Tag Archives: Defined Benefit Pensions

The Pension Series (Part 5): Survivorship (Updated)

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Substantive Correction

This is an updated version to my article originally posted 04 October 2017. This version includes a substantive correction. The previous version of the article failed to accurately describe all the calculations required when comparing a pension with an inflation-linked Cost of Living Adjustment (COLA) to life insurance. I noticed my omission today and reworked the affected paragraphs. I also took the opportunity to clean up some grammar. You will see substantive changes noted in red text. I believe the changes make the comparisons between life insurance and survivorship more competitive.

The incomplete calculations I described in the previous version of my article appeared weighted towards survivorship. That was not my intent. Since the intent of the article changed, and I believe in full disclosure with my readers; I felt this mistake warranted a revision with new publish date.

This is a first for me in the blogging sphere, although in the military we routinely  strive for this level of transparency when an official report, memorandum, or instruction contains a major mistake. The primary purpose for issuing a correction is to prevent anyone from acting on erroneous information. It’s also important that the historical record reflect accurate information. I’ve decided to hold myself to the same standard on this blog.

As a result, I advise anyone who read and used the methods described in the previous version of this article to read this update and adjust your calculations accordingly. While I apologize for the inconvenience, and always strive for 100% accuracy in my articles; I would remind everyone I’m not a professional. Nor am I considering your case specifically. No matter how comfortable you are with your retirement numbers and plan; it’s always best to run your them by a professional like a fee-only Certified Financial Planner who adheres to the fiduciary standard.  Again my apologies.

Survivorship

KJH, we honor the fallen in the Grumpus Maximus family.

Death Sucks

In late Summer 2003, a member of my unit and one of its seasoned mentors was killed in the early days of the Insurgency in Iraq. We were both part of a tight-knit group of young officers that worked and played hard. While I would not have called him a close friend, many in our group did, and I often sought advice and guidance from him. His death was a blow to everyone in our group and the unit as a whole. Nothing was the same after it. Most of us were not prepared mentally and we all took it personally. Each of us dealt with his death in our own way, and I am sad to say it splintered the group in ways I never could’ve foreseen. Continue reading →

The Pension Series (Part 10): Geoarbitrage and Pensions

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Where in the World …

geoarbitrage

… is Grumpus Maximus?

In Part 9 of the Pension Series a reader’s question prompted me to research the interplay between the U.S. Federal tax code and pensions. My reader, Mr. Yankee, wanted to know what options existed to minimize Federal taxes when pension payments started for him and his wife, Mrs. Doodle. I found a few specific instances to defray some Federal tax, but nothing major. Turns out Mr. Yankee already knew the most powerful tax options available to him. What did Mr. Yankee know? He knew that in the U.S., geography mattered when it came to taxes — specifically at the State level.

For my one non-related international reader, it may seem strange, but in the U.S. we tax income more than once. We typically tax it at the Federal and the State level, and sometimes even at the local level. Furthermore, pension payments typically count as income no matter the source. As I chronicled in Part 9 of the Pension Series, everyone who receives a pension is (typically) subjected to Federal tax. However, not every State in the Union taxes income. Nor does every State tax pension payments as income. Continue reading →

The Pension Series (Part 9): Pensions and U.S. Federal Taxes

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***This is an updated article. See Post Script at the bottom***

Today’s topic comes from one of my Facebook group followers.  I recently solicited my Golden Albatross group on subjects to research and write about, and Mr. Yankee responded with the following question:

Has there been discussion of how to shelter your pension benefits from federal tax? When I retire I expect to receive about $60,000 a year from my pension I’d hate to give a large portion of it back to the government.

I told Mr. Yankee I would look into it since I’d yet to conduct an in-depth analysis of pensions and taxes. It’s a bit premature considering the fact that U.S. tax law is undergoing its first major overhaul since the 1980s. Currently, the House and the Senate are working on reconciling their two different bills into one in order to approve and send to the President for signature. However, my research only shows one proposal in the House bill with the potential to impact this conversation in any meaningful way, and I believe I can address it appropriately. If something radical happens in the reconciliation process, I will simply update this article when the dust settles. Continue reading →

The Pension Series (Part 8): Deciding to Take a Pension Lump Sum

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We Interrupt Your Previously Scheduled Program …

Great news! You don’t have to read me waffling on about analyzing your pension lump sum offer this week at GrumpusMaximus.com. I published Part 8 of the Pension Series as a guest post for Darrow Kirkpatrick’s blog, CanIRetireYet.com, so you can read my waffling there instead.  Check it out at the following link.

