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"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.

intercst"
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I also did that before making my decision, every one paid out less than the pension
my employer offered.


That's quite reasonable as the lump sum is what your employer would pay for the annuity. You won't get the same discount as an employer with thousands of potential retirees.
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richinaz: In most cases I guess you can use the 4% SWR as a way to compare a lump sum vs a pension.

For example $25K *4% = $1K pension.


It's not clear what you're responding to here, since you've just started the thread. Or is this in some way a continuation of the previous thread on annuities?

In any event, to compare them also requires knowing how the lump sum is created in the first place. I know that in my own instance--retiring in 2002 and opting for a lump sum instead of a pension--the lump sum was calculated as the Present Value of a hypothetical stream of payments that ran through to something like age 120, with the fraction of the fixed annual pension getting smaller each year based on the probability of my living through that age. The current prime interest rate was also factored into the calculation (the lower that was, the higher the resulting lump sum, given how PV is calculated).

And then you'd need to do some estimates based on how said lump sum is invested, what kind of growth (if any) can be anticipated, and how that then would lead to RMD payouts from an IRA--lump sums being eligible to be deposited in an IRA--

etc., etc.

I'm quite confident that in my case, whether or not the pension--had I taken it--had had a COLA provision, I've done better with the lump sum. And that's in no small measure because I've been a FOOLish investor with that lump sum these nearly twenty years (and even before)...

mathetes
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As few employers manage their retirement plans, the lump sum distribution that they offer tend to be the cost of a single payment immediate annuity that provides the same monthly benefit that you are entitled to receive under the retirement plan. This assumes that the pension plan satisfies the 80% funding level as required by the Pension Protection Act of 2006.

Use the total amount of the lump sum distribution that you are entitled to receive and use one of the online immediate annuity calculators to determine the equivalent monthly pension value. It won't exactly match the monthly pension amount calculated by your employer. They're getting a discount on the purchase price of the equivalent annuity.

Unless you roll the lump sum distribution into a traditional IRA, the lump sum is taxable income in the year that it is received. The mandatory withholding rate on the lump sum distribution is 20% when it is taken in cash.

As pensions are, typically, stated as monthly benefits; shouldn't your $1K be divided by 12 making it $83.33 for comparison?
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<i<In most cases I guess you can use the 4% SWR as a way to compare a lump sum vs a pension.

For example $25K *4% = $1K pension.

That's exactly how I've been "bean counting" it for 25 years. i.e: At this time, how much money would I need in order to pay myself what this pension is paying me under the terms of the pension? But it's a moving target since that is all I'm accounting for. At any time I calculate it it's at least a slightly different number and now that I am older and have had a heart attack I don't use 4% anymore, ha ha.

If the pension isn't COLA then I would think you'd have to say it is less valuable than a lump sum.

Maybe/ maybe not. As somebody has noted when you get a lump sum it's not really the whole lump sum and pension regs are different from "-guy wants to buy an annuity"- regs
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"For example $25K *4% = $1K pension."
----------------------------

I had to choose between a lump sum and a pension in 2018, chose the pension.
Since 2018, stock market has had issues in December 2018, and of course 2020.
Fully expect more big time volatility in the future, as well.
Was really nice having a pension paycheck coming in, and because of it
was able to get aggressive in the stock market during both of those events noted above.

I did that very simple calculation you mentioned above, and that sold me on the pension.
( Lump Sum Amount * 4% ) = Annual Payout, and just compared that to the Annual pension.
Yes, inflation will make the pension less valuable over time, but Social Security will
pick up that slack. And yes, the lump sum could have been invested.

Basically, did not want to have most everything tied up in the stock market.
If the pension fund goes under, the PBGC will cover it. If the PBGC goes under,
then eventually Social Security will replace it. If SS goes under, we all are
going to have really big problems, and the 401k/IRA's probably won't be worth much
of anything, either.

I think I've read that you have a good sized 401k/IRA, so getting a pension can allow
you to invest more steadfastly, and more aggressively, if you want.

Either way, good options to have !
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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.

intercst
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Here's a website that will give you an annuity quote without taking your e-mail address or having an agent call you.

https://www.immediateannuities.com/annuity-calculators/how-l...

intercst
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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).
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You need to calculate the net present value (NPV) of an income stream. There are a few dozen calculators online that will help you do so. Here is one:

https://www.calculator.net/pension-calculator.html
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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.
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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.
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No. of Recommendations: 4
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.
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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.


