The Motley Fool Discussion Boards

Previous Page  
Investing/Strategies / Retirement Investing 

URL:
http://boards.fool.com/quotiamaretirededucatorandafter30years11370894.aspx


Subject: Re: Pension figured into Networth???  Date: 10/14/1999 8:58 AM  
Author: BGPenhollo  Number: 14517 of 75525  
"I 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. " The most logical and probably the most complex way to figure any cash flow is through what is known as a Present value of discounted cash flows. This requires an estimate of the number of payments you will receive and when. And an estimate of the discount rate 46% would be a good range. If you know how to run a spread sheet or have a financial calculator this is fairly easy. ************************************************** *Personal Disclaimer: If anyone else is familiar with PV of DCF would they please check my math. I think I am doing this right but this is not my profession* *************************************************** If using a TI Financial BAII calculator the following values would be entered: Num of payments into "N" Amount of the Payment requires that the negative value goes into PMT (using Negative will yield a positive PV and using a positive value here will yield a negative PV) Discount rate needs to be adjusted if the payment are made other than yearly. If monthly payments, divide the discount rate by 12, If Quarterly, divide by 4 and this goes into I/Y. I suggest using yearly, it is easier. And since the payments end at your death, their is no money left at the end so future value  FV  is set to zero. Let's say you will be receiving this pension next year and it will be paid on a yearly basis and let's use your 6% and assume you will receive this $45,000/yr for another 30 years. N=30 I/Y=6 PMT=45,000 FV=0 CPT PV (Compute PV) = $134,582.86 When you simply divide 6% into $45,000, you are finding the value of a discounted cash flow into infinity or what is known as a perpetual annuity or perpetuity and that is not what you have. If you or anyone has Excel and wants a simple worksheet to use, please email me asking for a simple PV worksheet calculator, and I will forward one. BGP 

Copyright 19962014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us 