Additional Inputs section- SS and Pension

A retirement planning tool is only as good as its assumptions and inputs. Share your thoughts or ask questions about the internals of the simulation, built in planner assumptions, or planner inputs.
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teacherman
Posts: 2
Joined: Thu Oct 01, 2015 12:24 am

Additional Inputs section- SS and Pension

Post by teacherman » Thu Oct 01, 2015 12:27 am

I’m playing around with retirement scenarios and in the first, I retire at 58 (22 years from now) and begin my pension. I delay Social Security until I’m 70. I’m trying to figure out the correct numbers for the additional input section for my pension and social security. Specifically, if I should enter future or today’s dollars for those entries. (I'm entering everything else today's dollars so I assume I should do the same here...but thought I'd ask.)

My pension formula is Final Average Salary x 45%. I’m estimating that my final average salary will be about $115k (which accounts for COLA increases/raises along the way.) The pension for this equals $52,155/yr (4,346/mo). My assumption that that figure is considered “future dollars” since it’s based off of my future “final average salary.”

My Social security, a low estimate (given how far off I am from retirement and the figures are based off my current salary) is $31,524yr (2,627 a month). With all the research I’ve done I believe that’s in today’s dollars.

So…Which do I adjust before entering into the calculator?

Thanks.

jimr
Posts: 518
Joined: Thu Feb 28, 2008 6:48 pm

Re: Additional Inputs section- SS and Pension

Post by jimr » Thu Oct 01, 2015 7:38 am

If your pension doesn't give inflation adjustments once it starts, I think it would be appropriate to enter it in additional inputs with a COLA type of 'No Cola' and an amount of $52,155. This tells the planner to make the adjustments needed to convert the amount to today's value dollars.

When you run the planner, you can look in the detailed view tab to see what the planner uses for the 'today's value' amount when the pension starts. It will likely be around $25k or less depending on the inflation rate and tax rate you use.

For SS, you probably just want to use a COLA Type of 'track inflation'.

teacherman
Posts: 2
Joined: Thu Oct 01, 2015 12:24 am

Re: Additional Inputs section- SS and Pension

Post by teacherman » Fri Oct 02, 2015 12:33 am

Thanks for the quick reply.

When I did as you suggested it puts my "After Tax Income" at 21k when the pension starts(I'm assuming that the planner's 'today's value' is what I see in the After Tax Income column-yes?).

My pension does include a 1.25% COLA. So, to get the most accurate results, should I enter 21k as my pension amount, with Fixed COLA 1.25%?

Thanks again.

jimr
Posts: 518
Joined: Thu Feb 28, 2008 6:48 pm

Re: Additional Inputs section- SS and Pension

Post by jimr » Fri Oct 02, 2015 7:43 am

teacherman wrote:When I did as you suggested it puts my "After Tax Income" at 21k when the pension starts(I'm assuming that the planner's 'today's value' is what I see in the After Tax Income column-yes?).
Yes. That's in today's value dollars.
My pension does include a 1.25% COLA. So, to get the most accurate results, should I enter 21k as my pension amount, with Fixed COLA 1.25%?
It may be best to enter the pension amount based on your current salary (eg multiply x 45%). Then you can just use the 'Track, Then Fixed' cola option with a COLA of 1.5%. This causes the pension amount to track inflation in the years before it starts, then increase by 1.5% each year once it starts.

If you want to use the $21k amount, you probably need to rerun that setup with taxable percent set to zero to determine the pre-tax amount. Then make a new entry using the new value, a cola type of 'track, then fixed', the COLA set to 1.5%, and the taxable percent set appropriately. This is to avoid double taxing the pension amount.

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