The way to compare them is "apples-to-apples." It's not an accurate comparison to use 4% and "keep the assets" vs. "lifetime annuity and there are no assets. It doesn't matter if "one isn't interested in pass-alongs or left overs." What matters is like vs. like, not two completely different things.

You can see that I wrote "Using the 4% method is interesting for comparison," but the only *equivalent* is one that has the same end-of-life leftovers.
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CuriousQ writes,

<<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).

</snip>


Absolutely! I'm 27 years into the 4% rule and now have almost 10x my starting balance. That's 10x after 27 years' worth of retirement withdrawals, and 10x after 50%+ stock market declines in 2000 and 2008 which I rode down & up with my long term buy & hold (LTB&H) investment strategy.

The other thing I find fascinating is that even though I had a multi-million dollar winner in DELL and a lesser amount in Pfizer which I still hold, I'd be 20x today if I had split my money between a tech sector find and a pharmaceutical/health care fund. You need to be right on the industry/sector (I dumped my Exxon shares in the mid-1980's to concentrate my portfolio on Drugs and Tech), but you don't need to invest in individual stocks.

intercst
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What are your top sectors for the coming decade?
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What are your top sectors for the coming decade?

Artificial intelligence (AI) and Bio-tech.

AI is going to put at least 50% of the population out of work and the medical advances we'll see from bio tech will allow the unemployed to live to 150. Of course, all the profits from these magical technological advances will be diverted to Executive Compensation and the insiders. I see a very dystopian future given our current, completely corrupt form of government and the general level of ignorance in the American people.

intercst
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AI is going to put a lot more than 1/2 the population out of work, eventually. You didn't give a time frame for your estimate. It's already putting people out of work. Within maybe 50 years I suspect it will be ~75%. Don't think we can replace the contractor (plumber, etc). CEOs won't allow themselves to be replaced, but they probably could be. Even now.** In the future, almost certainly.

Contractors, artists, scientists...pretty much everything else can be done by AI (either now, or in the plausible future).



**I've read articles that CEOs don't make that much difference, especially in proportion to their salaries.
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I see a very dystopian future ...

Better learn to speak Mandarin.
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I see a very dystopian future ...

Better learn to speak Mandarin.



I agree with the idea that we're giving the Chinese advantages that we maybe shouldn't (not prosecuting or punishing patent/trademark infringement, allowing joint ventures where they drain the Intellectual Property from the western company, ignoring industrial espionage and possibly state-sponsored infrastructure attacks [probing for network weaknesses in the power grid]).

But, I also remember in the mid to late '70s "Better learn to speak Arab" because of the high oil prices and our 12 mpg cars, then in the '80s "Better learn to speak Japanese" because their industrial was going to overtake the US economically. Getting people to learn other languages can really be a good thing, from improving our business competitiveness to opening people's eyes to other cultures. But maybe we'll wake up and stop making it easy on our economic adversaries.
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"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.

intercst"
------------------

I also did that before making my decision, every one paid out less than the pension
my employer offered.

( I was also aware that taking the lump sum and investing it had a strong chance
of being more lucrative than the pension, but already had 401k/Roth/Taxable
accounts, just simply did not want everything tied up in stocks, as long as
the pension terms were favorable. )
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No. of Recommendations: 1
"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.

intercst"
------------------

I also did that before making my decision, every one paid out less than the pension
my employer offered.


That's quite reasonable as the lump sum is what your employer would pay for the annuity. You won't get the same discount as an employer with thousands of potential retirees.
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"That's quite reasonable as the lump sum is what your employer would pay for the annuity. You won't get the same discount as an employer with thousands of potential retirees."
----------------------------

I agree, it is quite reasonable for a commercial entity to pay less.
It is also quite reasonable for me to take the employer provided pension, because it paid more, lol.

Caveat Emptor
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I've been Internet limited due to a relocation. My main reason for the question was comparing 2 job offers, one would increase an existing pension, while the other one would pay more salary.

So would you prefer $25K extra salary or an extra $1K pension? (Don't need any more answers.)

I think people gave me sufficient thoughts on the issue which mostly track with what I've read in the past.

At this point I went with the pension because of some other perks (job security, more time off) and I can always (probably) leave the pension job for the higher paying job since getting back in the government is a more time consuming effort than a private job.

Thanks.

Rich

P.S. I actually tried creating a spreadsheet and include the effects of fed/state taxes on the extra pay as well. Turned out to be pretty close. In my case the "private" job was more of an unknown situation and I'm most likely looking for the short term so I'd rather not venture into a complete unknown.
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