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URL:  http://boards.fool.com/am-a-retired-educator-and-after-30-years-receive-11356469.aspx

Subject:  Re: Pension figured into Networth??? Date:  10/10/1999  9:37 PM
Author:  rjm1 Number:  14367 of 76406

am a retired educator and after 30 years receive $45,000 in pension. I am now working a second
career, am 54, and when I figure my net worth I am not sure how to figure my pension into it. If I had
invested $700,000 and then decided to take a 6% CD on that amount I would receive approx what my
pension gives me. So, do I figure my pension at $700,000 into my net worth?? How does my pension
figure into my net worth??? HELP ME YOU FOOL


I will assume you are trying to do asset allocations and the value of the pension will be part of your fixed income allocation. Therefore you could do what you suggested. Or you could look at the withdrawl rate theory and say you could withdraw 4% of your savings every year to give you the 45,000. This would give you a value of 1,125,000. If the pension is not inflation adjusted then I think I would use your 700,000. The problem with this analysis is that you would have all of your money left at death. Since the pension would end and be of no value we have overstated the value.

Mathmaticaly this is a discounted cash flow problem. You would pick an interest rate, say 6% and a life expectancy, say 35 years and calqulate the future value of yearly 45,000 payments. This is about 440,000. This means that if you put 440,000 in a 6%CD you could take out 45,000 per year for 35 years and have nothing left.
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