Reply to Is a pension all it’s cracked up to be?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]You can calculate exactly how much they are worth, eg by finding out how much an spia annuity of the same amount would cost.[/quote]

DP
Using the 4% rule, if OP gets $3k/mo in today's money the annuity would be $1M, give or take.  If she takes the job and invests just $50k/yr in a taxable investment fund in the S&P assuming a conservative 6% gain for the next 20 years, she would be much better off.

OP - take the higher pay unless the job security is very low.

....I feel like I just helped my 5th grader with a word problem.[/quote]

6% is actually pretty aggressive.  The problem is that the stock market goes up and down.  So there’s a concept called path dependency — basically that it matters when you earn the money more than what the average returns are.   If you have a few down years when you first retire, you’ll need to pull from the principal.  And then you’ll have less principal to earn interest, so you’ll need to do better than 6% to get that 12K per year.  This is the problem that the people that retired in 2007 had — they lost a ton of their principal in the 2008-09 crash.  Plus once you are retired you need to be pretty conservative about investments to avoid this problem.  So while 6% average returns across a period of time may be realistic generally, it may not really work that well as a basis for retirement expectations.  [/quote]

You're right it doesn't work post retirement and there is some balancing that need to happen 10 years before retirement.  I used 6% as conservative because it is.  The S&P typically averages 8-9% annually over the long term.  OP has a lot of time and this is in addition to her 401k, so the calculation is reasonable.  [/quote]

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