Reply to How to value a military pension into NW

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[quote=Anonymous][quote=Anonymous]Most retirement planning sites plan on a withdrawal rate of 4%/yr. If you’re starting with a monthly amount, multiply that by 12 to get your annual income then divide that by 0.04.

For example if your pension income is $40k/yr, divide that by 0.04 and you get $1 million.

Likewise if your retirement savings is $1 million, multiply by 0.04 to get your annual income = $40,000.

Just say you aim to have an annual income of $120,000 and have a pension that provides $40k/yr, then your savings goal by retirement should be $2 million. Your $120k annual income will be the same as someone who had $3M saved.

Of course this is just for planning purposes.[/quote]

This is good practice for determining the income from an investment, sure, but doesn’t really work for the original question - the value of a lifetime income stream. The answer isn’t the wealth that generates it if the wealth evaporates when you die. Pensions are worth less than the equivalent asset calculated as above. The right calculation (there’s a link in an earlier post) withdraws more than 4% so that the equivalent asset reaches a value of zero at your life expectancy. 
[/quote]

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