What should I assume with respect to how long the participant will work, and when she will retire?
Let’s look at the hypothetical case of a male state trooper who has been working 10 years. Let’s say that his accrued pension benefit is $2,500 a month. If he works another 10 years, his accrued pension benefit will be $4,500 a month. He is 52 years old and seems likely to work until regular […]
What if I have an employer statement of value that differs from the pension calculation?
“Statements of value” from employers are almost always different than true actuarial pension value. They are usually lower than the true actuarial value. You can use the employer’s statement if: Otherwise, just ignore the “statement of value” from employer, and use our pension valuation. Why would the lump sum value offered by the employer be […]
What if the COLA does not start immediately?
This note explains how to value a pension where the COLA does not start immediately. Let’s say the COLA begins after 3 years. Create three pensions. For each pension, everything is “actual,” as it is for your one pension, except as follows: A: No COLA. B: Retirement age is 3 years later than actual (or […]
What if the pension payments decline or stop?
This note explains how to value a pension whose payments decrease, or decline, or stop after a set number of years. Pension payments decline You can show declining payments in the software, by creating entries for two pensions. Enter the two pensions as follows: 1. Pension A: This pension pays the benefit at the initial […]
What discount rate (interest rate) do you use in the Pension valuation?
Each month, we update the interest rate, based on the then-current rates for 20-year U.S. Treasury securities. You may enter a different interest rate simply by entering it in the “interest rate” (or “discount rate”) field. With respect to a discount rate, all you are looking for is a safe rate of return, by which […]
What do you assume to be the life expectancy, or age of death, or mortality, of the pension plan participant?
The software does not use a single life expectancy / mortality / age of death assumption. Instead, it does a much more sophisticated analysis in which the present value of each year’s payment is calculated. You can see that calculation if you scroll to the bottom of the “more info” screen for the pension, and […]
How are pension present value (valuation) and pension payments coordinated?
We show the present value as an asset and the payments as income. In doing this, we are NOT double-counting, any more than one is double counting to show a bond as an asset and the income from the bond as income. You can think of a pension as being just like a bond. Both […]
Do you calculate defined benefit pension valuations for joint lives (survivorships)?
Currently, we calculate defined benefit pension valuations for single lives only. Typically, the survivor piece is not worth all that much, because: One way you could roughly approximate the value of the survivorship pension is to create a second pension, as follows: That will give you a rough guess, at least, as to the value […]
How can I tell if my pension valuation is right?
Here’s how you can get a ballpark sense of whether the result you are getting from the defined-benefit pension calculator is correct. Let’s assume the following facts: No Cost of living adjustment (that is, no COLA), just to keep it relatively simple.A ballpark life expectancy for males is to age 83. (We are not looking […]
Why do the IRA distributions seem too low for awhile, then suddenly jump up?
This can happen if you specify that the software should use required minimum distributions (which is the default mode of calculating distributions), but you start distributions before age 70. The IRS requires that distributions start at age 70 1/2, but it does not provide any definitive method for calculating “required minimum” distributions before that age. […]