What if the pension payments decline or stop?
This note explains how to value a pension whose payments decrease, or decline, or stop after a set number of years. Pension payments decline You can show declining payments in the software, by creating entries for two pensions. Enter the two pensions as follows: 1. Pension A: This pension pays the benefit at the initial […]
What discount rate (interest rate) do you use in the Pension valuation?
Each month, we update the interest rate, based on the then-current rates for 20-year U.S. Treasury securities. You may enter a different interest rate simply by entering it in the “interest rate” (or “discount rate”) field. With respect to a discount rate, all you are looking for is a safe rate of return, by which […]
What do you assume to be the life expectancy, or age of death, or mortality, of the pension plan participant?
The software does not use a single life expectancy / mortality / age of death assumption. Instead, it does a much more sophisticated analysis in which the present value of each year’s payment is calculated. You can see that calculation if you scroll to the bottom of the “more info” screen for the pension, and […]
How are pension present value (valuation) and pension payments coordinated?
We show the present value as an asset and the payments as income. In doing this, we are NOT double-counting, any more than one is double counting to show a bond as an asset and the income from the bond as income. You can think of a pension as being just like a bond. Both […]
Do you calculate defined benefit pension valuations for joint lives (survivorships)?
Currently, we calculate defined benefit pension valuations for single lives only. Typically, the survivor piece is not worth all that much, because: One way you could roughly approximate the value of the survivorship pension is to create a second pension, as follows: That will give you a rough guess, at least, as to the value […]
How can I tell if my pension valuation is right?
Here’s how you can get a ballpark sense of whether the result you are getting from the defined-benefit pension calculator is correct. Let’s assume the following facts: No Cost of living adjustment (that is, no COLA), just to keep it relatively simple.A ballpark life expectancy for males is to age 83. (We are not looking […]
Why do the IRA distributions seem too low for awhile, then suddenly jump up?
This can happen if you specify that the software should use required minimum distributions (which is the default mode of calculating distributions), but you start distributions before age 70. The IRS requires that distributions start at age 70 1/2, but it does not provide any definitive method for calculating “required minimum” distributions before that age. […]
How can I represent a loan from a 401k that is being paid back?
Here is how to represent an 401(k) loan repayment. 1. Enter the 401(k) balance as the current balance (as reduced by the loan). 2. Add a footnote to indicate that there is a loan outstanding from the 401(k). 3. Enter the repayments as nondeductible contributions to the 401(k). To do this, go to the “more […]
I entered an IRA and specified regular distributions. I do not see any IRA retirement income in the year my client will retire. What happened?
Most likely, the IRA was consumed by liquidations before retirement. Click here for more information about liquidations To see if that was the case, look at Reports > More Reports > Financial Planning and Backup Reports > Liquidations to Cover Negative Cash Flow. If there are any numbers in the section labeled :IRA/401k distributed,” then […]
How can I calculate the separate property portion of an IRA?
The treatment of growth in the IRA as marital or separate property is a matter of state law, so you should always consult the law in your state. If you have IRA statements as of the date of the marriage, the separate property portion of an IRA typically is held to be the value of […]