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Reply to "How to calculate pension value?"
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[quote=Anonymous]I agree with the actuary. The PV of this pension is about $800k. Here’s how you get that. In 17 years, at age 57, you’ll get a pension of $78k/year. That amount will increase 2%/year. Assume the 30-year treasury rate for growth during the 30 year payout. Assuming the pension is received for 30 years (until 87), the PV is about $1.6 million. However, that is the value of the 30 years of payments at the start of the pension, or at 57 years old. To understand what $1.6million is worth today, we have to discount it at the risk-free/government bond rate for 17 years. When you do that, the value of the pension today is about $800k, or half of its value 17 years from now. Another way of understanding that: if you received $800k today and invested it in long-term treasury bonds for 17 years, you’d have $1.6 million in 17 years. Then , you could purchase an annuity for $1.6 million that would generate the income stream outlined. [/quote]
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