Calculating a present value in a pension?

present value of a future defined-benefit pension?

The way I did it was go to the Vanguard Annuity page. Put in the monthly amount you think the pension will pay you for a lifetime after retirement (or yours and your spouse's lifetimes) . They will calculate a total $ amount you need to invest to achieve that under the various conditions. Probably the totally wrong way to do it according to the experts, but it satisfied me.

It surprised me that it was worth a lot more than I figured.

Chip

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present value of a future defined-benefit pension? The pension, a multi-employer Taft Hartley plan, will pay a monthly benefit upon retirement (in

17 years) calculated by multiplying each $100 of vested contributions by a specific "benefit multiplier" (currently 3.5% if retire at 65).

How's this? I went to

and entered $1000/mo as a monthly cash income/pension at age 65.That would cost $148,148 today. You say this is 17 years out, right? Using a 4% discount/year, 1.04^17= 1.95. So each 1K/mo starting at 65 is worth about $76K today, at age 48. If one wishes to assume a higher discount, say 5%, it drops to about $65, and a lower discount of 3% raises the present value to nearly $90K.

Given the variable involved and the timeframe, that's not too bad a range.

Joe

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Just out of curiosity, are these vested contributions made by your employer(s), by you, or a combination?

Elizabeth Richardson

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Theres an annual "deflator" percentage which is used figure out NPV. For the longest time the safest number was the 30-year treasury which is about 4.4% now. This is a historically low number which requires fairly high pension contributions by the company. I believe companies successfully argued for a higher deflator based both governement and top rated commercial bonds, closer to 5.5%. Your pension manager should be able to tell you their current exact deflator. So you'd figure out your age-65 pension and divide is by 1 plus the deflator for each year you are under 65. For 5.5% your pension is almost half at age 52.

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