Tag Archives: Defined Benefit Pensions

The Pension Series (Part 22): Analyzing Public Pension Plan Safety

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How Safe Is My Pension?

Pension plan safety is one of the most popular and relevant topics among the potential pensioners who read my blog. It’s popular because much like Social Security, chronic underfunding of certain types of pensions receives a lot of bad press in the U.S. As a result, many people think that all pension plans are circling the drain. While that isn’t true, as with most things in life, determining the truth about your pension plan’s safety is a somewhat subjective and complicated journey. However, that doesn’t mean you shouldn’t strive to answer the question, especially if the Golden Albatross has trapped you in its maw.

Pension plan safety

Instead of a circling the drain, how about a black hole sun?

There’s a reason why I started the Pension Series with the topic of pension safety. I said it then, and restated it more recently in my book; no issue cuts straight to the chase quicker than pension plan safety. That’s especially true when trying to determine if staying for a pension is worth it. If you are facing the gut-wrenching stay or leave decision at your pensionable job, and you decide there’s a high probability the pension won’t be there at retirement, then you may not require any further analysis. In other words, the realization that the pension won’t be there as promised effectively ends the internal debate. Continue reading →

The Pension Series (Part 21): Lump-Sum Buyout Offers

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Grumpus the Prognosticator

Considering that I’m publishing this article during the COVID-19 Pandemic, I want to take a few paragraphs to acknowledge that these are troubled times without turning this into an article exclusively about the pandemic. As COVID-19 causes mass lock-downs and lay-offs all over the world, it’s forcing people to examine what their jobs and careers mean, especially if they no longer have one. Looking past the immediate onset of events, many are also questioning what employment will look like in a post-pandemic world with no vaccine close at hand. On the surface, then, it seems like an awkward time to publish an academic study of pension lump-sum buyout offers, which many people associate with the retirement end of a pensionable career.

Lump-sum buyout

Let me look into my crystal ball. I hope we can look back in a year and say I was wrong.

However, if the economic impact of the pandemic continues to suppress interest rates and cause significant amounts of market volatility, or a prolonged bear market, it will weaken many pension funds, similar to 2008 and 2009. Some will even enter the dreaded death spiral that I covered in Part 20 of the Pension Series. Under these circumstances, I’d expect lump-sum buyout offers to proliferate as pension funds de-risk to shore-up their finances. The two main methods for de-risking are lump-sum buyout offers and the same sort of Pension Risk Transfers (PRTs) I examined in Part 14 of the Pension Series. Therefore, it’s reasonable to assume that with more lump sums on offer more employees will take them, especially if they believe their pension funds are in the type of trouble I outline in Part 1 of the Pension Series.

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Making Bold Adjustments

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Hey folks! I hope everyone is staying safe and sane out there during the COVID-19 pandemic. Grumpus Familias is safely ensconced at our new home in Nelson, New Zealand. We love the place despite the nationwide COVID-19 lockdown. I attached a picture of the snow-capped mountains of Mordor that we can see from the hill we live on as proof.

Bold Adjustments

However, more on life in NZ in future posts, because I have another great guest post to share from Chris Pascale. Today’s topic is Making Bold Adjustments which fits perfectly as a subject for this blog. I hope you agree.

In case you’re a new reader, or just don’t remember, Chris is a Marine Corps veteran, a friend of the blog, and also an author. In addition to that, he helped me BIG time by editing my forthcoming book, The Golden Albatross, which I’m happy to announce that ChooseFI Media will publish in June! Stay tuned for more announcements soon.

Bold Adjustments

Concept art from the book! It’s so close to release, I can smell that new book smell.

Back to saying great thing about Chris, though! He is interested in many of the same things I am like personal finance, pension hacking, and family time. Yet, he looks at things differently than me, which means he always has a fresh angle or new topic in mind for the blog. You can check out his other guest posts by going to the Article Index. One more thing, as with all other guest posts on the blog, I supplied the pictures, captions, and what hopefully passes as comic relief.

