How much is a pension worth compared to retirement savings.

[WorldWatcher]

 

[WorldWatcher]

 

[WorldWatcher]

 

[Harpy Eagle]

I think the other thing to consider is with a pension, it's the pension's money. With a 401k it's your money. Pension plans can fail, and while protected to a degree by the government, it's not 100% protection. for you to lose your 401k money while retired (assuming you have moved most of it to stable money market/bond type funds by this point) it would basically take a societal collapse for you to lose said money.

Since both our pensions will be from the US Fed Govt, it would basically take a societal collapse to lose them.

But you do make a very good point with private pensions. A friend of mine has worked for ATT for a very long time, and has a pension with them. He has been there long enough he still has the option of taking a lump sum which he plans to do.

 

[Harpy Eagle]

View attachment 979825

is there some point to these spreadsheets?

 

[WorldWatcher]

The the above is an RMD file I have for determining the rough (emphasis on "rough") outlook is for:

#1 Annual Expected Income from my 401K assuming a "let it ride" model where nothing is withdrawn except for Required Minimum Distributions (RMDs) starting at age 73.

#2 What is the impact on (a) Payments over time and (b) balance over time when taking only the minimum.

#3 Assumed rate of returns are 5%, 6%, and 7%. Which is why these numbers are "rough" because actual results depend on market returns for the principle.

WW

 

[WorldWatcher]

is there some point to these spreadsheets?

Ya, I was typing the point. You were pretty quick.



WW

 

[Harpy Eagle]

Ya, I was typing the point. You were pretty quick.



WW

Thanks! Those are pretty good.

Our 401ks/IRA are our biggest "unknown" as to how we will treat them in retirement. Based on projections for SS and pensions we should be able to live just fine without touching our investments. If that turns out to be the case we will use the funds for those out of the norm travel experiences that we are looking forward to in the first decade of our retirement. We plan to travel extensively the first 10 years while we are still young enough to truly enjoy it. After those 10 years, I will be 75, we will see how our health and wealth is doing.

 

[WorldWatcher]

The the above is an RMD file I have for determining the rough (emphasis on "rough") outlook is for:

#1 Annual Expected Income from my 401K assuming a "let it ride" model where nothing is withdrawn except for Required Minimum Distributions (RMDs) starting at age 73.

#2 What is the impact on (a) Payments over time and (b) balance over time when taking only the minimum.

#3 Assumed rate of returns are 5%, 6%, and 7%. Which is why these numbers are "rough" because actual results depend on market returns for the principle.

WW

What I find interesting is the difference between 5% and 7% rates of return.

At 5% "Ending Balance" continues to increase until age 79 because dividends/interest exceed the RMD. After that the Ending Balance begins decreasing. However because the RMD factor is decreasing the RMDs are increasing.

However if you look at 7%, RMD constantly increase to age until about age 96 and Ending Balance constantly increases to at 87 since return is greater than RMD.

WW

 

[WorldWatcher]

Thanks! Those are pretty good.

Our 401ks/IRA are our biggest "unknown" as to how we will treat them in retirement. Based on projections for SS and pensions we should be able to live just fine without touching our investments. If that turns out to be the case we will use the funds for those out of the norm travel experiences that we are looking forward to in the first decade of our retirement. We plan to travel extensively the first 10 years while we are still young enough to truly enjoy it. After those 10 years, I will be 75, we will see how our health and wealth is doing.

Here is the spreadsheet showing formulas.

Row one is the baseline starting row.

Row three is the first row of formulas and only need to be entered once. Then select and drag down to autofill the rest of the way. The "$" in column F lock the value to the "Return" value in cell I3.

Once setup you only need to plug in the beginning balance Cell G2 and the expected rate of return in Cell I3.

Cells are formatted as currency (no decimal) except for "Return" in column F formatted as a percentage.

WW


WW

 

[WorldWatcher]

Thanks! Those are pretty good.

Our 401ks/IRA are our biggest "unknown" as to how we will treat them in retirement. Based on projections for SS and pensions we should be able to live just fine without touching our investments. If that turns out to be the case we will use the funds for those out of the norm travel experiences that we are looking forward to in the first decade of our retirement. We plan to travel extensively the first 10 years while we are still young enough to truly enjoy it. After those 10 years, I will be 75, we will see how our health and wealth is doing.

Same here. I'm looking at exiting the work force next year while I'm 65. Was planning on working to full retirement age of 67. But projections are better than expected even with the early retirement "hit" and it's impact on total revenues. Retiring at 65 v. 67 (for both of us) will decrease income by 4%. But that has to be balanced against quality of life.

However I've been thinking:
(a) I'm just tired of the rat race even though I like the people I work with and the core functions of my job.
(b) Being young enough to actually enjoy retirement and do some travel. My wife and I were both WESTPAC sailors, so we'd like to do some extensive European travel.

