with a real advisor? Because what you're "reading" is sophomoric. That's not how any professional would advise you.

NP, but, my god, let it go, Karen. You can calculate an income stream as an asset value or as an annual income amount. OP apparently wants to do the former. Your meta-commentary is irrelevant.

Nope. OP merely thought that's how it was done. Once it was explained to her she got it. You're just plain wrong, and it hurts you so. You so desperately want to have a higher net worth than you do.

No, but I know what a present value is.

[Anonymous]

People, the reason you can't out a single value number on a pension is because you don't know how long you will live.

A big finance company can because they are averaging over thousands of pensions, whux reduces the unknown variability.

That doesn't work with the single largest value object in your own life.

Think about taking your life savings of $X million and betting it all on a single pull of a slot machine.

Maybe you get $0, maybe you get $100 X million. Averaging those numbers is meaningless, because you don't get the average, you get one of the options.

[Anonymous]

Anonymous wrote:People, the reason you can't out a single value number on a pension is because you don't know how long you will live.

A big finance company can because they are averaging over thousands of pensions, whux reduces the unknown variability.

That doesn't work with the single largest value object in your own life.

Think about taking your life savings of $X million and betting it all on a single pull of a slot machine.

Maybe you get $0, maybe you get $100 X million. Averaging those numbers is meaningless, because you don't get the average, you get one of the options.

It's an expected value.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:New poster here. Why wouldn’t you mentally put a value on a pension? It seems a bit silly for everyone else to calculate/think about about their net worth, but families with $50-$100k+ in pension payments coming are supposed to mentally pretend that this has no cash value.

If both my spouse and I die without getting a chance to receive those pension payments, then that’s the way it goes (I’m guessing that I won’t care at that point, lol - and we have enough other savings that our children would still inherit a nice amount anyways). But while I’m alive, I’m including an estimate of our pension value in my own personal net worth calculations.

For what purpose? To feel richer? To compete with others? Should I do the same with social security?

NP. Why do you care? Why do you assume it's to compete or feel rich? You're projecting your own insecurities and character failings onto OP.

I also assign a value to my husband's pension. Because so much of what I read about retirement is "you should $x in assets by this age if you have x, y, and z." To track our progress against this kind of advice, it's helpful for me to know the asset value of that income. Otherwise, I'm perpetually coming up $1M short in my asset projections.

Well, first of all, the OP immediately agreed they were thinking about it all wrong when it was explained to them. So the OP is reasonable.

But you, on the other hand, are too dense or ill informed to do that. Have you actual done any real financial planning or met with a real advisor? Because what you're "reading" is sophomoric. That's not how any professional would advise you.

Your pet project is to tell people they can't put a value on their pension? Get a life, loser.

[Anonymous]

Anonymous wrote:

Anonymous wrote:People, the reason you can't out a single value number on a pension is because you don't know how long you will live.

A big finance company can because they are averaging over thousands of pensions, whux reduces the unknown variability.

That doesn't work with the single largest value object in your own life.

Think about taking your life savings of $X million and betting it all on a single pull of a slot machine.

Maybe you get $0, maybe you get $100 X million. Averaging those numbers is meaningless, because you don't get the average, you get one of the options.

It's an expected value.

DP- Yes, it is an expected value if the pensioner live long enough to receive full value. If not, typically the surviving spouse is expected to receive a portion of the monthly pension, not the entire pension. It's typically between 30-50% depending on the pension. This is a fascinating topic because other than the federal government and some states, pensions are not available to civilian employees.

DC government only offers a DB pension to police officers, firefighters, and teachers. All other DC government employees receive up to a 5% 401K match. Florida state government still has a pension, but it sucks and DCUM readers would not rely on it. Florida has two separate elections for retirement and they both suck. Employees can elect a contributory pension of 3% without a cola upon retirement and it requires ten years of employment to vest. Alternatively, employees can elect the 401k equivalent with a 3% state match that vest after three years. So when I hear about these big pensions, I am frankly in awe that they still exist.