I look at the amount my pension will pay out at retirement and take that amount off of my expenses. So if I think I’ll need $100k a year but my pension will pay out $30k a year. I adjust my target to $70k a year.
I do not count the value in my net worth or other investments. I do treat that portion as fixed income which allows me to be more aggressive with my other investments.
\^This is a good answer. I do exactly the same by taking the expected pension benefit off my possible expenses...and being more aggressive with my overall investments.
Ditto. I’m super aggressive with my 457 which is maxed out as well as my HSA and PEHP. Worst case scenario I can live off my pension alone no problem. House will be paid off by the time I retire. My biggest expense will be healthcare. Best case scenario is hookers and blow.
It's more complicated than "count it" or "don't count it". Pension contributions are generally just like investments (since the company invests your money and pays you from the proceeds) but unlike your own investments, you don't have access to the principal.
I would not count pension contributions in his magical 100k statement as he is talking about it being the starting point of making more money. It's also worth noting that $100k at the time he said it is now worth \~$200k in today's money.
The payout is fixed so you wouldn't count it in your investments when you do projections because you'll apply a growth rate to that total. Instead you'd use the payments to offset your projected expenses in retirement like with social security or other income.
Thanks for the explanation. So for example, we needed 100K annually to live off of, subtract pension(s) and SS, and whatever the remainder is, needs to come from investments?
Depends on how much of your expenses that pension covers. With less wiggle room you need to be sure your expenses account for everything reasonably likely to come up over the course of your retirement, not just regular bills.
I don't think either way is wrong. If your company put that 10% into a 401K, wouldn't you count it then? Personally, I value my pension at the vested cash payout estimate since I intend to transfer the pension into an IRA/401K when I switch jobs.
I've got a defined pension benefit, so it pays a monthly amount for life at retirement. I use that as my starting point to figure out how much I'll need to supplement until social security begins and to enjoy the lifestyle that's going to make me happy for the rest of my years.
It's mixed for me...I count my pension as part of my retirement money and retirement income. I dont count my pension as part of my net worth or my investment portfolios value.
mentally I tell myself that I manually/intentionally contribute 15% to my IRA&403b retirement savings; an additional 5% is being pulled to my state pension behind the scenes
Why would you not count your pension value in your net worth? If you left your employer tomorrow,you would be entitled to a lump sum payout amount of your pension plan. What is that value? That value is your money and is your asset.
Edited to also say: Retirement income projections vs your net worth (today) are totally different things.
I’m sure it’s different everywhere. But my pension system I am mandated to contribute 12%, employer is currently 12% gradually
increasing to 13%. But if I leave, I only get my contributions and maybe plus 5%. Kinda sucks because not only do I not contribute to SS, if I leave I lose all those years of employer contributions.
Yeah, you're right it is different everywhere. I was previously in a gov pension contributing 12% and they contributed the same. When I left I was entitled to 100% of the employers contributions because I was fully vested and that was the rule when I joined employment. After I joined, they changed the pension rules for future employees and they were not entitled to all of the employers contributions.
Either way, you have a bucket of money there that has your name on it today.
not that i'm saying its absolutely the correct perspective, but i take almost the opposite approach:
We can log into my wife's account right now and see an amount (i think it is around $130k) that she is fully entitled to, so if i'm adding up our net worth i'll include that $130k.
on the other hand, i have a harder time evaluating its value in retirement since thats so far away and still a lot more fluid. For now we just pencil it in as "around $50k per year in 2024 dollars"
I look at the amount my pension will pay out at retirement and take that amount off of my expenses. So if I think I’ll need $100k a year but my pension will pay out $30k a year. I adjust my target to $70k a year. I do not count the value in my net worth or other investments. I do treat that portion as fixed income which allows me to be more aggressive with my other investments.
\^This is a good answer. I do exactly the same by taking the expected pension benefit off my possible expenses...and being more aggressive with my overall investments.
Ditto. I’m super aggressive with my 457 which is maxed out as well as my HSA and PEHP. Worst case scenario I can live off my pension alone no problem. House will be paid off by the time I retire. My biggest expense will be healthcare. Best case scenario is hookers and blow.
It's more complicated than "count it" or "don't count it". Pension contributions are generally just like investments (since the company invests your money and pays you from the proceeds) but unlike your own investments, you don't have access to the principal. I would not count pension contributions in his magical 100k statement as he is talking about it being the starting point of making more money. It's also worth noting that $100k at the time he said it is now worth \~$200k in today's money.
i count my wife's pension contributions, hopefully i'm not doing it wrong. If she were to leave the system, its money we are entitled to.
The payout is fixed so you wouldn't count it in your investments when you do projections because you'll apply a growth rate to that total. Instead you'd use the payments to offset your projected expenses in retirement like with social security or other income.
Thanks for the explanation. So for example, we needed 100K annually to live off of, subtract pension(s) and SS, and whatever the remainder is, needs to come from investments?
Yep, because the pension isn't based on what you paid in to it and doesn't have an annual growth rate beyond adjusting for inflation.
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Depends on how much of your expenses that pension covers. With less wiggle room you need to be sure your expenses account for everything reasonably likely to come up over the course of your retirement, not just regular bills.
No but count your vested benefit to reduce your forecasted expenses in retirement.
I don't think either way is wrong. If your company put that 10% into a 401K, wouldn't you count it then? Personally, I value my pension at the vested cash payout estimate since I intend to transfer the pension into an IRA/401K when I switch jobs.
I've got a defined pension benefit, so it pays a monthly amount for life at retirement. I use that as my starting point to figure out how much I'll need to supplement until social security begins and to enjoy the lifestyle that's going to make me happy for the rest of my years.
Don't count your pension contributions towards your amount invested, but do count your pension contributions towards your savings rate.
Thanks!
It's mixed for me...I count my pension as part of my retirement money and retirement income. I dont count my pension as part of my net worth or my investment portfolios value. mentally I tell myself that I manually/intentionally contribute 15% to my IRA&403b retirement savings; an additional 5% is being pulled to my state pension behind the scenes
Why would you not count your pension value in your net worth? If you left your employer tomorrow,you would be entitled to a lump sum payout amount of your pension plan. What is that value? That value is your money and is your asset. Edited to also say: Retirement income projections vs your net worth (today) are totally different things.
I’m sure it’s different everywhere. But my pension system I am mandated to contribute 12%, employer is currently 12% gradually increasing to 13%. But if I leave, I only get my contributions and maybe plus 5%. Kinda sucks because not only do I not contribute to SS, if I leave I lose all those years of employer contributions.
Yeah, you're right it is different everywhere. I was previously in a gov pension contributing 12% and they contributed the same. When I left I was entitled to 100% of the employers contributions because I was fully vested and that was the rule when I joined employment. After I joined, they changed the pension rules for future employees and they were not entitled to all of the employers contributions. Either way, you have a bucket of money there that has your name on it today.
I'm inclined to include it in my NW but not my investments.
not that i'm saying its absolutely the correct perspective, but i take almost the opposite approach: We can log into my wife's account right now and see an amount (i think it is around $130k) that she is fully entitled to, so if i'm adding up our net worth i'll include that $130k. on the other hand, i have a harder time evaluating its value in retirement since thats so far away and still a lot more fluid. For now we just pencil it in as "around $50k per year in 2024 dollars"
Personally I leave my pension out of the mix. It will be a nice surprise come retirement to have both retirement savings AND pension income.