OK, Chris, take it away …. Continue reading →

The Pension Series (Part 13): The Master Pension Value Calculator (Updated)

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Substantive Revision

This is a substantive revision to the original Pension Series Part 13 article I published on 04 FEB 2018. I updated this article because I have a new method for calculating the Total Dollar Value (TDV) of pensions that do not possess a Cost of Living Adjustment (COLA). The new method is far more accurate than the old method, so I am updating all articles in which I used the old method. That said, the new formula didn’t change the results of this case study because the estimated value of the pension increased, instead of decreased. As a result, it only strengthened the argument for Ms. Money Penny to stick with the lifetime annuity. 

The major changes for this article are in the spreadsheet, not in the text itself. If you downloaded and used the old spreadsheet, you should delete it and download the updated version. Any additions I made to the text are blue, and I only used the strikethrough feature a few times in the text, mostly to replace the old TDV with the new sum. As a result, the article itself remains fairly coherent.  Continue reading →

The Pension Series (Part 19): Pension Annuity vs. Lump Sum Analysis (Again) — Updated

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Substantive Revision

This is a substantive revision to the original Pension Series Part 19 article I published on 23 June 2019. I updated this article because I have a new method for calculating the Total Dollar Value (TDV) of pensions that do not possess a Cost of Living Adjustment (COLA). The new method is far more accurate than the old method, so I am updating all articles in which I used the old method.

I notified BrewDog (the subject of this article) and provided him with updated Master Pension Calculator spreadsheets that utilize my new method. I did this because the TDV of his no COLA pension changed significantly when I used the new formula. As a result, I also updated the two spreadsheets embedded in this article and some of the text. If you downloaded the old spreadsheets, delete them, and download the new spreadsheets with the new formula. The text changes are noted in blue below and include strike throughs of the original article’s verbiage when needed. I kept the italicized format for the verbiage cut and pasted from newer emails between BrewDog and myself. 

My apologies for any inconvenience this update may cause, or already has caused. I’m well aware that the updated version of this article no longer reads as clean and easy as the original post. However, I’m committed to ensuring the information shared on this blog is accurate. As a result, when new circumstances alter the accuracy of an old post, I feel obliged to update it, even at the expense of readability.      

If you want more information on why I updated the TDV formula for no COLA pensions, you can go to Part 4 of the Pension Series for the abridged version. That is the source article for all my TDV calculations, and as such I updated it first. If you’d rather read a more in-depth explanation about the impacts of inflation, and the correct way to incorporate it into TDV calculations, then you’ll need to wait for my book, “The Golden Albatross: How To Determine If Your Pension Is Worth It“. It’s currently scheduled to be published in early 2020 by ChooseFI publishing.

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The Pension Series (Part 4): Total Dollar Value (TDV) of Your Pension (Updated)

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Mea Culpa

This is a substantive revision to the original article I published on 01 October 2017 entitled “The Pension Series (Part 4): Total Dollar Value (TDV) of Your Pension.” I am making this substantive revision because I have updated the formula to calculate the Total Dollar Value (TDV) for pensions without a Cost of Living Adjustment (COLA).

In my two-and-a-half years of blogging, this is only the second major revision I’ve made to an article. However, as a result of updating the formula, it will not be my last. Several other articles in which I attempt to calculate the TDV of people’s pensions also need to be changed. I will update and re-publish those articles, much as I did with this one, with notifications to all my readers. But, since this article explains TDV calculations of no COLA pensions, I needed to start with this one. Continue reading →

The Pension Series (Part 20): Pensions, Volatility, and Risk

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Pssssst

Hey! Over here. It’s me, Captain Obvious. I’m one of Grumpus Maximus’s many alter egos. Kind of like that guy from the movie Glass, but all good, no beasts. Don’t tell him, but I snagged the keyboard when he wasn’t looking. I wanted to let everyone know that stock market volatility is back. You already knew that? Of course you did, that’s why I’m called Captain Obvious. What you may not have noticed is that the volatility is spreading. It’s in the bond market now as well as the stock market. Even the U.S. housing market is starting to tremble in certain places.