Darrow’s site is a long time favorite of mine.  It is the one sight, more than any other, that inspired me to make the calculations and determine if early retirement was possible for myself and my family. Avid readers of my blog may already be familiar with his work as I reference it quit a bit. Luckily a mutual friend put Darrow and I in touch, and I now get to consider him a mentor and a friend.  Many thanks to Darrow for providing me the opportunity to write for his site, and gain exposure for the Golden Albatross message and GrumpusMaximus.com.  Darrow does not allow comments on his website, but feel free to post them to this article and let me know what you think.

Enjoy!

— GM

 

The Pension Series (Part 7): How to Create Your Own COLA

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St. George’s Thesis

Build Your Own Cola

“Cry — God for Harry! England and Saint George!”

How was your week? Productive I hope.  I spent most of my spare time drafting my pièce de résistance for the Pension Series as a guest post for one of my favorite blogs and bloggers. I’m excited, so stay tuned for the announcement as to when and where you can find it. Unfortunately, it means I’m short an article because I (stupidly) don’t keep any posts in the bank.

However, I am about to let you in on a little blogging secret.  Facebook provides an endless amount of material to write about. As proof of this point, about 10 days ago George, one of my awesome Golden Albatross Facebook Group members, asked the following sizzler of a question related to pensions and inflation-adjusted Cost of Living Allowance (COLA):

Basically, if my pension is say $50k [a year] with no COLA provided by my employer, what do I have to have saved in an IRA to be able to grow my pension with cost of living for the next 30 years? (50k+4%)+4%)+4%)etc. For 30 years…)
 Continue reading →

An Unintentional Meander Up Grumpy Avenue (Part 3)

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It’s OK to Fail

Americans abhor failure, or so we’ve been led to believe. I joined the U.S. military in the late 1990s and can remember the Zero Defect Mentality the post-Cold War peace dividend bred into our military leaders. While I would like to think the longest-running armed conflict in U.S. history (Afghanistan), and the most controversial since Viet Nam (Iraq), bled our military leadership dry of the Zero Defect Mentality, I’ve watched it slowly creep back into prominence since 2010.

My current Commanding Officer (CO) is an exception to that trend. He uses a term to describe his willingness to accept failure: Recoverable Training Failure. It essentially means he allows people to learn from their mistakes, as long as those failures are recoverable (i.e. no one died or was seriously injured). He’d rather people fail in a training environment, take the hard lessons learned, apply them, and succeed operationally when it matters most.  It’s a combat veteran’s mentality and is a good leadership philosophy in my opinion.

Continue reading →

The Pension Series (Part 3): What is Your Pension Worth?

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Grumpus Types Too Much

Anybody else exhausted from Part 2 of the Pension Series?  I know I am.  At 3200+ words it wasn’t concise.  Amongst all those words, you may remember my promise to help you determine your pension’s worth in future posts.  Well, the future is now, or at least partially.  Unlike Part 2 though, I intend to break up the discussion over the next several posts.  How many?  I don’t know yet; at least two, maybe more.  Since calculating your pension’s worth is more of a “how to process”, I hope the articles don’t need to be overly verbose.  I understand people don’t have time to read 3200+ word posts every week, and frankly, I don’t have the time to write them.

