# How do you convert a military pension to arrive at a lump sum amount saved for reference/comparison purposes?

People claim you need X amount (for example \$1,000,000) to live a comfortable retirement, but I have a pension. How do I determine what portion of that amount (or any other) I've already met with my pension?

Answered by Kim Miller, CFP®PRO+ in Redmond, WA
It may be more helpful for you to think of it as cash flow: "Every month Uncle Sam makes a pension deposit and a Social Security deposit in my bank account of \$XX and my monthly living expenses are \$YY." How do the deposits compare to the expenses? Simple to calculate and compare. Good luck! | 09.18.14 @ 16:59
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\$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 14:34
Great question!

I always like to work that question backward: "How much do I need to live?" is where I start. That means that I pull out a budget sheet and work through my expenses. If retirement's a long way down the road,don't worry about finding exact numbers....you'll keep honing your retirement budget along the way.

Once you have a number that's in the ballpark, THEN see how much of that your pension covers. I like that approach better because it addresses YOU and not an arbitrary rule of thumb. When I was an advisor my client was ALWAYS different than the rule of thumb. | 09.18.14 @ 21:02
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\$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 14:34
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Here is the best way that I have found. All financial experts will tell you that to preserve capital and generate sustained cash flow, you should aim for withdrawing 4% in your first year of retirement and adjusting thereafter.

So, say you are going to need \$75K in annual income to maintain your household, medical costs, travel and hobby costs, etc. That means you would need \$75,000/0.04 = \$1,875,000 - \$1.9 mil sounds like a lot, but this is equivalent money, not cash in the bank.

Assume you are a couple, with combined Social Security of \$3,000 a month. That becomes 3,000 x 12 / .04 = \$900,000 (equivalent)

Assume your military pension will be \$2,500 a month.
That becomes 2,500 x 12 / .04 = \$750,000 (equivalent)

Say you've been putting money into the Thrift Savings Plan or IRA's or whatnot and have accumulated \$200,000
That's simple -- it's \$200K

So, you have \$900K (equiv) from Social Security, \$750K (equiv) from DOD, and \$200K in retirement accounts -- total to date is \$1,850,000 in cash and equivalents,
or 1,850,000 * .04 = \$74,000 in expected income per year.
| 10.30.15 @ 18:06
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\$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 14:34
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Kim Miller, CFP®PRO+ in Redmond, WA

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