The Motley Fool Discussion Boards

Previous Page

Investing Strategies / Retirement Investing


Subject:  Re: Valuing Pensions Date:  7/29/2021  12:04 PM
Author:  FCorelli Number:  103802 of 108389

The most accurate way to value a pension is to compare it to what a commercial insurer would charge for the same monthly life annuity benefit. If you have a Gov't inflation-adjusted pension, comparing it to commercial life annuity with a 2%-3% annual adjustment should be pretty close.
This is really the only "correct" way to do it. Using the 4% method is interesting for comparison, but inaccurate--with a pension or annuity, the money flow stops when the pensioner/annuitant dies (or when the second of the married couple dies, if you chose that option in both the pension and annuity). But, with the 4% rule, you not only have a large chance of having money left over, there's a decent chance of passing away with more (or raising your spending over the years).

No, it is just another correct way of calculating it. If one isn't interested in pass-alongs or left overs, or What-if-Russian-Roulette-pays-big? then no you would not have to take those things into consideration. If I want to know how much cash-on-hand I need to pay myself what the pension is paying me the rough-cut 4%-rule is as close as anybody needs to be. Unless you also want to know other stuff which may or may not be of any relavence to the calculatee.
Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us