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|Subject: How to account: pensions vs. cash accts?||Date: 1/2/2004 9:22 PM|
|Author: Stoffel67||Number: 38346 of 74759|
I apologize if this as been answered--my search didn't turn up anything (which could point to my feeble search skills).
Wife and I are celebrating our first New Years together (married last July), and I'm in charge of the finances. The budget is still in flux, as we're grappling with how much to save; right now we're erring on the side of "as much as humanly possible".
We started off last year with a bang by fully funding our Roths, and funding the 2002 Roths to the max too. I keep track of all these "cash account" type investments in an Excel spreadsheet, including my company 401(k). Now, through various searches & using some common sense (warning--common sense may be as faulty as search skills), it seems to me that I can take an anticipated rate of return, subtract inflation, and add that interest along with our expected future contributions to arrive at how much we'll have at our fabled "retirement age". I'm pretty confident on this part here, but feel free to correct me.
Here's the rub--she's a school teacher, and she has a defined benefit plan as part of her retirement--she no longer contributes to social security. I'm in the private sector, so I have social security benefits due at retirement as well. But these aren't like "cash account" investments--they give a monthly benefit that gets larger the more we work.
So how exactly would one account for this? Do I figure, "Well, I might live for 25 years after my retirement, so a monthly benefit of $1000 is kinda worth $X in cash if you account for interest and inflation over 25 years"? Or do you do the opposite and try to represent the cash accounts--401(k), IRAs--as what they would be giving monthly if we wanted to deplete them in 25 years?
In engineering terms, I'm trying to figure out how to normalize cash account units to pension units, or vice versa, and which if any is a common practice.
Thanks for your time, any hints will be greatly appreciated.
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