Pension Offset

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I have a retirement pension plan with my company. Once I start my pension is does not have any COLA increase. But, because my company contributed to my Social Security, my pension does have a onetime adjustment, as soon as I reach the age of 62 (even if I delay social security). It there a way to adjust my pension parameters to include this deduction once I turn 62?

Joe

Comments

You'll need to do side calculations to best approximate how to do this. You can input multiple different pension fields (e.g. lump sum for a few years decreasing in real terms due to lack of COLA). It's unclear how close you are to age 62 and when your pension starts, so this may be an issue if you need more than 6 entries. If so, you could use special receipts for the rest.

Once you reach age 62, you should be able to input your final pension. Since you only get the one time COLA adjustment, be sure to use 0% inflation adjustment for future years.

Also, each year when you update your inputs, double check pension fields versus your actual dollars received. You may need to adjust the values for inflation or at least confirm they are still accurate.

Best,
Brian

Thanks, I plan on retiring next year at 57. I was able to use the combine lump sum and annuities to estimate my final pension. If I use 0% inflation adjustment then my fixed pension amount for myself and my wife shows a reduction each year. I understand that this is based on real dollars instead of actual dollars (nominal dollars). My question is that say 30 years from now, ESP projects my income based on real dollars, which really shows a lot less that actuals based on inflation. So how do I know how much actual dollars is what I need to offset inflation? How much do I have to pull from our savings and 401K to keep up with inflation? ESP may show my income is $106K of today’s dollars (30 years from now), when in reality it may be $300K (actual dollars). I cannot see the actual amount that I will need to have in the future or how to go about estimating it.

Thanks, as you can see I am confused with today's dollars compared to nominal dollars or actual dollars.

Joe

dan royer's picture

Joe, thirty years from now you'll be seeing ESPlanner display things in 2045 dollars and it will all make sense at that time. It won't still be showing 2015 dollars so there won't be the confusion that you are imagining. If our dollars have kept pace with inflation, then, yes, you'll see a much higher number (denominated in 2045 dollars) but the same value as what you are seeing today when denominated in 2015 dollars. If they have not kept pace with inflation, you'll see an amount in 2045 that is the same face value as you had in 2015.

There are online calculators for this, but you can do it easy enough in Excel.

Say you assume inflation is 3% annually and you want to see the impact on $1000/month in current (real) dollars.

Year 1 - $1,000
Year 2 - $1,000 * (1.03)
Year 3 - $1,000 * (1.03) * (1.03)
Etc.
Year 30 = $2,356.57 in nominal dollars or $1,000 in equivalent "real" (year 1) dollars after taking inflation into account.

Best,
Brian

Thanks, unfortunately that is a lot of columns and a lot of math. When I try different contingency plans I would have to create multiple spreadsheets. Can ESP not just add an additional table to calculate nominal dollars? You can put in a disclaimer that this is nominal dollars and does not reflect real world inflation.

Sorry but I started with spreadsheets and I like the results of ESP and I would hate to go back to spreadsheets.

Thanks,
Joe

Hi Joe,

There are simpler formulas or calculators online. If you are set on an inflation rate, you could calculate out the nominal dollars for years 1 to X and use those figures each time to convert real into nominal. I use 2 columns in Excel with column 1 being the nominal value and column 2 a constant inflation rate "x%". Then use A2=A1 * (1+x%) and so on down the column. This only takes a few seconds or so if you drag the rows to copy the data year after year. Hope that helps.

I'm just a user, but you could also post a "suggestion for improvement" on the forum and the ESPlanner team will see this. It has come up from time to time in the past.

Best,
Brian

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