Calculating Your Pension’s Worth … Ain’t Like Dusting Crops

For this post, I will examine the three key inputs in determining your pension’s worth.  I will also examine some of the basic mathematical formulas used to calculate your pension’s worth.  I will keep it simple because I am not a math genius by any means (liberal arts major here!), and more than likely you are going to use a pension calculator to make the calculations anyway.  However, you should understand the inputs and formulas because like Han Solo said in Star Wars: A New Hope: Continue reading →

The Pension Series (Part 1): Pension Safety

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The Grumpy Labourski

I just realized the serendipitous nature of the topic I chose for this Labor Day weekend’s post, which is pension safety.  Of course, for my one international reader, I refer to U.S. Labor Day.  Don’t confuse it with the rest of the world’s International Worker’s (Labour) Day, otherwise known as May Day.  The U.S. celebrates its laboring workers in September due to May Day’s association with the Haymarket Affair and the Communist Party.  There’s no way this Cold War kid would celebrate some Commie Red version of Labor Day.  Of course, now I feel torn between shouting either “WOLVERINES!” or “YeehaaAAAWWW!” in homage to one of the two greatest Cold War movies of all time.  I’ll let you decide which one is laced with more irony. (Grumpus Maximus is an Amazon Associate, see Disclosures for more details.)

Seriously Dude, Wolverines!

Jokes aside, this article marks the start of a new series of posts centered on pensions.  My choice of Labor Day weekend to begin this series, while fitting, was coincidental.  In all honesty, I don’t plan that far in advance.  I decided to write about pensions because I noticed that the blog’s kind of light on pension discussions.  That’s not good for a blog “Where Financial Independence (FI) and Pensions Meet to Create a Better Retired Life”.  Thus, I felt it was time to rectify that oversight. Continue reading →

Retirement Planning: How to Calculate Your “Gap Number”

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Grumpus Maximus Comment: I originally wrote this post with the intent to create a clear and concise step-by-step on how to calculate your Gap Number.  Turns out I wrote another tome.  Some of you may prefer my ramblings.  If so you are probably one of my relatives or friends.  Or maybe you are waiting to laugh at another of my $750,000 dollar financial mistakes.  Fair enough, all I can do is laugh about it too.  But in case you don’t prefer my ramblings, I thought I would quickly refer you to some other resources that are clear and concise.

First off, check out Darrow Kirkpatrick’s website Can I Retire Yet?.  I’ve talked about him before, so I won’t rehash my book and website review for him.  On his site under the Index link, if you scroll down to the Retirement Equation section, he walks you through everything you need to do in order to make your calculations.  The Mad Fientist also has a Planning section under his archive, which has several useful articles.  Finally, check out the two booklets I reviewed in my book review section entitled Early Retirement Solutions: How Much Money Do I Really Need to Retire & Achieve Financial Independence?  and Retire Sooner!: How to Optimize Your Plan to Achieve Financial Freedom by DJ Whiteside.  They are what I used to make my calculations. 

For the rest of you gluttons for punishment, please read on …

The Retirement Income Gap: What Does It Tell Us?

Continue reading →

The Grumpus Book Review: Is This The Perfect Golden Albatross Book?

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(**Grumpus Maximus is an Amazon affiliate.  See Disclosures for more details.**)

Stock Take

OK, I’ve written two monster posts over the past two weeks, one of which I felt was a personal best.  The other covered an extremely complicated topic which required a lot of research and rewrites.  Even with all the scrutiny, Grumpus Brotherus The Younger still had to catch a few mistakes in the first published version of my last article.

(Quick segue: For all you fresh faced bloggers out there, it turns out this blogging thing is a lot harder than it looks.  Not only do you have to create awesome content, but you need to make it look appealing with stock photography; think up terribly witty [or plainly terrible] captions; hotlink references to your previous posts; and promote your persona and site on social media.  Admittedly I cannot keep that pace of work up alone, so I am taking on some easier subjects and topics until I find a blogging assistant.  I am interviewing for the job in case you are interested.  You can submit your resume in the form of a 1000 word essay at grumpusmaximus@grumpusmaximus.com.)

All two avid readers of this blog may remember that I already wrote a post in which I reviewed three books, two booklets, and one chapter of a book.  I billed them as the perfect combination of reading material to build one leg in that three-legged stool of Financial Independence (FI) knowledge.  However, some of you may have been hoping that I would review a book written specifically for a Golden Albatross situation.  But unless I wrote a book about the Golden Albatross, no book out there is going to address the situation by name since I made up the metaphor.  Yet, during my FI educational journey, I’ve read a book that described the situation, just not in so many words.  The book is  Messages From Your Future: The Seven Rules for Financial, Personal and Professional Success by Larry Faulkner.  My review is below.  Enjoy …

Is there more ink on this page or my arm?

Continue reading →