We'll have 6 revenue streams in retirement and projections are that disposable income will actually increase when we stop working by a good bit. Mostly because:

• 13% Rule - We would no longer be paying Social Security, Medicare, and required employee contributions to our pension funds.
• 401K - We would stop max'ing out payments into the 401K meaning those expense move from "debits" to "disposable".

We've always lived below our means and saved for retirement. Now it looks like we will be fine financially without the 401K's. The 401K's then will be able to fund travel to the tune of a couple of major multi-week European trips and then small US based 2-3 day trips in the mean time.

As retiree's we're looking at major travel in the spring before the tourist season ramps and then again in the fall after the busiest times. And you can usually get much better deals cost wise outside of peak seaons.

Not bad for a retired Gunny (you) and a Chief (me).

WW

 

[Harpy Eagle]

Same here. I'm looking at exiting the work force next year while I'm 65. Was planning on working to full retirement age of 67. But projections are better than expected even with the early retirement "hit" and it's impact on total revenues. Retiring at 65 v. 67 (for both of us) will decrease income by 4%. But that has to be balanced against quality of life.

However I've been thinking:
(a) I'm just tired of the rat race even though I like the people I work with and the core functions of my job.
(b) Being young enough to actually enjoy retirement and do some travel. My wife and I were both WESTPAC sailors, so we'd like to do some extensive European travel.

We'll have 6 revenue streams in retirement and projections are that disposable income will actually increase when we stop working by a good bit. Mostly because:

• 13% Rule - We would no longer be paying Social Security, Medicare, and required employee contributions to our pension funds.
• 401K - We would stop max'ing out payments into the 401K meaning those expense move from "debits" to "disposable".

We've always lived below our means and saved for retirement. Now it looks like we will be fine financially without the 401K's. The 401K's then will be able to fund travel to the tune of a couple of major multi-week European trips and then small US based 2-3 day trips in the mean time.

As retiree's we're looking at major travel in the spring before the tourist season ramps and then again in the fall after the busiest times. And you can usually get much better deals cost wise outside of peak seaons.

Not bad for a retired Gunny (you) and a Chief (me).

WW

I will be 65 and my wife 62. I will wait till 67 to start taking SS and she will take it right away. That way if I pass before her she will have my full SS. We did not do the SBP as I have already been retired from the Marines for 13 years and assume I will be retired close to 40 years at least before I die, so it would have been a terrible waste of money.

We too plan to travel opposite the busy seasons for most places, not a fan of crowds.

 

[WorldWatcher]

I will be 65 and my wife 62. I will wait till 67 to start taking SS and she will take it right away. That way if I pass before her she will have my full SS. We did not do the SBP as I have already been retired from the Marines for 13 years and assume I will be retired close to 40 years at least before I die, so it would have been a terrible waste of money.

We too plan to travel opposite the busy seasons for most places, not a fan of crowds.

Sorry shipmate but I disagree. It's OK to disagree, just a different perspective.

People say that SBP is a waste of money, really it's not. You have to look at what it provides.

Some people say, "if you had taken the money and invested it over 30-40 years" you would have more money. Which is true.

The other side of that coin is I retired at 38 with a wife and two small children. The cost of guaranteeing 55% of my retirement is $155 per month. If I died in a car accident 2 months after retiring she would receive 55% of my retirement for the rest of her life to help care for herself and our two small children (kids are adults now, so just her). If I wasn't in the SBD they would have gotten nothing

Even today my contributions to SBP have totaled $46,500. If something happens to me she'll receive about $14,000 per year. So the payback is about 3.2 years to recover all costs and after about 6 years the SBP payments would exceed not only base principle but interest if it had been invested in fairly conservative vehicles.

So the peace of mind knowing that my wife and kids would have something regardless of what happens (happened) to me is priceless.

WW

 

[Harpy Eagle]

Sorry shipmate but I disagree. It's OK to disagree, just a different perspective.

People say that SBP is a waste of money, really it's not. You have to look at what it provides.

Some people say, "if you had taken the money and invested it over 30-40 years" you would have more money. Which is true.

The other side of that coin is I retired at 38 with a wife and two small children. The cost of guaranteeing 55% of my retirement is $155 per month. If I died in a car accident 2 months after retiring she would receive 55% of my retirement for the rest of her life to help care for herself and our two small children (kids are adults now, so just her). If I wasn't in the SBD they would have gotten nothing

Even today my contributions to SBP have totaled $46,500. If something happens to me she'll receive about $14,000 per year. So the payback is about 3.2 years to recover all costs and after about 6 years the SBP payments would exceed not only base principle but interest if it had been invested in fairly conservative vehicles.

So the peace of mind knowing that my wife and kids would have something regardless of what happens (happened) to me is priceless.

WW

I get what you are saying and you are not wrong. As you said there are more than one way to look at it.

I am telling myself the longer I live the better choice it was!

 

[WorldWatcher]

I get what you are saying and you are not wrong. As you said there are more than one way to look at it.

