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You could find out more easily by searching for the price of buying a similar annuity. Age 50 is very early for a life long annuity so your pension is likely "worth" millions.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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We bought annuities to replicate a defined pension something close to a PER at ages 58/61, we are now 66/69.
It cost us in 2008, 8% distributed sales charge over 7yrs that is internally subtracted from yields, PLUS 3.6% annual fees dedication for death benefit, fund fees, state tax fee, and GLWB benefit option fee
In comparison: Income Acct value is close to $500,000. at a 5.5% initial distribution, after 13 years, we will have taken about $357,000 (age 79/82). We hope to leave a remainder to our Only. Single life annuities.
OP, you did well in relation to what was offered later.
Last edited by leastprime; 03-25-2017 at 05:55 PM..
I'm a retired government worker with an old-fashioned defined benefit pension. The pension has no true COLA, but increases 1.5% annually.
Had a conversation with a younger friend whose retirement plan is (or will be one day) a combination of 401K's and Roth IRAs.
My friend said my pension's value is its annual gross payout divided by an average expected rate of return on most people's 401K and/or IRAs.
I'm not sure that's the way to look at it.
My pension has no cash value, though my DH will receive 50% of the pension if I die first. If he dies first, after my demise, my pension simply ends. Whereas, people with 401Ks and/or IRAs always have access to the whole of their monies in them, as well as the ability to bequeath those monies to their heirs. Conversely, my friend upon retirement, will spend down his 401K and IRA assets annually to live on.
To me, my pension has no value other than my annual income. But I am curious if there is an actuarial answer to this question.
You tell me when you're going to die, and when your wife is going to die, and I will tell you what the NPV of your pension.
Thanks for the input. I now better understand the value of my pension.
Since we're working on our taxes and have all prior years on disc, I added up my gross pension since retirement. As of the end of last year, after 13.5 years of retirement, it totals $875K.
I was lucky to retire at age 50; I'm 64 now and in good health.
I just have to hope the plan's performance and viability remains good.
If your pension has already paid you $875K over the course of 13.5 years it is delivering you an annual income of roughly $64,000. Not even counting the 1.5% annual growth, if you live to age 85 which is a high possibility, your $64,000 annual pension x 35 years will have paid you $2,240,000 +.
Although many people are able to produce an annual retirement income of $64,000 through investments, producing this type of income from for the 12 years from age 50 to 62 with no social security to take off some financial burden, and continuing to have to further tap into that investment income for another 23 years to age 85 to supplement their social security is no easy feat.
And if you are in a financial situation that allows you to have been able to continue to save $10,000 annually from your retirement income, not even counting interest you will have at age 85 saved $350,000. If your husband was able to do the same for the same amount of years double that = $700,000. Leaving a $700,000 cash inheritance plus possibly a home valued at $300,000 which can be sold, you and your husband could be possibly leaving an inheritance of $1,000,000+ which not many people are able to do.
So I would say your pension is a very valuable asset that is very hard to reproduce for the number of years you will likely collect it.
All, Hoping I can butt in here as I also have a defined pension and you've got me thinking.
So, my pension begins to pay out at age 38, and will be around $33K a year with nominal cost of living increases. So how much is this actually worth? I've always figured if I live to 88, that's 50 years x $33K, so it's basically $1.65 Million, but now I'm thinking it might be "worth" more as I'd have had to save more to pull that much out? Is that what you guys are saying?
All, Hoping I can butt in here as I also have a defined pension and you've got me thinking.
So, my pension begins to pay out at age 38, and will be around $33K a year with nominal cost of living increases. So how much is this actually worth? I've always figured if I live to 88, that's 50 years x $33K, so it's basically $1.65 Million, but now I'm thinking it might be "worth" more as I'd have had to save more to pull that much out? Is that what you guys are saying?
Thanks!
Yes, that's what we're saying.
Although if you have a portfolio of $1.65 million, it would actually have a very good chance of lasting 50 years or longer because your initial withdrawal of $33,000 would be less than 3% of the portfolio's value.
You could very safely withdraw $49,000 per year from $1.65 million and adjust upward annually for inflation and such a portfolio should last 50 years or more.
If your pension has already paid you $875K over the course of 13.5 years it is delivering you an annual income of roughly $64,000. Not even counting the 1.5% annual growth, if you live to age 85 which is a high possibility, your $64,000 annual pension x 35 years will have paid you $2,240,000 +.
Although many people are able to produce an annual retirement income of $64,000 through investments, producing this type of income from for the 12 years from age 50 to 62 with no social security to take off some financial burden, and continuing to have to further tap into that investment income for another 23 years to age 85 to supplement their social security is no easy feat.
And if you are in a financial situation that allows you to have been able to continue to save $10,000 annually from your retirement income, not even counting interest you will have at age 85 saved $350,000. If your husband was able to do the same for the same amount of years double that = $700,000. Leaving a $700,000 cash inheritance plus possibly a home valued at $300,000 which can be sold, you and your husband could be possibly leaving an inheritance of $1,000,000+ which not many people are able to do.
So I would say your pension is a very valuable asset that is very hard to reproduce for the number of years you will likely collect it.
Congrats and good for you.
Nitpicking here, but you are assuming the OP will receive a SS benefit. It's not clear whether Social Security is available to them.
Nitpicking here, but you are assuming the OP will receive a SS benefit. It's not clear whether Social Security is available to them.
I do get SS; I filed early at age 62. It's not as much as it would have been, I think, due to my last 12 years of being unemployed (retired at age 50).
We have no direct heirs; our plan is to leave our last home (likely in central Mexico) to a woman's clinic that we currently help support. Any remaining funds will go to a scholarship fund in the village.
I have a defined benefit plan. My plan is to take early retirement. I don't plan to stop working but just plan to ramp up my part-time self-employment job to have a more flexible schedule and enjoy the small pleasures in life. I have saved the max since 50 in supplemental plans. Many people I work with would also like to leave because the job is very stressful and is negatively impacting their health but they won't take the early retirement option because the value of their pension increases substantially between 55 and 60. Sadly, I have seen many people hang on too long and then have devasting health problems immediately after retiring. I believe the continued stress works against the carrot of the higher pension as the higher amount doesn't do much good if you are too sick or no longer alive to collect the increased benefit. This is obviously specific to individual circumstances and not the same for others.
The number one factor most of my co-workers cite in delaying their retirement is the need to pay for or pay off children's college followed by carrying their childrens' healthcare. Ironically, in many cases, this creates a failure to thrive situation for many young adults as there is little motivation for the child to move on and make their own mark if they have it too comfortable. Many people I know have children who are out of college, still living at home, and are working below their potential resulting in the parents needing to continue working even longer.
I don't plan to work an additional 10 years to support a high income necessary to support adult children who are capable of supporting themselves. Doing so undermines the motivation, self-confidence and independence necessary for the young adult to thrive and find their own path in that critical stage of their lives.
In my opinion, a defined benefit plan at a smaller amount for a longer period of time has a greater value than one at a higher value and a much shorter (and less enjoyable) period of time. For me, the break even point is 13 years early versus regular retirement. Unfortunately that's the longest anyone in my immediate family has lived. I'm banking on a higher personal value over a monetary one.
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