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Federal Employee Retirement System (FERS) Pension question

Posted: Sun Jun 01, 2014 3:37 pm
by Cincyfed
FERS employee's pensions are computed with what is commonly referred to as a diet-COLA. The pension is adjusted for inflation less one percent. I have been figuring the pension as indexed to inflation but have also included an inflation-indexed-expense, equal to one percent of the pension, for the same time period. This seemed like a logical work-around to me, but is there a better way to handle this?

Re: Federal Employee Retirement System (FERS) Pension questi

Posted: Sun Jun 01, 2014 5:58 pm
by jimr
I'm not sure if your workaround will yield the same result as an inflation minus one percent increase, but I think there's a simpler way to model what you're describing.

Assuming you're using the latest version of the planner with same inflation rate throughout your plan, you could also use the new 'fixed cola' option when you create the pension cash flow. Just set the fixed cola rate to whatever you used for inflation minus 1. For example, if you estimate inflation at 3%, set the pension cola to 2%.

Re: Federal Employee Retirement System (FERS) Pension questi

Posted: Mon Jun 02, 2014 6:25 am
by Cincyfed
Thanks! That sure makes sense! You're right in that I had been using an older version and had just been using the same old inputs. Plus, I was also trying to add a little standard deviation to the inflation number to try and "stress test" my numbers. Now, I will use your suggestion, then play with the Sensitivity Analysis feature for the "stress test".

Thanks, too, for patrolling the boards so often. I was very impressed with your quick response to my (stupid :oops:) question!