I am telling myself the longer I live the better choice it was!

It really boils down to your situation and what you are comfortable with.

You can be happy with your decision, I can be happy was mine.

I was disagreeing mostly with the idea that SBO was the idea that SBP was a terrible waste of money. Really it's not as it is hard to quantify peace of mind. $1,860 per year bought A LOT of peace for my mind.



WW

 

[Seymour Flops]

There is a link to the article, but it is not about trying to match savings to a figure, but an idea of how much savings it would take to get the same result as the pension. It is a way to help understand how much the pension is worth when trying to figure out "do I have enough saved to retire".

Yes, it could be helpful, as a kind of perspective taking. But the amount one would need to provide a similar stream of income to a pension would be a better metric than the amount one would be paid by that pension over an arbitray number of years.

Best to have multiple sources of retirement money, both savings/investments and a steady outside source of monthly payments.

My advice to my kids is to do what I did, though I did not consciously plan it as a retirement strategy.

I spent my highest earning years, thirties, forties and early fifties, working as a UPS Manager and as an engineer, putting as much cash as I could into 401k and Roth IRA.

By 55, I could have retired on that and been comfortable - unless the economy crashed and my investments turned into toilet paper.
Or . . . if politicians who crash the economy for the working class decide that people like me have too much savings and take chunks of it to placate those they have made poor.

Instead, I semi-retired into the short hours, long vacations, and summers off of teaching, and will also have a very generous government pension to supplement my my investments, which continue to grow since I am living frugally off my teaching pay.

 

[Harpy Eagle]

Yes, it could be helpful, as a kind of perspective taking.

Which I think is the whole point. As you read about retirement you see all sorts of figures given for how much one needs to be be able to retire. Those figures only take into account 410ks type savings and SS. So it is nice to have a way to think about how much a pension adds.

Best to have multiple sources of retirement money, both savings/investments and a steady outside source of monthly payments.

I agree, it is how we have ended up without even planning it as such.

I spent my highest earning years, thirties, forties and early fifties, working as a UPS Manager and as an engineer, putting as much cash as I could into 401k and Roth IRA.

I spent my 30s and 40s in the Marine Corps not really saving a damn thing and did not even take advantage of the TSP when it came out. Fast forward to me approaching 50 and the only retirement "savings" we had was my Marine Corps pension. That was one of the realizations that made my wife and I realize we needed big changes in our lives.

Fast forward again to today and with 5 years till planned retirement starts we are doing well, will have 600k or so in retirement accounts plus pensions worth close to 1m using the formula in the OP. Add in SS and other savings and we will have a very comfortable retirement, even more so if the plan to become ex-pats pans out as hoped.

My advice to my kids is to do what I did, though I did not consciously plan it as a retirement strategy.

My advice to my kids is to not do what we did, and they have taken it to heart. My 29 year old has been saving for retirement since she was 25 and my 22 year old will when he is done with college and has real job.

It is possible to catch up, but far better to start early. A lesson I wish I had known at 30

 

[MarathonMike]

I found this article today about how to factor in a pension for retirement planning.

Helping retirement plan participants understand their net worth - Journal of Accountancy

Two easy mistakes seen in retirement planning involve valuation of pensions and improper net-worth comparisons.

www.journalofaccountancy.com

A good rule of thumb is that the retiree would need $18,000 in retirement savings for every $1,200 per year ($100 per month) of earned pension income. In applying this rule, the amount of earned pension income an employee has at any point in time is based on the employer's pension formula, the employee's current earnings, and the time spent on the job to date.

...

As an example, examine how much an earned pension income of $30,000 would add to a person's net worth. A defined benefit plan income of $30,000 annually is $2,500 per month, which is 25 times $100. Therefore, it follows that funding such a pension benefit with a 401(k)-style defined contribution plan would require retirement savings of at least $450,000 (25 × $18,000). Consequently, the defined benefit plan adds $450,000 to net worth.


What do you all think of this formula?

I get pretty close to the same numbers when I just calculate how much a pension will have paid if I live to be 85. So I feel the formula is pretty good.

Probably a decent estimate. Of course 401k results are highly variable depending on how the 401k funds are invested.

 

[Harpy Eagle]

Probably a decent estimate. Of course 401k results are highly variable depending on how the 401k funds are invested.

Very true, and are subject to the whims of the markets.

 

[Seymour Flops]

It is possible to catch up, but far better to start early. A lesson I wish I had known at 30

Yes, schools should be teaching the kids the value of saving, and watching the savings grow. Before a kid gets his first job, he has an income of zero. So he or she can get by on ninety percent of his or her check and put the ten percent aside. Start that lifelong habit early and they'll never live paycheck to paycheck.

I watched my parent stress out and have to write a check two days before payday at the grocery store so we could have supper, and hope the their paycheck beat that check to the bank. I learned from their bad example.