I told GM that he should’ve written about volatility months ago, but he said too many Financial Independence (FI) bloggers were already writing about it. Plus, he hadn’t taken the time to determine if volatility posed any kind of risk to people’s pensions, or the pension funds that back them. I suspect he was just being lazy. Either that or too busy with his retirement plans to care about all three of his loyal readers. Well, I’m here to tell you that I finally convinced him to research the issue and write a post. Just remember that, when you leave your comments at the bottom of the page. Captain Obvious, out!

Continue reading →

The Military Retirement Process: Lessons Learned (Part 1)

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For the Military Members in the Audience

When I first announced that I was officially retiring in 2019 via the blog and my Facebook group, the response was overwhelmingly positive. Amidst all those positive responses, Timika Downes, a fellow Financial Independence (FI) blogger, reservist, and FB group member asked me to share lessons I learned throughout the military retirement process. I was non-committal at the time because I had no idea if there would be anything worth sharing. However, now that I’m through the first phase of that process, I realize I have a few nuggets of information worth sharing — especially for military Financially Independent Retire Early (FIRE) seekers like me.

Admittedly some of my lessons are more or less relevant, based on what you want to do after the military. However, any military member contemplating either retirement or transition from Active Duty can take something away from what I’m about to share. Top among those takeaways is this: The Department of Defense (DOD); the Veteran’s Administration (VA); and many state, local, and benevolent organizations have put a lot of effort into ensuring that current active duty military members transition successfully to civilian life.

As a student of history, I’m well aware that the above takeaway was not always true. The VA, and the taxpayers who fund it, have failed to take care of U.S. vets on numerous occasions. As evidence, consider the string of VA scandals outlined by CNN in 2014. Continue reading →

Golden Albatrosses Killed Your Golden Goose

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No Birds Were Hurt In The Making of This Post

Wondering where I’ve been lately? Well, I’ve taken advantage of some post-operative convalescent leave to concentrate on finishing my book. As a result, I haven’t spent any time writing new content for the blog. Fortunately, though, Chris Pascale saved the day and offered to write a guest post for this month. Chris is a published author, father, husband, accountant, teacher, and former U.S. Marine (although I’ve been informed there’s no such thing as a former Marine). He’s also a big fan and friend of the blog.

Chris reached out to me last year (2018) after he heard my interview on the ChooseFI podcast. He believed we had a lot in common including military service, money issues, and PTS. To prove it, he sent me a copy of his most recent book of published poetry called War Poems: A Marine’s Tour 2003-2008. Continue reading →

The Pension Series (Part 18): Social Security – The People’s Pension

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Waffles and Chicken(shit)

I’ve waffled in recent weeks on the need to write a post about Social Security for the Pension Series. On the one hand, since the American form of Social Security pays out in annuity form, it seems like a relevant topic for the Series. Plus, an overwhelming majority of American workers pay into the program. Therefore, it’s the sole remaining Defined Benefit Plan (DBP) that almost all Americans workers still have access to in retirement. Finally, because almost everyone’s eligible for Social Security in America, there’s uncertainty surrounding the future financial viability of the program. That uncertainty alone is enough to justify the need for an article since much of the Pension Series is built around the idea of quantifying the uncertainty surrounding pensions.

On the other hand, there are a lot of drawbacks to writing an article on Social Security. First and foremost, is the sheer number of articles already written about the subject. From books to news articles, to blogs, and podcasts; I doubt there’s a format of media that hasn’t been utilized to discuss Social Security in the USA. That’s partly due to the fact that Social Security is an extremely controversial topic. Since nearly everyone’s entitled to it, nearly everyone has a strong opinion about it. In fact, the government calls it an entitlement, and as an entitlement, it’s earned a reputation as a third rail in American politics — meaning a politician touches it at their own peril much like the electrified third rail in a subway system. Continue reading →