## April 21, 2010

### Estimating my Pension Benefits from Work

My work has a pension fund that is based on cash contributions.   Its not the traditional style of pension but its not a 401k either.   Basically it works almost like a 401k that my employer runs for me.   They throw around 6% of my pay into an account every year and when I retire I get the money.    If I want I can take the money as a IRA rollover or I can get monthly payments.   I also do have a 401k that I can put my own money into but there is no match for the 401k since they have the cash pension fund.   Right now I have about ~\$115,000 between the cash pension and the 401k.

The website for our retirement funds plan has a calculator that will let you project and estimate your benefits if you take monthly payments instead of a lump sum.   If I were to roll my 401k and cash pension into an annuity at retirement then I'd end up with monthly payments for life.  You can use the calculator to figure your income based on single life (just you) or joint and survivor (you plus spouse) benefits.

Assuming 3% annual pay increases, 6% contribution from work and 7% growth of investments then if I retire at age various and take benefits at various ages then the estimator says my monthly pension would be as follows:

Retire at age 51 and take benefits immediately:

100% life and joint survivor  = \$1,430
50% life and joint survivor = \$1,554 (\$777)

single life = \$1,702

Retire at age 51 and take benefits age 55:

100% life and joint survivor  = \$1,998
50% life and joint survivor = \$2,194 (\$1,097)

single life = \$2,432

Quit work at age 51 and take payment age 60:

100% life and joint survivor  = \$3,081
50% life and joint survivor = \$3,435 (\$1,717)

single life = \$3,881

Quit work at age 51 and take payment age 65:

100% life and joint survivor  = \$4,853
50% life and joint survivor = \$5,507 (\$2,753)

single life = \$6,366

Quit work at age 55 and take payment at 55:
100% life and joint survivor  = \$2,162
50% life and joint survivor = \$2,374 (\$1,187)

single life = \$2,632

Quit work at age 55 and take payment at 60:
100% life and joint survivor  = \$3,335
50% life and joint survivor = \$3,718 (\$1,859)

single life = \$4,200

Quit work at age 55 and take payment at 65:
100% life and joint survivor  = \$5,251
50% life and joint survivor = \$5,960 (\$2,980)

single life = \$6,889

Quit work at age 60 and take payment age 60:

100% life and joint survivor  = \$3,601
50% life and joint survivor = \$4,015 (\$2,007)

single life = \$4,536

Quit work at age 60 and take payment age 65:

100% life and joint survivor  = \$5,671
50% life and joint survivor = \$6,436 (\$3,218)

single life = \$7,440

I'm married and we'd probably want 100% survivor benefits.  If I focus on that amount then the estimated pension payout would be as follows: Age I retire on the left rows versus age I take benefits on the columns.

 51 55 60 65 51 \$1,430 \$1,998 \$3,081 \$4,853 55 - \$2,162 \$3,335 \$5,251 60 - - \$3,601 \$5,671

So for example if I were to retire at age 55 and take benefits at age 60 then I'd get \$3,335 a month.  Of course the longer I work and the longer I wait to take benefits then the larger my pension payment will be.

Bear in mind that these are just estimates and are assuming 3% pay growth, 6% employer contribution and 7% rate of return.  If I change any of those variables then the numbers will differ.   And the dollar values are not inflation adjusted so in 10, 15 or 20 years those payments will not have the buying power they do today.

Another option would be to take 15 or 10 year certain and continuous annuity payments.    That would basically mean they'd pay me equal monthly payments for 10 or 15 years and then stop.   This could be used as a strategy to bridge my income between early retirement and when I qualify for social security and IRA distributions.  If I quit work at 51 and immediately take 15 year continuous payments: \$1,664  This would only be marginally more than taking 100% joint survivor payments for life so its not a very good options.

#### 1 comment:

1. Great post, Jim. I noticed there is not a huge difference between the different rows in a given column in the table at the bottom. I was going to question the accuracy of the numbers, but then I saw that I hadn't read the first paragraph closely. Makes sense because of the way the plan is structured. The money will keep growing at 7% (projected) even after you quit working and that will be the bulk of it by age 51, so the incremental growth of the potential contributions in your 50's is not that much.

Contrast that with a traditional pension plan like I have with the "J-Curve" effect. My pension value at age 50 will be about double the amount at age 45. It will almost double again by age 55. Although I want to retire very early, it is really hard to leave such a huge sum of money on the table.

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